Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -
description
Transcript of Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -
![Page 1: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/1.jpg)
Life Cycle Cost Analysisin Pavement Design
- In Search of Better Investment Decisions -
Office of Asset Management
Federal Highway Administration
Executive Session
![Page 2: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/2.jpg)
FHWA LCCA Methodology
Steps1. Establish Design Alternatives
2. Determine Activity Timing
3. Estimate Agency and User Costs
4. Compute Life-Cycle Costs
5. Analyze the Results
![Page 3: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/3.jpg)
Inputs are discrete or point values•Initial costs are $11M•The discount rate is 4%
Outputs are discrete•Alternative “A” total cost = $20.5M•Alternative “B” total cost = $26.0M
Deterministic Approach
![Page 4: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/4.jpg)
Deterministic Limitations
Doesn’t Address: Statistical Significance Variability
Subject to Manipulation
Lacks Credibility
![Page 5: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/5.jpg)
Captures the uncertainty in the inputs,
Carries that uncertainty through the computation process to generate a
Probability distribution of result (a range of possible outcomes
along with their likely hood of occurrence).
Probabilistic Approach
![Page 6: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/6.jpg)
$
%
Inputs
NetPresentValue
Results
M
O
D
E
L
Simulation Modeling
![Page 7: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/7.jpg)
Deterministic ApproachProject cost estimate is $12 million
Probabilistic Approach 75 percent chance the project will cost $12 million or less.
LCCA Results
![Page 8: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/8.jpg)
Accounting for variability in inputs:
•Activity timing, costs, discount rate
Quantitatively determines risk in alternative
strategy selection
Elevates the decision from questioning the
inputs to discussing the merits of each
alternative
Role of Probability in LCCA
![Page 9: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/9.jpg)
Agency NPV
B
A
Fre
quen
cy
Net Present Value
![Page 10: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/10.jpg)
Advantages
More Informed Decisions• Evaluate all possible outcomes
• Expose areas of uncertainty...Quantify risk
• Determine significance of difference between alternatives
• Examine influence of underlying variables on final results
• Provide those vested with appropriate authority the opportunity to make decisions about risk taking
![Page 11: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/11.jpg)
Benefits of LCCA Software
Performs LCCA as per FHWA best practice Requires same data inputs as manual
process Better, faster & cheaper analysis Automates user cost process
![Page 12: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/12.jpg)
Software Data Input
![Page 13: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/13.jpg)
Software Data Input
![Page 14: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/14.jpg)
Software Outputs
![Page 15: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/15.jpg)
Software Outputs
![Page 16: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/16.jpg)
4. Why Use LCCA
Requirements
FHWA’s Philosophy
Benefits of LCCA
![Page 17: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/17.jpg)
LCCA Requirements
NHS Designation Act (1995)Required States to conduct LCCA of
each NHS high cost ($25M or more) useable project segment.
TEA-21 (1998)Eliminated this requirement.
![Page 18: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/18.jpg)
FHWA Philosophy
LCCA: Decision support tool Results are not decisions Rigorous analytical process can be as important as the results
![Page 19: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/19.jpg)
Benefits of LCCA
Better information for decisions Improved rehabilitation strategies Consideration of user costs Support for overcoming the
“first cost” limitations
![Page 20: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/20.jpg)
FHWA LCCA Guidance
LCCA Software LCCA Primer, Technical Bulletin
DP-115 http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.htm
![Page 21: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/21.jpg)
5. Management’s Role
Management Support for Development and Application of LCCA.
Develop LCCA Guidelines including Recommendations on Input Values
![Page 22: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/22.jpg)
Management Support
Requires “buy-in” of risk management by senior executives
Technical Champion Top management support
![Page 23: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/23.jpg)
Developing Guidelines Analysis Periods Type of Dollars…Treatment of Inflation Type and Value of Discount Rates Treatment of User Cost Value assigned to user delay time Choice of Economic indicator Remaining service Life Ignore Sunk Cost
![Page 24: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/24.jpg)
Developing Guidelines Analysis Periods Type of Dollars…Treatment of Inflation Type and Value of Discount Rates Treatment of User Cost Value assigned to user delay time Choice of Economic indicator Remaining service Life Ignore Sunk Cost
![Page 25: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/25.jpg)
FHWA Recommends
• Real dollars and a real discount rate - do not account for inflation
• A real discount rate range of 3% to 5%
• Never mix real and nominal (inflation adjusted) costs and discount rate
Discounting … a mechanism for quantifying the time value of money
Developing Guidelines
![Page 26: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/26.jpg)
Observations: Traffic grows over time Queuing cost dominate Hourly distributions key $ Value of time has a major influence Normal VOC between alternatives
negligible
Developing Guidelines
User Costs are calculated through a capacity analysis.
![Page 27: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/27.jpg)
Passenger Vehicle $10 - $13
Single Unit Truck $17 - $19
Combo Truck $21 - $24
Value of Time Recommendations...
Developing Guidelines
1996 Dollars
![Page 28: Life Cycle Cost Analysis in Pavement Design - In Search of Better Investment Decisions -](https://reader034.fdocuments.in/reader034/viewer/2022051416/5681455c550346895db22dcf/html5/thumbnails/28.jpg)
Things to Remember
LCCA Decision Support Tool NHS LCCA Requirements Document Inputs Dispose of all Issues Provide Confidence Information