A Risk-based Approach to Managing Performance-based Maintenance Contracts

The global trend towards performance‐based maintenance contracting has presented new challenges to maintenance service providers as they are compensated or penalized based on performance outcomes instead of time and materials consumed during maintenance service. The problem becomes more complex when uncertainties exist in reliability performance and maintenance activities of technical systems. In this paper, a general framework for managing performance‐based maintenance contract under risks is proposed. We illustrate our approach with an application in a multi‐echelon multi‐system spare parts control problem. Several different performance measures are considered and a probabilistic constrained optimization problem is formulated from the perspective of the service provider. Hybrid simulation/analytic heuristics are proposed to solve the problem based on the monotonic properties of performance measures. This approach is flexible and can be applied to a wide range of problems with similar properties. Numerical example shows that the probability of violating performance requirements is high if the risk is overlooked. We also provide guidelines on how to apply this approach in practice.