Guide to Using Existing Pavement in Place and Achieving Long Life (2014)

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340 INTRODUCTION The SHRP 2 R23 Guide provides a number of possible alternative designs using either rigid or fl exible pavements. There is usually not a single design that meets the design criteria but rather a number of alternative designs that can be considered viable solu- tions. The method of selecting the best possible approach may consist of an economic evaluation, a decision matrix, or a combination of those approaches. There are sev- eral types of economic or criteria-based evaluations that can be carried out as part of conducting a life-cycle cost analysis (LCCA)—for example, cost-benefi t analysis, cost-effectiveness analysis, multicriteria analysis, and risk-benefi t analysis. At one ex- treme lies the purely multicriteria analysis, which employs weights from a variety of sources that contain a large degree of subjective assessment. At the other extreme lies the purely cost-benefi t analysis that exclusively employs monetary valuation and has generally more explicitly defi ned criteria. Most highway agencies have established some form of selection process, and it is expected that those agencies will apply their methodology to select between different options. For those agencies that do not have a formal selection procedure in place, the following guidance for conducting life-cycle cost analysis is provided and recommended to aid the selection process. LIFE-CYCLE COST ANALYSIS (LCCA) PROCEDURE Most agree that life-cycle cost analysis can be carried out using a few standardized steps. The process of a typical LCCA can be divided as follows: • Establish strategies for a 50-year service period. • Establish activity timing. 5 LIFE-CYCLE COST ANALYSIS

341 LIFE-CYCLE COST ANALYSIS • Estimate agency costs. • Estimate user costs. • Develop expenditure streams. • Compute net present value (NPV). • Conduct risk analysis. • Reevaluate strategies. These steps are explained more fully in the content that follows. Establish Strategies for a 50-Year Service Period The primary purpose of an LCCA is to quantify the implications of initial pavement design decisions regarding the future costs of maintenance and rehabilitation activities over 50 years. This assumes that a high level of service is maintained to preclude the use of full-depth patching and other major repairs. Having a clear picture of the pave- ment performance over that period is critical to the selection of the most cost-efficient alternative for that particular location and project. The timing of needed minor re- pairs, if properly managed, will efficiently preserve the pavement condition over the 50-year design period at what would be expected to be the lower total cost. It is anticipated a 50-year analysis period will be long enough to incorporate mul- tiple rehabilitation activities repeated through the service period. Figure 5.1 shows a typical analysis period for a given pavement design alternative. Guidelines for the preservation of long-life pavements are included based on the work performed in SHRP 2 Project R26, Preservation Approaches for High-Traffic-Volume Roadways. Figure 5.1. Example of pavement performance life. Source: WSDOT, 2010.

342 GUIDE TO USING EXISTING PAVEMENT IN PLACE AND ACHIEVING LONG LIFE Preservation treatments and approaches recommended in those guidelines should be considered in the reaccruing maintenance or preservation costs associated with each design alternative. A simplified illustration of the activity and timing is shown in Figure 5.1. Typically, each design alternative will have an expected initial design life, periodic maintenance treatments, and rehabilitation. In terms of the LCCA, it is important to identify the developing distress condition, timing, and cost of the key activities. State highway agencies (SHAs) have historically planned to employ a variety of rehabilita- tion strategies to keep highway facilities in a functional condition. For example, Table 5.1 shows the Washington State Department of Transportation (WSDOT) mainte- nance and rehabilitation framework representing a conventional approach to maintain new and reconstructed pavements over a 50-year period in their LCCA procedure (WSDOT Pavement Guide, Vol. 1, 2009). TABLE 5.1. REHABILITATION SCENARIOS FOR HMA AND PCC PAVEMENTS Year HMA Pavement PCC Pavement 0 Construction or reconstruction Construction or reconstruction 15 1.8-in. mill and HMA overlay 20 Diamond grinding 30 1.8-in. HMA overlay 40 Diamond grinding 45 1.8-in. mill and HMA overlay 50 Salvage value (if applicable) Salvage value (if applicable) Establish Activity Timing Performance life for the initial pavement design and subsequent rehabilitation activities has a major impact on LCCA results. It directly affects the frequency of agency inter- vention on the highway facility, which in turn affects agency cost as well as user costs during maintenance activities. SHAs can determine specific performance information for various pavement strategies through analysis of pavement management data and historical experience as a basis of calibration of performance-related models and tools. Operational pavement management systems can provide the data to evaluate pavement condition and performance to identify performance trends. Current FHWA efforts to analyze pavement performance data collected as part of the Long-Term Pavement Per- formance (LTPP) program should provide an additional valuable resource to SHAs. Work-zone requirements for initial construction, maintenance, and rehabilitation directly affect highway user costs and should be estimated along with pavement strategy development. The frequency, duration, severity, and year of work-zone requirements are critical factors in developing user costs for the alternatives being considered.

