Beyond its cost, the value of maintenance: An analytical framework for capturing its net present value

Maintenance planning and activities have grown dramatically in importance across many industries and are increasingly recognized as drivers of competitiveness if managed appropriately. Correlated with this observation is the proliferation of maintenance optimization techniques in the technical literature. But while all these models deal with the cost of maintenance (as an objective function or a constraint), only a handful addresses the notion of value of maintenance, and seldom in an analytical or quantitative way. In this paper, we propose that maintenance has intrinsic value and argue that existing cost-centric models ignore an important dimension of maintenance, namely its value, and in so doing, they can lead to sub-optimal maintenance strategies. We develop a framework for capturing and quantifying the value of maintenance activities. Our framework is based on four key components. First, we consider systems that deteriorate stochastically and exhibit multi-state failures, and model their state evolution using Markov chains and directed graphs. Second, we consider that the system provides a flow of service per unit time. This flow in turn is ‘‘priced’’ and a discounted cash flow is calculated resulting in a present value (PV) for each branch of the graph—or ‘‘value trajectory’’ of the system. Third as the system ages or deteriorates, it migrates towards lower PV branches of the graph, or lower value trajectories. Fourth, we conceptualize maintenance as an operator (in a mathematical sense) that raises the system to a higher PV branch in the graph. We refer to the value of maintenance as the incremental PV between the preand post-maintenance branches of the graphs minus the cost of maintenance. The framework presented here offers rich possibilities for future work in benchmarking existing maintenance strategies based on their value implications, and in deriving new maintenance strategies that are ‘‘value-optimized.’’ & 2008 Elsevier Ltd. All rights reserved.