Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets (2023)

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P A R T I I Guide for Long-Range Replacement Management

C O N T E N T S II-3 Chapter 1 Introduction II-3 1.1 Purpose II-3 1.2 Scope II-4 1.3 Organization II-4 1.4 Instructions for Using the Guide II-5 Chapter 2 Key Factors and Processes II-5 2.1 Key Replacement Factors II-5 2.2 Equipment Types II-5 2.3 Appropriate Replacement Criteria per Equipment Type II-6 2.4 Other Considerations II-7 Chapter 3 Rational Processes, Computational Models, and Electronic Tools II-7 3.1 Model Description II-8 3.2 Computational Models II-12 3.3 Description of Electronic Tool II-20 3.4 Data Collection, Processing, and Analysis Procedures for Case Studies II-23 3.5 Challenges, Solutions, and Other Considerations II-24 Chapter 4 Suggestions for Implementation II-24 4.1 General Suggestions for Long-Range Management of Fleet Replacement II-24 4.2 Training in Best Practices II-24 4.3 Future Updates II-24 4.4 Benchmarking Analysis II-25 4.5 Identifying Opportunities to Improve Solutions II-25 4.6 Other Applications

II-3   1.1 Purpose State highway agencies own and maintain a substantial number of operations equipment assets. These assets are diverse in type and condition. They are critical components for the delivery of state highway agency programs, projects, and services and contribute to a significant portion of capital investments. Operations equipment assets generally deteriorate as they age, and that results in increased operations and maintenance costs and decreased salvage values. The costs associated with deterioration conditions and technological changes motivate agencies to replace a portion of their equipment fleet periodically. Operations equipment assets require recurring maintenance, operational expenditures, and timely replacement to retain their value and achieve their anticipated level of performance, reliability, and economy. This report presents a guide for the formulation of long-range plans and budgets for the replacement of highway operations equipment. 1.2 Scope This guide is supported by a methodological framework that calculates required annual replace- ment funding levels over a long-range period (i.e., 25 years). A set of influential factors and their associated thresholds (user inputs) was used to calculate replacement needs and budgets for dif- ferent types of equipment in light of equipment age and utilization metrics (e.g., mileage, engine hours). The optimal replacement criteria were incorporated into the analyses. Additionally, the methodology gives fleet managers the flexibility to define and use any new suitable criteria (other than the defaults) to create what-if scenarios and evaluate the impact of these criteria on their processes annually over a long-range period. The framework developed provided the computational capabilities required for an Excel-based tool for long-range replacement management (LRM). The tool allows state DOTs to use dif- ferent replacement strategies based on their available budgets for evaluation over a long-range period. In particular, LRM obtains user-input data on fleet equipment and calculates the required funding levels and associated costs (e.g., operations and maintenance) in each year and then identifies the equipment units that should be replaced each year over a long-range period. The tool allows fleet managers to make changes in the results (e.g., change the number of equipment units for replacement in any year) and evaluate the impact on the costs and other metrics over a long-range period. This guide describes the general methodological framework for long-range replacement plans and budgets and presents general instructions on how to use the LRM tool to evaluate replacement decisions. More details on the tool are presented in the user manual (Part III of this report). After reading this guide, users will be able to understand the logic behind each step of the developed framework. State DOTs will be able to evaluate different replacement decisions C H A P T E R   1 Introduction

II-4 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets and observe the effects of different replacement strategies on their replacement plans and budgets over a long-range period. 1.3 Organization This guide is organized as follows. Chapter 2 describes the influential factors in equipment replacement over a long-range period. The description and importance of each of the factors are also detailed. Chapter 3 presents the rational processes, computational models, and electronic tools. Suggestions for implementation are presented in Chapter 4. 1.4 Instructions for Using the Guide This guide is designed to help state DOTs use the LRM tool effectively and enable proper inter- pretation of the tool’s outputs. The electronic tool is associated with a user manual that facilitates the use of the developed framework to analyze long-range equipment replacement and budget plans. In general, the guide helps users to • Understand the influential factors in long-range equipment replacement, • Identify the type of equipment classification implemented in the LRM tool, • Identify the data required to perform the analyses, • Identify various equipment replacement strategies, and • Observe the general overview of the equipment replacement steps used in the LRM tool.

