1. Deterioration models

2. Importance of deterioration model
For any asset
A deterioration model can be constructed ,
Predictions can be made regarding asset conditions without the need to carry out the CA survey, which is,
Time consuming and
Very expensive if done at microscopic level
Main issues with the construction of deterioration model
Time consuming process
Requires lots of data
Trial and error
A lot of testing and validation need to be carried out

3. Deterioration models
So far only two fields of study has comprehensive deterioration models;
Bridge and
Pavement
Model construction
Complex mathematical models
Markov chains
Bayesian models, amongst others.

4. AM stages Inventory Asset worth Asset conditions Asset deterioration
Decision making
Update database

5. Prioritization of assets
Tabulating assets in order of defined criticality
Option 1
Most defective asset ranked first and the rest follows with the last asset being the one requiring less attention
Option 2
Less defective asset ranked first and the rest follows with the last asset being the one requiring more attention

6. Prioritization of assets
Printer ID
Remaining Service Life
Cost to Maintain/repair/rehabilitate
Rank after Prioritization
PC0012 2
2,100
PC1120 3
3,090
PC0022
PC1102 1
1,500
PC2220
PC0007
PC0029

7. Benefit Cost Analysis
(BCA)

8. Introduction
BCA - systematic evaluation of the economic advantages (benefits) and disadvantages (costs) of a set of investment alternatives.
Base case is mandatory
Alternatives – betterment options
Alternatives are compared to base case.
A benefit-cost analysis tries to answer the question:
What additional benefits will result if this Alternative is undertaken, and what additional costs are needed to bring it about?

9. BCA
In the past, Asset managers were using engineering concepts solely for decision making with respect to which asset need to be repaired/rehabilitated or renew first.
Now apart from engineering concepts, they are also using economic theories – when they try to justify their investments – rate of return for every money spent.

10. BCA example - Highway system
Our agency, in this example, is managing highways.
What kind of benefits will be produced by improving highways? What are the Costs required to bring about the betterment/improvement.

11. BCA example - Highway system
Benefits
Travel time savings
VOC
Safety benefits
Costs
The value of the resources that must be consumed to bring the project about.
Capital costs
Major rehabilitation cost – over 20 years – analysis period
Routine annual maintenance costs
Remaining capital value – salvage value

12. BCA example - Highway system
For most transportation investments
costs are incurred in the initial years – short term
while the benefits from the investment accrue over many years into the future – long-term
When assessing the costs and benefits of a project, it is necessary to take into account the time value of money by converting the costs and benefits that take place in different years into a common year.
This process is known as discounting and converts future costs and benefits that occur in different years into a value for a common year (present value).

13. BCA
The present value (PV) of a future cost or benefit can be determined using the formula:
PV = AByi
(1 + r)(yi-yo)
Where:
PV = present value
AB (or AC) = annual benefit (or annual cost)
r = the discount rate
yi = the year in which the benefit or cost occurs
yo = the year of analysis (i.e., the year to which the future dollars are discounted)

14. Benefit cost ratio
After the future streams of costs and benefits are discounted, the sum of the discounted benefits is divided by the sum of the discounted cost. This can be represented by the following formula:
B/C = PV(Benefits) /PV(Costs)
B/C = Benefit-cost ratio
PV(x) = Present Value of x
If the result is greater than or equal to 1.0, the infrastructure improvement is economically justified.

15. Class exercise
5 groups
List the benefits and costs that you believe will help in determining the BC of the asset. Justify your answers.
Group #
Asset 1
Printers 2
Computers 3
Software 4
Bridges 5
Roads

16. Discussion Topic
For what type of assets would you consider building deterioration models?