Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
6. PAVEMENT TYPE SELECTION
Pavement type selection is the process used to determine the most appropriate and cost-effective
(barring any other overriding factors) pavement or rehabilitation type for a specific project. In
general, it involves the identification of feasible pavement/rehabilitation alternatives that meet
the needs and constraints of the project, a detailed evaluation of the economics of each
alternative, and a rational, systematic assessment of other important factors (e.g., traffic, soils,
construction considerations, past performance, future maintenance) that may influence the
selection of the preferred alternative.
A key component of the pavement type selection process is a life-cycle cost analysis (LCCA).
LCCA is “a process for evaluating the total economic worth of a usable project segment by
analyzing initial costs and discounted future cost, such as maintenance, user, reconstruction,
rehabilitation, restoring, and resurfacing costs, over the life of the project segment (USDOT
1998).” It attempts to identify the best value (i.e., the lowest long-term cost that satisfies the
performance objective being sought) for investment expenditures (Walls and Smith 1998).
Federal Policy Regarding Pavement Type Selection and LCAA
At the Federal level, policy statements for both pavement type selection and LCCA procedures
are available. These policies are subject to change and users should confirm that they are
accessing the latest version.
Pavement Type Selection
There are essentially two pavement-related policies in effect at the Federal level (Wathne 2011).
The FHWA Policy Regarding Pavement Type Selection and LCCA (FHWA 1999) sets
pavement design policy for federal-aid highway projects, essentially stating that pavements
should be designed to accommodate current and future traffic needs in a safe, durable, and costeffective manner. The policy indicates that the analysis period should be long enough to include
at least one pavement rehabilitation. The FHWA Pavement Type Selection Policy Statement
(FHWA 1981) addresses pavement type selection specifically (Wathne 2011). It indicates that
(a) pavement type selection should be based upon an engineering evaluation considering the
factors contained in the 1960 AASHO publication titled An Informational Guide on Project
Procedures, (b) pavement type determination should include an economic analysis based on
LCCA of pavements, and (c) economic analysis and pavement type selection should be updated
just prior to advertising. Each agency should have a rational method for pavement type
selection, one method of which is contained in this guide.
LCCA
The National Highway System (NHS) Designation Act of 1995 specifically required States to
conduct LCCA on NHS projects costing $25 million or more (Walls and Smith 1998). The
Federal Highway Administration (FHWA) position on LCCA was further defined in its Final
Policy Statement on LCCA published in 1996 stating that LCCA is a decision support tool, and
the results of LCCA are not decisions in and of themselves (Walls and Smith 1998). In 1998, the
Transportation Equity Act for the 21st Century (TEA-21) removed the requirement for LCCA on
NHS projects. However, interest in and progress toward developing standard procedures has
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
continued, particularly at the State level (Lamptey et al. 2005; Demos 2006; Rangaraju,
Amirkhanian, and Guven 2008; Caltrans 2010; WSDOT 2010).
Furthermore, non-regulatory guidance provided under FHWA 23 CFR 626, Pavement Policy
(which sets forth pavement design policy for Federal-aid projects) recommends an engineering
economic analysis, which involves considering alternative pavement design strategies and
conducting a life-cycle cost analysis (Stephanos 2008).
Guidance for Pavement Type Selection
The American Association of State Highway and Transportation Officials (AASHTO) current
guidance on pavement type selection is found in Appendix B of the AASHTO Guide for Design
of Pavement Structures (AASHTO 1993). Figure 6-1 outlines the pavement type selection
process contained in the 1993 AASHTO Guide. The flowchart in this figure represents the basic
process that is followed in whole or in part when making pavement type selection decisions.
1. Are there
overriding
principal factors
which dictate
pavement type
No
3. Economic
Analysis of
typical sections.
Is one type
clearly superior?
2. Develop
preliminary
designs for
typical sections
4. Evaluate
secondary
factors
No
Yes
No
Yes
8. Select final
pavement type
and design
Yes
7. Is design
reasonably close
to typical design
used in analysis
6. Perform
detailed
pavement
design
5. Preliminary
pavement type
selection
Figure 6-1. Pavement-type selection process (AASHTO 1993) Used by permission.