II-5   2.1 Key Replacement Factors A set of influential factors (Table I-3) was used to analyze the long-range replacement plans and budgets of highway operations equipment in the LRM tool. The relevance of factors to long-range analysis was evaluated via a thorough literature review and analysis of responses to an agency survey. Table II-1 summarizes the importance of each factor along with the reported impact and data availability in state DOTs. 2.2 Equipment Types The LRM tool analyzes a fleet of equipment units of different types. Each type of equipment is identified by a unique equipment class code in the LRM tool. The tool uses the NAFA classifica- tion system in the default data, where four-digit codes are assigned to different equipment units on the basis of their gross weight and function. The tool is flexible to consider any unique user- defined equipment identifier codes. 2.3 Appropriate Replacement Criteria per Equipment Type The appropriate replacement criterion for each type of equipment is a combination of equip- ment age and a utilization measure (i.e., annual mileage, engine hours). Accordingly, the replace- ment criteria were divided into those two categories. For instance, the utilization of dump trucks can be measured by their accumulated mileage, while accumulated engine hours can be used to measure the utilization of graders. The LRM tool includes the following three categories for replacement criteria: 1. Age and accumulated mileage: The equipment units that are candidates for replacement are selected on the basis of the user-defined accumulated mileage or age thresholds, whichever threshold is passed first. 2. Age and accumulated engine hours: The equipment units that are candidates for replacement are selected on the basis of the user-defined accumulated engine hours or age thresholds, whichever threshold is passed first. 3. Combination of criteria: Users who wish to consider a combination of utilization measures to identify the equipment units that are candidates for replacement can enter utilization measures in the data fields. The tool then makes selections on the basis of the combination, whichever threshold is passed first. Key Factors and Processes C H A P T E R   2

II-6 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets 2.4 Other Considerations There are other factors affecting long-range replacement plans and budgets in addition to the identified replacement criteria. Such factors—including demand growth, inflation and depreciation rate, and fuel efficiency reduction factor—are incorporated into long-range replacement plans in the implemented framework. Another consideration that can affect long-range plans is obsolescence, including a) technology advancements that lead to more efficient developments (e.g., more powerful, capable, multifunction, newly manufactured equipment); b) limited part availability, which leads to long-term downtime of an asset; and c) new policies or regulations affecting an existing equipment unit. Such considerations can be incorporated into the LRM tool as user-defined parameters. No. Factor Frequency (%) Based on Survey Responses Importance Impacta Data Availabilityb 1 Equipment age 86.4 100.0 Equipment age has a significant impact on all replacement strategies and could be recorded in all agencies. The frequency of high-impact responses reveals its importance in long-range replacement planning. 2 Accumulated utilization 81.8 81.8 Accumulated utilization along with equipment age influences the operations costs. The availability of data on accumulated utilization and its significant impact on operations costs make these data critical for long-range replacement planning. 3 Replacement budget 81.8 68.2 The replacement budget has a significant impact on determining the capability of each agency to purchase new equipment or keep the current fleet size. Moreover, the replacement budget might be uncertain, especially for long-range planning that makes this factor critical in equipment replacement and budget management. 4 Purchase cost 72.7 100.0 Different purchase costs for equipment units and the variety of their applications influence the combination of equipment that can be acquired. The availability of purchase cost helps to provide more accurate scenarios in long-range replacement planning. 5 Repair cost 68.2 95.5 Repair cost is tractable in most of the agencies and, due to its significant impact on equipment total cost, should be considered in long-range replacement planning. 6 Annual utilization 68.2 81.8 Annual utilization shows the efficiency as well as the expected cost for each equipment unit in the fleet. Hence, using this factor helps to determine the required budget in a long-range replacement. 7 Maintenance cost 63.6 90.9 Maintenance cost includes the preventive and regular costs of equipment, which tend to decrease with the introduction of new technologies. Thus, the high availability of data on this factor can be utilized to provide more accurate replacement planning. 8 Criticality 63.6 40.9 This factor shows the extent to which the equipment is considered essential to the performance of core agency functions directly related to the protection of public and worker safety and asset preservation under emergency conditions. 9 Physical condition of equipment 59.1 45.5 Although the availability of data on the physical condition of equipment is low, these data have a great impact on determining the replacement period for each equipment unit when the budget is limited. The literature review also showed that some agencies use this information as a factor in experience-based replacement decisions. 10 Fleet size 36.4 90.9 Fleet size, along with demand, determines the number of under- and over-utilized equipment units in a fleet. While data are available for fleet size, it is beneficial to consider this factor in long-range replacement planning. 11 Fuel efficiency reduction rate 36.4 18.2 Aging equipment is often not efficient to operate, and newer equipment can provide enhanced features in terms of emission, safety, and technology. aFrequency of selecting “high impact” for including the factor in long-range planning. bFrequency of selecting “available for all equipment types” in the data availability question. Table II-1. Key factors included in the LRM tool for long-range replacement planning.

