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Risk aversion in maintenance: a utility-based approach

Baker, RD 2010, 'Risk aversion in maintenance: a utility-based approach' , IMA Journal of Management Mathematics, 21 (4) , pp. 319-332.

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Abstract

In the author's concept of risk-averse maintenance, introduced in a previous paper, we seek to minimize the disutility of cost per unit time rather than to minimize cost per unit time itself. This gives a maintenance policy that is optimal under risk aversion. This paper extends the earlier work by providing a solution to the problem of combining risk aversion with the cost discounting that arises from the time value of money. The effect of parameter uncertainty, which was touched on in the earlier work, is here shown to lead to a minimax solution when operation for a long period with model uncertainty is planned. The possible use of non-exponential utility functions is discussed. In an attempt to make risk-averse maintenance more meaningful for practitioners, a fresh example of its use, the maintenance of a standby system, is given. A graphical aid to decision support is given, and some useful financial measures of risk, value at risk and expected shortfall, are introduced. These can be used to characterize planned maintenance policies.

Item Type: Article
Themes: Built and Human Environment
Schools: Colleges and Schools > College of Business & Law > Salford Business School > Management Science and Statistics
Journal or Publication Title: IMA Journal of Management Mathematics
Publisher: Oxford University Press
Refereed: Yes
ISSN: 1471-678X
Depositing User: Prof Rose Dawn Baker
Date Deposited: 18 Nov 2011 15:29
Last Modified: 26 Aug 2013 20:52
URI: http://usir.salford.ac.uk/id/eprint/18994

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