Life-Cycle Cost Analysis Ask the Expert
Question 1: In comparing pavement alternatives, if a percentage differential is calculated between LCCA's and a threshold of 10% is used to decide whether or not to further consider other secondary factors, is it appropriate to exclude common costs between alternatives when doing so impacts the percentage differential calculation?
Answer: FHWA generally recommends that cost elements (e.g., right of way) common to all alternatives being evaluated not be quantified in LCCA, as these common costs will wash out in a straight cost comparison.
In the case where an agency has specified that "secondary" factors (e.g., user costs) would only be considered when the agency costs of two alternatives are within 10 percent of each other, then the choice of whether to include common costs when calculating this differential would be up to the State or local agency. The selection of any percentage differential (10 percent or 25 percent or 50 percent) is a matter of an agency's policy as shaped by its budgetary priorities. The FHWA provides no guidance on such differentials because there is no purely economic basis for using or setting them.