II-7   C H A P T E R   3 3.1 Model Description This section describes the models developed to determine the required funding levels for replacement plans (annually over long-range periods) per equipment class. Figure II-1 shows the framework that calculates annual required funding over a long-range planning period. The equipment units that are candidates for replacement can be determined in each year over a long-term period by using the user-defined criteria such as age, accumulated mileage, or engine hours. The criteria are defined for each equipment type. The methodology follows the steps below to identify the number of equipment units that are candidates for replace- ment over a 25-year planning period: • Equipment units in the fleet that satisfy the replacement criteria are identified as candidates for replacement in the next year. • Equipment units that are candidates for replacement in following years (i.e., for the next 25 years) are identified on the basis of predicted utilization metrics and other key factors in each year. For instance, the in-service age and accumulated mileage of a tandem dump truck are to be estimated in subsequent years. If either factor exceeds the replacement criteria, the equipment is marked as a candidate for replacement in the future. In the default analysis, the equipment is replaced with a new unit; however, fleet managers may override this decision. • This process is revisited for each specific equipment unit. Once the number, type, and purchase cost of equipment units are known, the amount required for the annual budget is calculated with financial models that consider inflation rate, depreciation rate, and other key factors identified in the previous chapter. Such inputs help determine how much funding is required for the investment plans annually in a long-range planning horizon. If the available budget changes in a year (or several years), the methodology adjusts the required funding levels over the years accordingly to reflect the impact on the replacement management processes in long-range plans. These steps are as follows: • Capture inputs: At the beginning of each analysis year, input values (including types of equipment, key factors, and replacement criteria) are obtained. • Identify candidate equipment for replacement: The available budget is compared with the required funding level for that specific year. – If the available funding is enough, the equipment units that are candidates for replacement are identified on the basis of the observed replacement factor values in that year and the predicted values in the subsequent 25 years. – If the funding level is less than the required budget, fleet managers can adjust the replace- ment criteria or their equipment replacement plan, and the method will update the equip- ment units that are candidates for replacement. Alternatively, the method can identify Rational Processes, Computational Models, and Electronic Tools

II-8 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets Figure II-1. Proposed process for calculating required funding level over a long-range period. equipment units that can be replaced within the available budget. For this purpose, the equip- ment units are assigned a replacement score based on age, utilization metrics, physical condi- tion, and criticality. Equipment units with the highest score are considered as candidates for replacement. Fleet managers can modify the replacement scores as well as the list of equip- ment that is a candidate for replacement. • Calculate required funding level: The required funding level for replacement in each year and subsequent years is calculated on the basis of the number of equipment units to be replaced. 3.2 Computational Models This section presents the computational models used in the long-range replacement planning procedure. Table II-2 defines all modeling variables and parameters used in the calculations. The equations in the following sections were used in the development of the methodology and the associated tool. 3.2.1 Fleet Size Fleet size in subsequent year t + 1 was calculated on the basis of the fleet size in current year t plus the number of units added to satisfy the demand in year t minus the number of units salvaged with no replacement in year t, as follows: = + −+f f a st t t t1 3.2.2 Salvage Value The salvage value for each equipment unit in year t was found by using a double declining balance method, as follows: 1 2( )= − δv cti t yt i

