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

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

3. 3  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

4. 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

5. 5  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

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

7. 7 Terminal Serviceability Index Serviceability Initial Activity 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

8. 8  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

9. 9  Approach fundamentals  Compare demand and capacity under normal operations and work zone conditions  Determine how traffic is impacted  Convert traffic impacts into costs Step 3: Estimate Agency and User Costs

10. 10 Cash Flow Diagram User Costs Rehab 1 Work Zone Initial Activity Work Zone Preservation Work Zones Preservation Activities Rehab 1 Initial Activity Agency Costs $ $ Time Salvage or Remaining Value

11. 11 Step 4: Calculate NPV of Life-cycle Costs Net Present Value = of Costs N k = 0 Σ 1 (1 + d) n k (Cost k ) x Cost k = cost of activity N = length of analysis period d = discount rate n k = year of expenditure Present Value Factor

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

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

14. Transportation Performance Management MAP-21 and LCCA

15. 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)

16. 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

17. Transportation Performance Management GAO and Next Steps

18. 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

19. 19  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

20. Transportation Performance Management Consideration of Challenges Flexibility Consistency LCCA

21. 21 LCCA Resources LCCA Technical Bulletin LCCA Case Study LCCA Primer http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.htm User Manual

22. 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. 23  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 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

24. 24 Thank You Luis Rodriguez, P.E. Federal Highway Administration luis.rodriguez@dot.gov 404-562-3681 http://www.fhwa.dot.gov/resourcecenter/