Optimal Maintenance and Replacement Decisions under Technological Change

The requirement of equipment improvement in order to satisfy the safety and reliability of system motivates the development of technology. The presence or expectation of technologically better equipment will influence managerial decisions on whether to invest in the maintenance of current equipment, invest in replacement with an equivalent model, replacement with a higher technology model currently available on the market, or wait for a potentially even better technology to appear in the near future. Hence, the consideration of technological change is a very important aspect for maintenance and replacement decisions. This paper aims to define a model that allows us to gain insight into how maintenance/replacement policies will be influenced by the expectation of future technology. We then use stochastic dynamic programming (i.e., Markov decision process) to solve for the optimal maintenance and replacement policy of the equipment as a function of performance and cost. Finally, we illustrate the problem through several numerical examples

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