Incorporation of Outcome-Based Contract Requirements in a Real Options Approach for Maintenance Planning

Abstract

Performance-based logistics (PBL) is growing in popularity for both governmental and non-governmental acquisitions of critical systems. These contracts allow the customer to buy the performance of the system rather than purchase the system and/or to buy the availability of the system rather than pay for maintenance. Outcome-based contracts, which include PBL, are highly quantified satisfaction guaranteed contracts where satisfaction is defined by the outcomes received from the system (i.e., the specified performance level or availability). Maintenance planning seeks to predict and optimize when maintenance for a system is performed. Condition-monitoring technologies such as Condition-Based Maintenance (CBM) and Prognostics and Health Management (PHM) provide Remaining Useful Life (RUL) estimates that can be used to plan maintenance. The challenge is how to use the predicted RULs (with their associated uncertainties) and the performance requirements imposed by the outcome-based contracts to optimally plan future maintenance. This research addresses the incorporation of outcome-based contract requirements within a real options approach used to optimize maintenance planning. A simulation-based real options analysis (ROA) approach is used to determine the optimum predictive maintenance opportunity for a system managed via an outcome-based contract.