Life Cycle Cost Analysis Basics Benjamin Krom PE

Life Cycle Cost Analysis Basics Benjamin Krom, PE Michigan Department of Transportation

Presentation Disclaimer �Presentation is based on Federal Highway Administration guidance for conducting LCCAs �MDOT’s LCCA practice differs, partially to meet Public Act 79 of 1997 (MCL 247. 651 h) requirements

LCCA: What is it? � 2012 MAP-21 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. ”

LCCA: What is it? �Basic parts: A process to evaluate competing alternatives Well-founded economic analysis principles Total costs over the entire life of the asset �AKA: Total cost of ownership analysis Whole-life cost analysis “Cradle to grave” analysis “Womb to tomb” analysis

LCCA: What it IS An analytical tool to provide a cost comparison between 2 or more competing design alternatives producing equivalent benefits for the project being analyzed. Source: National Highway Institute Course No. 131113

LCCA: What it IS “It attempts to identify the best value (the lowest long-term cost that satisfies the performance objective being sought) for investment expenditures. ” Source: FHWA, Life-Cycle Cost Analysis in Pavement

LCCA: What it is NOT �Benefit-cost analysis Used to compare project alternatives that: ▪ Do not provide identical benefits ▪ Accomplish different objectives ▪ Determine if the project should be done at all

LCCA: What can be included? �For Pavements: Initial construction costs Future rehabilitation/maintenance costs User delay costs (initial & future) Salvage value/remaining service life value

LCCA Process Steps 1. Establish pavement design alternatives 2. Determine maintenance/rehab timing 3. Estimate agency & user costs 4. Compute life-cycle costs 5. Analyze the results Source: National Highway Institute Course No. 131113

Step 1: Establish Alternatives �Develop at least 2 mutually exclusive pavement design options

HMA Reconstruction Concrete Reconstruction HMA over Rubblized Concrete Unbonded Concrete Overlay

Step 1: Establish Alternatives �Develop at least 2 mutually exclusive pavement design alternatives �Future maintenance/rehab activities Forecasted maintenance schedules Historical practices

Source: FHWA, Life-Cycle Cost Analysis in Pavement Design

Step 1: Establish Alternatives �Develop at least 2 mutually exclusive pavement design alternatives �Future maintenance/rehab activities Forecasted maintenance schedules Historical practices �Choose an analysis period Typically, long enough to capture at least 1 maintenance/rehabilitation activity Same for all alternatives

Step 2: Maintenance Timing When will the future maintenance & rehabilitation costs be incurred? Source: FHWA, Life-Cycle Cost Analysis Primer

Step 3: Estimate Costs �Include cost elements that are different between alternatives �Exclude cost elements that are the same between alternatives Agency overhead costs Normal operations user costs Planting grass, installing guardrail, etc. Source: National Highway Institute Course No. 131113

Step 3: Estimate Costs Salvage Value (if used) Source: National Highway Institute Course No. 131113

Step 3: Estimate Costs Source: MDOT Pavement Design & Selection Manual

Step 4: Compute Life-Cycle $’s Source: National Highway Institute Course No. 131113

Step 4: Compute Life-Cycle $’s Source: National Highway Institute Course No. 131113

Step 5: Analyze the Results �Compare agency & user costs between the design alternatives �Typically NOT the final decision; consider: Risk Available budgets Politics Environmental concerns Others

Step 5: Analyze the Results “…the overall benefit of conducting a life-cycle cost analysis is not necessarily the LCCA results themselves, but rather how the designer can use the information resulting from the analysis to modify the proposed alternatives and develop more cost-effective strategies. ” Source: FHWA, Life-Cycle Cost Analysis in Pavement

LCCA Sources/References �Basic: Life-Cycle Cost Analysis Primer (FHWA Publication; August 2002) �Intermediate: Life-Cycle Cost Analysis in Pavement Design (FHWA Publication; September 1998) �Advanced: Guide for Pavement-Type Selection (NCHRP Report 703; 2011)

Questions?