Concrete Pavement Workshop

Transcription

1 Fundamentals of Life Cycle Cost Analysis Concrete Pavement Workshop Madison Marriott West Middleton, Wisconsin February 11, 2016 Leif G. Wathne, P.E. American Concrete Pavement Association

2 Fundamentals of Life Cycle Cost Analysis A Tool for Better Pavement Investment and Engineering Decisions Content based on information in ACPA Engineering Bulletin (EB011)

3 Life-Cycle Cost Analysis Introduction

4 What is Life-Cycle Cost Analysis? Life-cycle cost analysis (LCCA): An analysis technique used to evaluate the overall long-term economic efficiency between competing alternate investment options (e.g., pavements). Based on well-founded economic principles. Identifies the strategy that will yield the best value by providing the expected performance at the lowest cost over the analysis period. Is not an engineering tool for determining how long a pavement design or rehabilitation alternative will last or how well it will perform.

5 Why Bother with an LCCA? Pavement types perform differently over time. Equivalent designs are not always achievable. LCCA compares the total discounted cost of each design over a specific analysis period to minimize the financial burden of the roadway on taxpayers.

6 Why Bother with an LCCA? Failure to account for costs over the life of the pavement may lead to a larger budget burden or deficit in the future. Consider these initial and LCCA cost trends developed by the Louisiana DOT in 2003:

7 We Must Consider Life Cycle Costs! Economic principles tell us that if we want to minimize the cost of a durable good that requires repair, maintenance and replacement over time, we must minimize present value of those costs, not minimize initial costs. If the myopic strategy is adopted to accept the lower up-front price despite higher [present value], the buyers are actually made worse off. - Dr. William Holahan Chair and Professor Department of Economics University of Wisconsin - Milwaukee

8 Life-Cycle Cost Analysis Basic Steps in a Single Project LCCA

9 Life-Cycle Cost Analysis Step 1 Select the Analysis Period

10 LCCA Analysis Period The analysis period is the timeframe over which the alternative strategies/treatments are compared. Must encompass the initial performance period and at least one major follow-up preservation/ rehabilitation activity for each strategy. FHWA recommends an analysis period of at least 35 years for all pavement projects. ACPA recommends an analysis period of years because common practice in many states is to design the concrete pavement alternate for 30+ years.

11 Agency Practices: Analysis Period 2012 ACPA LCCA EB (28) December 2013 ACPA Survey (38) Analysis Period (yrs) Percent of Responding Agencies Analysis Period (yrs) Percent of Responding Agencies Agency < 30 4% 30 11% 35 18% < 30 3% AL 30 8% NC, TN, WY 35 16% AK, AR, ID, MT, NV, OH 40 39% 40 37% AZ, BC, CO, FL, GA, IN, IA, KS, KY, LA, MD, MS, SD, WV 45 7% 45 5% IL, MO % % MB, PA, QC, SC, MN, NE, NY, VA, WA, WI Varies 5% HI, MI

12 Life-Cycle Cost Analysis Step 2 Select a Discount Rate

13 LCCA Discount Rate The real discount rate (also known as the real interest rate) is used in pavement LCCAs. Accounts for fluctuations in both investment interest rates and the rate of inflation. Today s costs can be used as proxies for future costs. d = 1 + ii iiiiii 1 + ii iiiiii 1 d = the real discount rate, % i int = the interest rate, % i inf = the inflation rate, %

14 Selecting an Interest Rate Funds for paving projects are obtained by: 1. Levying taxes, 2. Borrowing money (i.e., selling bonds), and/or 3. Charging users for services (e.g., toll revenue). The interest rate assumed for the LCCA of a project should reflect the type of entity raising the money and the method(s) used to raise it.

15 Selecting an Inflation Rate The inflation rate may be: 1. A single value if it is assumed that all components of future costs inflate at a uniform rate OR 2. Several different values for various cost components when there are significant differences in inflation among the cost components. Several general inflation indices are compiled regularly by the Bureau of Labor Statistics (BLS) in the U.S. Department of Labor.