Historically, most transportation agencies have been responsible for pavement design, pavement
type selection, construction material selection, the level of service at which the pavement is to be
maintained, and the timing of rehabilitation (Hallin et al. 2011). Policies governing pavement
design, construction, and maintenance have typically consisted of internal guidelines. In
addition, agencies have largely been responsible for materials and construction quality
control/quality assurance (QC/QA). Contractors, in general, have not been involved in the
pavement type selection and design process, but instead have focused on the construction of the
pavements as part of a competitively bid contract (referred to as design-bid-build contracts).
Over the last couple decades, a gradual shift in responsibilities from the highway agency to
consultants and contractors has occurred due to smaller operating budgets and the corresponding
need for more innovative ways of designing, building, and maintaining roads. Initially, such
shifts included the outsourcing of design to private consultants and increased involvement on the
part of contractors in performing materials and construction QC/QA testing. Subsequent shifts
took the form of non-traditional contracting techniques, such as cost-plus-time bidding
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
(sometimes called A+B bidding), lane rental, design-build, and warranty practices) (FHWA
2002). And, more recently, other forms of alternative contracting (e.g., alternate bidding, designbuild-maintain/operate, public private partnerships) have been used which have resulted in
contractors and contractor-designer consortiums (i.e., concessionaires) playing a more
substantive role in pavement selection and design.
Updated guidance on pavement type selection is outlined in the Guide for Pavement Type
Selection (Hallin et al. 2011). Key steps in the pavement type selection process include:
1. Agency planning and programming.
a. Determine contracting type (for additional information see Anderson and
Damnjanovic 2008).
i. Traditional design-bid-build – traditional agency-based selection process or
alternate pavement-type bidding where the agency generally identifies
equivalent alternatives.
ii. Design-build – agency determined pavement type or contractor selected based
on specified criteria.
iii. Operate and maintain – typically based on contractor-based selection and
generally include agency input for identifying feasible alternatives.
b. Establish a pavement-type selection committee
i. Representatives from design, materials, construction, and maintenance.
ii. Provides a formal mechanism for the pavement-type selection process.
2. Identify feasible pavement alternatives.
a. Develop list of potential alternatives, taking into consideration:
i. National and state research studies.
ii. Regional experience.
iii. Type and size of project.
b. Develop list of alternatives based on project specific details, taking into
consideration:
i. Functional class.
ii. Traffic level/composition.
iii. Existing pavement condition and historical condition trends.
iv. Existing pavement properties (structure, drainage, surface characteristics).
v. Roadway peripherals.
c. Develop pavement life-cycle strategies, service lives, and future treatments.
i. Structural and functional performance.
ii. Initial construction.
iii. Preservation and rehabilitation treatments.
3. Conduct the life-cycle cost analysis.
a. Agency costs.
b. User costs.
c. Net present value.
4. Evaluate economic and noneconomic factors
a. Economic factors include initial costs, preservation costs, maintenance costs, user
costs, and life-cycle costs.
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
b. Noneconomic factors include such items as geometrics, pavement continuity,
conservation of materials/energy, noise, safety, and sustainability.
5. Select the most-preferred pavement type.
The FHWA also provides guidance for conducting pavement type selection at the project level in
the Life-Cycle Cost Analysis in Pavement Design (Walls and Smith 1998). This guidance centers
on a 10-step process and is conducive to both traditional and alternate bidding approaches (see
Figure 6-2).
Step 2. Establish LCCA
Framework
Step 3. Develop Alternative
Pavement Strategies
Step 1. Define Project Scope
Step 4. Determine Expected
Pavement Performance and
Maintenance and Rehabilitation
Activity Timings
Step 5. Estimate
Direct/Agency Costs
Step 9. Analyze Results
Step 6. Estimate Indirect/User
Costs
Step 8. Compute Life-Cycle
Costs
Step 7. Develop Expenditure
Stream Diagram
NO
Step 10. Reevaluate
Pavement Strategies
(Is the most economical
strategy identified?)