Rational Processes, Computational Models, and Electronic Tools II-9   The average salvage value in year t is the arithmetic average of the salvage values of all equip- ment units in that year. 1 1 ∑=    = v f vti t t i i ft 3.2.3 Replacement Budget The available replacement budget in subsequent year t + 1 was calculated by using the infla- tion rate to inflate the available replacement budget in year t. 1 ( )= α+b bt t 3.2.4 Age The average age is the arithmetic average of the age of all equipment units in each year. 1 1 ∑=    = y f yt t t i i ft Variable/ParameterDefinition α Inflation rate δ Depreciation rate β Annual utilization reduction rate ρ Replacement score τ Replacement age γ Criticality score π Physical condition u Utilization measure ut Accumulated utilization in year ft Fleet size in year rt Number of units to replace in year at Number of units to add to satisfy the demand in year st Number of units to salvage with no replacement in year vt Salvage value in year v̅ti Average salvage value yti Equipment age of equipment unit in year y̅t Average fleet age in year omti Operational and maintenance cost of equipment unit in year omt Annual operational and maintenance cost per unit in year OMt Total operational and maintenance cost of the fleet in year mti Maintenance cost of equipment unit in year lti Repair cost of equipment unit in year kti Fixed cost of equipment unit in year gti Fuel cost of equipment unit in year mt Maintenance cost in year lt Repair cost in year kt Fixed cost in year gt Fuel cost in year ct Purchase cost in year t xt Required replacement funding level in year t zt Total required funding level in year et Obtained revenue from salvaged equipment in year bt Available replacement budget in year bbt Budget balance in year γ , ww π , and wu User-defined replacement decision weights for criticality, physical conditions, and utilization, respectively Table II-2. Definition of variables and parameters.

II-10 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets 3.2.5 Operational and Maintenance Cost The operational and maintenance cost of each equipment unit i in year t is the summation of its repair cost, maintenance cost, fixed cost, and fuel cost in that year. = + + +l m k gti ti ti ti tiom The annual operational and maintenance cost per unit is the arithmetic average of the opera- tional and maintenance cost of all equipment units in each year. om 1 om 1 ∑=    =f t t t i i ft 3.2.6 Maintenance Cost The maintenance cost in year t is equal to the average maintenance cost of equipment units with the same age in the initial year, which is adjusted according to the inflation rate. If there are no equipment units with the same age, interpolation and extrapolation techniques are used. 3.2.7 Repair Cost The repair cost in year t is equal to the average repair cost of equipment units with the same age in the initial year, which is adjusted on the basis of the inflation rate. If there are no equipment units with the same age, interpolation and extrapolation techniques are used. 3.2.8 Fixed Cost The fixed cost in year t is equal to the average fixed cost of equipment units with the same age in the initial year, which is adjusted on the basis of the inflation rate. If there are no equipment units with the same age, interpolation and extrapolation techniques are used. 3.2.9 Fuel Cost The fuel cost in year t is equal to the average fuel cost of equipment units with the same age in the initial year, adjusted on the basis of the inflation rate and fuel efficiency reduction rate. Therefore, the inflation rate and fuel efficiency reduction rate increase fuel cost over the years. As with the previous variables, interpolation and extrapolation techniques were used when there was no equipment unit with the same age. 3.2.10 Replacement Funding Level The required replacement funding level is the product of the number of units to be purchased multiplied by the purchase cost. Note that the number of units to be purchased is equal to the number of units to be replaced plus the number of units to be added to satisfy the demand. ( )( )= +x r a ct t t t The total required funding level is the summation of the required replacement funding level ($) and the total annual operational and maintenance cost. Note that total annual operational and main- tenance cost is the product of the annual operational and maintenance costs per unit and fleet size. OM OM om( )( ) = + = z x f t t t t t t

