National Academies Press: OpenBook

Determining Highway Maintenance Costs (2011)

Chapter: Chapter 1 - Introduction

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Suggested Citation:"Chapter 1 - Introduction." National Academies of Sciences, Engineering, and Medicine. 2011. Determining Highway Maintenance Costs. Washington, DC: The National Academies Press. doi: 10.17226/14535.
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Suggested Citation:"Chapter 1 - Introduction." National Academies of Sciences, Engineering, and Medicine. 2011. Determining Highway Maintenance Costs. Washington, DC: The National Academies Press. doi: 10.17226/14535.
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Suggested Citation:"Chapter 1 - Introduction." National Academies of Sciences, Engineering, and Medicine. 2011. Determining Highway Maintenance Costs. Washington, DC: The National Academies Press. doi: 10.17226/14535.
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41.1 Background Because of growing demands and resource limitations for highway maintenance, state departments of transporta- tion (DOTs) and other highway agencies often consider non- traditional means for financing and contracting these services. For example, some state DOTs have considered the options of outsourcing and public–private partnership of some mainte- nance services. However, identifying the most desirable option for a specific maintenance activity requires knowledge of the transportation agency’s full costs associated with such activity. Often, some of the elements making up the total cost of an activity are not appropriately considered or, in some instances, are not included. The cost elements most frequently missed or mishandled are those related to maintenance program and agency-wide (or enterprise) support. There is no widely accepted process for determining the costs associated with performing highway maintenance if done by the transportation agency itself. Research was needed to identify current practices, review relevant information, and develop a rational process that considers all cost elements and thus provides a realistic estimate of the costs of maintenance activities. NCHRP Project 14-18 was conducted to address this need. 1.2 Objective and Research Approach The objective of this research was to develop a practical and robust process for determining an agency’s full costs asso- ciated with performing highway maintenance. The process needed to be flexible enough that it can be applied to any spe- cific maintenance activity, and it needed to ensure that the resulting full cost incorporates a fair share of both mainte- nance program and enterprise support. The primary appli- cation of the process will be to enable agencies to compare the cost of in-house versus contractor delivery of any partic- ular maintenance activity, which is a key consideration for decisions regarding service delivery. This objective was accom- plished through the following tasks: 1. Collection and review of information relevant to the prac- tices for determining the costs associated with perform- ing highway maintenance activities. The literature review spanned a variety of sources, including agency reports and audits exploring maintenance costs and comparisons of in-house and contractor costs, research findings, govern- ment requirements, as well as other information relating to transportation agency cost tracking in general and main- tenance activity costs specifically. In addition, structured interviews were conducted with maintenance and finance personnel at 10 state DOTs. The DOTs were selected in order to provide a range of combinations of three char- acteristics: geography (climate, terrain, degree of urban- ization), size of system (lane miles, bridge deck area), and management information systems sophistication. The interviews focused on how each agency determines and tracks maintenance costs, the systems and processes used, and agency attempts, if any, to determine the full cost of maintenance activities. 2. Identification of the cost elements required to accurately determine the full cost of any specific highway mainte- nance activity. These cost elements included salaries and benefits, materials, equipment, and other charges that rou- tinely make up maintenance activity costs; maintenance program support costs such as program administration and the state maintenance engineer; and enterprise sup- port costs such as executive management, finance, human resources, and legal offices or departments. 3. Preliminary evaluation of cost determination approaches identified in Task 1 for the full set of cost elements iden- tified in Task 2. This task focused on the practices and procedures available for determining the costs associated C H A P T E R 1 Introduction

