QUESTION 1

A – REPLACEMENT
Figure 1 point A shows that an asset cannot be repaired anymore as it has gone past its useful
life, the available option is to replace the asset. According to Wendling (2012), organisations
decide to replace assets due to obsolescence. Even if assets are in good condition, changes in
regulations, law, technology and operational requirements also give a push to replace assets
(Martin, 2016). Other reasons an organisation need to replace an asset are operational costs,
compared to the cost of acquiring a new asset. Increased maintenance costs, increased
operational costs and loss of output and deterioration can be seen when an asset gets older
(Theron, 2016), and these are financial losses to the organisation and therefore force
organisations to replace assets even if they are in good condition. High risk of operation due
to ageing of an asset can also be an impact to productivity hence companies try to minimise
the risk by making replacement decisions.
According to Quertani, Parlikad & McFariane (2008 cited Theron, 2016), the benefits of
replacing physical assets on time include lower operating and maintenance costs, meeting
performance and production targets, meeting regulatory requirements, maximizing return on
capital, and increasing the organisation’s wealth. Proper replacement decision making
practices improve the performance of physical assets and extend their useful lifetime,
resulting in increased shareholder wealth (Theron, 2016).
B – REPLACEMENT OF AN ASSET AFTER FAILURE
From point B in Fig.1, an asset that has been running smoothly and meeting the expected
performance standards breaks down. The function of the asset can be broken down into two
elements, i.e. its purpose and the process it performs. Any undesirable change in these
elements, the user defined function will have a functional failure. A functional failure is the
inability to perform the expected function or meet the accepted performance standards
required by the user. The complete loss of the asset’s function is considered a total failure. If
an asset is used in its total failure state may produce goods that are out of specifications hence
the need to replace the asset. A very good example is a boiler feed pump connected to the
electricity generation production line. The pump casing starts leaking due to wear and
cavitation and the boiler is starved of the much needed water and the electricity generation
process is affected. Instead of prolonging the downtime trying to see if the casing can be
repaired or not, the boiler feed pump is replaced, i.e. a new pump will be fitted in the
production line and return the asset’s reliability to 100%.
C – REPAIR AFTER FAILURE
From Fig.1 at point C, reliability of the asset was at 100%. Maybe after running for three
years the asset’s internal components failed. For example a boiler develops tube leaks on five
roof tubes. The maintenance team came and performed corrective maintenance by repairing
the tube leaks. After repairs the boiler tubes are pressure tested to see if they hold the required
pressure. And if all compliance obligations are met the boiler is declared fit for purpose.
Having satisfied the NSSA inspectors on all the standard requirements, a new lease of life
would have been ushered to the asset.
All assets deteriorate over time and with use. Physical assets can have their lives extended if
they are properly maintained. Physical assets, on the other hand, can fail at any time. When
there is an asset failure, one of the option is to repair the asset.
As mentioned by Thorstensen & Rasmussen (1999), most of the time, physical assets degrade
part by part and organisation can repair existing assets by replacing new parts. Hence,
generally physical assets can be brought in between the levels of new and by extending the
current usage through repairs (Hout, 2016; Love, Zitron, Zhang, 1998). As mentioned by
Wendling (2011), physical assets repair cannot be postponed but while doing continuous
repair, replacement of assets can be postponed.
D – REFURBISHMENT
It is critical to manage your assets cost-effectively in order to meet ever-increasing demand
while maintaining profitability. The age of your plant's equipment can have an impact on its
efficiency, reliability, and productivity. That is why it is critical to refurbish your assets to
ensure uptime and efficiency while adhering to strict health, safety, and environmental
regulations.
From Figure 1, at point D the refurbishment stage shows that assets deteriorate with time by
degrading part by part and organisations can extend the life time of physical assets by
refurbishment, i.e. reconditioning and replacement of asset components. According to Fig.1 if
the useful life of the new asset is ten years, by refurbishing the components of the asset, say a
pump, the organisation would have increased useful life of the asset by five years hence
maximising profitability of the company.
Future asset needs can be changed depending on the organization's future asset plans, and
thus the organization's future strategic plan will influence the physical asset
refurbishment decision. As a result, physical asset refurbishment decisions should be made in
accordance with the organization's long-term strategic plan. Organizations decide whether to
keep an existing physical asset or refurbish one in order to maximize the organization's
profitability (Hastins, 2010).
For example if Harare Power Station is currently generating 15MW of electricity and the
organisation’s strategic plan for next year is to produce 25MW in first quarter. Harare Power
Station can plan to have all the Boiler feed pumps and Boilers refurbished hence optimising
the assets to achieve the organisation’s objective.
Tiwari (2015) asserts that there is a link between profitability, asset repair, and decision
making.
References
Hastings, N. (2010). Physical asset management. London: Springer.
Hout, I. (2016). Replacement decisions for ageing physical assets. Publication.
Love, C., Zitron, M. and Zhang, Z.(1998). An SMDP approach to optimal repair/replacement
decisions for systems experiencing imperfect repairs. Journal of Quality in Maintenance
Engineering, 4(2), pp.131-149.
Ouertani, M. Z., Parlikad, A. K. McFarlane, D. (2008). Asset information management:
Research challenges, Marrakech, Morocco, Inst. of Elec. and Elec. Eng. Computer Society.
Theron, E. (2016). An integrated framework for the management of strategic physical asset
repair/replace decisions. (Doctoral dissertation, Faculty of Engineering at Stellenbosch
University Department of Industrial Engineering, University of Stellenbosch).
Tiwari, R. (2015). Drivers of Firm’s Value: Panel Data Evidence from Indian
Manufacturing Industry. Asian Journal of Finance and Accounting.
Thorstensen, T. and Rasmussen, M. (1999). A cost model for condition based
overhaul/replacement. Journal of Quality in Maintenance Engineering, 5(2), pp.102-114.
Wendling, W. (2011). A Life Contingency Approach for Physical Assets: Create Volatility to
Create Value
QUESTION 2
ASSET HEALTH INDEX (AHI)
Asset Health Index is a tool that analyses data about the condition of assets. The tool is
intended to investigate whether changes in the asset’s health can be generated throughout its
life cycle. The data can be obtained while the asset is in operation, but can also be obtained
from other information sources such as supplier reliability records, geographic information
systems, relevant external agent records etc. The Tool (AHI) provides an objective point of
view to justify for example extending am asset’s useful life or identifying which asset in a
fleet are candidates for early replacement or refurbishment due to premature ageing.
An Asset Health Index (AHI) is an asset score, which is designed in some way to reflect or
characterise the asset’s condition and thus, its performance in terms of fulfilling the role
established by the organisation (De la Fuente, Crespo, Sola, Gomez & Amadi-Echendu,
2021). It can be used to manage organisation assets, identify capital investment needs and
planned maintenance programs (Amzi, Jasni, Azis & Kadir, 2017), allowing-:

 Compare the health of assets in similar locations to investigate potential premature

deterioration and if necessary, optimise operational plans and asset maintenance.
 Improve communication with manufacturers in order to better understand the
behaviour of assets from various manufacturers in different locations.
 Support decision making processes in future asset investments or asset life extensions
(Silvestri, Forcina, Introna, Santolamazza & Cesarotti, 2020).
Asset health indicators are widely used in some organisations to justify asset replacement by
supporting maintenance and replacement strategies base on asset condition and performance.
Asset Health Indicators are widely used in some countries to justify asset replacement by
supporting maintenance and replacement strategies based on asset condition and performance
(GB DNO groups, 2017; Australian Local Government Association, 2015; Federation of
Canadian Municipalities (FCM) & other seven partner organizations, 2021).

The Health Index is assigned to each individual asset. Classes of assets can be represented by
stacked bars where the length of each coloured bar represents a percentage of the assets. 
The Asset Health Index is a measure of asset health that can be used to provide an overview
of the installed group of assets. The methodology necessitates the use of an asset register for
both static data (asset ID, year, location, model etc.) and dynamic data i.e. asset condition
indicators gathered during inspections. This model is knowledge based and processes both
static and dynamic data to assign a Health index to each asset
SYSTEMS DYNAMIC MODEL
System dynamics is defined by Wolstenholme as a rigorous method for qualitative
description, exploration and analysis of complex systems in terms of their processes,
information, organisational boundaries and strategies which facilitates quantitative simulation
modelling and analysis for their structure and control.
The model depicts how assets progress from one state to the other throughout their life until
they are decommissioned. This is referred to as a flow and stock diagram in system
dynamics. Each asset stock will produce a level of performance that corresponds to the mean
performance of the asset’s position on the bath tub curve. Therefore overall performance will
depend on how many assets are in each stock. The rate at which assets enter and exit a stock
is determined by the flows that link the stocks. The goal of the asset policy is to maximise the
number of assets in the reliable stock while minimising the others. This is accomplished by
increasing the “become reliable” flow while decreasing the other. Although little can be done
about the reliable flow, it is the maintenance program that will constrict the other flows.
The basic dynamics of the model has assets moving through four main stages of their life,
that is, the asset ageing chain. These four stages model the changes in condition and
performance of the assets. These stages can be considered as a representation of the health of
the assets. It is in the design phase of the model development that the different stages are
defined. The condition of the assets in the network and the functionality of the model will
determine this structure and the depth of detail of the ageing chain.
This model suggests that financial viability organisations’ business could be at risk if
maintenance effectiveness is low. Other financial indicators may be explored using this
model, including debt incurred by borrowing to procure assets and replacement costs of
assets. The effectiveness of maintenance in preserving condition of assets is identified as
being a very important parameter
References
Amzi, A., Jasni, J., Azis, N., Kadir, M, Z, A (2017). Evolution of transformer index in the
form of mathematical equations. Renew. Sustain. Energy Rev 76.
De la Fuente, A., Crespo, A., Sola, A., Guillen, A., Amadi-Echendu, J, E (2021). Planning
major overhaul and equipment renovation based on asset criticality and health index.
Silvestri, L., Forcina, A., Introna, V., Santolamazza, A & Cesarotti, V (2020). Maintenance
transformation through industry 4.0 technologies: A systematic literature review. Comput.
Ind., 123.
GB ND (2017). DNO Common Network Asset Indices Methodology. Health & criticality-
Version 2.2