This manual provides basic instruction for using RealCost, software that was developed by the Federal Highway Administration (FHWA) to support the application of life-cycle cost analysis (LCCA) in the pavement project-level decisionmaking process. The manual provides direction on how to enter the data required to perform LCCA and how to incorporate the software's outputs into project-level decisionmaking. The User Manual is addressed to pavement designers and design decisionmakers who wish to use LCCA and the RealCost software to compare the cost-effectiveness of alternative project proposals. Following this introduction, the manual contains instructions on installing RealCost, descriptions of its features, and directions on using the software in performing pavement decisionmaking analyses.
LCCA is an engineering economic analysis tool useful in comparing the relative economic merits of competing construction or rehabilitation design alternatives for a single project. By considering all of the relevant costs-agency and user-incurred during the projected service life of an asset, this analytical process helps transportation officials to identify the lowest cost option. Additionally, LCCA introduces a structured methodology that quantifies the effects of agency activities on transportation users and provides a means to balance those effects with the construction, rehabilitation, and preservation needs of the system itself.
LCCA can be used in making certain transportation investment decisions. Specifically, when a project has been selected for implementation, LCCA will assist in determining the lowest cost way to accomplish the performance objectives of the project. LCCA cannot, however, be used to compare the economic merits of projects that provide different levels of benefit for highway users, such as comparing a road-widening project with a rehabilitation of existing roadway lanes. A cost-centric analysis, LCCA accounts only for cost differences between project alternatives and is applicable only to decisions where benefits are equal for all alternatives being considered.
In brief, the LCCA process begins with the development of alternatives to accomplish the structural and performance objectives for a project. The analyst then defines the schedule of initial and future activities involved in implementing each of the project design alternatives. Next, costs of these activities are estimated. Best practice LCCA calls for including not only direct agency expenditures (for example, construction or maintenance activities), but also costs to the project's users that result from agency work zone operations.
The predicted schedule of activities and their associated agency and user costs form the projected life-cycle cost stream for each design alternative. Using an economic technique known as discounting, these costs are converted into present dollars and then summed for each alternative. The analyst can then determine which alternative is the most cost-effective.
Life-Cycle Cost Analysis Steps
Two different computational approaches can be used in LCCA, deterministic and probabilistic. The methods differ in the way they address the variability associated with the LCCA input values.
In the deterministic approach, the analyst assigns each LCCA input variable a fixed, discrete value. The analyst determines the value most likely to occur for each parameter, usually basing the determination on historical evidence or professional judgment. Collectively, the input values are used to compute a single life-cycle cost estimate for the alternative under consideration.
Traditionally, applications of LCCA have been deterministic. A deterministic life-cycle cost computation is straightforward and can be conducted manually with a calculator or automatically with a spreadsheet. Sensitivity analyses may be conducted to test input assumptions by varying one input, holding other inputs constant, and determining the effect of the variation on the outputs. The deterministic approach, however, fails to address simultaneous variation in multiple inputs, and it also fails to convey the degree of uncertainty associated with the life-cycle cost estimates.
Probabilistic LCCA inputs are described by probability functions that convey both the range of likely inputs and the likelihood of their occurrence. Probabilistic LCCA also allows for the simultaneous computation of differing assumptions for many different variables. Outputs, like inputs, express the likelihood that a particular life-cycle cost will actually occur. Because of the dramatic increases in computer processing capabilities of the last two decades, the process of probabilistic analysis has become more practical. Simulating and accounting for simultaneous changes in LCCA input parameters can now be accomplished easily and quickly.