16 Various Inflation Rates

17 Determining the Real Discount Rate If local interest and inflation rates are not readily available to develop a local real discount rate, FHWA (and ACPA) recommends using the United State s Office of Management and Budget (OMB) real discount rate. If there is concern with the variability in the OMB real discount rate, a moving average of the value should be considered.

18 Determining the Real Discount Rate OMB Circular A-94 Appendix C Published annually November 2015 Current OMB Rate 1.5%

19 Agency Practices: Discount Rate December 2013 ACPA Survey (43) Real Discount Rate (%) Percent of Responding Agencies Agency < 3 23% CO*, KS, MI*, MN*, MO*, NV*, OH*, PA*, SC*, WV* 3 14% GA, IL, IA, MD, MT, NY 3 to 4 9% AR, FL, NE, SD 4 42% 4 to 5 0% - AL, AK, AZ, CA, CT, DE, ID, IN, LA, MS, NJ, NM, NC, TN, UT, VA, WA, WY 5 or more 12% BC, KY, MB, QC, WI OMB Circular A-94, App. C % % % % 5-yr avg 1.6% * Denotes a state whose real discount rate is based either on the OMB or a moving average of the OMB.

20 Impact of discount rate? How does the discount rate impact the analysis?

21 Life-Cycle Cost Analysis Step 3 Estimate Initial Agency Costs (A)

22 Initial Agency Costs Only those initial agency costs that are different among the various alternatives need to be considered for reasonably similar alternates. Pavement costs include items such as subgrade preparation, bases, and surface material; associated labor and equipment, etc. When historical bid prices are used as estimates, consider the impact of material price escalators, payment practices (sy v. tons), bidding practices (shifting), job size, etc..

23 Initial Agency Costs Important to get as correct as possible! Influences results more than anything else in analysis Do not use average bid values blindly Easiest or Toughest to get??? Use quality local information WCPA can help with realistic estimates!

24 Life-Cycle Cost Analysis Step 4 Estimate User Costs (B)

25 User Costs Costs that are incurred by users of the roadway over the analysis period, mainly... Work zone costs: Incurred during lane closures and other periods of construction, preservation/rehabilitation, and maintenance work. Vehicle operating costs: Incurred during the normal use of the roadway (roughness and rigdity) Accidents: Damage to the user s/other s vehicle and/or public or private property; injury costs.

26 Agency Practices: User Costs 2012 ACPA LCCA EB (40) December 2013 ACPA Survey (42) User Costs Considered Percent of Responding Agencies User Costs Considered Percent of Responding Agencies Agency Yes 42% Yes 43% AK, CA, CO, CT, DE, GA, KS, KY, LA, MD, MI, NV, NM, QC, SC, VT, VA, WA No 58% No 55% AL, AZ, AR, FL, ID, IL, IN, IA, MN, MO, MS, MT, NE, NJ, NY, NC, OH, SD, TN, UT, WV, WI, WY Sometimes 2% PA

27 Life-Cycle Cost Analysis Step 5 Estimate Future Agency Costs (C)

28 Future Agency Costs All cost components must be considered because the present value of costs associated with engineering, administrative, and traffic control are impacted by the time value of money (timing, discount rate). Future activities are dependent on the initial pavement design. Must consider both maintenance/operation and preservation/rehabilitation costs and timing.

29 Maintenance and Operation Costs Daily costs associated with keeping the pavement at a given level of service. Several billion dollars are spent each year on pavement maintenance by highway agencies in the U.S. Short-term solutions typically have significantly larger maintenance requirements than long-life solutions, regardless of the size of the project.

