The document discusses asset management and life cycle cost analysis approaches used by Grontmij Netherlands BV for transportation infrastructure projects. It introduces asset management concepts and defines life cycle cost analysis, outlining the 8 key steps: 1) establish alternatives, 2) determine performance periods, 3) estimate costs, 4) develop expenditure diagrams, 5) compute costs, 6) analyze results, 7) reevaluate strategies. The document provides details on each step and compares deterministic vs. probabilistic life cycle cost analysis methods.
Cost-benefit analysis in the transport sectorOECD Governance
Presentation by Lorenzo Casullo, OECD International Transport Forum, at a RIA workshop for the transport infrastructure regulator of Peru (OSITRAN) which took place in Lima 20-22 February 2017. Further information is available at www.oecd.org/gov/regulatory-policy/
Module: EThICS 039.BC02E.07_LCPP_Conc & Princ_LCC & Effectiv
Topic: LIFE CYCLE OF PROJECTS AND PRODUCTS
Subject: Concepts and Principles of Life Cycle Cost (LCC) and Effectiveness
Scope:
PURPOSES OF THE MODULE
INTRODUCTION
Acronyms
Motivations for LCC and Effectiveness
Standards for LCC
BASIC CONCEPTS OF LCC
Elements of Life Cycle:
Life Cycle
Fig. 1: Model of Life Cycle of Projects and Products
Fig. 2: Initial Steps of RDI of Systems and Products
Acronyms of RDI
Elements of Life Cycle Cost:
Cost Driver
Cost Profile
CBS – Cost Breakdown Structure
Recurrent Costs
Non-Recurrent Costs
Fig. 3: Elements of Life Cycle Costs
LCC – Life Cycle Cost
Life Cycle Costing
TLC - Through-Life Cost
WLC - Whole-Life Cost
WLCC - Whole-Life Cycle Costing
TCO – Total Cost of Ownership
TCA – Total Cost of Acquisition
COO – Total Cost Of Operations
LAC - Life Acquisition Cost
LOC - Life Ownership Cost
LLC - Life Loss Cost
LCCA – Life Cycle Cost Analysis
CONCEPTS OF EFFECTIVENESS
Elements of Effectiveness
Effectiveness Analysis
System Effectiveness
Fig. 4: FOM - Factors Of Merit
MOE - Measure Of Effectiveness
Operational Effectiveness
Elements of Operational Effectiveness
Operational Suitability
MOS - Measure Of Suitability
Operational Availability
Operational Utility
Cost Effectiveness
CONCEPTS OF PERFORMANCE
Elements of Performance
Performance
System Performance
Level of Performance
Categories of Performance
Objective Performance
Subjective Performance
System Attributes
Attributes of Operational Performance
Physical Attributes
Functional Attributes
MOP - Measures Of Performance
MODELS OF LCC
Fig. 5: Summary Vision of Total Costs of the Life Cycle
Model of the Composition of the LCC
Fig. 6: The (In)Visibility of the Total Costs
Fig. 7: The Proportions of the Elements of the LCC
Considerations about R&D Methods, Costs and Assurance
Fig. 8: Elementary Cycle of Project Validation and Assurance
Fig. 9: The Impact on Costs Due to Method Change
Fig. 10: The Impact of Changes of |Method on Costs
Fig. 11: The Balance of Factors of Cost-Effectiveness
Fig. 12: The Factors of Effectiveness and the Costs of the Systems
APPENDICES
References
EThICS Engineering - Services and Areas of Action
Cost-benefit analysis in the transport sectorOECD Governance
Presentation by Lorenzo Casullo, OECD International Transport Forum, at a RIA workshop for the transport infrastructure regulator of Peru (OSITRAN) which took place in Lima 20-22 February 2017. Further information is available at www.oecd.org/gov/regulatory-policy/
Module: EThICS 039.BC02E.07_LCPP_Conc & Princ_LCC & Effectiv
Topic: LIFE CYCLE OF PROJECTS AND PRODUCTS
Subject: Concepts and Principles of Life Cycle Cost (LCC) and Effectiveness
Scope:
PURPOSES OF THE MODULE
INTRODUCTION
Acronyms
Motivations for LCC and Effectiveness
Standards for LCC
BASIC CONCEPTS OF LCC
Elements of Life Cycle:
Life Cycle
Fig. 1: Model of Life Cycle of Projects and Products
Fig. 2: Initial Steps of RDI of Systems and Products
Acronyms of RDI
Elements of Life Cycle Cost:
Cost Driver
Cost Profile
CBS – Cost Breakdown Structure
Recurrent Costs
Non-Recurrent Costs
Fig. 3: Elements of Life Cycle Costs
LCC – Life Cycle Cost
Life Cycle Costing
TLC - Through-Life Cost
WLC - Whole-Life Cost
WLCC - Whole-Life Cycle Costing
TCO – Total Cost of Ownership
TCA – Total Cost of Acquisition
COO – Total Cost Of Operations
LAC - Life Acquisition Cost
LOC - Life Ownership Cost
LLC - Life Loss Cost
LCCA – Life Cycle Cost Analysis
CONCEPTS OF EFFECTIVENESS
Elements of Effectiveness
Effectiveness Analysis
System Effectiveness
Fig. 4: FOM - Factors Of Merit
MOE - Measure Of Effectiveness
Operational Effectiveness
Elements of Operational Effectiveness
Operational Suitability
MOS - Measure Of Suitability
Operational Availability
Operational Utility
Cost Effectiveness
CONCEPTS OF PERFORMANCE
Elements of Performance
Performance
