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

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

3. 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

4. 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

5. 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

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

7. 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?

8. 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

9. 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

10. 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

11. Step 4: Calculate NPV of Life-cycle Costs1 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

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

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

14. MAP-21 and LCCA

15. 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)

16. 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

17. GAO and Next Steps

18. 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

19. 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

20. Consideration of Challenges
LCCA
Consistency
Flexibility

21. LCCA Resources LCCA Case Study User Manual LCCA Primer LCCA Technical
Bulletin

22. 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

23. Reference FHWA LCCA Internet Site:
GAO Report : LCCA-Pavement Selection
FHWA TA on Use of Alternative Bidding for Pavement Type Selection:

24. Thank You Luis Rodriguez, P.E. Federal Highway Administration