Obsolescence is a driving force behind the decisions to renew or replace assets. However, most asset management programs wait until after a field condition assessment is completed before discussing what asset obsolescence means. As part of asset management policy, incorporating obsolescence saves resources associated with a field condition assessment program, improves decision making, minimizes organizational risk, and maximizes ratepayer value.
Obsolescence Defined
Obsolete means no longer in use or no longer useful. A secondary definition is of a kind or style no longer current (old-fashioned). Calling something obsolete is justifiably a debate on how we define its usefulness or whether we prefer something newer.
From an industrial perspective, obsolescence is thought to occur because a like replacement that is superior in some way is available. Some superior ways include functionality, maintenance requirements, ease of replacement, quality of replacement parts, energy savings, or tradeoffs between scarce resources.
Risks
Obsolescence can be considered from two different views:
1. From the user perspective and the potential functions and resources lost or gained
Opportunity costs associated with not having new technology
Unexpected maintenance costs associated with aging assets
Time delays associated with obtaining reliable critical spare parts
2. From an investment perspective and tradeoffs between upfront costs and lost revenue or compliance
Lost capital funds
Opportunity costs associated with expired accounting depreciation
Opportunity costs of lost revenue associated with unreliability and unexpected failures
Costs associated with lost regulatory compliance
Costs associated with poor customer service and loss of goodwill
Obsolescence Thresholds
Theoretically, an organization can create a threshold level (such as costs, age, and lost functions) that triggers decisions. In practice, this seldom works because of changing business climates and the need, or desirability, to balance capital and operating costs.
The discussion is a rich one and beyond the scope of this article. However, studies and assessments have shown that more value to the organization is realized when considering the obsolescence of a larger portfolio rather than a narrow consideration of a few assets or asset types.
Practical Considerations
A cross-function team of front-line staff can produce realistic evaluations of obsolescence by asset class and type. Of course, the definition and criteria for evaluating obsolescence should be facilitated at the beginning of the effort.
A three-point evaluation system is appropriate for most organizations:
3 – obsolete now
2 – expected to be obsolete during the current capital program (normally 3 to 5 years)
1 – not expected to be obsolete for at least five years
A formal obsolescence review will save or defer resources from the field condition assessment when combined with a criticality assessment. Assets that are highly critical and obsolete now need condition assessments more than low-criticality assets that are not expected to be obsolete.
For organizations with thousands or tens of thousands of assets, a 10 to 20 percent reduction in assets that need condition assessments in the short term saves hundreds of hours and thousands of dollars.
Moving Forward
Obsolescence is a rich topic that impacts many aspects of an asset management program, including condition assessments, renewal & replacement decisions, capital programs, maintenance strategies, risk management, and reliability. This article touches on just one aspect.
The bottom line is that asset obsolescence should be discussed and defined upfront. Waiting until approaches have been executed and prioritization has been established wastes valuable resources.
JD Solomon Inc provides solutions at the nexus of the facilities, infrastructure, and the environment. Contact us for more information on evaluating asset obsolescence, condition assessments, renewal & replacement forecasting, preventative maintenance programs, and reliability assessments. Sign-up for monthly updates on how we are applying reliability and risk concepts to natural systems.
