Replacement optimization of ageing infrastructure under differential inflation. Issue 11 (2nd November 2019)

• Record Type: Journal Article
• Authors: van den Boomen, M.; Leontaris, G.; Wolfert, A. R. M.
• Is Part Of: Construction management and economics. Volume 37:Issue 11(2019)
• Page Start: 659
• Page End: 674
• Publication Date: 2019-11-02
• Subjects: Replacement decisions -- public infrastructure assets -- differential inflation -- asset management -- optimization; Construction industry -- Management -- Periodicals; Construction industry -- Finance -- Periodicals; 338.47624
• DOI: 10.1080/01446193.2019.1574977
• Languages: English
• ISSNs: 0144-6193

Abstract

Abstract: Ageing public infrastructure assets necessitate economic replacement analysis. A common replacement problem concerns an existing asset challenged by a replacement option. Classic techniques obtained from the domain of engineering economics are the mainstream approach to replacement optimization in practice. However, the validity of these classic techniques is built on the assumption that life cycle cash flows of a replacement option are repetitive. Differential inflation undermines this assumption and therefore more advanced replacement optimization techniques are required under these circumstances. These techniques are found in the domain of operations research and require linear or dynamic programming (LP/DP). Since LP/DP techniques are complex and time-consuming, the current study develops an alternative model for replacement optimizations under differential inflation. This approach builds on the classic capitalized equivalent replacement technique. The alternative model is validated by comparison with a DP model showing to be equally accurate for a case with characteristics that apply to many infrastructure assets.