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Optimal Replacement Cycles of Highway Operations Equipment (2018)

Chapter: Chapter 6 - Equipment Replacement Processes

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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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Suggested Citation:"Chapter 6 - Equipment Replacement Processes." National Academies of Sciences, Engineering, and Medicine. 2018. Optimal Replacement Cycles of Highway Operations Equipment. Washington, DC: The National Academies Press. doi: 10.17226/25036.
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104 Equipment Replacement Processes This chapter describes how to use the tool to support the replacement process. 6.1 Replacement Process The guide outlines a 12-step, systematic process for annual equipment replacement. Step 1. Review and Update Replacement Factors This step is similar to the initial configuration for the optimi- zation tool discussed in Chapter 3. Each year before beginning the equipment replacement process, review the replacement factors in the configuration file to make sure they are still valid. Updating the replacement factors is done in the same manner as in the initial configuration. The replacement cost is one factor that is likely to change each year. Step 2. Download Equipment Data Updated equipment data are needed each year. New equip- ment units likely will have been added in the past year, some units will have been purged from the fleet, and all units will have one additional year of cost and utilization history. Chap- ter 4 described downloading and inputting data into the opti- mization tool. Step 3. Review Data and Correct Errors This is a very important step in the process. The tool does not edit the data and this step must be performed externally to the tool. The guide provides examples of com- mon errors and illustrates some of the edit routines that will help ensure that the data are appropriate and ready for use. Step 4. Upload Data to the Optimization Tool Once the downloaded data are corrected, the data can be uploaded to the optimization tool as described in Chapter 4. If old data exist in the tool, the data should be deleted entirely to prevent possible duplication of data. However, if keeping the old data is desired, the data can be copied into a separate folder and data from the original files can then be deleted. With Steps 1 through 4 completed, the updated tool is ready to support the equipment cost analyses and replace- ment process. Step 5. Perform Class-Level LCCA A class-level LCCA can be performed as described in Chap- ter 5 for all equipment classes for which data has been uploaded to the tool (Step 4). At this point, it might be appropriate to use the output from the LCCA to update replacement targets. For instance, if the user’s current replacement targets for the class of ½-ton pickup are 8 years and 125,000 miles, an updated LCCA should determine if these are optimal replace- ment targets. Step 6. Identify Target Replacement Units The tool identifies individual equipment units as possible replacement candidates based on the replacement target val- ues for each equipment class in the configuration file. If the replacement targets are updated after completing the class- level LCCA in Step 5, the new target values will be used. To identify the vehicles that have been flagged as replace- ment candidates, click on the ReplacementTargets tab at the bottom of the spreadsheet, shown in Figure 25. The ReplacementTargets sheet, shown in Figure 26, dis- plays the equipment units that for which one or both of the following criteria are reached: C H A P T E R 6

105 • Accumulated mileage or hours reach the replacement tar- get mileage or hours set in the configuration file. • Accumulated total cost per mile or hour exceeds the class average by 25%. Equipment with the highest percentage over class average LTD cost is listed first. Consider performing the Refresh Data function to ensure that the tool shows the correct replacement candidates. An “X” in the Exceeds Replacement Target? column indi- cates that the unit has exceeded its replacement target for miles or hours. This does not necessarily mean the unit should be replaced but that it should be evaluated for replacement. Note: Column J, Condition Assessment Score, is blank when opening this sheet. This column is used for manu- ally entering condition assessment scores, as discussed in Step 7. Print a copy of the replacement target results. A hard copy is often easier to review and can be used to support the remain- ing process and to act as a backup for records. Step 7. Perform Condition Assessments Replacement decisions should consider the current condi- tion of a unit. This step is not required but is strongly rec- ommended, as unassessed equipment will not be placed on the resulting priority replacement list (see Figure 31). The tool contains an Excel spreadsheet to help perform the condition assessments and arrive at a condition score. The spreadsheet is not linked to other files in the tool, and the condition scores must be manually entered. To access the Condition Assessment Form, open the tool folder, C:/Equipment Replacement Optimization Tool, and click on “05Condition Assessment Form –v5.xlsx,” shown in Figure 27. Figure 25. Replacement targets tab. Figure 26. Sample of replacement targets sheet.

