Life Cycle Cost Analysis
Virginia Concrete Conference
March 6-7, 2014
Luis Rodriguez, P.E.
Federal Highway Administration
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Presentation Outline
 Life Cycle Cost Analysis Definition
 LCCA Five Steps Process
 Current Issues
 Resources / Reference
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Life-Cycle Cost Analysis 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.
Source: Transportation Equity Act for the 21st Century
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Transportation Performance Management
LCCA Overview
An analytical tool
to provide a cost comparison
between two or more competing design alternatives
producing equivalent benefits
for the project being analyzed.
The LCCA Process
 Step 1: Establish alternatives
 Step 2: Determine timing of required activities
 Step 3: Estimate agency and user costs
 Step 4: Compute life-cycle costs
 Step 5: Analyze the results
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Step 1: Establish Alternatives
 Activities to ensure performance
 Initial construction or rehabilitation activity
 Future rehabilitation and preservation activities
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Serviceability
Step 2: Determine Activity Timing
Service
Life
Terminal Serviceability Index
Time
Initial
Activity
Activity One
Activity Two
Analysis Period
Long enough to capture differences between alternatives
When will the future preservation and
countermeasure costs be incurred?
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Step 3: Estimate Agency and
User Costs
 Include cost elements that are different
between alternatives
 Exclude cost elements that are the same
between alternatives
Agency overhead costs
Real estate acquisitions
Normal operations user costs
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Step 3: Estimate Agency and
User Costs
 Approach fundamentals
Compare demand and capacity under
normal operations and work zone
conditions
Determine how traffic is impacted
Convert traffic impacts into costs
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Cash Flow Diagram
Initial
Activity
$
Agency
Costs
Initial Activity
Work Zone
$
User
Costs
Preservation
Activities
Preservation
Work Zones
Rehab 1
Rehab 1
Work Zone
Salvage or
Remaining
Value
Time
Time
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Step 4: Calculate NPV of
Life-cycle Costs
N
Σ
Net Present Value =
(Costk) x
of Costs
k=0
Costk
N
d
nk
= cost of activity
= length of analysis period
= discount rate
= year of expenditure
1
nk
(1 + d)
Present Value
Factor
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Step 5: Analyze the Results
 How do agency costs compare?
 How do user costs compare?
 Can trade-offs be made?
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Current Issues
• MAP 21 and LCCA
• GAO Report: LCCA – Pavement Selection
• LCCA and Alternative Bidding
Transportation Performance Management
MAP-21 and LCCA
Transportation Performance Management
MAP-21 to asset management?
Each State is required to develop a risk-based
asset management plan for the National
Highway System (NHS) to improve or preserve
the condition of the assets and the performance
of the system. (23 U.S.C. 119(e)(1), MAP-21 §
1106)
Transportation Performance Management
Highway Asset Management Plan
Plan Contents
– pavement and bridge inventory and conditions
on the NHS
– objectives and measures
– performance gap identification
– lifecycle cost and risk management analysis
– a financial plan
– investment strategies
Transportation Performance Management
GAO and Next Steps
Transportation Performance Management
GAO and Next Steps
 Define Program Characteristics
 Obtain Data
 Verify what was used was correct
 Document the Estimate
 Present Estimate for approval
 Update the Estimate
Alternate Bidding
 What is the FHWA position on alternate
bidding for pavement type selection? FHWA
considers alternate pavement type bidding a
suitable approach for determining pavement
type when engineering and economic analysis
does not indicate a clear choice between
different pavement designs.
FHWA Program Performance
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Transportation Performance Management
Consideration of Challenges
LCCA
LCCA Resources
LCCA Case
Study
User Manual
LCCA Primer
LCCA Technical
Bulletin
http://www.fhwa.dot.gov/infrastructure/asstmgmt/lcca.htm
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RealCost LCCA Software
• Microsoft Excel based application –
existing user expertise and user
customizable
• User interface – separates inputs
from analysis methodology
• Offers both Deterministic and
Probabilistic Analysis
• Available free of charge, regular
enhancements and technical
assistance from FHWA
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Reference
 FHWA LCCA Internet Site:
http://www.fhwa.dot.gov/infrastructure/asstmgmt
/lcca.cfm
 GAO Report : LCCA-Pavement Selection
http://www.gao.gov/products/GAO-13-544
 FHWA TA on Use of Alternative Bidding for
Pavement Type Selection:
http://www.fhwa.dot.gov/pavement/t504039.cfm
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Thank You
Luis Rodriguez, P.E.
Federal Highway Administration
luis.rodriguez@dot.gov
404-562-3681
http://www.fhwa.dot.gov/resourcecenter/
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