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Replacement Policy

The formal commitment by the owner to a statement that governs how decisions will be made about the circumstances and timing for optimal replacement of assets  (ie., "rules of replacement").

Replacement policies govern the relationship between Potential Failure ("P") and Functional Failure ("F") of an asset.


Goals and Principles

Some of the primary goals of an asset replacement policy are as follows:

The replacement policy should be grounded in the following principles of asset management:


Elements of a Replacement Policy
A replacement policy should generally contain the following three interrelated facets:
  • a. Replacement Timing (Mix) - Different strategies that reflect the different attributes and characteristics of each assets. For example, some assets are set up for RTF whereas other assets are setup for BRP
  • b . Replacement Strategies. Percentage of the whole and internal component rebuild or swap-out.
  • b. Replacement Types (Challenger) - That is, what type of asset (the challenger) with replace the existing asset (the defender). Like-for-like versus upgrade.
  • c. Replacement Funding (Reserve) - that is, how will the owners pay for the project through special assessment, demand loan or reserve transfer.

Classification/Types of Policies (Timing)

All replacement policies can be considered to fall into two broad categories in regards to the timing of the replacement, as follows:

Listed below are some of the primary replacement strategies that can be applied to different types of assets.

       Group 1: Preventive Replacement

       Group 2: Failure Replacement: The relative merits and limitations of each of these policies is discussed in more details on their respective pages in this online glossary.


Some of the agencies that are developing best practices for replacement policies are:
 Asset replacement policies must align to asset risk profiles in order to achieve optimization and satisfy ISO 55001 requirements
Fig.  Asset replacement policies must align to asset risk profiles in order to achieve optimization and satisfy ISO 55001 requirements.


A balanced asset replacement mix helps the organization to achieve optimization in conformity with ISO 55001 principles
Fig. A balanced asset replacement mix helps the organization to achieve optimization in conformity with ISO 55001 principles.


The hierarchy of organizational purpose with policy represented as one of the layersFig. The Aspirational-Transactional Hierarchy with policy represented as one of the aspirational layers.



The two classes of replacement strategies and summary explanation of the five alternative replacement strategies.
Fig. The two classes of replacement strategies and summary explanation of the five alternative replacement strategies.


Network diagram of alternative asset replacement strategies.
Fig. Network diagram of alternative asset replacement strategies.



Sample distribution of the percentage of assets under each of the five replacement strategies - the replacement mix.
Fig. Sample distribution of the percentage of assets under each of the five replacement strategies - ie., the replacement mix.



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Fig. Various types of asset replacement projects, including roof renewal and domestic repiping.

I. Care is attempting to slow down or reserve the sands of time so that he can undo the deferred maintenance
Fig. I. Care is attempting to slow down or reserve the sands of time so that he can undo the deferred maintenance. A futile but valiant attempt.



Different replacement policies mapped onto the P-F curve to illustrate their relationship with the point of Functional Failure ("F").
Fig. Different replacement policies mapped onto the P-F curve to illustrate their relationship with the point of Functional Failure ("F").

1) Regular. Components in this category are items like wood painting and asphalt seal coating. These components require regular sealing or rejuvenation or the association will face significant related repair or replacement expenses. These projects are best to execute on schedule, per the Reserve Study. You may be able to squeak a little more life out, but it is often at the cost of higher repairs downstream.

2) Watch & Decide. Roofing and fencing are typical components in this category. The gradual approach of failure may be apparent, but the actual failure point may be delayed or accelerated due to weather or maintenance. For these projects, you can often make a wise decision to wait another year, if the asset is still intact.

3) Benign. Components in this category are non-critical components such as pool heaters or clubhouse trash compactors. It is not a problem to simply wait until the component fails, because it not a big deal for the association to survive a few days, waiting for the replacement component to be installed. So if the Reserve Study shows zero life, wait.

4) Catastrophic. These are components whose function is essential to the association: the central hot water system, entry gate systems, etc. Failure of any of these components is always unwelcome, and it causes significant expense or disruption in the association. Do these projects in advance of failure, on your terms, on schedule, to minimize inconvenience to the homeowners.

5) Obsolescence (technological or aesthetic). These components have functional lives longer than they can be described as “bringing value to the association”. The gold shag carpet in the clubhouse, the old and dated appearance of the elevator interior, and the old computer used by the on-site manager are three good examples. While you can generally get away with deferring these projects another year, you do so at your own detriment. These are generally the low cost projects that yield a high impact (reward) to your sense of well-being and style. So do them if at all possible, on schedule.


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I. Care is trying to blend the optimal replacement mix for the assets in his portfolio
Fig. I. Care is trying to blend the optimal replacement mix for the assets in his portfolio

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