YES
Selection of Preferred
Pavement Strategy
(consider other factors )
Figure 6-2. Process for conducting project-level pavement LCCA (Walls and Smith 1998).
Guidance for Life Cycle Cost Analysis
The analytical framework that LCCA fosters is as important as the results themselves. Although
LCCA is occasionally used at the network level for project programming/selection, it is
predominantly used at the project level to compare different design alternatives, including new
and rehabilitation designs involving different pavement surface types, different mix and crosssectional thickness designs, different subsurface and shoulder designs, and so on (Walls and
Smith 1998).
Furthermore, although the concepts and principles of LCCA are fairly uniform, the application of
LCCA in practice varies considerably according to agency philosophy, policy, and preferences.
This means that different cost factors, different inputs and bases, and different analysis periods
may be used by different highway agencies, who may also employ different software programs
and interpretive tendencies (Walls and Smith 1998).
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Development of Components/Inputs
A number of components/inputs are needed for conducting an LCCA. These include the analysis
period, the economic formula, the discount rates, various cost factors (i.e., agency costs and user
costs), computational approach, pavement performance period, and life-cycle expenditure
models, all of which are further described in this section.
Analysis Period
Analysis period is the time over which future costs are analyzed. The analysis period should be
sufficient to reflect long-term cost differences associated with the identified design strategy
alternatives; that is, in general, the analysis period should be somewhat longer than the pavement
design life and at least long enough to include one rehabilitation activity, except in the case of
extremely long-lived pavements where multiple rehabilitation activities would be included
(Walls and Smith 1998).
The FHWA’s LCCA Policy statement (FHWA 1996) recommends a minimum analysis period of
35 years for all pavement projects. However, a shorter analysis period may sometimes be
appropriate, such as when a rehabilitation is being performed as a stopgap measure until total
reconstruction, when the terminal serviceability of all alternatives are less than 35 years, or when
the analysis could benefit from simplified salvage value calculations (Walls and Smith 1998).
Other sources (Hallin et al. 2011) recommend an analysis period of 40 to 50 years for new and
reconstructed pavements, while rehabilitation projects should consider a period of at least 30
years. Regardless, the analysis period used should be the same for all alternatives. Figure 6-3
shows a typical analysis period for a pavement design alternative.
Pavement Condition
Rehabilitation
Terminal Serviceability
Analysis Period
Pavement Life
Figure 6-3. Illustration of analysis period for a pavement design strategy
(redrawn from Walls and Smith 1998).
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Economic Formulas
LCCA is a form of economic analysis focusing on the relationship between costs, timings of
costs, and discount rates used to evaluate the long-term economic efficiency between alternative
investments. Once all costs and their timing have been developed, future costs must be
discounted to the base year and added to the initial cost to determine the Net Present Value
(NPV), or Net Present Worth (NPW) for each alternative (Walls and Smith 1998). The basic
NPV formula for discounting discrete future amounts at various points in time back to some base
year is shown in Equation 6-1.
n
N
 1 
 1 
NPV  Initial Cost   Rehab Cost k 

Salvage 


k 1
1  i  k 1
1  i 
N
A
(6-1)
where:
NPV
Initial Cost
Rehab Cost
i
n
A
Salvage
=
=
=
=
=
=
=
net present value
initial construction cost
future rehabilitation cost(s)
discount rate
year of expenditure
analysis period
salvage value at the end of the analysis period.
Alternatively, the equivalent uniform annualized cost (EUAC) may be used to express LCCA.