30 Agency Practices: Maint. Costs 2012 ACPA LCCA EB (31) December 2013 ACPA Survey (40) Maint. Costs Considered Percent of Responding Agencies Maint. Costs Considered Percent of Responding Agencies Agency Yes 77% Yes 78% AK, AZ, AR, BC, CA, CO, DE, GA, ID, IL, IN, LA, MB, MI, MN, MT, NE, NV, NM, NY, NC, PA, QC, SD, TN, UT, VT, VA, WV, WI, WY No 23% No 22% AL, IA, KS, MD, MO, OH, SC, WA

31 Preservation and Rehab. Costs Large future agency costs associated with improving the condition of the pavement or extending its service life. Preservation and rehabilitation activities and their timing should be based on the distresses that are predicted to develop in the pavement. Best to develop pavement performance predictions based on local performance history data; otherwise, AASHTOWare Pavement ME can be used.

32 Agency Practices: Rehab. Costs 2012 ACPA LCCA EB (31) December 2013 ACPA Survey (41) Rehab. Costs Considered Percent of Responding Agencies Rehab. Costs Considered Percent of Responding Agencies Agency Yes 97% Yes 98% AL, AK, AZ, AR, BC, CA, CO, DE, FL, GA, HI, ID, IL, IN, IA, KS, LA, MB, MD, MN, MO, MS, MT, NE, NV, NM, NY, NC, OH, PA, QC, PA, SC, SD, TN, UT, VA, WA, WV, WI, WY No 3% No 2% MI

33 Life-Cycle Cost Analysis Step 6 Estimate Residual or Salvage Value

34 Residual or Salvage Value Defined in one of three ways: The net value that the pavement would have in the marketplace if it is recycled at the end of its life, The value of the remaining service life (RSL) at the end of the analysis, OR The value of the existing pavement as a support layer for an overlay at the end of the analysis period. Residual or salvage value must be defined the same way for all alternatives. Always in final year, so Δ$ is what is important.

35 Agency Practices: Residual Value 2012 ACPA LCCA EB (35) December 2013 ACPA Survey (40) Residual Value Considered Percent of Responding Agencies Residual Value Considered Percent of Responding Agencies Agency Yes 51% Yes 55% AK, AZ, AR, CA, CT, GA, HI, ID, IN, KS, MB, MD, MN, MT, NE, NV, NY, PA, QC, VA, WA, WI No 49% No 45% AL, CO, FL, IL, IA, KY, LA, MI, MO, MS, NC, OH, SC, SD, TN, UT, WV, WY

36 Beware NAPA/NCAT False Definition This approach results in a salvage value near (or even higher than) the initial construction cost Source: Life Cycle Cost Analysis for Pavements NCAT/NAPA Webinar 6/4/14 Actual value is EITHER from continued use OR from sale of scrap material as it is recycled

37 Think about Your Last Car Value at the end of your ownership was EITHER Trade in or private party sale value because it will be continued to be used OR Scrap value because it is not drivable due to age or accident and NOT the sum of these.

38 Pavement Management Plan from City of Leawood, Kansas Life-Cycle Cost Analysis Step 7 Compare Alternatives

39 Compare Alternatives Alternatives considered must be compared using a common measure of economic worth. Investment alternatives such as pavement strategies are most commonly compared on the basis of: Present worth (also called net present value [NPV]) Annual worth (also called equivalent uniform annual cost [EUAC]) NPV and EUAC provide the same ranking

40 Agency Practices: Calc. Method 2012 ACPA LCCA EB (29) December 2013 ACPA Survey (31) Calculation Method Used Percent of Responding Agencies Calc. Method Used Percent of Responding Agencies Agency Net Present Value (NPV) Only 66% NPV 65% AL, AR, CA, CO, KS, LA, MD, MN, MO, MN, NV, NM, OH, PA, SC, UT, VT, WA, WV, WY Equivalent Uniform Annual Cost (EUAC) Only 17% EUAC 19% DE, IL, MI, NC, SD, WI Both NPV and EUAC 17% NPV + EUAC 16% AZ, GA, ID, IN, TN

41 Net Present Value (NPV) NPV analyses are directly applicable only to mutually exclusive alternates each with the same analysis period. The formula for the present value or worth ($P) of a one-time future cost or benefit ($F) is: $PP = $FF 1 (1 + d) t d = the real discount rate, % t = the year in which the one-time future cost or benefit occurs

42 Analysis Methods Deterministic approach a single defined value is assumed and used for each activity. Probabilistic approach variability of each input is accounted for and used to generate a probability distribution for the calculated life-cycle cost.

