Risk-sensitive cost models of age replacement policy: Comments and proposals

Several attempts have been made to develop risk-sensitive cost models for the age replacement policy in order to reduce the over-budget risk in maintenance cost. Two such models are found to be erroneous. The purpose of this paper is threefold. We first point out and illustrate the problems of the two models. We then propose a new risk-sensitive cost model and study the performance of its solution. The results show that the solution of the proposed model is not always conservative and the cause is explained. Finally, we propose an approach to aggregate the solutions of the two expectancy-based cost models into a compromise solution and an interval solution, which provides flexibility for maintenance scheduling. The appropriateness and usefulness of the proposed approach are illustrated by a numerical example.