The EUAC represents the NPV value of all discounted costs distributed evenly over the analysis
period (see Equation 6-2).
 i (1  i) A 
EUAC  NPV 
A1 
 (1  i) 
(6-2)
where:
EUAC
NPV
i
A
=
=
=
=
equivalent uniform annualized cost
net present value (determined using Equation 6-1)
interest rate
analysis period
Discount Rate
The discount rate is critical to LCCA as it represents the real value of money over time and is
used to convert future costs to present-day costs. “Real” discount rates reflect the value of
money with no inflation premium and should be used in conjunction with non-inflated dollar cost
estimates of future investments, while “nominal” discount rates include an inflation component
and should only be used in conjunction with inflated future dollar cost estimates (Walls and
Smith 1998). Most agencies use non-inflated or “real” dollar costs estimates, and consequently
must use “real” discount rates. Discount rates can significantly influence the analysis result, and
thus, a reasonable discount rate reflecting historical trends over long periods of time should be
used (Walls and Smith 1998). Equation 6-3 may be used to calculate the discount rate. The
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
discount rate may also be estimated as the difference between the market interest rate (commonly
the US treasury rate) and inflation (commonly the consumer price index), using constant dollars.
𝑑=
𝑖
(6-3)
(1+𝑖)
where:
d
i
= discount rate
= interest rate
In 1995 and 1996, the FHWA Office of Engineering, Pavement Division, conducted a national
pavement design review and found that the discount rates used by many DOTs were in the range
of 3- to 5- percent (Walls and Smith 1998). Table 6-1 shows trends in real discount rates for
analysis periods published over the last 14 years. The last few years indicate a discount rate
closer to 2-percent reflects recent trends.
Table 6-1. Recent trends in real interest treasury (discount) rates (OMB 2014)
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Average
Std Dev
3
3.8
3.2
2.1
1.6
1.6
1.7
2.5
2.5
2.1
0.9
0.9
0.0
0.0
-1.4
1.5
1.3
5
3.9
3.2
2.8
1.9
2.1
2.0
2.6
2.6
2.3
1.6
1.6
0.4
0.4
-0.8
1.9
1.2
Analysis Period (years)
7
10
4.0
4.0
3.2
3.2
3.0
3.1
2.2
2.5
2.4
2.8
2.3
2.5
2.7
2.8
2.7
2.8
2.4
2.6
1.9
2.4
1.9
2.2
0.8
1.3
0.8
1.3
-0.4
0.1
2.1
2.4
1.1
0.9
20
--------3.4
3.0
3.0
3.0
2.8
2.9
2.7
2.1
1.7
0.8
2.5
0.7
30
4.2
3.2
3.9
3.2
3.5
3.0
3.1
3.0
2.8
2.7
2.7
2.3
2.0
1.1
2.9
0.7
Agency Costs
Agency costs include all costs incurred directly by the agency over the analysis period. These
costs typically include initial preliminary engineering, contract administration, construction
supervision and construction costs, as well as future routine and preventive maintenance,
resurfacing and rehabilitation, and associated administrative costs (Walls and Smith 1998).
Construction costs are directly related to the design of both the initial structure as well as that of
the anticipated rehabilitation activity. The first step in estimating agency costs is to determine
6-7
Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
construction quantities and unit prices. Unit prices can be determined from historical data on
previously bid jobs of comparable scale (Walls and Smith 1998).
Routine maintenance cost data are normally not available; fortunately, such costs are generally
low. Furthermore, what data exists regarding routine maintenance costs seem to indicate little
difference between most alternative pavement strategies, and thus have negligible effect on NPV
and can generally be ignored when discounted to the present (Walls and Smith 1998).
Agency costs also include maintenance of traffic cost and can include operating cost such as
pump station energy costs, tunnel lighting, and ventilation (Walls and Smith 1998).
Salvage Value
Salvage value represents the value of an investment alternative at the end of the analysis period.
The two fundamental components associated with salvage value are residual value and
serviceable life (Walls and Smith 1998):


Serviceable life represents the more significant salvage value component and is the
remaining life in a pavement alternative at the end of the analysis period. It is primarily
used to account for differences in remaining pavement life between alternative pavement
designs at the end of the analysis period. For example, over a 35-year analysis period,
Alternative “A” reaches terminal serviceability at year 35, while Alternative “B” requires
rehabilitation (with a 10-year design life) at year 30. Thus, the serviceable life of
Alternative “A” at the end of the analysis period would be 0, while Alternative “B” will
have 5 years of serviceable life. The value of the serviceable life of Alternative “B” at
year 35 can be calculated as a percent of design life remaining (5 of 10 years or 50
percent) multiplied by the cost of rehabilitation at year 30.
