Life-Cycle Cost Analysis a Decision Making Tool Eric Ross Federal Highway Administration Proposed Office of Performance Management
FHWA Tools Team Evaluation and Economic Investment Team development and promotion of an array of procedures for inclusion in an engineering economic analysis toolbox, identification and dissemination of alternatives for developing data systems to support asset management, and providing assistance with implementation of relevant standards issued by the Governmental Accounting
Overview FHWA Definition LCCA in Pavement Type Selection LCCA and Beyond RealCost Software Resources 3
Life-Cycle Cost Analysis Life-Cycle Cost Analysis is a process for evaluating the total economic worth of a usable project segment by analyzing initial costs and discounted future costs, such as maintenance, user, reconstruction, rehabilitation, restoring, and resurfacing costs, over the life of the project segment. Source: Transportation Equity Act for the 21st Century
LCCA Defined Benefit-Cost Analysis Compares costs and benefits Addresses dissimilar benefits
LCCA Defined Benefit-Cost Analysis Compares costs and benefits Addresses dissimilar benefits Life-Cycle Cost Analysis Compares only costs Assumes equivalent benefits Subset of BCA
When to Apply LCCA Compares only costs(differential) Requires equal benefits Project-level analysis Comparing Designs or materials for a bridge, pavement, roadway marking, etc. Comparing management strategies Comparing work zone effects
Sample Project Level Data Specific roadway geometry Number of lanes in each direction lane widths Work zone lengths Traffic data AADT Annual traffic growth Percent trucks Hourly traffic distributions Lane capacities Queue Dissipation capacities Agency Cost Service Life Structural Functional User Cost Data Vehicle Operating Cost rates Added vehicle operating cost and time Value of user time delay (passenger cars, single unit, comb. unit)
LCCA Steps Steps
LCCA Steps Steps 1. Establish Design Alternatives 2. Determine Activity Timing 3. Estimate Agency and User Costs 4. Compute Life-Cycle Costs 5. Analyze the Results
Step 1: Establish Design Alternatives Example Design Alternatives Portland cement concrete pavement vs. Hot mix asphalt Mill and fill vs. overlay Preservation vs. major rehabilitation
Step 2: Determine Activity Timing Condition Terminal Serviceability Index Time Service Life Initial Activity Activity One Activity Two Analysis Period When will the future maintenance and rehabilitation costs be incurred?
Agency Costs Step 3: Estimate Agency and User Costs Initial Activity Reactive and Preservative Activities Activity 1 User Costs Initial Activity Work Zone Normal Operations and Preservative Activities Activity 1 Work Zone
User Cost Components Three components Vehicle Operating Costs (VOC) Delay Costs Crash Costs
User Costs User costs are based on capacity flow analysis. a function of workzone impacts for the M&R strategy for maintaining the alternate designs. are directly dependent on the volume and operating characteristics of the traffic on the facility.
Cost Flow Diagram. Initial Activity $ Rehab 1 Agency Costs User Costs Initial Activity Work Zone $ Rehab 1 Work Zone Time Time
Cost Flow Diagram. Agency Costs Initial Activity $ Preservation Activities Rehab 1 User Costs Initial Activity Work Zone $ Preservation Work Zones Rehab 1 Work Zone Time Time
Step 4: Calculate PV of Life-Cycle Costs Present Value = of Costs N Σ k = 0 (Cost k ) x 1 (1 + d) n k N = length of analysis period d = discount rate n k = year of expenditure Present Value Factor
LCCA Output Present Value Examples Activity Year Initial 0 Cost $11M PV Factor 1.0 Activity 1 8 $5M 0.73 Activity 2 16 $5M 0.53 Rehab 24 $8M 0.39
LCCA Output Present Value Examples Activity Year Cost PV Factor PV Initial 0 $11M 1.0 $11M Activity 1 8 $5M 0.73 $3.7M Activity 2 16 $5M 0.53 $2.7M Rehab Using a 4% discount rate 24 $8M 0.39 Sum of Present Values $3.1M $20.5M
Step 5: Analyze the Results How do agency costs compare? How do user costs compare? Can trade-offs be made?
Simulation Modeling Inputs Outputs $ M O D E L Present Value %
Life-Cycle Cost Analysis RealCost Software
What is RealCost? A tool for automating Life Cycle Cost Analysis (LCCA) for Pavement Type Selection (PTS) including Alternate Design / Alternate Bidding (AD/AB). Developed in Microsoft Excel existing user expertise. Uses user forms, customized results and reports for ease of use and efficiency. Freely available downloadable from FHWA website www.fhwa.dot.gov/infrastructure/asstmgmt/ lccasoft.cfm
Why RealCost? An easy to use tool for conducting LCCA incorporating processes outlined in the FHWA Technical Bulletin. Incorporates detailed, good practices methodology for computing work-zone induced user costs. Provides a framework for conducting probabilistic LCCA. Infinitely customizable to meet agency specific procedures and requirements. Applicable to more than pavements
RealCost Switchboard
RealCost Inputs - Analysis Options
RealCost Inputs - Pavement Design Alternatives
Probabilistic Inputs Name Distribu,on Mean Minimum Maximum Standard Devia,on Ini$al Construc$on Service Life (years) Triangular 15.0 12.0 18.0 Ini$al Construc$on Work Zone Dura$on (days) Triangular 7.0 6.0 8.0 First Rehab Service Life (years) Triangular 15.0 12.0 18.0 Second Rehab Service Life (years) Triangular 15.0 12.0 18.0 Third Rehab Service Life (years) Triangular 15.0 12.0 18.0 Annual Average Daily Traffic Growth (%) Normal 3.6 1.0 Base Course Bid Cost ($/TON) Truncated Normal 18.0 7.8 28.2 10.2 Discount Rate (%) Triangular 3.0 2.0 4.0 HMA Bid Cost ($/TON) Truncated Normal 80.0 40.0 120.0 20.0 Planning Bituminous Pavement- 0.15- [ ($/SY) Truncated Normal 2.5 1.4 3.6 1.1 Queue Dissipa$on Capacity (vhhpl) Normal 1818.0 144.0 Roadway Excava$on ($/CY) Truncated Normal 10.0 4.4 15.6 2.8 Value of Time for Combina$on Trucks ($/hour) Triangular 26.9 25.0 29.0 Value of Time for Passenger Cars ($/hour) Triangular 14.0 12.0 16.0 Value of Time for SU Trucks ($/hour) Triangular 22.3 20.0 24.0
RealCost Outputs - Deterministic Analysis
RealCost Outputs - Probabilistic Analysis
Use of Probabilistic Analysis - Tornado Charts
Use of Probabilistic Analysis -Tornado Charts
Resources Training Fundamentals of Life Cycle Cost Analysis Live Instructor Led Distance Learning Course Onsite RealCost Life-Cycle Cost Analysis (LCCA) Software Workshop
LCCA Resources LCCA Case Study LCCA Primer LCCA Software LCCA Technical Bulletin
Thank You Office of Transportation Performance Management Federal Highway Administration Eric Ross 1200 New Jersey Ave SE Washington, DC 20590 202-366-3975 eric.ross@dot.gov Questions or comments?