Life Cycle Cost AnalysisBasics

Benjamin Krom, PEMichigan 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 247.651h) 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 Design

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

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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

Source: National Highway Institute Course No. 131113

Salvage

Value(if

used)

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 Design

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?