Life Cycle Cost Analysis Virginia Concrete Conference March 6-7, 2014 Luis Rodriguez, P.E. Federal Highway Administration

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

Life-Cycle Cost Analysis Definition 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 Overview An analytical tool to provide a cost comparison between two or more competing design alternatives producing equivalent benefits for the project being analyzed. 4

The LCCA Process 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

Step 1: Establish Alternatives Activities to ensure performance Initial construction or rehabilitation activity Future rehabilitation and preservation activities

Step 2: Determine Activity Timing Serviceability Terminal Serviceability Index Initial Activity Activity One Activity Two Time Service Life Analysis Period Long enough to capture differences between alternatives When will the future preservation and countermeasure costs be incurred?

Step 3: Estimate Agency and User Costs Include cost elements that are different between alternatives Exclude cost elements that are the same between alternatives Agency overhead costs Real estate acquisitions Normal operations user costs

Step 3: Estimate Agency and User Costs Approach fundamentals Compare demand and capacity under normal operations and work zone conditions Determine how traffic is impacted Convert traffic impacts into costs

Preservation Activities Cash Flow Diagram Initial Activity Rehab 1 $ Preservation Activities Agency Costs Salvage or Remaining Value Time Initial Activity Work Zone Rehab 1 Work Zone Preservation Work Zones $ User Costs Time

Step 4: Calculate NPV of Life-cycle Costs 1 Σ Net Present Value = of Costs (Costk) x (1 + d)nk k = 0 Costk = cost of activity N = length of analysis period d = discount rate nk = year of expenditure Present Value Factor

Step 5: Analyze the Results How do agency costs compare? How do user costs compare? Can trade-offs be made?

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

MAP-21 and LCCA

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)

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

GAO and Next Steps

Define Program Characteristics Obtain Data 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

Alternate Bidding 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. FHWA Program Performance Management

Consideration of Challenges LCCA Consistency Flexibility

LCCA Resources LCCA Case Study User Manual LCCA Primer LCCA Technical Bulletin http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.htm

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

Reference 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

Thank You Luis Rodriguez, P.E. Federal Highway Administration luis.rodriguez@dot.gov 404-562-3681 http://www.fhwa.dot.gov/resourcecenter/