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Life Cycle Cost Analysis Basics

Benjamin Krom, PE Michigan Department of Transportation. Life Cycle Cost Analysis Basics. Presentation Disclaimer. Presentation is based on Federal Highway Administration guidance for conducting LCCAs

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Life Cycle Cost Analysis Basics

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  1. Benjamin Krom, PE Michigan Department of Transportation Life Cycle Cost AnalysisBasics

  2. 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 247.651h) requirements

  3. 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.”

  4. 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 costanalysis • “Cradle to grave” analysis • “Womb to tomb” analysis

  5. 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

  6. 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 Design

  7. 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

  8. 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

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

  10. Step 1: Establish Alternatives • Develop at least 2 mutually exclusive pavement design options

  11. Concrete Reconstruction HMA Reconstruction Unbonded Concrete Overlay HMA over Rubblized Concrete

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

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

  14. 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

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

  16. 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

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

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

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

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

  21. 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

  22. 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 Design

  23. 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)

  24. Questions?

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