Economic Pinch Analysis for Estimating Service Life

Economic appraisal is essential for firms to identify and quantify the monetary costs and benefits of investment in a particular asset meant to provide a service over its physical lifetime and achieve economic sustainability. Use of such a service-providing asset for extended period results in performance deterioration and customer dissatisfaction with the enhanced service cost. Standard measures of economic appraisal fail to provide a criterion for the period of ownership of assets that do not generate an income but provide valuable service. The economic service life is a measure that can gauge the profitability of an investment and the period of useful ownership for such an asset. This paper extends the economic pinch analysis method for estimating the economic service life of an asset. A graphical representation of composite cash flows on a time domain embodies the economic appraisal parameters like the net present cost, the annual worth, and the economic service life of an asset. Novel graphical representations of composite cash flows, complemented with tabular computation methods, are represented to determine the economic service life. The utility of the recommended economic pinch analysis is shown through three illustrative examples. The procedure's usefulness is demonstrated for an equipment replacement analysis problem. The proposed approach is applicable to determine the economic evaluation of any service-providing asset and helps industries achieve economic sustainability by choosing the period of ownership.

Automated summary

Economic appraisal is crucial for firms to identify and quantify investment costs and benefits, and helps industries choose the ownership period to achieve economic sustainability.