Residual value refers to the net value from recycling the pavement. The differential
residual value between pavement design alternatives is generally not very large, and thus,
tends to have little effect when discounted.
Supplemental Costs
A third aspect of agency costs is the supplemental costs associated with construction and
maintenance and rehabilitation activities. These costs can be categorized into administrative,
engineering, and traffic control costs. Their inclusion in the LCCA depends on whether
substantive differences can be identified among the alternative pavement strategies. If the
supplemental costs of the different alternatives are approximately the same, then these costs can
be ignored. If there are significant differences, the process of developing estimates for all events
should proceed. Because estimating these costs can be difficult and time-consuming, an
alternative method to consider is to specify them as a percentage of the total project-level
pavement costs.
User Costs
User costs are the costs associated with construction/congestion delay, vehicle operation (VOC),
and crashes. Vehicle delay and crash costs are unlikely to vary among alternatives except during
6-8
Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
periods of construction, maintenance, and rehabilitation activities (Walls and Smith 1998).
Overall, there are five primary mechanisms of user costs (Hallin et al. 2011):

Time delay costs—costs incurred as a result of travel delays due to work zones (i.e., lane
restrictions, road closures). Time delay costs represent the value of other activities that
cannot be completed because of the extra time taken traveling.
VOCs—costs associated with fuel and oil consumption, tire wear, emissions,
maintenance and repair, and depreciation due to work zone-related delay and/or
significantly rough roads. VOCs typically involve the out-of-pocket expenses associated
with owning, operating, and maintaining a vehicle.
Crash costs—costs associated with additional crashes brought about by work zones or by
rough or slippery roads. Crash costs are primarily comprised of the costs of human
fatalities, non-fatal injuries, and property damage.
Discomfort costs—costs associated with driving in congested traffic or on rough roads.
Environmental costs—costs associated with traffic noise and construction equipment
operation.




There are user costs associated with both normal operations and work zone operations. “Normal
operations” reflect costs associated with using a facility during construction-free periods, and are
primarily a function of pavement performance (i.e., roughness) of the alternatives. “Work zone
operations,” however, reflect costs associated with using a facility during periods of
construction, including maintenance and/or rehabilitation activities, all of which typically restrict
capacity and disrupt normal traffic flow (Walls and Smith 1998). Additional information on
these types of user costs are described below.
Normal Operations
If pavement alternative performance curves and levels differ substantially, significant vehicle
operating cost differentials can develop. Figure 6-4 depicts an example of two alternative
pavement design strategies.
Pavement Condition
Alternative A
Alternative B
Terminal Serviceability
0
5
10
15
Pavement Life (years)
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20
Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Figure 6-4. Alternatives performance curve comparison
(redrawn from Walls and Smith 1998).
Alternative “A” represents a strategy with rehabilitation implemented on a 15-year cycle, while
Alternative “B” represents minimal treatment every 5 years. As can be seen from the figure,
there is differential performance between each alternative represented by the gap between
Alternative A’s solid line and Alternative B’s dotted line at a particular year. Slight differences
in VOC rates caused by differences in pavement performance characteristics (primarily
roughness), when multiplied by several years of vehicle miles traveled (VMT), could result in
significant VOC differentials over the analysis period (Walls and Smith 1998). To calculate
these differences, however, the analysis must be able to: (1) accurately estimate differences in
pavement performance over time, and (2) quantify the difference in VOC rates for differences in
pavement performance, even at relatively high performance levels.
Work Zone Operations
User costs are heavily influenced by roadway operating characteristics in that they are directly
related to the current and future traffic demand and facility capacity, especially with respect to
the timing, duration, and frequency of work zone-induced capacity restrictions, including any
extra mileage resulting from detours. Thus, directional hourly traffic demand forecasts for the
analysis year in question are essential for determining work zone user costs (Walls and Smith
1998).