System Performance
Level of Performance
Categories of Performance
Objective Performance
Subjective Performance
System Attributes
Attributes of Operational Performance
Physical Attributes
Functional Attributes
MOP - Measures Of Performance
MODELS OF LCC
Fig. 5: Summary Vision of Total Costs of the Life Cycle
Model of the Composition of the LCC
Fig. 6: The (In)Visibility of the Total Costs
Fig. 7: The Proportions of the Elements of the LCC
Considerations about R&D Methods, Costs and Assurance
Fig. 8: Elementary Cycle of Project Validation and Assurance
Fig. 9: The Impact on Costs Due to Method Change
Fig. 10: The Impact of Changes of |Method on Costs
Fig. 11: The Balance of Factors of Cost-Effectiveness
Fig. 12: The Factors of Effectiveness and the Costs of the Systems
APPENDICES
References
EThICS Engineering - Services and Areas of Action
Life Cycle Analysis (LCA) is the assessment of the total cost or benefit of an asset over its lifetime. Also referred to as Whole Life Costing (WLC), LCA systematically considers all relevant costs and revenues associated with the acquisition, ownership and disposal of an asset. LCA supports a comprehensive assessment of sustainability by considering all benefits and impacts within a Triple Bottom Line Framework.
In this paper I look at the components that comprise a comprehensive LCA and some of the factors to be considered in evaluating the life cycle cost or benefit of an asset. These costs or impacts as well as accrued benefits are also considered from the perspective of the Environmental and Social Bottom Lines.
Two design methods were used to quantify the improvements of using geotextiles in pavements. In this study, a comprehensive life cycle cost analysis framework was developed and used to quantify the initial and the future cost of 25 representative low volume road design alternatives. A 50 year analysis cycle was used to compute the cost-effectiveness ratio when geotextiled is used for the design methods. The effects of three flexible pavement design parameters were evaluated; and their impact on the results was investigated.
With the development of the urbanization, industrialization and populace, there has been a huge development in the rush hour gridlock. With development in the rush hour gridlock, there got a heap of issues with it as well, these issues incorporate congested roads, mishaps and movement govern infringement at the overwhelming activity signals. This thusly adversy affects the economy of the nation and in addition the loss of lives. Thus, Speed control is in the need of great importance because of the expanded rate of mishaps announced in our everyday life. The criminal traffic offense expanded due to over movement on streets. The reason is rapid of vehicles. The speed of the vehicles is past the normal speed confine is called speed infringement. In this paper diverse issues are confronted that are given in issue detailing. Every one of these issues are in future with the assistance of the fortification learning issue and advancement issue the changed neural system is contemplated with NN calculations forward Chaining back spread . Omesh Goyal | Chamkour Singh ""A Review on Traffic Signal Identification"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-4 , June 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23557.pdf
Paper URL: https://www.ijtsrd.com/engineering/computer-engineering/23557/a-review-on-traffic-signal-identification/omesh-goyal
ost-benefit analysis provides an organizational framework for identifying, quantifying, and comparing the costs and benefits (measured in dollars) of a proposed policy action. The final decision is informed (though not necessarily determined) by a comparison of the total costs and benefits.
The project provides an insight on pavement Management Systems.PMS helps in making informed decisions enabling the maintenance of the network in a serviceable and safe condition at a minimum cost to both the agency and the road users. To adequately meet this requirement, well-documented information is essential to make defensible decisions on the basis of sound principles of engineering and management
Life Cycle Costing Critical Evaluation ReportAnkur Aggarwal
Life Cycle Costing (LCC) is an important economic analysis used in the selection of alternatives that impact both pending and future costs. It compares initial investment options and identifies the least cost alternatives for a twenty year period.
The Art of the Pitch: WordPress Relationships and SalesLaura Byrne
Clients don’t know what they don’t know. What web solutions are right for them? How does WordPress come into the picture? How do you make sure you understand scope and timeline? What do you do if sometime changes?
