Life Cycle Cost Analysis

Virginia Concrete Conference

March 6-7, 2014

Luis Rodriguez, P.E.

Federal Highway Administration

1
 Presentation Outline
Life Cycle Cost Analysis Definition
LCCA Five Steps Process
Current Issues
Resources / Reference

2
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

3
 Transportation Performance Management

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.
 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

5
 Step 1: Establish Alternatives
Activities to ensure performance
Initial construction or rehabilitation activity
Future rehabilitation and preservation activities

6
 Step 2: Determine Activity Timing
Serviceability

Terminal Serviceability Index

Time

Service Initial
Activity One Activity Two
Activity
Life Analysis Period
Long enough to capture differences between alternatives

When will the future preservation and

countermeasure costs be incurred?
7
 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

8
 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

9
 Cash Flow Diagram
Initial
Activity Rehab 1
$ Preservation
Activities
Agency
Costs
Salvage or Time
Remaining
Initial Activity Rehab 1 Value
Work Zone Work Zone
$ Preservation
User Work Zones
Costs
Time
10
 Step 4: Calculate NPV of
Life-cycle Costs
N
1
Net Present Value =
of Costs k=0

(Costk) x
(1 + d)nk

Costk = cost of activity Present Value

N = length of analysis period Factor
d = discount rate
nk = year of expenditure
11
 Step 5: Analyze the Results
How do agency costs compare?
How do user costs compare?
Can trade-offs be made?

12
 Current Issues

MAP 21 and LCCA

GAO Report: LCCA Pavement Selection
LCCA and Alternative Bidding
 Transportation Performance Management

MAP-21 and LCCA

 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)
 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
 Transportation Performance Management

GAO and Next Steps

 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
 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 19

19
 Transportation Performance Management

Consideration of Challenges

LCCA
 LCCA Resources

LCCA Case
Study

LCCA Primer User Manual

LCCA Technical
Bulletin

21
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

22
 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

23
 Thank You
Luis Rodriguez, P.E.
Federal Highway Administration
luis.rodriguez@dot.gov
404-562-3681

http://www.fhwa.dot.gov/resourcecenter/
24