Optimum replacement is all about maximising the return on your investment. It is about predicting the point in the life of an asset where decreasing resale value compared to actual and expected costs combine, resulting in a calculated lowest average cost year, to deliver the maximum return on the original investment.

Why is optimum replacement important?

Optimum replacement points are calculated to best estimate the optimum timing to replace assets to achieve the lowest average annual cost, considering either distance travelled or hours worked along with the age of the asset.

Optimum replacement ensures you are replacing the vehicle when its depreciation level is low enough, and when the actual and predicted maintenance costs, combined with the cost of downtime, have not yet become excessive. This is normally part of the pre-purchase planning and budget procedure.

How is optimum replacement calculated?

To manage optimum replacement points you need access to the following:

• Purchase price of the asset
• Projected resale values over the next 10 years
• Projected finance costs over the next 10 years
• Projected repair and maintenance costs over the next 10 years
• Current operational downtime costs for your plant.

Example of calculating the optimum replacement point.