Impact of machine-failure costs on equipment replacement policies: Tunneling company case study

For those construction companies engaged in projects where production is controlled by equipment availability, with tunneling as maybe the most extreme example, equipment replacement policies affect not just the cost of a machine but have a decisive effect on overall project cost and achieved profit. Although equipment replacement models described in the literature suggest that the consequential costs of equipment failure are significant and should be considered in replacement decisions, most fail to explicitly include consequential costs or fail to provide methods to calculate the consequential cost in complex systems. This lack of consequential cost in a model seriously diminishes the effectiveness of a company's equipment replacement policies and the company's ability to earn a project. This work describes a case study that used simulation to quantify the consequential costs of equipment availability for a company engaged in tunnel-construction. The study includes the simulation of activities of the drill-and-blast method for five tunnel types. The simulation proved to be very valuable when seeking to evaluate consequential costs. The results indicate that consequential costs are very relevant to the replacement decision of the most expensive equipment. Also, the results show a significant effect of the consequential costs on the company's equipment replacement policies. Therefore, changes in existing policies to consider consequential costs have the potential of providing important future benefits for such companies.