Balancing O&M and Replacement Costs

Systems should strive to achieve a balance between operation and maintenance costs and capital expenditures. Spending more in one area can impact expenditure in the other.

Generally, spending more on operation and maintenance and less on capital is the least cost method of managing assets. However, the risk of failure is somewhat higher with this type of management. When the system favors replacement over maintenance and repair, costs will go up, because replacement is a more expensive way to go. However, the risk of failure is somewhat lower with this type of management. The risk is one reason to shift the balance in one direction or the other.

Another factor affecting the balance between capital and O&MOperations and Maintenance is the ability of the system staff to manage the maintenance required to keep the asset in service. If all the burden is placed on the maintenance staff, the maintenance backlog might grow too large, and assets might begin to fail due to untimely maintenance.