43 Agency Practices: Analysis Method 2012 ACPA LCCA EB (29) December 2013 ACPA Survey (32) Analysis Method Used Percent of Responding Agencies Analysis Method Used Percent of Responding Agencies Agency Deterministic 80% Deterministic 78% AL, AR, CA, GA, ID, IL, KS, LA, MI, MN, MO, MT, NV, NM, NY, NC, OH, PA, SD, TN, UT, VT, WV, WI, WY Probabilistic 10% Probabilistic 13% AZ, CO, IN, MD Both Det. and Prob. 10% Both 9% DE, SC, WA

44 Analysis Tools Most modern spreadsheet software include standard functions for calculating the present worth and annual worth. Proprietary software to compute LCCAs include: AASHTOWare Pavement ME (deterministic) FHWA s RealCost (deterministic and probabilistic) ACPA s StreetPave & WinPAS (both deterministic) CAC s CANPave (deterministic) Asphalt Pavement Alliance s (APA s) LCCA Original and LCCA Express (both deterministic)

45 Agency Practices: Analysis Tools 2012 ACPA LCCA EB (29) December 2013 ACPA Survey (31) LCCA Tool Used Percent of Responding Agencies LCCA Tool Used Percent of Responding Agencies Agency State- Developed Tool 62% State- Developed Tool 65% AR, GA, ID, IL, KS, MI, MN, MO, MT, NV, NM, NY, NC, OH, PA, SC, SD, TN, UT, WI RealCost 41% RealCost 39% AZ, CA, CO, DE, IN, LA, MD, SC, TN, UT, VT, WA DARWinME TM 17% Pavement ME 16% AL, CO, TN, VT, WV

46 Compare Results Because different components of the LCCA indicate different things about the alternates, the components typically are viewed separately and together to aid in interpretation/evaluation. When two alternatives have very similar net present values over the analysis period, it is advisable to choose the less risky alternative (i.e., the one with the higher proportion of the net present value attributable to initial costs).

47 Existing 80-yr old concrete pavement Existing 34-yr old asphalt pavement Life-Cycle Cost Analysis Example of Single-Project LCCA in Whitefish Bay, WI

48 Local Road Example Agency/Owner: Village of Whitefish Bay, WI Location: Diversey Boulevard Street Year of LCCA: 2008 Roadway Classification: Residential Project Scope: Reconstruction of approximately 10,000 SY (8,360 m 2 ) of pavement. Other Project Details: Existing 80-yr old concrete pavement is still in good condition with no scheduled maintenance, rehabilitation or reconstruction planned. Existing 34-yr old asphalt pavement has significant structural and material durability distresses.

49 Local Road Example Concrete Alternate: 7 in. (175 mm) of concrete atop 4 in. (100 mm) of granular subbase. Asphalt Alternate: 3 in. (75 mm) of asphalt atop 10 in. (250 mm) of granular base with a 2-in. (50-mm) asphalt overlay one year after initial construction.

50 Local Road Example Step 1 Select Analysis Period: 90 years Step 2 Select Real Discount Rate: 3% Step 3 Estimate Initial Agency Costs: Concrete Alternate: $373,940 Asphalt Alternate: $318,068 Step 4 Estimate User Costs: User costs were not considered. As bid, user costs for the staged asphalt construction would have been significantly more than those of concrete or an asphalt pavement placed in a single construction phase. Based on activity timings in the next step, future user costs likely also are more for the asphalt alternate.