106 Once opened, the form will display the spreadsheet shown in Figure 28. The guide provides detailed instructions for completing the assessments. It is best to download the electronic version of the condi- tion assessment form onto laptops or other mobile devices for use by evaluators performing the assessment. However, hard copies of blank forms may be printed out for the tech- nicians and the results entered on the electronic spreadsheets afterward. Because the condition assessment form is not linked to the other spreadsheets in the tool, maintain a file external to the tool to record and track the condition scores. Once the assess- ments are completed, manually enter the scores into Column J of the ReplacementTargets tab of each class spreadsheet, as shown in Figure 29. Step 8. Determine Replacement Priorities After entering the condition assessment scores, the tool will generate a prioritized list showing the replacement rank- ing for each candidate unit. To view the prioritized list, click on the PriorityReplacementList tab at the bottom of the spreadsheet, as shown in Figure 30. Review the PriorityReplacementList results. Figure 31 shows the results for the ½-ton pickup class example. This priority replacement ranking is a key input to developing the annual equipment replacement program. The fleet manager can use this information to decide which units are the most important to replace. Note: If condition assessment scores are not entered manually into the tool, equipment will not be included on Figure 27. Open condition assessment form. Figure 28. Vehicle condition assessment form.

Figure 29. Entry of condition assessment scores. Figure 30. Priority replacement list tab. Figure 31. Sample priority replacement list.

108 the Priority Replacement List. The de facto priority replace- ment ranking will be that shown on the ReplacementTargets tab in Figure 26. At this point in the process, the following information will be available for use in making replacement decisions: • The units that have exceeded their replacement targets based on updated replacement targets generated by the class-level LCCA. • The condition, including mission criticality, of each unit. • The units that are the highest priority for replacement based on utilization and LTD cost relative to other units in the same class. At this point, the process is considered complete if there are sufficient funds to replace all of the targeted units. However, this is normally not the case and additional anal- ysis would be required to arrive at an optimal replacement program. Step 9. Perform Unit-Level LCCA In order to perform a unit-level LCCA, annual cost and utilization data must be available for each year of a unit’s life starting with the first year that the unit was placed in service. The unit-level LCCA is performed as described in Chapter 5. The unit-level LCCA provides additional cost infor- mation to help determine which specific units should be replaced. The fleet manager may then re-prioritize units for replacement. Step 10. Finalize Replacement Program Using the results from Steps 8 and 9, the fleet man- ager can finalize the equipment replacement program for the year. Step 11. Develop a 5-Year Plan Establishing a 5-Year Plan is not needed to develop the annual replacement program. The plan, however, is an important tool the fleet manager can use to support the need for future funding for equipment replacement. The tool generates the 5-Year Plan automatically based on the target replacement age in the configuration file. To view the 5-Year Plan, click on the 5YearSchedule tab at the bottom of the spreadsheet, as shown in Figure 32. Using the sample “1521_Half_Ton_Pickup_Analysis” spreadsheet, Figure 33 displays the results. All units in the equipment class that have exceeded or will exceed their replacement age in the next 5 years are listed. The Backlog column represents the cost of the replacement needs backlog based on the target replacement values entered into the configuration file. Units listed as backlog have already passed their target replacement age. Units that will be due for replacement in the next 5 years are shown in the year in which they will be due, with replace- ment cost adjusted using the inflation rate entered into the configuration file. Step 12. Analyze Cost Consequences This step is not needed to develop the annual replacement budget, but it can provide additional information, which the fleet manager can use to support future budget requests. The tool estimates the cost consequences of not replacing equip- ment at the optimal life cycle. It answers the question, “What does it cost to keep units beyond their economic life?” This analysis is completed on a class basis and can be viewed in each class analysis spreadsheet. To review the cost consequences, click on the CostConse- quences tab in the analysis file for the desired class, as shown in Figure 34. The Cost Consequences sheet displays the Annual Class Cost, as shown in Figure 35 using the sample “1521_Half_ Figure 32. 5-year plan tab selection.