All these questions and more will be explored as we talk about matching clients’ needs with what your agency offers without pulling teeth or pulling your hair out. Practical tips, and strategies for successful relationship building that leads to closing the deal.
Life Cycle Analysis (LCA) is the assessment of the total cost or benefit of an asset over its lifetime. Also referred to as Whole Life Costing (WLC), LCA systematically considers all relevant costs and revenues associated with the acquisition, ownership and disposal of an asset. LCA supports a comprehensive assessment of sustainability by considering all benefits and impacts within a Triple Bottom Line Framework.
In this paper I look at the components that comprise a comprehensive LCA and some of the factors to be considered in evaluating the life cycle cost or benefit of an asset. These costs or impacts as well as accrued benefits are also considered from the perspective of the Environmental and Social Bottom Lines.
Two design methods were used to quantify the improvements of using geotextiles in pavements. In this study, a comprehensive life cycle cost analysis framework was developed and used to quantify the initial and the future cost of 25 representative low volume road design alternatives. A 50 year analysis cycle was used to compute the cost-effectiveness ratio when geotextiled is used for the design methods. The effects of three flexible pavement design parameters were evaluated; and their impact on the results was investigated.
With the development of the urbanization, industrialization and populace, there has been a huge development in the rush hour gridlock. With development in the rush hour gridlock, there got a heap of issues with it as well, these issues incorporate congested roads, mishaps and movement govern infringement at the overwhelming activity signals. This thusly adversy affects the economy of the nation and in addition the loss of lives. Thus, Speed control is in the need of great importance because of the expanded rate of mishaps announced in our everyday life. The criminal traffic offense expanded due to over movement on streets. The reason is rapid of vehicles. The speed of the vehicles is past the normal speed confine is called speed infringement. In this paper diverse issues are confronted that are given in issue detailing. Every one of these issues are in future with the assistance of the fortification learning issue and advancement issue the changed neural system is contemplated with NN calculations forward Chaining back spread . Omesh Goyal | Chamkour Singh ""A Review on Traffic Signal Identification"" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-3 | Issue-4 , June 2019, URL: https://www.ijtsrd.com/papers/ijtsrd23557.pdf
Paper URL: https://www.ijtsrd.com/engineering/computer-engineering/23557/a-review-on-traffic-signal-identification/omesh-goyal
ost-benefit analysis provides an organizational framework for identifying, quantifying, and comparing the costs and benefits (measured in dollars) of a proposed policy action. The final decision is informed (though not necessarily determined) by a comparison of the total costs and benefits.
The project provides an insight on pavement Management Systems.PMS helps in making informed decisions enabling the maintenance of the network in a serviceable and safe condition at a minimum cost to both the agency and the road users. To adequately meet this requirement, well-documented information is essential to make defensible decisions on the basis of sound principles of engineering and management
Life Cycle Costing Critical Evaluation ReportAnkur Aggarwal
Life Cycle Costing (LCC) is an important economic analysis used in the selection of alternatives that impact both pending and future costs. It compares initial investment options and identifies the least cost alternatives for a twenty year period.
The Art of the Pitch: WordPress Relationships and SalesLaura Byrne
Clients don’t know what they don’t know. What web solutions are right for them? How does WordPress come into the picture? How do you make sure you understand scope and timeline? What do you do if sometime changes?
All these questions and more will be explored as we talk about matching clients’ needs with what your agency offers without pulling teeth or pulling your hair out. Practical tips, and strategies for successful relationship building that leads to closing the deal.
"Impact of front-end architecture on development cost", Viktor TurskyiFwdays
I have heard many times that architecture is not important for the front-end. Also, many times I have seen how developers implement features on the front-end just following the standard rules for a framework and think that this is enough to successfully launch the project, and then the project fails. How to prevent this and what approach to choose? I have launched dozens of complex projects and during the talk we will analyze which approaches have worked for me and which have not.
Kubernetes & AI - Beauty and the Beast !?! @KCD Istanbul 2024Tobias Schneck
As AI technology is pushing into IT I was wondering myself, as an “infrastructure container kubernetes guy”, how get this fancy AI technology get managed from an infrastructure operational view? Is it possible to apply our lovely cloud native principals as well? What benefit’s both technologies could bring to each other?
Let me take this questions and provide you a short journey through existing deployment models and use cases for AI software. On practical examples, we discuss what cloud/on-premise strategy we may need for applying it to our own infrastructure to get it to work from an enterprise perspective. I want to give an overview about infrastructure requirements and technologies, what could be beneficial or limiting your AI use cases in an enterprise environment. An interactive Demo will give you some insides, what approaches I got already working for real.
