Abstract
The purpose of the paper is to critically evaluate the conceptual distinction between investment and maintenance. The study starts from a number of definitions in the literature and discusses these from the perspective of standard investment theory. The article argues that the standard concept of investment covers all relevant decisions and also puts the focus on the future consequences of decision and not whether it restores an earlier standard or not. The research implications are that investment and maintenance planning need to be analysed together and that the distinction between investment and maintenance is uninteresting from a decision theoretic and resource allocation perspective. The practical implications of the article are that what usually is called investment planning and maintenance planning need to be integrated. The originality in the paper lies primarily in the questioning of the usefulness of the concept of maintenance in a dynamic age where the relation to earlier characteristics and functions becomes less and less interesting. The role of the maintenance concept is now primarily related to various administrative systems (accounting, taxation) but is not so relevant from a forward looking resource allocation perspective.
Highlights
The concept of maintenance is widely used in for example property management but its definition tends to vary between authorities and between companies (SWECO, 2006) and within the same organisation (Gustafson, 2005) and the classification of activities at times changes from year to year depending on how the company would like to account for it (Lind, 2002)
When a certain component is replaced it is automatically activated and a new period of depreciation follows. In this approach there is no need to make a distinction between investment and maintenance: all expenses with an effect on future cash-flow are treated as an investment that is activated and written down, some over a long time period and some over a short time period
–– From the perspective of investment theory everything that is usually classified as maintenance is an investment, in the sense that resources are spent today that produce reduced costs or higher benefits in the future compared to if the resources are not spent
Summary
The concept of maintenance is widely used in for example property management but its definition tends to vary between authorities and between companies (SWECO, 2006) and within the same organisation (Gustafson, 2005) and the classification of activities at times changes from year to year depending on how the company would like to account for it (Lind, 2002). The strategy in this paper is to start from more basic investment theory, and it is interesting to note that in that context the concept of maintenance is seldom used (see for example Geltner et al, 2007). The explanation for this is very simple: An investment is defined as spending resources today in order to get some kind of “advantage” in the future. By spending resources today the company either gets higher revenues in the future, or reduces future cost From this perspective every activity that typically is called maintenance is investment: resources are spent today in order.
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