What is meant by the economic life of an asset?

The economic life of an asset represents the timeframe during which it operates efficiently and cost-effectively for the organization. As an asset ages, cumulative maintenance, repair, operational, and downtime costs steadily increase. The end of an asset's economic life occurs at the specific point where continuing to operate and maintain the existing asset costs more than replacing it with a new, more efficient alternative. At this threshold, retaining the asset becomes economically unviable, regardless of whether the machine remains physically operational, thereby indicating to procurement and asset managers that disposal or replacement is required to optimize total cost of ownership.

B: A shortage of skilled operators represents a labor market or capability challenge rather than the financial definition of an asset's economic life.

C: Performance falling below required organizational standards defines the asset's functional or operational life limit, rather than its economic life.

D: Inability to obtain spare parts describes technical obsolescence or end of support life, rather than the financial threshold of economic life.

- Chartered Institute of Procurement & Supply (CIPS) (2019) L4M7 Whole Life Asset Management Study Guide. Stamford: CIPS, Chapter 3.

- El-Akruti, K. and Zhang, D.H. (2012) 'The concept of asset life cycle management', Journal of Quality in Maintenance Engineering, 18(3), pp. 241-252. https://doi.org/10.1108/13552511211265811

- ISO (2014) ISO 55000:2014 Asset Management — Overview, principles and terminology. Geneva: International Organization for Standardization.