with maintenance activities. Promising cost determina- tion practices were identified for further investigation, and an initial full cost framework was developed. 4. Preparation of a detailed work plan for developing the full cost determination process leveraging the initial full cost framework developed in Task 3 and an enhanced understanding of the data and practices at the state DOTs contacted. 5. Execution of the work plan and development of the full cost determination process. This task focused on working with a number of state DOTs to obtain the necessary data and perform the full cost calculation for all maintenance activities at the agencies. This task resulted in the refine- ment of the full cost determination process, the identifica- tion of options and exceptions for each step of the process, and the development of a prototype spreadsheet tool used to support the full cost calculations performed in this task. 6. Documentation of the full cost calculations performed in Task 5. The full cost calculations were documented in a way that will help agency personnel to use the full cost determination process at their agency and understand the process, level of effort, who should be involved, poten- tial sources of information, and the options and deci- sions that must be considered at each step. 7. Submittal of a final report that documented the entire research effort and included a stand-alone document describing the process developed (provided as the attachment). 1.3 Applications of the Full Cost Determination Process The benefits of performing the full cost calculation go beyond providing a critical input into agency decisions regard- ing in-house versus contractor performance of any particular maintenance activity. Gathering the necessary data and per- forming the calculation requires a thoughtful review of the maintenance program structure and activities, as well as the distribution of expenditures between activities and between the different elements of cost. Additional applications and benefits of performing the full cost calculation may include: • The identification of potential improvements to the main- tenance program structure and activities, as well as the processes and management systems used for recording accomplishments and expenditures associated with each activity (e.g., the identification of opportunities to estab- lish separate in-house versus contractor activities in order to improve the allocation of contract support and admin- istration expenditures, recording of accomplishment data, and full unit-cost calculations). • Providing an ability to compare maintenance costs between different geographic areas and/or highway functional classes, which may in turn provide insight into the influences of other, external effects on costs (e.g., road characteristics, traf- fic volume and composition, terrain altitude, and weather). • Performing the calculation annually may help agencies improve level of service (LOS) based budgeting models and reduce reliance on prior-year expenditures during budget development cycles. • Help agencies to identify training needs for maintenance field personnel and supervisors in the area of recording man hours, equipment usage, and material consumption. 1.4 Introduction to Tenets of Full Cost Determination Several tenets form the foundation of the results of this project. These tenets are listed below; explanations of each tenet and implications for the study’s findings and recom- mendations are provided in Chapter 2. 1. The recommended full cost determination process should build on the existing management practices, procedures, data, and systems typically found within state DOTs. 2. The focus of this study is state DOTs; however, its findings may be useful to other transportation agencies with a maintenance program. 3. The focus of this study is highway maintenance programs; however, the basic principles of full cost determination may be applied to other agencies’ line programs. 4. The recommended full cost determination process should encompass all activities performed by an agency’s main- tenance organization and program. 5. Maintenance activity full cost results should be ex- pressed as either total or unit cost rather than overhead percentages. 6. The results of the full cost determination process apply to each agency individually; comparisons of full costs between agencies are not meaningful for several reasons and should be avoided. 7. The recommended full cost determination process should ensure complete coverage of an agency’s expenditures, with no overlaps, duplicates, or gaps. 8. A practical and consistent full cost determination process is more useful than one that is complex and variable, even if the latter delivers greater accuracy in some cases. 9. Agency application of the full cost determination process will benefit significantly from the collaboration of main- tenance with other units within the DOT. 10. Utilization of year-end reports and data simplifies the full cost determination process and reduces the chances of errors and inconsistencies. 5

11. The full cost determination process will provide only one input to the agency’s decision making regarding mainte- nance delivery. 12. The full cost determination process should incorporate general principles of good analytic technique, including transparency and repeatability. 13. Performing full cost calculations requires care and atten- tion to detail; however, the data and tools needed to do it can be and have been assembled successfully by state DOTs. 1.5 Report Organization The remainder of this report includes the following chapters: • Chapter 2 presents definitions and nomenclature that are critical to understanding the process, identifies and describes the spectrum of cost elements that must be con- sidered by the full cost determination process as well as the management systems and other sources for this informa- tion, and introduces key tenets of the full cost determination process. • Chapter 3 provides a description of the process, identifies sources of information and key considerations, presents a fully worked example with commentary, and addresses options and exceptions for each step, including references to the documented examples included in the attachment. • Chapter 4 presents conclusions with respect to the full cost determination process developed and its benefits, as well as suggestions for additional research that would complement this research and help to advance the state of the practice with respect to maintenance cost determination. • The attachment provides a standalone description of the full cost determination process developed in this project, supplemented with documented examples of full cost calcu- lations for six state DOTs and summary information about the systems and processes used to track and report mainte- nance costs for another three state DOTs. 6

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TRB’s National Cooperative Highway Research Program (NCHRP) Report 688: Determining Highway Maintenance Costs presents a process for determining a highway agency’s full costs associated with performing highway maintenance.

The process described in the report can be applied to any specific maintenance activity and is designed to help ensure that the resulting full cost incorporates a fair share of both maintenance program and enterprise support costs.

The report also documents the application of the full-cost determination process for a number of highway agencies and different maintenance activities to demonstrate the types of options, exceptions, and decisions that would be needed in order to perform the full-cost calculation.

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