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The ability to recognise the need for new or additional assets is a basic requirement of any organisation as it operates within the normal constrains of its business environment. Failure to recognise the need to upgrade or replace assets at the appropriate time can place the organisation at a significant commercial disadvantage and over time can lead to failure of the business.
Reluctance to replace aging assets at the right time can lead to the organisation continuing to operate obsolete assets that inflate operating costs, compromise product quality and restrict output. Control of the rebuild/renew decision process is crucial especially when any rebuild has a significant financial cost with respect to the new cost of a similar or improved asset.
The need for a new or additional asset can arise from one or more of the following reasons.
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Existing assets are at the end of their economic life and require replacing.
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Existing assets are at the end of their 'technological life' and need to be replaced for the organisation to remain competitive.
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Existing assets do not have sufficient capacity to meet current needs and need to be replaced with an asset having greater capacity.
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Existing assets do not have sufficient capacity and need to be supplemented with additional, similar assets to meet the increased demand.
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Existing assets cannot continue to be operated due to unacceptable safety or environmental problems associated with the asset.
Most modern organisations have developed procedures to identify the need for new or supplementary assets and manage the assessment of these needs.
Safety or environmental obsolescence
A variation on the economic and/or technological end of life replacement is encountered when an asset needs to be replaced or upgraded for reasons other than economic or technical. An increasing influence on asset retirement decisions in modern industry is seen when it becomes impossible to achieve mandated safety or environmental targets using existing assets.
Before a point is reached where the asset cannot meet these targets in an acceptable fashion, it is likely that the asset will be operating for some time at an increased cost that eventually reached unacceptable or un-sustainable levels and the decision is taken to upgrade or replace the asset.
The current debate on replacing or upgrading existing power stations to reduce emissions is one example of functioning assets being made redundant or partially obsolete by environmental policy.
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