In Search of Better Investment and Engineering Decisions

Prepared by: Siti Zubaidah Bt Hashim Lecturer Department of Building Surveying

What is Life Cycle Cost?An economic analysis procedure that uses

engineering inputs

Compares competing alternatives considering all significant costs

Expresses results in equivalent dollars (present worth)

Cost Considerations

Maintenance and Inspection

Cost

Initial Cost

Costs

Present Worth

Years

Rehabilitation Cost

Salvage Value

Salvage Costs

Present Worth AnalysisDiscounts all future costs and benefits

to the present: t=n

PW = FC + pwf [MC+IC+FRC+UC] + pwf [S] t=0

FC = First (Initial) Costt = Time Period of AnalysisMC = Maintenance CostsIC = Inspection CostsFRC = Future Rehabilitation CostsUC = Users CostsS = Salvage Values or Costspwf = Present Worth Factor

FC = First (Initial) Costt = Time Period of AnalysisMC = Maintenance CostsIC = Inspection CostsFRC = Future Rehabilitation CostsUC = Users CostsS = Salvage Values or Costspwf = Present Worth Factor

First (Initial) CostInitial cost of structure

Incentive/disincentive payments should not be included since they would reflect user benefits or costs prior to structure going into service

Time Period of AnalysisNormally equal for all alternatives

Should include at least one major rehabilitationNeeded to capture the true economic benefit of each

alternative

Bridge design today is based on a probabilistic model of 100 years

Maintenance CostsAnnual cost associated with the upkeep of the

structureInformation is difficult to obtain for a given projectCost varies on the basis of size of the structure

(sqft)Best Guess Values

Frequency - AnnualConcrete 0.05 % of Initial CostStructural Steel 0.05 % of Initial Cost

Inspection CostsRequirements set forth in the National Bridge

Inspection Standards (23 CFR 650.3)Occurs for all alternatives every two yearsCost varies on the basis of size of the structure

(sqft) and by construction materialBest Guess Values

Frequency - BiannualConcrete 0.15 % of Initial CostStructural Steel 0.20 % of Initial Cost

Future Painting CostsOnly applies to structural steel structures but

excludes weathering steelShould occur every 20 yearsCost varies on the basis of size of the structure

(sqft)Best Guess Values

Frequency – every 20 yearsConcrete 0.0 % of Initial CostStructural Steel 7.0 % of Initial Cost

Future Rehabilitation Costs

The frequency is not only a function of time but also the growing traffic volume and the structural beam system

Cost varies on the basis of size of the structure (sqft) and structural beam system

Best Guess ValuesFrequency

First occurrence – Concrete 40 years First occurrence – Structural Steel 35 years Annual traffic growth rate .75 % (shortens rehab cycles)

Concrete 20.0 % of Initial CostStructural Steel 22.0 % of Initial Cost

Salvage Value/CostsOccurs once at end of life of structure

Difference betweenRemoval costSalvage value

Best Guess ValuesRemoval cost 10 % of Initial CostSalvage Value – Concrete - 0 % of Initial CostSalvage Value – Structural Steel - 2 % of Initial Cost

Users CostsFor early construction completion, maintenance

and rehabilitations only

Delay-of-use Time delay Fuel consumption Driver discomfort

Vehicle operating costs

Accidents

Users CostsPros

Users pay for transportation systemDrives the results

ConsOwner can not recoup costsNot in my budgetDrives the results

Users CostsDriver Delay Costs:

DDC = (L/Sa-L/Sn) x ADT x N x w

L = Length of affected road waySa = Traffic speed during maintenance activitySn = Normal traffic speedADT = Average daily traffic (vehicles per day)N = number of days of maintenance activityw = Hourly time value of drivers

Users CostsVehicle Operating Costs:

VOC = (L/Sa-L/Sn) x ADT x N x r

L = Length of affected road waySa = Traffic speed during maintenance activitySn = Normal traffic speedADT = Average daily traffic (vehicles per day)N = number of days of maintenance activityr = weighted-average vehicle cost

Users CostsAccident Costs:

AC = L x ADT x N x (Aa-An) x ca

L = Length of affected road wayADT = Average daily traffic (vehicles per day)N = number of days of maintenance activityAa = Accident rate during maintenance activityAn = Normal accident rateca = Cost per accident

