Coal, Emissions

A Simplified Approach to Capital Asset Life Extension

Issue 6 and Volume 106.

By: Anthony Impelluso, PE, CEM, AIM Engineering LLC

In today’s competitive economic environment, operating personnel have the challenging task of ensuring that their equipment and machinery are maintained at the highest level of availability and reliability, often well beyond their original life expectancy. Due to the success of computerized maintenance management systems and predictive maintenance technologies, plant engineers are now capable of extending the life of capital assets. However, most plant employees are familiar with numerous examples of equipment that has operated, and continues to operate, long after it should have been replaced. The economics of continued operation may, or may not, be justified when all factors are considered.

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This article presents a simple method for estimating the remaining useful life of an asset based on predetermined input parameters. While such an asset life estimation approach is inherently subjective, it can provide meaningful results if applied consistently. The method proposed here is called the capital asset life extension spreadsheet (CALES), as shown in Exhibit I.

CALES Design

The CALES is organized into four major sections – Inspection Points Section, Evaluation Section, Results Section and the Graphical Representation Section. In the Inspection Points section, the user lists as many inspection points as desired, typically up to 20. This section may include a listing of predictive maintenance technologies used on the asset, the presence of a CMMS program, the quality of the maintenance logs and operating records, or any other parameter deemed important for management.

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The Evaluation section records the results of the evaluation. At the top are the letters E, G, S, U, and F, representing Excellent, Good, Satisfactory, Unsatisfactory and Failure, respectively. In the appropriate column, for a given line item inspection point, a numerical value of one (1) is entered. For example, for the first inspection point listed in Figure 1, “Inspect wet deck for cleanliness,” the user decided to put a one (1) under G, indicating the deck is maintained in a good, clean condition.

The Results Section is divided into two parts. The part under the Evaluation Section is a summary of the inspection. It is used to determine the unweighted additional years and the weighted additional years for each evaluation category. The part under the Inspection Points section determines the final result for the new remaining years of the asset.

At the bottom of each column the total of each evaluation (E, G, S, U, F) is determined. Note that for unsatisfactory and failure ratings, the total will be negative. The reasoning for the negative value is that an unsatisfactory or failed inspection point will most likely shorten the life expectancy of the equipment – assuming no corrective action is taken. This is a significant point. CALES simply takes a snapshot of the condition of the equipment item at a given moment in time. No observation, or calculation, is being made regarding the length of existence (months or years) of the failed inspection point or the magnitude of the failure. This is the purpose of the weighing factors, which will be discussed in the next section.

The total values of each column have now been determined. In Exhibit I, the results are 3, 2, 1, -1, -3 for E, G, S, U, F, respectively. The percent per evaluation category, 30 percent, 20 percent, 10 percent, -10 percent and -30 percent is determined by dividing the total points per category by the total number of inspection points – ten in this case.

The unweighted additional years is determined by multiplying the percent per category by the life expectancy of the equipment. An arbitrary life of 15 years was selected for illustrative purposes. The life expectancy may be an average value for the equipment under consideration, or may be obtained from the manufacturer. In this example, the unweighted additional years are calculated to be 4.5, 3.0, 1.5, -1.5, and -4.5 for the respective categories. Note that the excellent rating of the three inspection points allow for an additional 4.5 years to be added to the life of the equipment. An additional 3.0 years is obtained as a result of the good ratings. Satisfactory yields an additional 1.5 years. However, due to the unsatisfactory and failed rating, 1.5 years and 4.5 years are deducted. The total unweighted additional years value is 3.0 when all values are added.

Weighing Factors

The individual unweighted additional years may be adjusted by the use of weighing factors. Some users may believe each of the rating categories deserve equal weight, while others may believe certain rating categories deserve special emphasis. A conservative user, for example, may apply higher weighing factors for the U and F categories than the E, G and S categories.

If the unweighted years for each category are multiplied by the weighing factors (100 percent, 98 percent, 90 percent, 80 percent and 70 percent in this case), located at the top of the spreadsheet, the result is the weighted additional years that may be added to the life of the equipment. In this example, 4.44 years is the total weighted additional years. The weighing factors will decrease the unweighted values in all cases, except if the weighing factor is 100 percent. The magnitude will depend on the number of ratings assigned to that category and the magnitude of the weighing factors. Chart I in Exhibit I illustrates graphically the strength of the weighing factors. Chart II in Exhibit I illustrates, by use of bar graphs, the magnitude of the weighted and unweighted years. Chart III illustrates the difference between the weighted and unweighted years for each evaluation category. The greater the weighing factors, the greater the difference. This enables the user to quickly visualize the relative strength or weakness of his selection of weighing factors.

New Remaining Years

The Results Section contains fields for current year, manufacture date and life expectancy. This information is to be completed for each equipment item, from which the current age and current remaining years are calculated. In Exhibit I, for a piece of equipment determined to have a life expectancy of 15 years in calendar year 2002 and a manufacture date of 1990, the current age is 12 years, with 3 years life remaining. The unit has lived 80 percent of its useful life with 20 percent remaining. The new remaining years is determined by adding 4.44 years to the 3 current remaining years to obtain 7.4 years.