In many cases, as long as the work zone still provides enough capacity to satisfy vehicle demand,
user costs are typically manageable. However, when demand exceeds capacity, the facility
operates under forced-flow conditions and user costs can quickly accumulate, and often
overwhelm the agency costs. Queuing costs can account for more than 95 percent of work zone
user costs (Walls and Smith 1998).
Several software tools have been developed to determine the impact to the users of the facility
due to workzone operations. These include:


QUEWZ – Estimates traffic impacts, emissions, and road user costs without and with lane
closures due to work zone activities (TTI 1998).
CA4PRS – Scheduling and traffic analysis tool for assisting in the selection of effective,
economical rehabilitation strategies (Caltrans 2007a).
Currently, it is recommended that only those costs associated with time delay and vehicle
operating costs due to construction work zones be included as part of the user cost determination
(Hallin et al. 2011). This is primarily due to the ability to reasonably estimate these costs and
that they comprise the largest portion of the total user cost. In addition, it is also recommended
that only the differential user costs between the alternatives be used in the economic analysis
(Hallin et al. 2011).
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Computational Approach
There are two approaches to preparing an LCCA: deterministic and probabilistic. The methods
differ in the way they address the variability and uncertainty associated with inputs such as
activity cost, activity timing, and discount rate.
Deterministic Approach
The deterministic approach assigns each input variable a fixed, discrete value; that is, a single
value is selected for each input (such as performance period, discount rate, and so on) that is
believed to be the value most likely to occur, based on historical evidence or professional
judgment. However, it fails to convey the uncertainty associated with the estimate.
The results of deterministic analysis can be enhanced using sensitivity analysis, which involves
changing a single input, such as discount rate or initial cost, over the range of its possible values
while holding all others constant. Each resulting estimate reflects the effect of the change, and
each input may be ranked according to its impact, which is important to understanding the
variability associated with each alternative (Walls and Smith 1998). Additionally, it provides a
way for identifying those critical factors warranting special attention with regards to how
accurately they must be estimated prior to input.3
Probabilistic Approach
Probabilistic LCCA allows the value of individual analysis inputs to be defined by a frequency
(probability) distribution (Walls and Smith 1998). Inputs with uncertain values are identified
and a sampling distribution of possible values is developed for each input. Software simulation
(repeated thousands of times) randomly draws values from the probabilistic description of each
input and uses these values to compute a single forecasted LCCA estimate. From this iterative
process, the probability distribution (as well as the average) of an alternative’s LCCA estimate is
generated (see Figure 6-). The resulting distribution can then be compared with other
alternatives’ distributions and the most economical option may be determined for any given risk
level (Walls and Smith 1998).
6-11
Probability Scale
Handbook for Pavement Design, Construction, and Management
1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
4,000
5,000
6,000
7,000
Pavement Type Selection and LCCA
8,000
9,000
Agency Cost Present Value ($1000)
Alternative 1
Alternative 2
Figure 6-5. Example probability distribution.
Unlike deterministic LCCA, probabilistic LCCA accounts for uncertainty and variation in
individual inputs and allows for differing assumptions for many different variables at the same
time. It also conveys the likelihood (probability) that a particular LCCA estimate will actually
occur (Walls and Smith 1998).
Pavement Performance Period
All pavements (new, reconstructed, or rehabilitated) deteriorate due to traffic- and
environmental-related stresses, which prompts various maintenance activities during the
pavement’s life to sustain the structural integrity (and capacity) and functional characteristics.
For each alternative, the expected performance life must be determined for the initial
construction and any treatment anticipated to occur within the analysis period. Thus, the
sequence and timings of future treatment activities can be accounted for, as illustrated in Figure
6-6.
6-12
Handbook for Pavement Design, Construction, and Management
Asphalt Pavement
10 in. Asphalt
8 in. Aggregate Base
0
Resurfacing
2 in. Mill
3 in. HMA Overlay
Resurfacing
2 in. Mill
2 in. Asphalt Overlay
Surface
Treatment
Crack
Seal
10
Crack
Seal
Pavement Type Selection and LCCA
Surface
Treatment
20
Crack
Seal
Resurfacing
2 in. Mill
2 in. HMA Overlay
Surface
Treatment
30
40
Time,
years
Figure 6-6. Example of expenditure stream diagram.