Transcript: Selling digital books in 2024: Insights from industry leaders - T...BookNet Canada
The publishing industry has been selling digital audiobooks and ebooks for over a decade and has found its groove. What’s changed? What has stayed the same? Where do we go from here? Join a group of leading sales peers from across the industry for a conversation about the lessons learned since the popularization of digital books, best practices, digital book supply chain management, and more.
Link to video recording: https://bnctechforum.ca/sessions/selling-digital-books-in-2024-insights-from-industry-leaders/
Presented by BookNet Canada on May 28, 2024, with support from the Department of Canadian Heritage.
JMeter webinar - integration with InfluxDB and GrafanaRTTS
Watch this recorded webinar about real-time monitoring of application performance. See how to integrate Apache JMeter, the open-source leader in performance testing, with InfluxDB, the open-source time-series database, and Grafana, the open-source analytics and visualization application.
In this webinar, we will review the benefits of leveraging InfluxDB and Grafana when executing load tests and demonstrate how these tools are used to visualize performance metrics.
Length: 30 minutes
Session Overview
-------------------------------------------
During this webinar, we will cover the following topics while demonstrating the integrations of JMeter, InfluxDB and Grafana:
- What out-of-the-box solutions are available for real-time monitoring JMeter tests?
- What are the benefits of integrating InfluxDB and Grafana into the load testing stack?
- Which features are provided by Grafana?
- Demonstration of InfluxDB and Grafana using a practice web application
To view the webinar recording, go to:
https://www.rttsweb.com/jmeter-integration-webinar
Key Trends Shaping the Future of Infrastructure.pdfCheryl Hung
Keynote at DIGIT West Expo, Glasgow on 29 May 2024.
Cheryl Hung, ochery.com
Sr Director, Infrastructure Ecosystem, Arm.
The key trends across hardware, cloud and open-source; exploring how these areas are likely to mature and develop over the short and long-term, and then considering how organisations can position themselves to adapt and thrive.
DevOps and Testing slides at DASA ConnectKari Kakkonen
My and Rik Marselis slides at 30.5.2024 DASA Connect conference. We discuss about what is testing, then what is agile testing and finally what is Testing in DevOps. Finally we had lovely workshop with the participants trying to find out different ways to think about quality and testing in different parts of the DevOps infinity loop.
Epistemic Interaction - tuning interfaces to provide information for AI supportAlan Dix
Paper presented at SYNERGY workshop at AVI 2024, Genoa, Italy. 3rd June 2024
https://alandix.com/academic/papers/synergy2024-epistemic/
As machine learning integrates deeper into human-computer interactions, the concept of epistemic interaction emerges, aiming to refine these interactions to enhance system adaptability. This approach encourages minor, intentional adjustments in user behaviour to enrich the data available for system learning. This paper introduces epistemic interaction within the context of human-system communication, illustrating how deliberate interaction design can improve system understanding and adaptation. Through concrete examples, we demonstrate the potential of epistemic interaction to significantly advance human-computer interaction by leveraging intuitive human communication strategies to inform system design and functionality, offering a novel pathway for enriching user-system engagements.
Accelerate your Kubernetes clusters with Varnish CachingThijs Feryn
A presentation about the usage and availability of Varnish on Kubernetes. This talk explores the capabilities of Varnish caching and shows how to use the Varnish Helm chart to deploy it to Kubernetes.
This presentation was delivered at K8SUG Singapore. See https://feryn.eu/presentations/accelerate-your-kubernetes-clusters-with-varnish-caching-k8sug-singapore-28-2024 for more details.
GenAISummit 2024 May 28 Sri Ambati Keynote: AGI Belongs to The Community in O...
Assetmanagement
1. Asset Management: A Life Cycle Costing Approach.
Rupin Soti
Grontmij Netherland BV
Harry Habing
Grontmij Netherland BV
Summary
It is a well known fact that transport infrastructure is vital to economic well being of a nation.
And today companies (active in highway construction and management business) faces many
challenges like: matured networks, increased accountability and public expectations.
To cope up with these challenges, we see a world-wide trend towards a more structured
approach to the management of road assets.
Grontmij wants to explore the opportunities to move more into the direction of managing
agent for highways, or in other words to be more active in asset management in the future.
Also with fast changing business landscape, the company is getting larger projects which have
a major maintenance element attached to it. The objective of this paper is to show Grontmij
Asset Management approach within which we introduce the concept of Life Cycle Costing
Analysis
Keywords: Asset Management, Life Cycle Cost Analysis, Grontmij Netherlands B V
2. Introduction
Population growth and economic development have led to a steady increase in travel demand,
which has in turn led to accelerated deterioration of highway asset conditions and increased
concerns over congestion, safety, and the environment.