Rational Processes, Computational Models, and Electronic Tools II-11   3.2.11 Obtained Revenue The revenue obtained from salvaged equipment was determined by multiplying the number of units to be salvaged by the average salvage value. Note that the number of salvaged units is equal to the number of units to be replaced plus the number of units that are salvaged with no replacement. ( )( )= +e r s vt t t t 3.2.12 Budget Balance Budget balance in subsequent year t + 1 is equal to the difference between the available budget for replacement and the required replacement funding level plus the budget balance in the previ- ous year. Note that operational and maintenance costs are not included. bb bb1 = − ++ b xt t t t 3.2.13 Utilization Measure Accumulated utilization in subsequent year t + 1 was calculated by adding the accumulated utili- zation in year t and estimated utilization in year t + 1. Note that estimated utilization in subsequent year t + 1 was calculated by first estimating utilization in year 1 and then finding the utilization in each following year up to year t + 1 by using the annual utilization reduction rate. 1 1 1 0 1 1 1 ∑ ( ) ( ) = −β = + −β = − + u u u u u t j j t t t t 3.2.14 Replacement Score Replacement score ρ was calculated as the weighted average of assigned scores to criticality γ, physical condition π, and utilization u. Note that wγ, wπ, and wu represent user-defined replace- ment decision weights for criticality, physical condition, and utilization, respectively. ρ = γ + π + + + γ π γ π w w w u w w w u u The assigned scores (i.e.,γ, π, and u) were defined as follows: γ =     π =        100, very critical 50, critical 0, not critical 100, poor 75, fair 50, good 25, very good 0, excellent The deterioration of physical condition π was estimated by using fixed age intervals. The user- input replacement age τ was split into five categories (to be consistent with the five categories of physical conditions) to determine the time interval for the physical condition of an equipment unit i to deteriorate one level. For instance, in 2 years, the physical condition of an equipment unit changes from excellent to very good if the replacement age is 10 years.

II-12 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets Finally, utilization u was calculated by multiplying 100 by equipment utilization ut (i.e., accu- mulated mileage or engine hours) in year t divided by the maximum observed utilization ut. 100 max( ) =u u u t t 3.3 Description of Electronic Tool Figure II-2 presents the general process used in the electronic tool for long-range replacement plans and budgets of operations equipment. As shown in Figure II-2, the process consists of six steps. In the initial steps, users have the option of importing data from a previously prepared data set compatible with the required format of the LRM tool. In the absence of such a data set, the data are entered manually, starting from Step 1, as follows. 3.3.1 Step 1: Enter Fleet Data Manually In this step, users enter the data on the types of equipment that are included in the fleet along with the current analysis year, total analysis years, inflation rate, and desired targets for replace- ment. The required fleet data are as follows: • Equipment class code: Unique equipment identifier code (e.g., NAFA classification code or any other unique identifier). Note that the sample data set in the LRM package uses equipment classes based on NAFA codes. Users can define any unique code to identify their equipment. • Equipment type: Name or description of a type of equipment (associated with a class code). • Purchase price: The estimated purchase price of a new equipment unit in the current analysis year. The prices will be adjusted on the basis of an inflation rate for future analysis years. • Budget for the current year: Available replacement budget in the current year. This informa- tion is used to initialize the replacement budget for each analysis year. The users have the flex- ibility of overwriting the annual budget for each year. • Demand (mileage or engine hours): Demand for an equipment class as an indicator of its annual utilization. • Annual demand growth: Adjustment parameter accounting for demand variations for each equipment class (e.g., to estimate the accumulated mileage or engine hours of an equipment unit) in the future analysis years. • Annual utilization reduction rate: Adjustment parameter to consider the effect of reduction in annual utilization (annual mileage or engine hours) as vehicles age in future analysis years. This parameter is defined for each equipment class separately. • Depreciation rate: Adjustment parameter accounting for the declining value of an equip- ment class (e.g., used to identify the salvage value at the time of replacement). • Fuel efficiency reduction rate: Adjustment parameter that measures the increasing fuel cost of equipment units as they age. • Replacement criteria: Used to identify equipment that is a candidate for replacement. Users can define a combination of target replacement age, accumulated mileage, and accumulated engine hours. • Replacement decision weights: User-defined numbers between zero and 100 indicating rela- tive criticality, physical condition, and utilization in identifying an equipment unit that is a candidate for replacement. The numbers assigned to each of the three categories should add up to 100.

Rational Processes, Computational Models, and Electronic Tools II-13   Figure II-2. Long-range replacement planning process.