109 - in 2020 column designates years past due. Figure 33. Sample 5-year plan results. Ton_Pickup_Analysis” spreadsheet. The annual class cost is the total estimated annual cost of that equipment class over multiple replacement cycles based on the LCCA. The annual class cost is determined by multiplying the LTD cost per mile or hour by the average annual mileage or hours and by the number of units in the equipment class. In the example, the class-level LCCA (see Figure 17) determined the optimal replacement cycle for the class of ½-ton pickups to be 7 years. If the pickups are replaced routinely every 7 years, the cost to own and operate all units in the class will be $5,202,514 per year, as shown in Fig- ure 35. If the equipment is routinely replaced on any other yearly cycle (i.e., either earlier or later than a 7-year cycle), the cost to own and operate the pickups will be higher. For example, if the pickups were replaced on a 10-year cycle, the cost would be $5,346,124, or about $145,000 more annually. By using the cost consequences function in the tool, a fleet manager can demonstrate the cost of delayed equipment replacement, building a business case to support appropriate funding for the equipment replacement budget. “Number of Units in Class,” Cell E6, is the number of units used by the tool for the LCCA calculation. The LCCA calcu- lation does not evaluate equipment units that were removed from the data set before importing into the tool. In this example, 524 units were used from the downloaded data set. If needed, this number on the spreadsheet can be changed to include all vehicles in the class. Figure 34. Cost consequences tab selection.

110 Optimal Figure 35. Sample cost consequences results. 6.2 Saving Analysis Results Although it is not necessary, it is a good idea to save the results of the replacement analysis and the outputs from the tool. This will allow reviewing and referring back to the results over time. To save paper copies, simply print out the analysis results and file them appropriately. To save the results electronically, it is recommended that they be saved as a PDF. The process for saving to a PDF is slightly different depending on the operating system being used. The following steps use Win- dows 10 and Microsoft Office 2010. Step 1. Click on the File Button Click on the File button in the upper left corner of the screen as would normally be done when saving an Excel file (see Figure 36). Step 2. Click on Print In the screen that opens, similar to the one shown in Fig- ure 37, click on Print. Step 3. Print to PDF In the screen that opens, similar to the one shown in Fig- ure 38, click on the print icon to show and select “Microsoft Print to PDF.” Step 4. Select Folder Location In the dialog box that opens, shown in Figure 39, select the desired location for saving the work. Click on Save and the PDF will be created. This process can be used to save any of the tabs or screens from the tool.

111 Figure 36. File button for saving work. Figure 37. Print button. Figure 38. Print selection.

112 Figure 39. Selecting the folder.

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TRB's National Cooperative Highway Research Program (NCHRP) Research Report 879: Optimal Replacement Cycles of Highway Operations Equipment acts as a handbook on equipment replacement concepts and an instruction manual for making cost-effective replacement decisions. The research report presents a process for determining replacement needs for highway operations equipment, identifying candidate equipment units for replacement, and preparing an annual equipment replacement program. The products include a guidance document and an Excel-based replacement optimization tool to support the equipment replacement process and facilitate its implementation.

Disclaimer - This software is offered as is, without warranty or promise of support of any kind either expressed or implied. Under no circumstance will the National Academy of Sciences, Engineering, and Medicine or the Transportation Research Board (collectively "TRB") be liable for any loss or damage caused by the installation or operation of this product. TRB makes no representation or warranty of any kind, expressed or implied, in fact or in law, including without limitation, the warranty of merchantability or the warranty of fitness for a particular purpose, and shall not in any case be liable for any consequential or special damages.

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