Cost of quality modeling for maintenance employing opportunity and infant mortality costs: An analysis of an electric utility

Rodrigo E. Peimbert-Garcia, Jorge Limon-Robles and Mario G. Beruvides

The Engineering Economist, 2016, vol. 61, issue 2, 112-127

Abstract: Capital investment in physical assets has increased over the years. With the increasing complexity and variety of assets, companies are highly dependent on assets performing at high efficiency levels. Equipment performance has become a crucial business factor that has led to a particular focus on the maintenance function. Maintenance is frequently perceived as a function having a poor rate of return due to difficulties in presenting its benefits in terms that management can understand. The cost of quality model allows translating the tradeoffs associated with the quality function into a financial language. This model has gathered importance with its cost categories (PAF: prevention, appraisal, and failure). Based on this model, the cost of maintenance (COM) model is proposed to emphasize the role of opportunity and infant mortality costs in maintenance. This model captures different cost components through the PAF categories, where each is compounded by direct, opportunity, and infant mortality costs. The COM model is employed to estimate maintenance costs of current transformers in a regional transmission division of an electric utility in Latin America. Results show that opportunity costs can account for more than 80% of total maintenance costs, and infant mortality costs can represent more than 15% of these costs.

Date: 2016
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DOI: 10.1080/0013791X.2016.1152619

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