Optimality Regions and Penalty Analysis of the Parameter Space for Machine Replacement Problems

A simple method is presented for developing optimality regions and penalty analysis of the parameter space for machine replacement problems. Optimality regions are regions of the parameter space in which a given economic life is optimal. The optimality regions (penalty analysis) provide a simple, ‘at a glance’, visual means to assess and illustrate the sensitivity of the economic life (cost implications) to errors in the problem parameters. A numerical example is presented in order to illustrate the use of the method in supporting machine replacement decisions.