Gilbert Haddad, Professor Peter Sandborn and Professor Michael Pecht, won the “Overall Best Paper from Academia” at the 2011 IEEE PHM Conference in Denver for their paper titled "Using Real Options to Manage Condition-Based Maintenance Enabled by PHM".  This paper proposes a new economic approach that can form a cost-benefit-risk basis for optimum decision making for systems with prognostic capabilities, and a method to assess the value of PHM for its user after a prognostic indication. The proposed framework is based on Real Options theory for valuating the options arising through the use of PHM. In the context of PHM an option represents the purchase of an opportunity to take a particular action in the future. The underlying assets are not tradable securities (as they would be in financial options), but rather, they are cost avoidance opportunities or mission values. potential applications demonstrated the new model by valuating the option to wait to perform maintenance for electronic systems in a commercial aircraft used by a commercial airline, and wind farms.

Please click here to see the full abstract for this paper. Full text is available to CALCE consortium members and Articles Access accountholders.

For more on this paper, please contact Prof. Michael Pecht at pecht@calce.umd.edu.