Developing Service Operations Strategy for Optimal Delivery of Long-Term Service Agreements Using an Integrated Risk Framework

Abstract

Long-term service agreements (LTSAs) for the maintenance of capital-intensive products are gaining popularity. Without a thorough understanding of risk exposures and their impact on the service delivery, the providers can be exposed to the possibility of extensive losses and financial ruin, as well as endanger the products’ end-consumers. This article develops a rigorous risk assessment and management framework for developing an optimal service operations strategy for the delivery of LTSAs. The framework includes several important sources of risks, such as, engineering reliability, maintenance, service infrastructure, contract definitions, and the financial structure of the service. The goal of LTSA management is to fulfill the service requirements imposed by the contract while minimizing costs and risk exposures during service delivery. The framework utilizes simulation-based optimization to obtain the optimal service strategy and insights for risk management, which can be used to develop a detailed service delivery plan. The single LTSA based framework will also benefit the management of a portfolio of LTSAs.