Life-Cycle Cost Analysis

Life-Cycle
y Cost Analysis
y

Tashia J. Clemons & Nathaniel Coley

Federal Highway Administration
Office of Asset Management
3/18/2010 1
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 Life-Cycle Cost Analysis

Topics

• Transportation Asset Management

• Definition
• FHWA Office of Asset Management
• Life-Cycle Cost Analysis
• Definition
f
• Process
• LCCA in Pavement Type Selection
• National Practice
• FHWA RealCost Software
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 Life-Cycle Cost Analysis

Definition of Asset Management

Asset management is a systematic process of

maintaining, upgrading, and operating physical
assets cost-effectively. It combines engineering
principles with sound business practices and
economic theory, and it provides tools to
f ilit t a more organized,
facilitate i d llogical
i l approachh tto
decision-making. Thus, asset management
provides a framework for handling both short-
and long-range planning.

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 Life-Cycle Cost Analysis

FHWA Office of Asset Management

Three Teams
• Construction and System Preservation
responsible for construction and maintenance
program
p g p
policy,
y technical support,
pp
and national outreach. Specific
areas of responsibility include
quality management initiatives
initiatives,
transportation system
preservation, and continuous
quality improvement initiatives
such as system preservation.

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 Life-Cycle Cost Analysis

FHWA Office of Asset Management

• The System Management and Monitoring

Team: responsible for developing and promoting
systematic approaches to the management of
highway assets. This work includes refining and
advancing the use of pavement and bridge
managementt systems
t andd developing
d l i systems
t
where they presently do not exist, such as for
tunnels and roadway hardware
hardware. The team is
made up of a Pavement Management Group
and a Bridge
g Management
g Group.p

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 Life-Cycle Cost Analysis

FHWA Office of Asset Management

• Evaluation and Economic Investment Team
– development
d l t andd promotion
ti off an array off procedures
d
for inclusion in an engineering economic analysis
toolbox,, identification and dissemination of
alternatives for developing data systems to support
asset management, and providing
assistance
i t with
ith
implementation of relevant
standards issued by the
Governmental Accounting
Standards Board (GASB).

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 Life-Cycle Cost Analysis

Life-Cycle
Life Cycle Cost Analysis Definition

• Life-Cycle
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,
maintenance, user reconstruction
reconstruction,
rehabilitation, restoring, and resurfacing
costs over the life of the project segment
costs, segment.

Source: Transportation Equity Act for the 21st Century

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 Life-Cycle Cost Analysis

LCCA Defined

An analytical tool
to provide a cost comparison
between two or more competing design alternatives
producing equivalent benefits
for the project being analyzed.

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 Life-Cycle Cost Analysis

LCCA Defined

When to Apply LCCA?

• Equivalent benefits
• Costs vary in amount and timing
• Decision support

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Poll Life-Cycle Cost Analysis

LCCA Defined

Outputs
• Costs expressed in constant dollars with
equivalent purchasing power

• Rational comparison of agency costs and user

costs

Better Alternatives!!!

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 Life-Cycle Cost Analysis

LCCA Methodology
Before the Process Begins…

• Policy decisions in place

• Secure decision to build the project
• Scope of project warrants the rigors of LCCA
• Establish requirements
¾ Project
j level
¾ Alternative level

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 Life-Cycle Cost Analysis

Sample Project Level Data

• Specific roadway geometry • Agency Cost
• Number
N b off llanes iin eachh • Service
S i Lif Life
direction • Structural
• lane widths • Functional
• Work zone lengths
• User Cost Data
• Traffic data • Vehicle Operating Cost
• AADT rates
• Annual traffic growth • Added vehicle operating
• Percent trucks cost and time
• Hourly traffic distributions • Value of user time delay
• Lane capacities • (passenger cars, single
• Queue Dissipation unit comb.
unit, comb unit)
capacities
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 Life-Cycle Cost Analysis

LCCA Steps

Steps
1. Establish Design Alternatives
2. Determine Activity Timing
3. Estimate Agency and User Costs
4. Compute
p Life-Cycle
y Costs
5. Analyze the Results

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 Life-Cycle Cost Analysis

Step 1: Establish Design Alternatives

Activities to Ensure Performance

• Initial construction or rehabilitation activities
• Future rehabilitation and maintenance activities
• Analysis period long enough to demonstrate cost differences
between alternatives

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 Life-Cycle Cost Analysis

Step 1: Establish Design Alternatives

Example Design Alternatives…

• Portland cement concrete pavement vs. Hot

mix asphalt
• Mill and fill vs. overlayy
• Preservation vs. major rehabilitation

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 Life-Cycle Cost Analysis

Step 2: Determine Activity Timing

on
Conditio

Terminal Serviceability Index

Time

Service Initial
Life Activity One Activity Two
Activityy

Analysis Period

When will the future maintenance and rehabilitation costs be incurred?

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 Life-Cycle Cost Analysis

Step 3: Estimate Agency and User Costs

Initial
Activity Activity 1
Reactive
R i and d
Preservative Activities
Agency
Costs

Initial Activity Activity 1

Work k Zone Work Zone
Normal Operations and
Preservative Activities
User
Costs

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 Life-Cycle Cost Analysis

Step 3: Estimate Agency and User Costs

Initial
Activity Activity 1
Preservative
Activities
Agency
Costs

Initial Activityy Activity 1

Work Zone Work Zone
Preservative
User
Activities
Costs W kZ
Work Zone

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 Life-Cycle Cost Analysis

Step 4: Compute Life

Life-Cycle
Cycle Costs

N
1
Present Value =
of Costs Σ
k=0
(Costk) x
((1 + d))nk

N = length of analysis period

d = discount rate Present Value
nk = year of expenditure Factor

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 Life-Cycle Cost Analysis

Step 5: Analyze the Results

• How do agency costs compare?
p
• How do user costs compare?
• Can trade-offs be made?

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