II-14 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets 3.3.2 Step 2: Enter Equipment Data Manually Once the general information for each type of equipment is entered in Step 1, users enter the data on each equipment unit. The equipment data include the following information: • Equipment class code: The class code defined in the fleet data. • Equipment ID: Unique identifier of each equipment unit used to track the equipment over the analysis years. • Equipment type: The type of equipment similar to the item of equipment in the fleet data. • Equipment in-service year: The year in which that equipment was acquired. • Accumulated mileage: Total mileage of an equipment unit. • Accumulated engine hours: Total engine hours of an equipment unit. Note that either accu- mulated mileage or accumulated engine hours should be identified for each equipment unit, not both. • Repair cost in the current year: Unexpected or unscheduled repair costs for an equipment unit in the current analysis year. • Maintenance cost: Annual cost of scheduled maintenance for an equipment unit. • Fixed cost in the current year: All costs associated with an equipment unit other than for repair, maintenance, or fuel. • Fuel cost in the current year: Total fuel cost of an equipment unit in the current analysis year. • Criticality: User-defined ranking for an equipment unit (i.e., very critical, critical, or not critical). • Physical condition: Ranking of equipment condition (excellent, very good, good, fair, and poor). 3.3.3 Step 3: Initialize Equipment-Level and Long-Range Analysis After fleet and equipment data entry, the LRM tool initializes the Excel sheets. This initialization includes preparation of long-range analysis, equipment-level analysis, and fleet funding summary sheets in the LRM tool with the data for the current year. 3.3.4 Step 4: Choose Equipment Replacement Strategy Users can choose a replacement strategy from the following available options and view the analysis outputs. The following input fields in the LRM tool enable users to create their desired replacement preferences: • Available replacement budget: Users can specify the available budget in each year, and the LRM tool will determine the number of equipment units that can be replaced according to the purchase price of each unit. • Number of units to be replaced: Users can directly enter the number of equipment units that need to be replaced in each year. • Number of units added to satisfy the demand: This input allows users to specify the number of equipment units that need to be added to the fleet. The number of added units is in addition to those that will be purchased to replace the equipment units that have met the replacement criteria. • Number of salvaged equipment units without replacement: This input is used when a specified number of salvaged equipment units is being removed from the fleet and will not be replaced with new equipment. • Using the salvage revenue in the budget of the next year: This yes/no field allows users to specify whether or not the revenue obtained from salvaging equipment units will be used in the following years for purchasing new equipment units.

Rational Processes, Computational Models, and Electronic Tools II-15   The aforementioned fields, in addition to the manual selection of equipment units for replace- ment, are integrated into six replacement strategies in the LRM tool: 1. Replace using the defined replacement criteria. 2. Replace based on the available replacement budget. 3. Replace based on the number of equipment units. 4. Combination of replacement criteria and desired number of equipment units. 5. Select specific equipment units. 6. No replacement. 3.3.4.1 Strategy 1: Replace Using the Defined Replacement Criteria Users have the flexibility of defining up to three target replacement criteria such as age, accumu- lated mileage, and accumulated engine hours. Once an equipment unit reaches one of the defined criteria (whichever comes first), it will be marked as an equipment unit that is a candidate for replacement. This strategy identifies all equipment units that have met one of these criteria, and the LRM tool replaces them with new equipment units. The information displayed in Column F of the Long-Range Analysis sheet shows the number of equipment units that are replaced (Figure II-3). These numbers are calculated automatically on the basis of the user-defined replacement criteria, and users cannot change them directly. In addition, the user-input data in Columns H, I, J, K, and L is formatted by strikethrough to show that these numbers are not used in the analysis. 3.3.4.2 Strategy 2: Replace Based on the Available Replacement Budget Given an estimated available replacement budget for each of the analysis years, users can input the budget in the tool to evaluate replacement plans on the basis of the available budget. The tool adjusts the purchase price of each equipment unit in the current year, accounting for the inflation rate and considering the number of new equipment units that can be purchased in each year. In this strategy, any remainder or portion of the given budget that is not used (i.e., is not enough to buy one more equipment unit) will also be reported along with other performance measures. Users can also specify the number of equipment units to salvage and whether or not to use the salvage revenue in the next year’s budget. Figure II-4 shows the data columns used in this analysis (Columns H, K, and L); the other user-input data that will not be considered in this strategy are formatted with strikethrough (Columns I and J). 3.3.4.3 Strategy 3: Replace Based on the Number of Equipment Units Users can specify the number of equipment units that need to be replaced each year directly in the tool. The tool replaces the specified number of aging units with new equipment units and calculates the performance measures to evaluate the long-range impacts. As shown in Figure II-5, the user-input data in Columns I, J, and K is used in this strategy; the data in Columns H and L are not relevant and, accordingly, are formatted with strikethrough. 3.3.4.4 Strategy 4: Combination of Replacement Criteria and Desired Number of Equipment Units Another way to identify candidate equipment units is based on a combination of the approaches discussed in Strategy 1 and Strategy 3. Users can specify the number of equipment units they want to replace for a limited number of years and let the tool identify units that have met the replacement criteria for the remaining years. Figure II-6 provides an example of this condi- tion. In this example, some of the data rows in Column I are left blank and, thus, the LRM tool determines the number of equipment units for these rows on the basis of the data in Column F. In addition to using strikethrough to format the data that are not used (Columns H and L), the program formats the numbers in Column F that are based on user-input data from Column I in red. The other numbers in Column F, shown within the box in Figure II-6, are based on defined criteria and the program formats them in blue.

