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Replacement of old plant and equipment and items of use like bulbs/tube-lights, refrigerators/heating, tools/gadgets etc is a necessity. All these items are designed for performance upto the desired level for a particular time (years/hours) or particular number of operations. For example, when a refrigerator is given, is
the warranty for 7 years the manufacturer knows that the design of the refrigerator is such that it will perform up to desired level of efficiency without breakdown for that period. Similarly, bulbs/tube-lights may have been designed for say 10,000 on-off operations. But all these need to be replaced after a particular period/number of operations. The equipment is generally replaced because of the following reasons:

a)     When the item/equipment fails and does not perform its function it is meant for.

b)    Item/equipment has been in use for sometimes and is expected to fail soon.

c)     The item/equipment in use-has deteriorated in-performance and-needs expensive repairs i.e. it has gone beyond the economic repair situations. The cost of maintenance and repair of equipment keeps increasing with the age of the equipment. When it becomes uneconomical to continue with an old equipment, it must be replaced by a new equipment.

d)    mpr6ved technology has given access to much better (convenient to use) and technically superior (using less power) products. This is the case of obsolescence. The equipment needs to be replaced not because it does not perform up to the standards it is designed for but because new equipment is  capable of performance of much higher standards.

It should be understood that all replacement decisions involve high financial costs. The financial of such nature will depend upon a large number of factors, like the cost of new equipment, value availability of funds, cost of funds that have to be arranged, tax benefits, government policy etc.

When making replacement decisions, the management has to make certain assumptions, these are

a)     The quality of the output remains unchanged.

b)    There is no change in the maintenance costs.

c)     Equipments perform to the same standards.

Let us discuss some of the common replacement problems.