Present Worth Factor 1

pwf = (1 + i)n

pwf = Present Worth Factor for discount rate i and year n

i = Discount raten = Number of years when cost

(benefit) will occur

pwf = Present Worth Factor for discount rate i and year n

i = Discount raten = Number of years when cost

(benefit) will occur

Discount RateInterest - Inflation

i = 1 + Inflation

Interest – The return of an investment that raises the future value of an invested dollar

Inflation – The erosion of a dollar’s value that raises any future expenses

Use of a discount rate allows for the use of constant dollars in the analysis

Interest – The return of an investment that raises the future value of an invested dollar

Inflation – The erosion of a dollar’s value that raises any future expenses

Use of a discount rate allows for the use of constant dollars in the analysis

Process And Approach Limits

Government does not invest money to gain cash benefits (interest)

Government money is generally invested only in depreciating assets

Anything not bought this year costs more next year (inflation)

User Costs InputUser Costs Inputs Alternative 1

Prestressed Concrete

Length of affected roadway * 2.00 2.00 miles

ADT * 5,000 5,000 vehicles per day

Normal traffic speed 45 45 mph

Construction traffic speed 20 20 mph

Normal accident rate 1.9 1.9 /million vehicle miles

Construction accident rate 2.2 2.2 /million vehicle miles

Number of construction days

Early Construction Completion 90 0 days

Maintenance 10 10 days/occurrence

Inspection 5 8 days/occurrence

Painting 0 90 days/occurrence

Rehabilitation 120 120 days/occurrence

Hourly time value of drivers 6.25 6.25 $/hour

Weighted average vehicle cost 8.00 8.00 $/hour

Cost per accident 100,000 100,000 $/occurrence

Note*: Total traffic affected by Maintenance, Inspection, Painting, and Rehabilitation activity over and under structure

Alternative 2Structural Steel

Discount Rate Inputs

Present Worth Factors For All AlternativesDiscount Rate 0.00%Inflation Rate 2.00%

Structure Costs InputInitial Cost of Structure 7,000,000

Analysis Period 100

Frequency (Years)

Cost Factor

Per Occurrence Cost

Maintenance Costs 1 0.05% 3,500Inspection Costs 2 0.15% 10,500Painting Costs 0 0.00% 0Rehabilitation Costs

• First Rehabilitation 40 20.00% 1,400,000Annual Traffic Growth Rate * 0.75%Salvage Costs/Value

• Demolition Costs 100 10.00% 700,000• Salvage Value 100 0.00% 0• Net Salvage Costs 700,000

Alternative 1 - Prestressed Concrete

Structure Costs InputStructure Costs InputInitial Cost of Structure 7,000,000

Analysis Period 100

Frequency (Years)

Cost Factor

Per Occurrence Cost

Maintenance Costs 1 0.05% 3,500Inspection Costs 2 0.20% 14,000Painting Costs 20 7.00% 490,000Rehabilitation Costs

• First Rehabilitation 35 22.00% 1,540,000Annual Traffic Growth Rate * 0.75%Salvage Costs/Value

• Demolition Costs 100 10.00% 700,000• Salvage Value 100 2.00% 140,000• Net Salvage Costs 560,000

Alternative 2 - Structural Steel

Life Cycle Costs ResultsCosts User Costs Total

Construction 7,000,000 (383,250) 6,616,750

Maintenance 346,500 4,215,750 4,562,250

Inspection 514,500 1,043,292 1,557,792

Painting 0 0 0

Rehabilitation 4,200,000 1,533,000 5,733,000

Salvage 700,000 700,000

Total Constant Dollars 12,761,000 6,408,792 19,169,792

Present Worth 30,235,675 21,746,666 51,982,341

Alternative 1 - Prestressed Concrete

Life Cycle Costs ResultsLife Cycle Costs Results

Costs User Costs Total

Construction 7,000,000 0 7,000,000

Maintenance 346,500 4,215,750 4,562,250

Inspection 686,000 1,669,267 2,355,267

Painting 1,960,000 1,533,000 3,493,000

Rehabilitation 6,160,000 2,044,000 8,204,000

Salvage 560,000 560,000

Total Constant Dollars 16,712,500 9,462,017 26,174,517

Present Worth 48,910,066 31,365,348 80,275,414

Alternative 2 - Structural Steel

Life Cycle Costs Comparisons

Life Cycle Costs Comparisons

Prestressed Concrete Savings

Costs User Costs Total

Constant Dollars 31% 48% 37%

Present Worth 62% 44% 54%

Thank you for your Attention!