The VMN Group  
Optimizing Business Decisions  
 
 

Equipment Testing
Run-to-failure is a poor strategy and
not testing assets may also be a poor strategy

Many companies don’t manage their aging assets.  They let them fail and then replace them.  VMN’s analytic methodology (as discussed under the heading Control of Aging Assets) identifies the optimal (least-cost) policy for managing an inventory of aging assets that supersedes the costly policy of run-to-failure.  A powerful component of the optimal strategy is a testing policy:  when to test an asset, under what conditions of asset age and performance, and what to do with the asset based on the test outcome.

When testing is included in the optimal strategy—sometimes it is not because the tests are simply not accurate enough and therefore not worthwhile—then testing has a measurable value.  Therefore, we can answer a question closely related to finding the optimal policy for aging assets:  how much is any given test worth? 

What is remarkable is that tests are priced and sold by vendors to customers who have no methodology to determine whether the price is appropriate for the value of the information provided.


What We Do

We apply our analytic methodology that identifies the optimal (least cost) policy for managing an inventory of aging assets.  The policy specifies when to replace an asset, when to repair or refurbish an asset, and when to test an asset.  Testing is an interesting aspect of the optimal strategy, because the test result can reveal valuable information about the condition of the asset.  It is the present condition of the asset that helps one forecast the future behavior of the asset.  It is the forecast of future behavior that indicates what to do with the asset at any time.  In particular, it is the changes in policy that arise because of the outcomes of testing that gives the test its value.  We measure this value in the context of the optimal policy and provide a specification of the value of the information provided by the test.  This allows the client to conclude whether any given test is worth the price asked for it. 

The methodology is based on company-specific data, judgment about the behavior of the asset, and judgment about the behavior of the test.  We specify the accuracy of the test, typically by extending, as appropriate, the concepts of the type I and type II errors.  We have made the data-gathering requirements as simple and straightforward as possible.  This methodology substitutes mathematical sophistication for reams of data.  The methodology is implemented in very easy-to-use software.

Applications

The methodology has been applied to the electric power industry, with particular attention to testing populations of transformers, underground cable, and wood poles.  The difference between the value of a test and the price charged for it can be significant.  There is no restriction whatsoever on the asset type or industry.  The methodology is universally applicable. 

V

The Benefits

 


We answer the following questions:

  • A test is available. 
  • How much is it worth? 
  • Is the cost of the test justified?
  • Should this test be used?
  • What is the least-cost testing strategy?
  • How sensitive are the results to test accuracy?  How much would a more accurate test be worth?
  • What is the overall economic value of a proposed testing program?     
  • How sensitive is the economic value of a test to failure rate data or assumptions?
  • If we extend the study period, does the value of a test change materially?
  • Is the value of a test sensitive to the discount rate?              
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