1. Risk Analysis for Major Rehabilitation

2. Major Rehabilitation Background  Prior to FY 1992  Funded under Operation and Maintenance, General, Appropriation  FY 1992 and subsequent  Study funded in O&M  Construction funded under Construction General Appropriation  Compete with New Starts

3. Major Rehabilitation Background  Objectives of program  Reliability improve reliability of a feature thereby extending its physical life and deferring capital expenditures to replace the structure  Efficiency Improvement enhance operational efficiency increasing outputs beyond the original project design

4. Major Rehabilitation Background  Cost Threshold for Inclusion in Program:  Reliability Inland Navigation--$10.4 mil. All Other--$6.5 mil.  Efficiency Improvement All--$1.28 mil.  Provided each year in Budget EC

5. Major Rehabilitation Background  Analytical Requirements  Equivalent framework to planning studies

6. Major Rehabilitation Guidance  Major Points  Objective of the Analysis  Base Condition  Analysis of Alternatives

7. Objective of the Analysis  Determine the Economically Efficient Rehabilitation Strategy  Commensurate values that differ in terms of risk, monetary values, and timing

8. Analysis Must Answer 1.Why are we doing this now? 2.What are the consequences of not doing this now? 3.Which project or component is in the most critical condition? 4.Which alternative rehabilitation strategy is the best?

9. Steps in the Analysis 1.Establish the overall engineering condition and reliability identifying problems associated with critical project features. 2.Identify and define existing and potential reliability problems and opportunities for efficiency improvements. 3.Identify alternative methods to resolve or manage the problem

10. Steps in the Analysis (cont.) 4.Develop cost estimates for proposed solutions 5.Determine if proposed project is eligible for funding under major rehabilitation 6.Estimate economic benefits and costs of the base condition and alternatives. 7.Identify cost sharing requirements 8.Identify all environmental concerns

11. Steps in the Analysis (cont.) 9.Identify the recommended plan 10.Develop M-CACES cost estimate for the recommended plan 11.Prepare draft Project Cooperation Agreement (PCA) if required 12.Prepare Project Management Plan (PMP) for recommended alternative

12. Engineering and Economic Evaluation Considerations  Required information  Project outputs and costs Normal conditions Unplanned outage conditions  Current and future reliabilities of project operation  Base Condition  Any Rehabilitation Strategy

13. The Base Condition  The condition used as the baseline against which all rehabilitation alternatives are measured  conceptually equivalent to the "without" condition in new project evaluation  assumes that the existing O&M practices will continue in the absence of rehabilitation  emergency repairs of feature components as they occur

14. The Base Condition  Describe using event tree  Probabilistic Scenario Analysis

15. To T1 Tn-1 Tn

16. PUP Functions  Probability of Unsatisfactory Performance  Instantaneous probability of component not performing as designed  Typically related to age or number of operations  Unsatisfactory performance must have measurable consequences

17. Example PUP Function

18. Rehabilitation Alternatives  Advanced Maintenance Strategy  schedule repair or replace of component to avoid emergency repair  Planned Repair Strategy  stockpile replacement parts and develop emergency repair procedures to reduce service disruption

19. Rehabilitation Alternatives  Scheduled Rehabilitation Strategy  determine "optimum" timing for rehabilitation based on reliability, service degradation, and economic costs  Immediate Rehabilitation Strategy  Rehabilitation with Efficiency Improvement

20. Impact of Alternatives  Changes the life-cycle cost time path of the project

21. NED Cost Timeline Base condition: fix-as-fail Alternative: Rehabilitate then fix-as-fail

22. Analysis of Alternatives  Calculate the Expected Present Value of Benefits and Costs for Each Alternative  Each alternative modifies some part of Base Condition event tree Typically reduces PUP value resulting in reduced repairs and downtime losses Makes the component “younger”

23. Base Condition PV  E[C] = [(1-p f,0 ) C nf + p f,0 C f ]/ (1+r) 0 + [(1-p f,1 ) C nf + p f,1 C f ] / (1+r) 1 p f,0 = 0.1 p f,1 = 0.11 C nf = $100 C f = $10,000 r = 5.625% E[C] = $ 2,216

24. Rehab Condition PV  E[C] = [(1-p f,0 ) C nf + p f,0 C f ]/ (1+r) 0 + [(1-p f,1 ) C nf + p f,1 C f ]/ (1+r) 1 p f,0 = 0.01 p f,1 = 0.011 C nf = $100 C f = $10,000 r = 5.625% E[C] = $ 303

25. Analysis of Alternatives  Benefits  Avoided loss in project benefits compared to Base Condition  Avoided increase in project O&M and repair costs compared to Base Condition  Reduced project O&M costs

26. Analysis of Alternatives  Costs  Rehabilitation costs  Foregone project outputs during rehabilitation

27. Display of Results  Statistics of estimated benefits and costs (mean, variance, skew)  Tabular display of mean, standard error, and 90% confidence interval for net benefits of all alternatives  Graphic display of effect of alternatives on project benefits, costs, O&M costs, etc.

28. Example Results Table

29. Example Graphical Results

31. Decision Criteria  Rank alternatives based on expected present value of net benefits  choose alternative with largest expected present value  Supplement with risk considerations  probability that net benefit is positive  sensitivity analysis

32. Discussion