Estimated plant replacement value (EPRV), also called plant replacement value (PRV), is a critical measurement for any business. Calculating EPRV can help you assess whether maintaining your assets is more cost-effective than replacing all assets and facilities at once.
What is the Estimated Plant Replacement Value (EPRV)?
EPRV is the total amount needed to replace a plant or facility, including land and buildings. The following formula is used to calculate plant replacement value:
EPRV = Cost of Equipment – Salvage Value and Depreciation + Taxes and Fees from the Time of Purchase
The cost of equipment includes all the labor, materials, and other expenses in installing them. Depending on facility assets, EPRV can also include the costs of decommissioning assets or clearing them for demolition.
Estimated Plant Replacement Value Methods
As indicated in its name, the estimated plant replacement value is an estimate. Getting perfect accurate values is impossible, but a close estimate can be achieved following the methods below. Note that these methods depend on the type, age, and relevant details of a facility or organization.
Calculating Actual Capital Costs
This method can give close-to-accurate plant replacement values if your initial capital is well-documented and inflation is closely tracked. This method is easy and can be the go-to method for facilities operating within the last ten years.
Using Insured Asset Value (IAV)
A plant’s insured asset value (IAV) is based on an insurance agreement which is usually directly related to the EPRV. Most IAVs closely estimate the amount needed to restore the plant. Evaluating the insurance scope, inclusions, and exclusions can provide useful corrections when calculating EPRV from IAV.
Comparing with Other Facilities
If the first two methods are not possible, you can look into other companies with similar characteristics and estimate your plant replacement value from theirs. This method is less accurate because even seemingly identical facilities can have different values. This method should only be your last resort.
Using Estimated Plant Replacement Value
When you have calculated EPRV, you can use it to assess your facility’s total maintenance cost (MC). MC when expressed as a percentage of plant replacement value is an essential benchmark in business. You get this by dividing the sum of MC over the EPRV and multiplying it by 100%. Ideally, the percentage of maintenance costs related to your facility’s EPRV should be 2-3%.
It is important to note that this MC/EPRV benchmark may be attainable for some industries while other industries may find it too low to achieve. This is because asset values do not always correlate to the cost of maintaining them. Assets with similar values can have different maintenance costs. To illustrate, a food mixing machine may have similar value to a cement mixing machine, but the former may require more frequent or expensive maintenance than the latter. Additionally, a mining company will have a higher MC/EPRV than a manufacturing plant. For example, one mining company that measured its MC/EPRV across 11 locations had a range of 18% to 36%, far from the “ideal” 2% to 3%.
Although the MC/EPRV benchmark of 2-3% is not applicable for all facilities, calculating this value can still provide valuable insights into your maintenance program. For example, you can use these values to track the effectiveness of your maintenance programs. A decreasing MC/EPRV percentage means that your maintenance programs are effective in lowering maintenance spending and improving efficiency.
Below are the areas you can improve on to further lower maintenance costs and achieve the MC/EPRV benchmark or meet your lowest possible MC/EPRV percentage:
- Planning and Scheduling
- Preventive Maintenance
- Condition Monitoring
- Inventory Management
- Root Cause Problem Elimination
Asset Management Optimization with CMMS
Relating plant replacement value and maintenance cost is a valuable strategy in asset management. And calculating EPRV and MC values depends on updated and accurate data. Using a computerized maintenance management system or CMMS is the easiest way to record all pertinent information to calculate your EPRV and MC values. Redlist is the all-in-one CMMS that integrates lubrication and maintenance, asset database, and stock inventory. With Redlist, you have everything you need for asset management in the palm of your hands. Redlist’s cloud-based and user-friendly interface lets you store data on maintenance and assets, accessing it instantly when needed. With Redlist, you can analyze and compute EPRV and MC values with more accuracy and speed. Learn more about asset management with Redlist by scheduling your free demo today!