Consequently, there has been an increased pressure to upgrade physical asset conditions and
to improve system operations within a constrained budget.
The combination of mentioned factors along with ever growing public expectations has
created a strong motivation towards aligning the business practices to a more structured
performance oriented asset management framework.
Further, it is observed that very often a parochial view on new businesses or contracts in
highway industry may result in ineffective actions best characterized by short term cost
advantages but long term costly decisions. A typical example in the highway engineering
industry is, the Purchasing department tends to buy lower grade equipment to get favorable
purchase price variances, Engineering division avoids specifying cost effective, redundant
equipment needed to accommodate expected costly failures so as to meet capital budgets and
Maintenance department defers required corrective/preventive actions to reduce budgets, and
thus long term costs increase because of neglect for meeting short term management gains. In
addition factors like environmental effects and social effects are mot catered to. Management
is responsible for harmonizing these potential conflicts under the banner of operating for the
lowest long term cost of ownership. The glue binding these issues together is a teamwork
approach for minimizing Life Cycle Cost.
The first part of this work contains introduction to Asset Management concept. Part II
introduces the concept of Life Cycle Cost Analysis with detailed description and the paper
concludes with comments on the future trends and outlook.
I – Asset Management
The concept of Asset Management has been around for many years, changing form to include
changes in the operating environment. The focus earlier was more on the construction of new
assets with maintenance & management of existing assets being a low priority.
Recently, with increasing demand the focus has changed to maintenance and life extension
with highway agencies being held more responsible and has to be cost effective to be in the
market using Asset Management principles.
There exist many definitions of the term Asset Management as transportation companies and
agencies continuously keep refining the concept to meet specific need of the organization.
Following are a few commonly used definitions:
“A systematic process of maintaining, upgrading and operating assets, combining engineering
principles with sound business practice and economic rationale, and providing tools to
facilitate a more organized and flexible approach to making the decisions necessary to achieve
the public’s expectations.” (International Organization for Economic Cooperation and
Development)
“A strategic approach to the optimal allocation of resources for the management, operation
and preservation of transportation infrastructure” (Federal Highway Administration, USA).
“Asset management may be defined as a comprehensive and structured approach to the long-
term management of assets as tools for the efficient and effective delivery of community
benefits.” (Austroads, Australia)
“Asset management is a comprehensive process that allocates funds effectively and efficiently
among competing pavement, structure, and other infrastructure needs.” (Transportation
Association of Canada, Canada)
3. Grontmij has identified certain key concepts in its AM approach. One such approach is Life
Cycle Management (LCM).
Figure 1: Grontmij Asset Management approach
Life Cycle Management is the application of life cycle thinking to modern business practice,
with the aim to manage the total life cycle of an organization’s product/services. It is the
umbrella concept that integrates a variety of fundamentals, methods and tools from qualitative
(life cycle thinking) to quantitative tools (Life Cycle Cost Analysis). The following section
will introduce and elaborate this quantitative tool.
II - Life Cycle Cost Analysis
Remember the adage attributed to John Ruston: “It’s unwise to pay too much, but it’s foolish
to spend too little”—this is the operating principle of Life Cycle Cost Analysis.
As per NEN-ISO 15686-5 (Building & constructed assets – Service life planning – Life cycle
costing), Life cycle costing is the “methodology for systematic economic evaluation of life
cycle cost over a period of analysis, as defined in the agreed scope.”
The concept of LCC is also defined in the International Standard IEC 60300-3-3
(Dependability management – Application guide – Life cycle costing) with the same
definition as above but the code is more applicable for factory produced products.
As per the Transportation Equity Act for the 21st Century (TEA-21) of US Federal Highway
Authority, LCCA is "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
costs, reconstruction, rehabilitation, restoring and resurfacing costs, over the life of the project
segment."
The following steps are involved for conducting highway LCC Analysis:
1. Establish alternative pavement design strategies for the analysis period.
2. Determine performance periods and activity timing.
3. Estimate agency costs.
4. Estimate user costs.
5. Develop expenditure stream diagrams.
6. Compute net present value.
7. Analyse results.
4. 8. Re-evaluate design strategies.
Step 1 - Establish alternative pavement design strategies for the analysis period.
Once decided to undertake the project, the first step is to establish different design alternatives
to be compared. At least 2 mutually exclusive options must be considered. Each competing
alternative, if properly designed, must be a viable pavement structure that is both constructible
and cost effective for that type and life of pavement. The alternatives being evaluated must
provide equivalent improvements or benefits. For example, comparison of 20-year and 40-
year rehabilitation alternatives or comparison of new construction of flexible or rigid
pavement alternatives is valid because the alternatives offer equivalent improvements.
