Life Cycle Cost

Analysis of Pavement
(20MCT505T) Pavement Management System

Presented by: Guided by:

Nidhi Jariwala Dr. Maheshbabu Jallu

(21MCT007)
 TABLE OF
CONTENTS
01 INTRODUCTION 02 TYPES OF COSTS

03 ALTERNATIVE
STRATEGIES
04 AGENCY AND USER
COSTS

EXPENDITURE STREAM SENSITIVITY ANALYSIS

05 06

FINAL DESIGN SUMMARY

07 STRATEGY 08
 01
INTRODUCTI
ON
 INTRODUCTION
 Life-cycle cost analysis (LCCA) is a method for assessing the total cost of
facility ownership.

 It takes into account all costs of acquiring, owning, and disposing of a

building or building system.

 For example, for a highway pavement, in addition to the initial construction

cost, LCCA takes into account all the user costs, (e.g., reduced capacity at
work zones), and agency costs related to future activities, including future
periodic maintenance and rehabilitation.

 All the costs are usually discounted and total to a present-day value known
as net present value (NPV).
 LCCA is especially useful when project alternatives
that fulfill the same performance requirements, but
differ with respect to initial costs and operating costs,
have to be compared in order to select the one that
maximizes net savings.

 The purpose of an LCCA is to estimate the overall

costs of project alternatives and to select the design
that ensures the facility will provide the lowest overall
cost of ownership consistent with its quality and
function.

 The LCCA should be performed early in the design

process while there is still a chance to refine the design
to ensure a reduction in life-cycle costs (LCC).
02
TYPES OF COSTS
 INITIAL
COSTS

OTHER OMR
COSTS COSTS

RESIDUAL FUEL
VALUES COSTS

REPLACEMENT
COSTS
 There are numerous costs associated with acquiring, operating,
maintaining, and disposing of a building or building system.

Initial Costs OPERATION,

• Initial costs may MAINTENANCE AND
include capital • Non-fuel operating costs, and
REPAIR COSTS
maintenance and repair
investment costs
for land acquisition, (OM&R) costs are often more
construction, or difficult to estimate than
renovation and for other expenditures.
the equipment Operating schedules and
needed to operate a standards of maintenance
facility. vary from road to road; even
for buildings of the same
type and age.
Fuel Costs Replacement Residual
Costs Values
• Operational expenses • Replacement cost is • The residual value
for energy, water, and the price that an of a system (or
other utilities are entity would pay to component) is its
based on replace an existing remaining value at
consumption, current asset at current the end of the
rates, and price market prices with study period, or at
projections. a similar asset. the time it is
replaced during the
study period.
OTHER
COSTS
 Finance charges and taxes: Applicable if a project is financed
through an Energy Savings Performance Contract (ESPC) or
Utility Energy Services Contract (UESC).

 Non-monetary benefits or costs: These are project-related

effects for which there is no objective way of assigning a
dollar value. They are spent in the form of time, convenience,
effort and psychology.
 IMPORTANT TERMS

Benefit/Cost Internal Rate Net Present

(B/C) Ratio of Return Value
o Net discounted o Method used to o NPV is the
benefits of an estimate the discounted
alternative divided profitability of the monetary value of
by net discounted potential expected net
costs. investment. benefits (i.e.
benefits minus
o B/C ratios greater o It is the discount costs).
than 1 .0 indicate rate that makes
that benefits the net present o Formula is:
exceed cost. value of an
investment equals NPV = PVbenefits – PVcosts
zero.
 Discount Rates

 LCCA can use either real or nominal discount rates.

 Real discount rates reflect the true-time value of money with no

inflation premium and should be used in conjunction with non-
inflated dollar cost estimates of future investments.

 Nominal discounts rates include an inflation component and should

only be used in conjunction with inflated future dollar cost estimates
of future investments.

 To make cash flows time-equivalent, the LCCA method converts

them to present values by discounting them to a common point in
time, usually the base date.
 03
ALTERNATIV
E
STRATEGIES
 The primary purpose of the LCCA is to quantify both the long-term as well as
the short-term implication of various alternative strategies.

 A pavement design strategy is the combination of initial pavement design and

necessary supporting maintenance and rehabilitation activities.

 Analysis period is the time horizon over which life-cycle costs are evaluated.

 The first step in conducting an LCCA of alternative pavement design is to

identify the alternative pavement design strategies for the analysis period
under consideration.
 The analysis period should always be longer than the pavement design
period, except in the case of extremely long-lived pavement.

 The FHWA recommends an analysis period of at least 35 years for all

pavement projects, including new or total reconstruction projects, as well
as rehabilitation, restoration, and resurfacing projects.

 Performance period:

 Performance life for the initial pavement design and subsequent

rehabilitation activities has a major impact on LCCA results.

 It directly affects the frequency of agency intervention on the highway

facility, which in turn affects the frequency of agency cost, as well as user
costs during the period of construction and maintenance activities.
 04
AGENCY AND
USER COSTS
 Agency Costs
 Agency costs include all costs incurred directly by the agency over the life of
the project.

 They typically include initial construction supervision and construction costs, as

well as future routine and preventive maintenance, resurfacing and
rehabilitation cost, and the associated administrative cost.

 The first step in estimating agency costs is to determine construction

quantities/unit price.

 LCCA needs only consider differential costs between alternatives.

