Drill Bit Replacement Policy

Author
Decisioneering, Inc.
Summary
When drilling in certain types of terrain, the performance of a drill bit erodes with time
because of wear. Eventually, the bit must be replaced as the costs exceed the value of the hole
being drilled. The problem is to determine the optimum replacement policy; that is, the drilling
cycle, T hours,
between replacements. In this model, you will determine the optimal replacement time and
maximize profits while still accounting for the uncertainties inherent in the drilling process.
Note: This model was suggested from an example in Kenneth K. Humphreys, Jelens Cost and
Optimization Engineering. 3rd ed. New York: McGraw-Hill, 1991. 257-262.
Keywords: drilling cycle, bit, mining, petroleum, oil, gas, drilling rate, replacement policy,
optimization, simulation
Discussion
After T hours, the drilling rate can be expressed as:

For example, using the equation above, after 5 hours of consecutive use (starting with a new
drill bit), the drill is able to penetrate the terrain at a rate of 21.21 meters per hour. While after
50 hours, the penetration rate is only 6.71 meters per hour.
T hours after replacing the bit, the total drilled depth in meters, M, is given by the integral of
the first equation from 0 to T, or:
where 300 is a drilling depth coefficient.
The revenue value per meter drilled is calculated to be $60. Drilling expenses are fixed at
$425 per hour, and it generally requires R = 7.5 hours to install a new drill bit, at a cost of
$8,000 + $400R.
If all drilling parameters were certain, calculating the optimal replacement policy would be
straightforward. However, several of the drilling parameters are uncertain, and knowledge
about their values must be assumed:
Because of variations in the drilling process and terrain, the depth coefficient, C, is character

Discussion, Cont.
With these assumptions, the profit/drilling cycle if the bit is replaced after T hours equals the
revenue obtained from drilling minus drilling expenses and replacement costs:
profit/drilling cycle = $60M - $425T - ($8,000 + $400R)
Assuming D ten-hour days per month, the average number of cycles per month is 10D/(T +
R). Therefore, the average profit per month is:

Your objective is to find the value of T that maximizes the average profit per month.
Using Crystal Ball
Crystal Ball enhances your Excel model by allowing you to create probability distributions
(referred to in Crystal Ball as "assumptions") that describe the three uncertain drilling
parameters described above. Each assumption cell is colored green and is marked by an
Excel note (mouse over the cell to view the note). To view the details of an assumption,
highlight the cell and either select Define Assumption from the Define menu or click on the
Define Assumption button on the Crystal Ball toolbar.
This model also includes a Crystal Ball forecast, Profit/month, shown in light blue. Forecasts
are equations, or outputs, that you want to analyze after a simulation. During a simulation,
Crystal Ball saves the values in the forecast cells and displays them in a Forecast Chart,
which is a histogram of the simulated values. To view a forecast with Crystal Ball, highlight
the cell and either select Define Forecast or the Define Forecast button on the Crystal Ball
toolbar.
When you run a simulation, Crystal Ball generates a random number for each assumption
(based on how the assumption has been defined) and places that new value in the cell. Excel
then recalculates the model. You can test this by selecting Single Step from the Run menu or
clicking on the Single Step button on the toolbar.
After you run a simulation, you will see the forecast chart for Profit/month. What is the mean
value? (Hint: use the Space bar to step through t

clicking on the Single Step button on the toolbar.

After you run a simulation, you will see the forecast chart for Profit/month. What is the mean
value? (Hint: use the Space bar to step through t

Using OptQuest
Now that you have run Crystal Ball, you can perform an optimization of this problem using
OptQuest. OptQuest requires decision variables, which are model variables over which you
have control. The one decision variable defined in this model is the cycle time between
replacements of the drill bit, T. Each decision variable is colored yellow and is marked by an
Excel note (mouse over the cell to view the note). To view the details of a decision variable,
highlight the cell and either select Define Decision from the Define menu or click on the
Define Decision button on the Crystal Ball toolbar.
Start OptQuest from the CBTools menu. Once in OptQuest, use the File > Open option to open
the Drill Bit Replacement.opt settings file in the Examples > OptQuest Files folder. Use the
OptQuest Wizard, either from the toolbar or from the Tools menu, to view the settings for the
optimization. The problem has no constraints or goals and one objective: to maximize the mean
Profit/month.
Run the optimization. For each optimization, OptQuest selects a new value within the defined
range of the decision variable (e.g., 20.75 hours) and runs a Crystal Ball simulation (e.g., 2000
trials). OptQuest then saves the mean Profit/month value and runs another simulation on a new
decision variable value. OptQuest repeats this process, searching for the best Profit/month
mean values. As OptQuest runs, it uses multiple metaheuristic methods and techniques to
analyze past results and improve the quality and speed of its process. You can watch
OptQuest's progress through the performance graph, which shows a flattened line as it
converges to an optimal result.
What is the best Time between replacements that results in the highest Profit/month? Once
OptQuest is finished, you can copy the optimal results back to your spreadsheet through the
Copy to Excel option in the Edit menu. Your spreadsheet now displays the optimal cycle time,

Copyright and Contact Information

This spreadsheet model is the property of Decisioneering, Inc. Copyright (c) 2004 Decisioneering, Inc.
All Rights Reserved.
Microsoft is a registered trademark of Microsoft Corporation in the U.S. and other countries.
For questions concerning this model or the Crystal Ball software, contact the closest office listed on our
Web site (http://www.crystalball.com) or send an email to sales@crystalball.com. If you have a technical
problem with this model, please contact our support Help Desk: helpdesk@crystalball.com.

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Drill Bit Replacement Policy

Model Inputs
Drilling costs /hour
Replacement time /bit (hours)
Cost to replace bit
Drilling depth coefficient (m)
Revenue/meter drilled
Drilling days /month
Time between replacements

$425.00
7.50
###
300
$60.00
30
30.00

Model Outputs
Drilling depth (m)
520
Revenue /cycle
$31,176.91
Drilling expenses /cycle
$23,750.00
Profit /cycle
$7,426.91
Replacement cycles /mont
8.00

Profit /month

Optimize time between

replacements to maximize profit

$59,415.32