Your company may already use a preferred index, or you may choose the index protocol you believe to be most accurate. There are variations in index methods, and the variations become magnified with older plant and equipment. The next step is to sum the indexed clusters of investment to get a total current value of plant and equipment. It is a good idea, at this stage, to compare the indexed value of the plant with other plants recently built, adjusting for size and available insurance values. These values are typically prepared by an insurance underwriter, even if the plant is self-insured.
Underwriters follow a procedure very similar to the one described.
Looking at maintenance costs per investment dollar recognizes that costs go up with increasing amounts of equipment. Using ERV in the denominator helps to place the amount of equipment in consistent terms, that is, today s dollars. By normalizing size and age of plant, it is possible to compare performance with a much wider base of data. The adage that an older plant will cost more to maintain is not supported by data, at least over the first 25 or 30 years of its life. The cost versus age curve is far from a linear relationship.