Optimal preventive maintenance, protection, and replacement of a revenue- earning asset (Q1106716)

The author discusses the problem of determining the optimum schedule of expenditure on preventive maintenance or protection for a revenue-earning asset subject to catastrophic breakdown or destruction. The expenditure on prevention or protection is assumed to occur continuously. The probability of breakdown depends on the age of the asset and on the current rate of prevention expenditure. The objective considered is the maximization of the expected present value of revenues earned net of prevention and replacement costs. Use of the Pontryagin maximum principle enables the determination of the optimal prevention schedules in three cases: (a) when revenue is earned only until breakdown; (b) when there is automatic replacement, at a cost, following breakdown; and (c) when there is the option of periodic replacement.