 Costs common to all alternatives cancel out.

 User Costs
 In LCCA, highway user costs of concern are the apparent and
hidden costs incurred by the motoring public.

 User costs are an aggregation of three separate cost components:

vehicle operating costs (VOC), user delay costs, and crash costs.

 In the LCCA of pavement design alternatives, there are user costs

associated with both normal operations and work zone operations.
 The normal operations category reflects highway user costs associated
with a facility during periods free of construction activities.

 The work zone operations category, however, reflects highway user costs
associated with using a facility during periods of construction,
maintenance, and/or activities that generally restrict the capacity of the
facility and disrupt normal traffic flow .
The work zone user costs are quantified by the following approach:

1. Project future year traffic demand ;

2. Calculate work zone directional hourly demand ;
3. Determine roadway capacity;
4. Identify the user cost components;
5. Quantify traffic affected by each component ;
6. Compute reduced speed delay ;
7. Select and assign VOC cost rates ;
8. Select and assign delay cost rates;
9. Assign traffic to vehicle classes;
10. Compute individual user cost components by vehicle
class;
11. Sum total work zone user costs ; and
12. Address the crash costs.
 05
EXPENDITURE
STREAM
 TYPICAL
EXPENDITURE
STREAM DIAGRAM
 MAIN
 COMPETITORS
Expenditure stream diagrams
time.
are graphical representations of expenditure over

 Normally, costs are depicted as upward arrows at the appropriate time they
occur during the analysis period, and benefits are represented as negative costs
or downward arrows.

 In LCCA of pavement design alternatives, the benefits of providing the specific

level of pavement condition are considered to be the same for all pavement
design strategies.

 As a result, the only concerns are the differential costs among alternatives.

 The only negative cost would be the cost associated with any salvage value.
Example:
 The initial design will cost $1,100, $1,100,000 and have an associated
work zone cost of $300,000 at year 0. Additional rehabilitation costs of
$325,000 will be incurred in years 15 and 30. Associated work zone
user costs in years 15 and 30 will be $269,000 and $361,000,
respectively . The salvage value at year 35, based on a prorated cost of
the year-30 rehabilitation design and remaining life, will be $216,000
(10/15 of $325,000) . The expenditure stream diagram is shown in
Figure. The results of PV computations using 4% PV factors for single
future amounts for the example expenditure stream diagram are shown
in Table.
 06
SENSITIVITY
ANALYSIS
 Sensitivity analysis is a technique used to determine the influence of
major LCCA input assumptions, projections and estimates on LCCA
results.

 In a sensitivity analysis, major input values are varied (either within

some percentage of the initial value or over a range of values) while all
other input values remain constant and the amount of changes in
results is noted.

 The input variables may be ranked according to their effect on results.

 Sensitivity analysis allows the analyst to subjectively get a feel for the
impact of the variability of individual inputs on overall LCCA results.
 Tables E.3 and E .4 present the results of a
sensitivity analysis on two pavement
design strategies at discount rates ranging
from 2–6% for a 35-year period.

 Alternative 1 has a lower initial agency

cost, and, because of a shorter
construction period, a lower user cost than
Alternative 2.

 However, Alternative 1 requires three

identical 10-year design rehabilitations
compared to an identical 15-year design
rehabilitation for Alternative 2 .
 The sensitivity analysis reveals that the NPV of both alternatives
decreases as the discount rate increase.

 This results from the reduced present value of future costs at higher
discount rates.

 Because the amount and timing of future costs differ between

alternatives, the effect of discounts on the NPV is different for each
alternative.

 In this example, Alternative 1 is more expensive than Alternative 2 at

discount rates of 5 % and lower, while Alternative 2 is more expensive
than Alternative 1 at a discount rate of 6% or more.
 07
FINAL DESIGN
STRATEGY
 Once the NPVs have been computed for each alternative and limited sensitivity
analysis performed, the analyst needs to step back and reevaluate the
competing design strategies.

 As noted, the overall benefit of conducting a LCCA 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.

 LCCA results are just one of many factors that influence the ultimate selection
of a pavement design strategy.

 The final decision may include a number of additional factors outside of the
LCCA process, such as local politics, availability of funding, industry capability to
perform the required construction, and agency experience with a particular
pavement type.
 08
SUMMARY
Typically, LCCA involves the following basic steps:

 Make initial strategy and analysis decisions: Certain baseline decisions, estimates and
assumptions are needed in order to establish the parameters under which a LCCA can
be carried out.

 Estimate costs: Costs associated with the owning agency and users are calculated for
each alternative.

 Compare alternatives: Comparison usually involves expressing each alternative using a

common metric such as net present value (NPV) or benefit-cost ratio (B/C).

 Analyze the results and reevaluate alternatives: Results should be scrutinized for the
most influential costs, factors and assumptions. A sensitivity analysis is often used to
do this. Original design strategy alternatives should be reevaluated base on these
results analysis in order to improve the cost-effectiveness of each alternative.
 REFERENCES
● Life-Cycle Cost Analysis (LCCA) | WBDG - Whole Building Design
Guide
● Life-cycle cost analysis – Wikipedia
● “Pavement Analysis and Design” by Yang H. Huang
● Life-Cycle Cost Analysis – Pavement Interactive
THANK
YOU!
ANY QUESTIONS?