Figure II-3. Details of Strategy 1, “Replace using the dened replacement criteria.”

Figure II-4. Details of Strategy 2, “Replace based on the available replacement budget.”

Figure II-5. Details of Strategy 3, “Replace based on the number of equipment units.”

Figure II-6. Details of Strategy 4, “Combination of replacement criteria and desired number of equipment units.”

II-20 Replacement of Highway Operations Equipment: Formulation of Long-Range Plans and Budgets 3.3.4.5 Strategy 5: Selecting Specific Equipment Units Previous strategies were based on the total number of equipment units that were candidates for replacement in each year identified either by replacement criteria or by the available budget and number of desired equipment units to be replaced. Following such strategies, the tool looks for equipment with the highest replacement scores and identifies candidates for replacement with new equipment. However, in this strategy, users can select specific units for replacement each year from the list of all available equipment units in the Equipment Level Analysis sheet. As Figure II-7 shows, users can change the values of Column F and apply the changes. As a result, the equipment units that were selected as “Yes” will be replaced in the next year. 3.3.4.6 Strategy 6: No Replacement This strategy shows the operating costs and fleet performance when no equipment is replaced. Figure II-8 shows that the data in Columns H to L are formatted with strikethrough, as these input data will not be considered in this replacement strategy. Note that the total required funding level in the “no replacement” scenario includes all costs (e.g., maintenance) except those for replace- ment, as no replacement occurs. Each of the six replacement strategies requires estimating equipment attributes over the plan- ning period. 3.3.5 Step 5: Manual Adjustments to Replacement Strategies The selected replacement strategies in Step 4 are automatically applied to all of the equipment units in the fleet. Users have the option to manually select specific equipment units, mark them for replacement, and refresh the results. 3.3.6 Step 6: Review Results The last step of this framework is viewing the results of the selected replacement strategy. These results include the changes in the equipment units, types of equipment (i.e., equipment units within the same class), and fleet funding over the analysis years. 3.4 Data Collection, Processing, and Analysis Procedures for Case Studies The LRM tool uses fleet- and equipment-level data following a specific format that is provided in the sample data template in the tool package. It is recommended that users follow this format when preparing their data for use with the LRM tool. Note that the equipment replacement strategies use the equipment data available in the current year of the analysis to predict cost and utilization measures for equipment units in future years. Therefore, the quality of the available data plays an integral role in the analyses. The data required for the LRM tool are those related to the fleet and equipment units discussed in previous sections. In summary, the data required for a case study include the following: • Fleet data: Equipment class code, equipment type, purchase price, budget for the current year, demand (mileage or engine hours), annual demand growth, annual utilization reduction rate, depreciation rate, fuel efficiency reduction rate, replacement criteria, and replacement decision weights. • Equipment data: Equipment class code, equipment ID, equipment type, equipment age, accu- mulated mileage, accumulated engine hours, repair cost in the current year, maintenance cost, fuel cost in the current year, fixed cost in the current year, criticality, and physical condition.

Figure II-7. Details of Strategy 5, “Selecting specic equipment units.”

Figure II-8. Details of Strategy 6, “No replacement.”

