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Economic Obsolescence
One of five primary types of obsolescence and a force of retirement.

Economic obsolescence is the replacement or retirement of an asset because objectives and/or functionality can now be achieved in a more cost efficient way.

It is all about achieving optimal financial results by extracting value in a different way.

Attributes
This form of obsolescence typically exhibits the following general attributes and characteristics:


Susceptible/Candidate Assets
The following assets are sometimes prone to the forces of economic obsolescence:

  • Assets that consume energy, such as boilers.
  • Assets that help to conserve energy, such as glazing systems
  • Assets that use fuels of some kind.
  • Assets that provide environmental separation, such as roofs, windows and doors.
  • Assets that have a good payback cycle.
  • Assets that are part of a product incentive program (PIP).
  • Assets with a high utilization index.
  • Low capitalization assets that can be replaced in blocks to leverage economies of scale.
  • Assets that are not sufficiently durable and have high breakdown repair costs (such as spring-loaded overhead gate motors).

Examples and Scenarios
Listed below are some typical examples of projects that have address economic obsolescence:
  • Boiler-and-Tank Retrofit - Removal of hot water tanks and installation of a boiler and storage tank system to achieve greater energy efficiency and performance at lower life cycle cost.
  • Copper-to-Pex Retrofit - 
  • T12-to-T8 Retrofit - 
  • CFL-to-LED Retrofit - is beyond economic repair (BER) and
  • Spring-to-Weight Retrofit - 
  • VFD Retrofit
The arrival of more efficient products in the local market (“P”), such as pumps with variable frequency drives and the pre-emptive steps to receive approval from the local utility to implement energy efficiency measures and receive a rebate through a product incentive program before funding expires (“F”).

 
Management Principles
The effects of technological obsolescence can sometimes be managed and mitigated through the following:
Economic obsolescence does not have a defined point of functional failure (F) other than the owners' deemed ROI.

VFD retrofit
Fig. Triplex booster pump package replaced with package that includes VFDs for improved energy efficiency.


Retrofit of fluorescent strip lighting from T12 to T8 and T5 fixtures for improved energy efficiency.
Fig. Retrofit of fluorescent strip lighting from T12 to T8 and T5 fixtures for improved energy efficiency.


Retrofit of CFL to LED lighting
Fig. Retrofit of CFL to LED lighting.


The forces of retirement mapped onto the P-F curve
Fig. Economic obsolescence mapped onto the P-F curve alongside the other forces of retirement.


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Fig. Examples of some assets that are susceptible to economic obsolescence: boilers, water heaters and interior lighting.

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I. Care is in a panic as some of his assets are "fading" away while others are "degrading"
Fig. I. Care is in a panic as some of his assets are "fading" away while others are "degrading". Economic obsolescence is a form of fading.

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