L.S.,
I am looking for some feedback on the issue of premium calculation for a
warranty for industrial equipment. Assuming a number of periods that the
warranty will be valid one must consider two main components:
1. periodical costs due to usage of the industrial equipment based on
operational hours
2. stochastic costs due to unexpected failures of the industrial equipment
I assume periodical costs can be calculated based on known manhours per
activity as well as the material costs involved. These costs can be well
established through time measurement and use of material, based on past
experience.
Total costs = labour costs + material costs
Both costs must be calculated including the depreciation factor, which may
differ for both costs and even subelements of both costs. With the interest
rate one can determine the present value of the costs.
Stochastic costs are different. Due to past experience one can establish the
MTBF ( exponentially distributed life ! ) or any set of parameters for a
different probablistic distribution. The critical parts are:
Part 1 : MTBF1 C1
Part 2 : MTBF2 C2
etc.
Simulating the life of the equipment through the Monte Carlo Method one can
determine how many and when the different parts have to be exchanged or
repaired during the pre-defined warranty life. Combining the costs of
material and labour involved with the interest rate one can calculate the
present value of the costs for each failure. After a number of runs one can
determine the distribution of the stochastic costs.
Finally one can add the resulting periodical costs and the stochastic costs
and determine the periodical payments the client must make in order to cover
the costs involved plus the required profit for the supplier.
For calculating the present value of the costs the timevalue formula is
being used.
Any remarks ( critical, constructive or suggestive ) are very welcome !
Karel
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