Rational Processes, Computational Models, and Electronic Tools II-23   3.5 Challenges, Solutions, and Other Considerations The proposed methodology and tool for long-range planning for equipment replacement makes the following assumptions: • The accumulated mileage and engine hours of an equipment unit decrease at a constant rate. • The cost of equipment units (i.e., repair, maintenance, fixed, and fuel costs) is a function of equipment age and the inflation rate. • Users have the option of keeping the budget constant over years, inflating it by using an infla- tion rate (the default approach of the tool), or changing it to any other values in future years. • The fuel cost of equipment units increases due to equipment obsolescence. That is the reason the fuel efficiency reduction rate is used. • The separate cost columns (e.g., repair, maintenance) will help users enter the cost compo- nents individually, in case the cost data are stored that way. If the costs are stored as one lump sum number, users can use one of the cost-related columns and enter their cost values in one column only. The LRM tool will work with the existing cost column. The results will be rep- resentative of the cost combinations instead of separate cost elements. • The physical condition of equipment units deteriorates according to a step function whose step sizes are equal and proportional to the useful age of an equipment unit (i.e., replacement age). • The criticality of equipment units does not change throughout their service life. • The criticality categories (i.e., “very critical,” “critical,” and “not critical”) could be defined differ- ently at different state DOTs (e.g., “emergency,” “periodic,” “routine”). Therefore, fleet managers need to identify the current categories used by the LRM tool on the basis of their needs. • The utilization of equipment units is not a function of the total demand for the fleet. • Prorated values can be used when new equipment units (e.g., age of less than 1 year) are added to the fleet to ensure that full-year utilization measures and costs are used in the analyses. For instance, if an equipment unit has been in service for only 6 months of the analysis year, utilization values and all cost components need to be multiplied by a factor of 2 (12/6 = 2). • To achieve a level average fleet age over years, a certain proportion of the fleet needs to be replaced every year. That proportion equals the inverse the of age-replacement threshold of the fleet.

II-24 4.1 General Suggestions for Long-Range Management of Fleet Replacement Long-range plans for asset investments are very critical, due to the significant financial impacts annually and in the long term. The use of high-quality data can provide more accurate solutions throughout the analyses. Various replacement criteria (as discussed in this project) can be used for evaluation of the outcomes under various circumstances—not just optimal cases. If changes happen in utilization values and other inputs, but the changes are smooth, such long-range replacement plans can significantly help fleet managers to avoid certain decisions, as they can see the outcomes by using the methods embedded in the LRM tool. 4.2 Training in Best Practices The user manual (Part III) and this guide were prepared to offer a thorough understand- ing of the performance of the LRM tool in conducting long-range replacement analyses and interpreting the results. 4.3 Future Updates Obtaining new data for use in long-range analyses can be challenging, depending on the structure of the data collected at each agency. A data-processing component could be added as an extension of the LRM tool to facilitate this step and provide a fast track for using the LRM tool. Additionally, graphs and visual aids could be added as extensions to the tool to make the contents and analysis of results easier to grasp. In addition, the utilization reduction of equip- ment units over years (especially in long-term analyses) could be captured more accurately through an automatic procedure without assuming a constant rate. That feature could also be considered as an extension of the current tool. An integrated tool including (a) a life-cycle analy- sis to determine optimal criteria and timing for replacements, (b) utilization measurement and management, and (c) long-range plans for replacement of and budgeting for highway operations equipment or similar assets could be very beneficial in the future. Fleet managers would not have to use separate tools to achieve partial objectives; instead, they could be exposed to a more comprehensive tool with all desired functionalities. 4.4 Benchmarking Analysis The outcomes of the LRM tool can be compared with those of current practices that consider long-term historical data on fleet replacement and budget management strategies to indicate how well the existing practices have performed and how effective the use of the LRM tool is. Such a benchmark could help improve the quality of the tool as well. Suggestions for Implementation C H A P T E R   4

Suggestions for Implementation II-25   4.5 Identifying Opportunities to Improve Solutions Gathering detailed and high-quality data (e.g., on-demand growth and the inflation rate, among other parameters) could help users obtain more accurate solutions. Relaxing the assumptions made in the development of the methods and associated tool and, instead, including more general techniques or parameter definitions (e.g., better estimating and predicting the utilization mea- sures) could further facilitate the use of the tool. 4.6 Other Applications The long-range planning methods and processes of the LRM tool can be applied to many other domains, such as critical infrastructure investments (e.g., pavements, bridges) and utility line replacement or development, among others. There are many opportunities to schedule and evaluate replacement activities and their long-term effects using the tool before any significant investments are made.