51 Local Road Example Step 5 Estimate Future Agency Costs: Concrete Alternate: Year Type of Work Description of Work Quantity Unit Price Total Cost 15 Maintenance Joint Sealing (15%) 2,250 LF $0.50/LF $1, Maintenance Joint Sealing (30%) 4,500 LF $0.50/LF $2, Preservation Full Depth Repair (2% 6 ft Repair) 40 CY $180/CY $7, Preservation Partial Depth Repair (3% Joint Repaired) 180 LF $15.00/LF $2, Maintenance Joint Sealing (30%) 4,500 LF $0.50/LF $2, Maintenance Joint Sealing (30%) 4,500 LF $0.50/LF $2, Preservation Full Depth Repair (4% 6 ft Repair) 80 CY $180/CY $14, Preservation Partial Depth Repair (6% Joint Repaired) 360 LF $15.00/LF $5, Maintenance Joint Sealing (30%) 4,500 LF $0.50/LF $2,250

52 Local Road Example Step 5 Estimate Future Agency Costs: Concrete Alternate:

53 Local Road Example Step 5 Estimate Future Agency Costs: Asphalt Alternate: Year Type of Work Description of Work Quantity Unit Price Total Cost 3 Maintenance Crack Sealing 3,000 LF $0.50/LF $1,500 7 Maintenance Crack Sealing 4,000 LF $0.50/LF $2, Preservation Seal Coat 10,000 SY $1.75/SY $17, Maintenance Crack Sealing 5,000 LF $0.50/LF $2, Maintenance Crack Sealing 6,000 LF $0.50/LF $3, Reconstruct Remove Pavement 10,000 SY $2.00/SY $20, Reconstruct Pavement Replacement 1 LS $318,068/LS $318, Maintenance Crack Sealing 3,000 LF $0.50/LF $1, Maintenance Crack Sealing 4,000 LF $0.50/LF $2, Preservation Seal Coat 10,000 SY $1.75/SY $17, Maintenance Crack Sealing 5,000 LF $0.50/LF $2, Maintenance Crack Sealing 6,000 LF $0.50/LF $3, Reconstruct Remove Pavement 10,000 SY $2.00/SY $20, Reconstruct Pavement Replacement 1 LS $318,068/LS $318, Maintenance Crack Sealing 3,000 LF $0.50/LF $1, Maintenance Crack Sealing 4,000 LF $0.50/LF $2, Preservation Seal Coat 10,000 SY $1.75/SY $17, Maintenance Crack Sealing 5,000 LF $0.50/LF $2, Maintenance Crack Sealing 6,000 LF $0.50/LF $3,000

54 Local Road Example Step 5 Estimate Future Agency Costs: Asphalt Alternate:

55 Local Road Example Step 6 Estimate Residual Value: Residual value is assumed similar for both alternates; thus it s excluded. Even if residual values were considered, any remaining value for either alternate likely would not have significant present worth due to the length of the analysis period. 3% Discount Rate

56 Local Road Example Step 7 Compare Alternatives: ASPHALT CONCRETE

57 Local Road Example Step 7 Compare Alternatives: Concrete Alternate: Year Type of Work Total Cost Present Worth 0 Initial Construction $373,940 $ 373, Maintenance $1,125 $ Maintenance/Preservation $12,150 $ 5, Maintenance $2,250 $ Maintenance/Preservation $22,050 $ 3, Maintenance $2,250 $ 245 TOTAL NET PRESENT VALUE: $ 384,250 Present Worth Future Cost $PP = $FF 1 (1 + d) t Time of Expenditure Discount Rate = 3%

