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Luis Rodriguez, P.E.Federal Highway Administration

Life Cycle Cost AnalysisVirginia Concrete ConferenceMarch 6-7, 2014

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Life Cycle Cost Analysis Definition LCCA Five Steps Process Current Issues Resources / Reference

Presentation Outline

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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.

Life-Cycle Cost Analysis Definition

Source: Transportation Equity Act for the 21st Century

Transportation Performance Management

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

LCCA Overview

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Step 1: Establish alternatives Step 2: Determine timing of required activities Step 3: Estimate agency and user costs Step 4: Compute life-cycle costs Step 5: Analyze the results

The LCCA Process

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Activities to ensure performance Initial construction or rehabilitation activity Future rehabilitation and preservation activities

Step 1: Establish Alternatives

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Terminal Serviceability Index

Serv

icea

bilit

y

InitialActivity Activity One Activity Two

Time

When will the future preservation and countermeasure costs be incurred?

Service Life Analysis Period

Step 2: Determine Activity Timing

Long enough to capture differences between alternatives

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Include cost elements that are different between alternatives

Exclude cost elements that are the same between alternativesAgency overhead costsReal estate acquisitionsNormal operations user costs

Step 3: Estimate Agency and User Costs

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Approach fundamentalsCompare demand and capacity under

normal operations and work zone conditions

Determine how traffic is impactedConvert traffic impacts into costs

Step 3: Estimate Agency and User Costs

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Cash Flow Diagram

UserCosts

Rehab 1 Work Zone

Initial Activity Work Zone

PreservationWork Zones

Preservation Activities

Rehab 1Initial

Activity

AgencyCosts

$

$

Time

Time

Salvage or Remaining Value

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Step 4: Calculate NPV of Life-cycle Costs

Net Present Value = of Costs

N

k = 0Σ 1

(1 + d)nk(Costk) x

Costk = cost of activity N = length of analysis periodd = discount ratenk = year of expenditure

Present Value Factor

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

Step 5: Analyze the Results

• MAP 21 and LCCA• GAO Report: LCCA – Pavement Selection• LCCA and Alternative Bidding

Current Issues

Transportation Performance Management

MAP-21 and LCCA

Transportation Performance Management

MAP-21 to asset management?

Each State is required to develop a risk-based asset management plan for the National Highway System (NHS) to improve or preserve the condition of the assets and the performance of the system. (23 U.S.C. 119(e)(1), MAP-21 § 1106)

Transportation Performance Management

Highway Asset Management Plan

Plan Contents– pavement and bridge inventory and conditions

on the NHS– objectives and measures– performance gap identification– lifecycle cost and risk management analysis– a financial plan– investment strategies

Transportation Performance Management

GAO and Next Steps

Transportation Performance Management

GAO and Next Steps

Define Program Characteristics Obtain Data Verify what was used was correct Document the Estimate Present Estimate for approval Update the Estimate

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What is the FHWA position on alternate bidding for pavement type selection? FHWA considers alternate pavement type bidding a suitable approach for determining pavement type when engineering and economic analysis does not indicate a clear choice between different pavement designs.

Alternate Bidding

FHWA Program Performance Management 19

Transportation Performance Management

Consideration of Challenges

FlexibilityCons

isten

cy

LCCA

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LCCA Resources

LCCA TechnicalBulletin

LCCA Case Study

LCCA Primer

http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.htm

User Manual

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RealCost LCCA Software• Microsoft Excel based application –

existing user expertise and user customizable

• User interface – separates inputs from analysis methodology

• Offers both Deterministic and Probabilistic Analysis

• Available free of charge, regular enhancements and technical assistance from FHWA

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FHWA LCCA Internet Site:http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.cfm GAO Report : LCCA-Pavement Selection http

://www.gao.gov/products/GAO-13-544 FHWA TA on Use of Alternative Bidding for

Pavement Type Selection:http://www.fhwa.dot.gov/pavement/t504039.cfm

Reference

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Thank You

Luis Rodriguez, P.E.Federal Highway Administrationluis.rodriguez@dot.gov404-562-3681

http://www.fhwa.dot.gov/resourcecenter/