Lecture 9 Life Cycle Costing
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Transcript of Lecture 9 Life Cycle Costing
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!