Safety, mission and infrastructure critical systems have started adopting prognostics and health management, a discipline consisting of technologies and methods to assess the reliability of a product in its actual life-cycle conditions to determine the advent of failure and mitigate system risks. The output from a prognostic system is the remaining useful life of the host system; it gives the decision-maker lead-time and flexibility in maintenance. Examples of flexibility include delaying maintenance actions to use up the remaining useful life and halting the operation of the system to avoid critical failure.

Quantifying the value of flexibility enables decision support at the system level, and provides a solution to the fundamental tradeoff in maintenance of systems with prognostics: minimize the remaining useful life thrown while concurrently minimizing the risk of failure. While there are cost-benefit models to quantify the value of implementing prognostics, they are applicable to the fleet level, they do not incorporate the value of decisions after prognostic indication (value of flexibility or contingency actions), and do not use PHM information for dynamic maintenance scheduling.

This dissertation develops a decision support model based on `options' theory- a financial derivative tool extended to real assets - to quantify maintenance decisions after a remaining useful life prediction. A hybrid methodology based on Monte Carlo simulations and decision trees is developed. The methodology incorporates the value of contingency actions when assessing the benefits of PHM. The model is extended and combined with least squares Monte Carlo methods to quantify the option to wait to perform maintenance; it represents the value obtained from PHM at the system level. The methodology also allows quantifying the benefits of PHM for individualized maintenance policies for systems in real-time, and to set a dynamic maintenance threshold based on PHM information.

This work is the first known to quantify the flexibility enabled by PHM and to address the cost-benefit-risk ramifications after prognostic indication at the system level. The contributions of the dissertation are demonstrated on data for wind farms.