A pavement’s service life is the time from initial construction until the structural and/or
functional integrity of the pavement is deemed unacceptable and rehabilitation or replacement is
required. In Figure 6-6, for example, the service life of the initial asphalt pavement is 17 years,
corresponding to the timing of the first asphalt resurfacing activity. Furthermore, the service life
of that first resurfacing is 10 years, corresponding to the timing of the second resurfacing.
Pavement service life can be estimated in various ways, from using the opinions of experienced
engineers to reviewing historical performance records to using pavement performance prediction
models.
Identification of Economically Feasible Alternatives
After computing the NPV for each alternative, the alternatives can potentially be reevaluated for
possible modifications to develop more cost-effective options (Walls and Smith 1998). For
example, designs could be revised to increase the structural design to minimize the frequency of
rehabilitation and/or include features that reduce the impact rehabilitation will have on the
structural capacity (Walls and Smith 1998).
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 the LCCA
process, such as local politics, availability of funding, traffic control options, overall
constructability, industry capability to perform the required construction, and agency experience
with a particular pavement type, as well as the accuracy of the pavement design and
rehabilitation models.
Life-Cycle Expenditure Models
Expenditure stream diagrams are graphical representations of expenditures over time. They are
generally developed for each pavement design alternative to help visualize the scope and timing
of expenditures. Figure 6-7 shows a typical expenditure stream diagram.
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Initial
Construction
Cost ($)
Rehabilitation
Salvage
Value
Analysis Period
Time
Figure 6-7. Example expenditure stream diagram for a pavement design alternative.
Normally, costs are depicted as upward arrows at the time they occur during the analysis period,
and benefits are represented as negative cost or downward arrows. Generally, the only negative
cost (downward arrow) is the cost associated with any salvage value.
Once the expenditure stream for each alternative has been developed, projected life-cycle costs
are calculated. For deterministic analysis, this is a simple matter of converting all future costs
(including negative costs, i.e., salvage) to present worth values using the specified discount rate.
Sensitivity testing of selected inputs, such as the discount rate or key unit costs, can also be
performed to examine the effects on life-cycle costs of varying these inputs. On the other hand,
probabilistic analysis involves (1) randomly selecting a value from each input’s probable
distribution, (2) using these values and the NPV formula to compute a life-cycle cost, and (3)
repeating steps 1 and 2 many times to generate an array of forecasted costs.
Evaluation of LCCA Results
As previously described, LCCA should include a sensitivity analysis to address the variability
within major analyses input assumptions and estimates. Traditionally, sensitivity analysis has
evaluated different discount rates or assigned value of time, normally evaluating a ‘best’ and
‘worst’ case scenario. A primary drawback of the sensitivity analysis is that the analysis gives
equal weight to any input value assumptions, regardless of the likelihood of occurring. In other
words, the extreme values are unrealistically given the same likelihood of occurrence as the
expected value (Walls and Smith 1998).
The ultimate extension of sensitivity analysis is a probabilistic approach, which allows all
significant inputs to vary simultaneously (Walls and Smith 1998). The FHWA’s Life-Cycle Cost
Analysis in Pavement Design advocates the use of a probabilistic approach, also known as Risk
Analysis, to LCCA, incorporating analysis of the variation within the input assumptions,
projections, and estimates. Risk analysis is a technique that exposes areas of uncertainty,
typically hidden in the traditional deterministic approach, and it allows the decision maker to
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
weigh the probability of the outcome actually occurring. The risk analysis approach combines
probability descriptions of uncertain variables and a computer simulation technique, generally
known as Monte Carlo Simulation, to characterize uncertainty.
Additionally, the analysis should examine the implications of contractor work hours on queuing
costs as well as the anticipated maximum queue lengths and delay times.