Conversely, comparing pavement overlay to pavement widening, rehabilitation work to new
construction, or rehabilitations at different project locations do not result in equivalent
benefits. Each of these alternatives is to be clearly defined. Initial construction or a major
rehabilitation of an asset is only the first of these activities; other activities like periodic
maintenance and succeeding rehabilitation are required for the alternative to provide a desired
level of performance throughout its life. Different project alternatives will likely require
different maintenance and rehabilitation activities. The identification of maintenance and
rehabilitation activities should be based on our past practices, study, and company’s policies.
We know that, transportation assets are constructed to provide service for many years.
Competing design alternatives may each have a different service life, which is the time period
that the asset will remain open for public use. Life-cycle cost analysis (LCCA), however, uses
a common period of time to assess cost differences between these alternatives so that the
results can be fairly compared. This time period is termed the “analysis period.” In other
words, the analysis period is the period of time during which the initial and any future costs
for the project alternatives will be evaluated.
Step 2 - Determine performance periods and activity timing.
Once the component activities for all competing project alternative have been identified, each
alternative’s maintenance and rehabilitation plan is developed.
The mentioned plan will result in a schedule of when the future maintenance and
rehabilitation activities will occur, when agency funds will be spent, and when and for how
long the agency will establish work zones.
LCCA requires that the series of maintenance and rehabilitation activities forecasted for each
improvement strategy be as accurate as possible because the expenses associated with these
activities can account for a sizeable portion of a project’s total LCC. The timing of
rehabilitation activities should be based on existing performance records such as those
available from the earlier mentioned asset management system. This information may be
supplemented with findings from outside research such as the national long-term pavement
performance effort. Other data are available from local, regional, and national sources. When
actual data are unavailable or not applicable, the judgment of experienced engineers may be
particularly useful.
Step 3 & 4 - Estimate Cost
In general, life-cycle cost of pavement is usually categorized into three major components:
agency cost, user cost and external cost.
Agency cost is the cost directly paid by the company for the project, which includes
expenditures for preliminary engineering, contract administration, the initial
construction/rehabilitation, all future maintenance costs of pavement and salvage value or
residual value. It is important here to note that, residual value is different from salvage value.
Residual value exists only if the alternative will continue in operation after the end of the
analysis period, whereas salvage value requires termination. Salvage value is obtained only
when some actual value is realized from the sale or reuse of scrap materials. When applied at
5. the end of the analysis period, Residual value and salvage value can generally be considered
mutually exclusive.
User costs are social costs incurred by the asset users. Best-practice LCCA calls for including
both the costs accruing to the transportation agency, described above, and costs incurred by
the traveling public. Since a construction activity (new or major rehabilitation) restricts
normal working operations causing speed changes, stops, delays, detours, and incidents, it
results in some user costs. User costs include vehicle operating costs, User delay costs (or
travel time costs), and crash costs. They are based on predicted traffic volumes, stage
construction, traffic handling, user delay cost rates, and additional vehicle operating costs.
User costs are related to project activities but are an indirect cost (not born directly by the
company). Incorporating user costs into LCCA enhances the validity of the results, but at the
same time is a challenging task.
External costs pertain to the remaining indirect costs incurred by the non-user public. Its
boundary is not well defined, but pollution damage cost, noise-pollution cost, agricultural
crops damage from pollutants and visibility losses are examples of external costs. They are
referred to “externalities” of road construction that are not reflected in market prices but
incurred by the non-user public.
Step 5 - Develop expenditure stream diagrams
Expenditure stream diagrams are then developed to assist the analyst in visualizing the
expenditure’s quantity and time of occurrence which are anticipated over the life of the
analysis period. An expenditure diagram (see Figure 2) depicts a design alternative’s (1)
initial and future activities; (2) agency and user costs associated with these activities; and (3)
the timing of these activities and costs. The horizontal-axis shows the timing of the work zone
activities and the periods of normal operations between them while the vertical-axis shows the
activity costs. Upward arrows on the diagram are expenditures with the relative costs reflected
in the length of each arrow. The RSL value (or the salvage value, if case the asset is to be
terminated) is represented as a downward arrow and reflects a negative cost accruing at the
end of the analysis period.
Figure 2: Expenditure Stream diagram
6. Step 6 - Compute LCC
For LCCA, costs occasioned at different times must be converted to their value at a common
point in time. We know that the value of money changes over time due to at least the
following two factors: Inflation and Discount rate.
Inflation indexes are available for every possible products and services and thus can be used
to generate the results more realistically. In our research of various LCC analyses, a 3-6 %
discount rate was used representing the prevailing rate of interest on borrowed funds minus
the inflation rate.
