Quantifying the risk in age and block replacement policies

Abstract

Preventive maintenance policies have been studied in the literature without considering the risk due to the cost variability. In this paper, we consider the two most popular preventive replacement policies, namely, age and block replacement policies under long-run average cost and expected unit time cost criteria. To quantify the risk in the preventive maintenance policies, we use the long-run variance of the accumulated cost over a time interval. We numerically derive the Risk-sensitive preventive replacement policies and study the impact of the Risk-sensitive optimality criterion on the managerial decisions. We also examine the performance of the expected unit time cost criterion as an alternative to the traditional long-run average cost criterion.

Keywords:

• preventive maintenance
• risk
• age
• block replacement policies

Acknowledgements

The authors are thankful to the anonymous referees for their helpful comments and suggestions on the earlier version of the manuscript. The first author gratefully acknowledges the financial support provided by the Alexander von Humboldt Foundation, Germany. The work was carried out when the first author visited Mannheim University, Germany as a Humboldt Research Fellow.