Analyzing Deterministic Results
In analyzing deterministic LCCA results, it is common to compute the percent difference in lifecycle costs of each alternative. If the percent difference between the cost strategies is greater
than some established minimum requirement—usually set according to the tolerance for risk (5
to 15 percent are common)—then the lowest cost strategy is accepted as the most economical
one. If, on the other hand, the percent difference is less than the minimum requirement, then the
life-cycle costs of the two strategies are deemed equivalent, thereby leaving the analyst with the
option of reevaluating the strategies or allowing other factors to drive the selection process
(Hallin et al. 2011).
Analyzing Probabilistic Results
The results of probabilistic LCCA simulation can be analyzed and interpreted in different ways.
Approaches may include (ARA 2008):



Trial-by-trial comparisons of forecasted NPV/EUAC values—Tally the number of
“wins” for each alternative (i.e., the total number of iterations for which the alternative
has the lowest LCCA), divide the number of wins by the total number of iterations, and
multiply by 100, to determine the overall probability for each alternative to have the
lowest LCCA. The alternative with the highest overall probability is the favored strategy,
but additional evaluation is needed to determine if it is the most economical one.
Statistical analysis of mean values—The LCCA mean and standard deviation values are
computed for each alternative and used to determine if significant differences exist
between the alternative means. Between two competing alternatives, the difference in
means is evaluated using the t-test; for three or more, an analysis of variance (ANOVA)
test is performed. If the alternative with the lowest mean LCCA is shown to be
statistically significantly lower than all other alternatives, then it can be accepted as the
most economical strategy.
Risk assessment of forecasted NPV/EUAC distributions—If the results of statistical
analysis are not definitive, then risk assessment should be performed to identify any
distinguishing probability characteristics that play to or against an agency’s propensity
for risk-taking. This could include the generation of “tornado plots” that indicate those
factors that are strongly driving the analysis results. For example, Figure 6-8 illustrates a
tornado plot showing that the agency cost for activity 1 has the greatest effect on the
LCCA results. With this information an agency may choose to further investigate the
methodology used for determining these cost and identify strategies for reducing the
associated risk and potential uncertainty in the cost estimate.
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
Activity 1: Agency Cost
0.95
Discount Rate
-0.23
Activity 1: Service Life
-0.15
-1.0
-0.5
0.0
0.5
Correlation Coefficient
1.0
Figure 6-8. Example tornado plot.
LCCA Software
The FHWA RealCost LCCA software tool was developed to automate the computations
described in the Life-Cycle Cost Analysis in Pavement Design technical bulletin. The program,
officially released in 2002, utilizes a Microsoft Excel® platform that incorporates the @RISK
add-in software with built-in probabilistic functions. Among some of the primary features of the
program are both deterministic and probabilistic analyses, work zone user cost calculation, an
optional user cost analysis, and risk analysis functionality (FHWA 2010).
The software does not calculate agency costs or service lives for individual construction or
rehabilitation activities. These values can be established separately by the agency and then
entered into RealCost program. Alternatively, a user can create a worksheet(s) within the
program to enable such calculations, which can then be linked to the appropriate input fields
(FHWA 2010).
Software programs such as MicroBENCOST and QUEWZ are also available for conducting
LCCA on routine pavement rehabilitation projects. MicroBENCOST, developed by the Texas
Transportation Institute (TTI) is capable of evaluating various highway improvement categories,
which include capacity improvement, bypass construction, intersection/interchange
improvement, pavement rehabilitation, bridge improvement, safety improvement, and railroad
grade crossing improvement. The MicroBENCOST analysis compares the estimated annual
average daily traffic volumes for through traffic with and without the proposed improvement and
calculates benefits in relation to user travel times, vehicle operating costs, and crashes (Caltrans
2007b). Similarly, QUEWZ, also developed by TTI, estimates traffic impacts, emissions, and
road user costs without and with lane closures due to work zone activities (TTI 1998). Outputs
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
of the QUEWZ program include road user costs and a recommended lane closure schedule to
minimize excessive congestion (TTI 1998).
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Handbook for Pavement Design, Construction, and Management
Pavement Type Selection and LCCA
References
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