For calculating, a number of techniques based on the concept of discounting are available. We
will consider the two most commonly used methods, the present value (PV) approach (also
known as “present worth”) and the equivalent uniform annual cost (EUAC) approach. Either
method is suitable as a measure of LCC.
Present Value - The PV approach brings initial and future dollar costs to a single point in
time, usually the present or the time of the first cost outlay. Net Present value is calculated as
follows:
NPV = Initial cost + All future costs x (1/1+ r)n
where,
r = real discount rate.
n = no. of years in the future when the cost will be incurred.
The term (1/1+ r)n
is also known as the discount factor.
Equivalent Uniform Annual Cost Analysis - The equivalent uniform annual cost
(EUAC) analysis method produces the yearly costs of an alternative as if they occurred
uniformly throughout the analysis period. The present value (PV) of this stream of uniform
annual costs is the same as the PV of the actual cost stream. EUAC is another way to look at
the results of a life-cycle cost analysis. Whether PV or EUAC is used, the decision supported
by the analysis will be the same. The decision to use EUAC or PV is up to the analyst.
Further, there are two approaches to preparing an LCCA: deterministic and probabilistic. The
difference between the two methods is in the way they address the variability and uncertainty
associated with LCCA input parameters such as activity cost, activity timing, and discount
rate.
Deterministic Approach- The deterministic approach assigns each LCCA input variable a
fixed, discrete value. It is the analyst’s job to determine the value most likely to occur for each
input parameter. This determination is usually based on historical evidence or professional
judgment. These input values are used to compute a single LCC estimate. Traditionally,
applications of LCCA have been deterministic ones. A deterministic LCC computation is
straightforward and can be conducted manually using a calculator or automatically with a
spreadsheet.
However, it fails to convey the degree of uncertainty associated with the PV estimate.
The results of deterministic analysis can be enhanced through the use of a technique called
sensitivity analysis. This procedure involves changing a single input parameter of interest,
such as the discount rate or initial cost, over the range of its possible values while holding all
other inputs constant, and estimating a series of PVs (output values). Each PV result will
reflect the effect of the input change. In this way input variables may be ranked according to
their impacts on the bottom-line conclusions. This information is important as it helps to
understand the variability associated with alternative choices. It also allows the company to
identify those input factors or economic conditions that warrant special attention in terms of
their estimation procedures. Deterministic sensitivity analysis is not well suited to measuring
the impact that a simultaneous change of several inputs would have on a particular LCCA
outcome. In addition, it does not give any information on the likelihood that a selected input
7. value will actually occur. Therefore, while a deterministic LCCA approach provides
considerably more information about the economic reasonableness of a project than just its
initial cost, it does not offer decision-makers a complete picture of the expected PVs.
Probabilistic Approach - With deterministic LCCA, discrete values are assigned to individual
parameters. In contrast, probabilistic LCCA allows the value of individual analysis inputs to
be defined by a frequency (probability) distribution. For a given project alternative, the
uncertain input parameters are identified. Then, for each uncertain parameter, a sampling
distribution of possible values is developed. Simulation programming randomly draws values
from the probabilistic description of each input variable and uses these values to compute a
single forecasted PV output value. This sampling process is repeated through thousands of
iterations. From this iterative process, an entire probability distribution of PVs is generated for
the project alternative along with the mean or average PV for that alternative. The resulting
PV distribution can then be compared with the projected PVs for alternatives, and the most
economical option for implementing the project may be determined for any given risk level.
Probabilistic LCCA accounts for uncertainty and variation in individual input parameters. It
also allows for the simultaneous computation of differing assumptions for many different
variables. It conveys the likelihood that a particular LCC forecast will actually occur.
Step 7 - Analysis of result
Now that LCCs of alternatives are calculated, the next step is analyzing and interpreting the
results. Since deterministic approach results in a single PV while probabilistic LCC yield a
distribution of results, the analysis procedures are different.
Analysis of Deterministic LCCA results - The most basic analysis of a deterministic LCCA is
to compare the agency and user cost PVs among alternatives. However, this comparison does
not address the uncertainty contained in those outputs. As noted above, application of
sensitivity analysis can reveal where analysis results may be subject to uncertainty.
Deterministic sensitivity analysis is helpful in determining the “most likely” scenario where
the selected input values are most likely to occur (based on objective data or expert opinions).
Analysis of Probabilistic LCCA results – With Probabilistic LCCA results one can attempt to
model and report on the full range of possible PV outcomes. It also shows the estimated
likelihood that any given outcome will actually occur.
Step 8 - Revaluate design strategies.
Finally, a review of the results is done to determine if any adjustments or modification is
required before zeroing on an alternative. Adjustment can be some minor design change, new
defined work zone criteria or alternate traffic plans.
