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71 Equipment Replacement Processes Making equipment replacement decisions is a process. The LCCA approach, discussed in Chapter 3, determines optimal equipment life cycles. However, determining when to replace equipment and actually making replacement decisions are two different exercises. This guide recommends an annual equipment process to â¢ Identify potential replacement candidates. â¢ Determine replacement needs. â¢ Determine equipment replacement priorities. â¢ Develop an equipment replacement program consistent with available funding. â¢ Project future replacement needs for long-range budget planning. It is important to understand how to interpret and use optimal life cycles in the equipment replacement process. Knowing that Â½-ton pickups, for example, have an opti- mal life cycle of 6 years does not mean that every pickup must be replaced when it reaches 6 years of age. Over the long term, pickups should be replaced an average of every 6 years, but individual pickups may have shorter or longer economic life cycles. Replacement decisions consider optimal life cycles along with other factors in the decision-making process. Consider major factors such as physical condition and mission criti- cality. Budget limitations affect replacement decisions. When funds are not sufficient to meet total replacement needs, establish replacement priorities. Replacement timing can be affected by dealer incentives and model year closeouts. Bulk purchases of similar units can influence which specific units should be replaced. A systematic equipment replacement process is required that recognizes the real-world conditions and the operat- ing environment within which fleet managers must operate. The annual capital investment in equipment is a large part of the overall fleet budget. Making good replacement deci- sions will ensure that available budget dollars are optimized and, just as importantly, that highway operations crews have a dependable, high-quality fleet for delivering cost-effective services. 6.1 Organizational Considerations As discussed in Chapter 1, an effective equipment replace- ment program provides significant cost savings for fleet agencies. Because equipment replacement is both an art and a science, it merits the attention of trained and dedi- cated resources within the fleet management organization. Effective equipment replacement requires more than sim- ply uploading data and generating outputs from the opti- mization tool. LCCA results must be interpreted, condition assessments must be performed, priorities must be estab- lished, and statewide coordination with field operating divisions is required. The equipment replacement process requires continual effort. Someone in the fleet organization should be avail- able throughout the year to perform quality control and ensure that equipment cost data are accurately reported and maintained. Condition assessments are important and time-consuming tasks in the replacement process. Assess- ments can be performed by field shops, but someone in the central fleet agency should be assigned to coordinate the assessments and compile the assessment results. Ana- lyzing equipment costs is not a simple task. LCCA requires interpretation and examination of the results. Implementa- tion of the replacement processes will yield the best results if consistent and coordinated efforts are applied in the replacement process. Because fleet replacement decisions are so important and require year-round administration functions, a fleet replace- ment coordinator or fleet asset manager position should be established and be responsible for implementing the replacement program. For large organizations, this may be a C H A P T E R 6
72 stand-alone position but some agencies may incorporate this function into an existing staff position. Each agency should consider creating such a position if it does not already exist. 6.2 Overview of Replacement Processes LCCA can be performed and equipment can be evalu- ated at any time during the year. However, because most highway agencies evaluate needs and prepare replacement budgets as part of the agency-wide annual budgeting cycle, the following chapter outlines an annual process for equip- ment replacement. Adopting an annual process provides a systematic approach for evaluating equipment replacement needs, determining replacement priorities, and developing an annual replacement program that optimizes the use of avail- able replacement funding. The equipment replacement process comprises three gen- eral phases, as shown in Figure 13. Figure 14 shows a more detailed flowchart with the indi- vidual steps of the process. Review the process and adapt it to the agencyâs operating environment and organization as needed. Establish calendar timelines and due dates so the process can be synchronized with the agencyâs budget development schedule. Some activities, such as data qual- ity control, are continuous. Other processes could take sev- eral months and require the user to begin well in advance to ensure the replacement budget request is completed on time. The optimization tool must be set up and configured for the agency in accordance with the instructions in the toolâs user manual before beginning the replacement process. The tool supports the processes outlined in Figure 14 and described in the case example in Chapter 7. DATA Develop complete, accurate, and consistent data. Data reporting and quality control are continuous processes. ANALYSIS Input data to optimization tool and perform cost analysis. DECISION MAKING Determine replacement needs and priorities. Make replacement decisions. Figure 13. Replacement process overview.
73 Figure 14. Equipment replacement process.