58 Local Road Example Step 7 Compare Alternatives: Asphalt Alternate: Year Type of Work Total Cost Present Worth 0 Initial Construction $318,068 $ 318,068 3 Maintenance $1,500 $ 1,373 7 Maintenance $2,000 $ 1, Maintenance/Preservation $20,000 $ 12, Maintenance $3,000 $ 1, Reconstruction $338,068 $ 139, Maintenance $1,500 $ Maintenance $2,000 $ Maintenance/Preservation $20,000 $ 5, Maintenance $3,000 $ Reconstruction $338,068 $ 57, Maintenance $1,500 $ Maintenance $2,000 $ Maintenance/Preservation $20,000 $ 2, Maintenance $3,000 $ 266 TOTAL NET PRESENT VALUE: $ 542,254

59 Local Road Example Step 7 Compare Alternatives: Concrete Alternative Initial Cost: $373,940 NPV: $384,250 Asphalt Alternative Initial Cost: $318,068 NPV: $542,254 Initial agency cost for the asphalt alternate is 15% less than that of the concrete alternate. The concrete alternate will cost 29% less (in constant dollars) than the asphalt alternate over the analysis period investigated. 97% of Conc Alt is initial cost, whereas only 59% of Asphalt Alt is initial cost Conc Alt has a much lower risk of higher-than-expected costs

60 Thank You! apps.acpa.org ACPA Application Library local.acpa.org ACPA-affiliated Chapter/States resources.acpa.org Resource Center wikipave.org ACPA s paving wiki

61 Impact of Analysis Period What if analysis period was 30 years or less?

62 Impact of Time Value of Money These were both $338k

63 Impact of Real Discount Rate

64 Impact of Material Inflation Using MIT escalation factors applied to 40% of the reconstruction (e.g., the pavement portion of the reconstruction cost) of the asphalt alternative at years 30 and 60 The asphalt alternative NPV increases by 9.7% to $594,659, up from the NPV of $542,254 without the material inflation accounting.

65 Total Cost of Ownership Using a 0% interest rate in real discount rate calc. This results in a negative real discount rate Provides a real feel for outlays over analysis period Concrete Alternative: Year Type of Work Total Cost Present Worth 0 Initial Construction $373,940 $ 373, Maintenance $1,125 $ 2, Maintenance/Preservation $12,150 $ 39, Maintenance $2,250 $ 13, Maintenance/Preservation $22,050 $ 231, Maintenance $2,250 $ 42,627 TOTAL OWNERSHIP COST: $ 703,101

66 Total Cost of Ownership Asphalt Alternative: Year Type of Work Total Cost Present Worth 0 Initial Construction $318,068 $ 318,068 3 Maintenance $1,500 $ 1,687 7 Maintenance $2,000 $ 2, Maintenance/Preservation $20,000 $ 36, Maintenance $3,000 $ % Reconstruction Non-asphalt $209,763 $ 680, % Reconst. -5.2% $128,306 $ 639, Maintenance $1,500 $ 5, Maintenance $2,000 $ 8, Maintenance/Preservation $20,000 $ 116, Maintenance $3,000 $ 23, % Reconstruction Non-asphalt $209,763 $ 2,206, % Reconst. -5.2% $128,306 $ 3,187, Maintenance $1,500 $ 17, Maintenance $2,000 $ 27, Maintenance/Preservation $20,000 $ 378, Maintenance $3,000 $ 74,795 TOTAL NET PRESENT VALUE: $ 7,732,216

67 Impact of Activity Timing Estimate 1% 3% 5%

68 Life-Cycle Cost Analysis What Else is in ACPA s LCCA Engineering Bulletin?

69 LCCA Examples Document also contains: Highway and Airport examples Probabilistic analysis results

70 Applications/Extensions and Appendices Network-Level Service Life and Economic Analyses Sustainability in the Context of a Life-Cycle Cost Analysis The Role of LCCA in Pavement Type Selection Total Cost of Ownership Example Mississippi Network of 36 Pavements The Potential Impact of Material Quantity Specifications on LCCA Results Present Worth Calculations and Deterministic Analysis Worksheet Historic Oil Price Trends and Volatility Federal Policy on Pavement Type Selection