Variation Analysis

The spreadsheet calculations may be altered in many ways to yield a variety of informative results. Table 1 summarizes the results of various analyses. A conservative set of ratings, for example, yields 3.9 years of remaining life, while an extremely aggressive rating yields 18 years. As described below, these differences derive from the selection of importance ratings and weighing factors.

Strength of Weighing Factor – The slope of the curve in Chart I illustrates the relative aggressiveness or conservativeness of the weighing factor selection. Weighing factors can be selected to generate an aggressive curve that remains high. The results for E and G are highly valued. The results for S and U are also highly valued, but to a lesser degree. The F category is valued less. The overall result is a new remaining years value of 7.4 years. For a conservative approach, the curve starts low, then falls steeply, resulting in a new remaining years value of 5.4 years. Conservative may be interpreted in terms of the overall result. The overall result of 5.4 years is obtained with weighing factors that generate 2.4 weighted additional years. The weighing factors are low and therefore may be considered conservative. Another conservative approach can be evaluated by reversing the weighing factors, with F assigned a value of 100 percent and E assigned a value of 70 percent to yield an even more conservative estimate of 3.93 years.

In the Extremes – CALES can investigate extreme situations, i.e., cases representing long-term excellent or poor maintenance practices. If an excellent rating is assigned to all inspection points, then a total of 18 additional years may be added to the life of the equipment, which is conceivable if the unit has been maintained in excellent condition. On the other hand, if a failure rating is assigned to all inspection points, then a negative value is obtained, resulting in no additional years.

Importance Rating – It is understood that the aforementioned approach may be too restrictive or too liberal, depending on the equipment under investigation, the relative importance of the inspection point, and the individual performing the inspection or interpreting the information. For example, consider inspection points #1 (inspect wet deck for cleanliness) and #3 (check gear box oil condition). Most would agree that the gearbox oil condition is of greater importance than the cleanliness of the wet deck of the cooling tower. An unclean wet deck can be restored to its original condition with relative ease and little cost under most circumstances. However, if the condition of the oil has deteriorated due to lack of service for many years, then the remaining life will be more seriously impacted as a result. A capital investment may be required to bring the unit back up to the original OEM specifications.

An option will be to assign a numerical value greater than one (1) to items of great importance such as oil condition. A rating of 1 may be used for parameters of little importance, a rating of 2 for parameters of moderate importance, and a rating of 3 for parameters of great importance. Using this approach, the new remaining years value is 12.2 years.

Weighing Factors Greater Than 100% – As an alternative to using importance ratings, users can select weighing factors greater than 100 percent. Excellent ratings, for example, may be weighted at 150 percent, while satisfactory ratings are weighted at 100 percent. This approach results in 11.6 remaining years. Note in this case, the weighted additional years may be greater than the unweighted additional years.

Beyond Life Expectancy – The CALES also yields results if the equipment has been operated well beyond its useful life. For example, a piece of equipment manufactured in 1970, with a life expectancy of 15 years, is now 32 years old. The equipment has been in service 213 percent of its life expectancy, or 113 percent beyond its useful life. According to the evaluation with CALES, an additional 4.4 years of useful life may be indicated. This figure may be increased or decreased depending on the aggressiveness, or conservativeness, of the weighing factors.

Conservative/Reversed – An extremely conservative approach involves increasing the values of weighing factors as one moves from excellent to failure rather then decreasing their values, as has been used up to this point. Greater weight can be assigned to unsatisfactory and failed categories than to excellent and good. The result is 3.93 new remaining years.

System Roll-Up

The CALES may be used in budget planning for replacement or refurbishing capital assets in any industry. It may also be applied to systems as well as equipment. The result of an individual equipment evaluation may be rolled over into a larger spreadsheet with other equipment evaluations to obtain an average figure for a system. Based on the results, corrective action for select systems or equipment may be prioritized and/or deferred. Results can be integrated with a CMMS program or predictive maintenance program.

Acceptance

There may exist in an organization a wide variety of opinions regarding the remaining years of an asset. The CALES exhibits great flexibility. However, one may legitimately argue that there should be one optimum answer for any given situation. To inject bias into the calculation so as to obtain an inflated number of new remaining years will, of course, defer replacement. But at what cost? It may, perhaps, be more economical to replace the asset. On the other hand, to adjust the calculation to obtain a decreased number of remaining years to force a replacement sooner than later will rob the organization of equipment life that might have been obtainable using a slightly more aggressive approach.

It is obvious by now that there is a wide variation in results depending on the approach. This is a significant point. Widespread acceptance by management and insurers will be possible when CALES yields results that are consistent and reproducible. Effective use of the CALES will come as a result of trial and error processes and investigative analysis. Acceptance will come over time and with proven results. It is conceivable that weighing factors and importance ratings will vary across all industries, systems and equipment types. Perhaps a starting point may be the application of the CALES spreadsheet on smaller, non-critical items. A historical database may be developed that may be used to modify the evaluation criteria and broaden the application. The CALES may also be readily incorporated into an asset management program or computerized maintenance management system to generate anywhere from conservative to aggressive results depending on the pre-selection criteria.

Author

Anthony Impelluso, PE, CEM, is president of AIM Engineering, LLC, in Valhalla, New York. He is a graduate of SUNY Maritime College, where he is currently an Adjunct Professor of Facilities Engineering and Engineering Economics. He holds a masters degree in Mechanical Engineering from Manhattan College.