Major advantages of using LCCA
In addition to the benefits mentioned earlier, the following are some advantages of using
LCCA:
1. Since it uses familiar unit, money, in calculation it is easy for decision-makers to
evaluate.
2. Since LCCA takes whole life cycle perspective, road managers can more reliably
assess alternative preservation strategies and thus promotes innovation.
3. Typically in an organization, accounts department only wants to maximize projects
NPV, maintenance engineer’s only criteria is to minimize repair costs while the
stakeholders want to increase wealth. With the whole life cycle perspective, LCCA
helps resolving these internal conflicts within an organization.
8. Issues with LCCA
1. Performing a LCCA is resource and time intensive.
2. LCCA is data sensitive and thus the result depends largely on quality of input data.
Although transportation companies do collect data of their assets and its repairs, but
specific data for example, long term maintenance data may not be directly available.
Moreover, it is due to this dependence on accurate and precise data, LCCA can be
manipulated and can also be used as a sales tool.
3. LCCA is a tool for comparing alternatives and it is not a tool for budgeting. It is based
on estimates and current & future spending power of money.
4. There exist uncertainty around assigning engineering and economic values to input
data and the resulting outputs. This is an issue because the level of confidence that
decision-makers have in the analytical results is based upon their faith in the accuracy
and precision of the data used to generate them.
LCCA in practice
Various LCCA methodologies exists, few of them are listed below:
• LCCA model of Fabrycky & Blanchard
• LCCA model of Woodward
• Activity Based Costing (ABC) model
• Economic Input Output (EIO) LCA model
• Design to Cost (DOC) model
• Total Cost Assessment (TCA) model
In the US since the early 1990s, FHWA has encouraged a policy of encouraging the use of
LCCA for transportation decision. Many states’ Department of Transportation (DOTs) have
incorporated LCCA in their respective pavement selection method.
LCCA can be performed in the following ways:
1. Using an Excel spreadsheet function. This is beneficial only when dealing with small
product/service system.
2. Using dedicated LCCA software. Many such software solutions are available in the market
today like RealCost (developed by FHWA, USA), RELEX Life Cycle Cost (developed by
PTC Corp, USA).
3. Once an organization has developed the expertise, they may decide to develop their own
software. Even though it gives a lot of scope for customization it is very resource intensive.
Future Prospects and Conclusion
Since the last decade, researchers have begun to utilize the risk-based life-cycle cost analysis
approach to establish mathematical expectations of highway project benefits. For example,
Tighe (2001) performed a probabilistic life-cycle cost analysis of pavement projects by
incorporating mean, variance, and probability distribution for typical construction variables,
such as pavement structural thickness and costs. Setunge et al. (2005) developed a
methodology for risk based life-cycle cost analysis of alternative rehabilitation treatments for
highway bridges using Monte Carlo simulation. Reigle et al. (2005) incorporated risk
considerations into the pavement life-cycle cost analysis model. As per Li & Madanu (2008),
use of Shackle’s model overcomes the limitation of inability to establish the mathematical
expectation of possible outcomes of all input factor for project level life-cycle benefit/cost
analysis. There is also the concern that the customer value performance and features is not
9. directly related to physical parameters and can therefore not be determined applying LCCA
model. However, Cost Benefit Analysis in the form of a questionnaire can indicate the value
that customers attach to a change in performance or feature level.
The LCCA technique provides a structured approach to evaluating design alternatives and
thus managing assets. It addresses not only the initial costs of a project, but the timing, and
resources required for future rehabilitation and maintenance activities since it focuses on
project life cycle. LCCA also allows in quantifying and comparing the effects of different
project implementation options on highway users, who experience significant costs due to
congestion and safety issues associated with work zones. Thus, it would be right to say that
LCCA gives the means of identifying the most cost-effective investment options and
optimally manage the assets. This remains a primer work on the mentioned concept and
further research is required for its implementation within the organization.
10. References
• The Handbook of Highway Engineering (T F Fwa).
• US Department of Transportation – Federal Highway Administration
(www.fhwa.dot.gov)
• Highway Project Level Life Cycle Benefit/Cost Analysis under certainty, risk and
uncertainty: A methodology with case study (Li and Madanu).
• Economic and Environmental Evaluations of Life Cycle Cost practices : A case study
of Michigan DOT Pavement Projects (Arthur Wai Cheung Chan)
• Road Network Asset Management as a Business Process, Florentina Mihai, Neville
Binning & Laurie Dowling, 2000.
• Life Cycle Costing for Construction, J W Bull, 1993
• Life Cycle Cost Analysis in Pavement Design – In Search of Better Investment
Decision US FHWA 1998.