343 LIFE-CYCLE COST ANALYSIS Estimate Agency Costs Construction quantities and costs are directly related to the initial design and subse- quent rehabilitation strategy. The first step in estimating agency costs is to determine construction quantities and unit prices. Unit prices can be determined from SHA his- torical data on previously bid jobs of comparable scale. Other data sources include the Bid Analysis Management System, if used by the SHA. LCCA comparisons are always made between mutually exclusive competing alter- natives only, reflecting differential costs between alternatives. In other words, costs that are common to all alternatives will simply cancel each other out in the LCCA calculations. In the past, many agencies did not include traffic control costs because they were relatively common to different approaches for new construction. For the existing high-volume highway facilities considered in these guidelines, traffic manage- ment costs may be a large part of the total costs and significantly different between alternative designs. Therefore, traffic management costs should be considered in com- paring alternative design costs. Agency costs include all costs incurred directly by the agency over the life of the project. These typically include initial preliminary engineering, contract administra- tion, construction supervision and construction cost, and the associated condition monitoring cost. Routine or preservative maintenance must be proactively rather than reactively applied to be effective in preserving the condition of the pavement. Even though routine preservative-type maintenance costs are generally not excessively high, their role in maintaining a relatively high performance level cannot be overstated. Unfortunately, many SHAs may not have tracked routine maintenance timing or costs, providing few data regarding the differences between most alternative pavement strat- egies. It may also be true that, when discounted to the present, the direct routine main- tenance and associated monitoring cost differences have negligible effects on NPV and may perhaps be ignored. Nonetheless, when effectively employed, the routine main- tenance may often indirectly affect the NPV due to the longer service life before more costly treatments are used. Salvage value, which at times is included as a negative cost, represents the value of an investment alternative at the end of the analysis period and consists of two fundamental components—residual value and serviceable life. Residual value refers to the net value from recycling the pavement. The differential residual value between pavement design strategies is generally not very large, and, when discounted over the performance period, tends to have little effect on LCCA results. Serviceable life represents the more significant salvage value component; it is the remaining life in a pavement alternative at the end of the analysis period. It is primarily used to account for differences in remaining pavement life between alternative pave- ment design strategies at the end of the analysis period. For example, over a 50-year analysis, Alternative A reaches terminal serviceability at year 50, while Alternative B requires rehabilitation at year 40. In this case, the serviceable life of Alternative A at year 50 would be 0, as it has reached its terminal serviceability. Alternative B may still have 5 years of serviceable life at year 50, the year the analysis terminates. The value of the serviceable life of Alternative B at year 50 could be calculated as a percentage

344 GUIDE TO USING EXISTING PAVEMENT IN PLACE AND ACHIEVING LONG LIFE of design life remaining at the end of the analysis period (5 of 15 years or 33%) mul- tiplied by the cost of Alternative B’s rehabilitation at year 40. Estimate User Costs User costs are an aggregation of three separate cost components: vehicle operating costs, user delay costs, and crash costs that are incurred by the highway user over the life of the project. In LCCA, highway user costs of concern are the differential costs incurred by the motoring public between competing alternative highway im- provements and associated maintenance and rehabilitation strategies over the analysis period. In the pavement design arena, the user costs of interest are further limited to the differences in user costs resulting from differences in long-term pavement design decisions and the supporting maintenance and rehabilitation implications. There are user costs associated with both normal operations and work-zone operations. In terms of long-life designs, user costs associated with normal operations pertain to service periods free of maintenance and/or rehabilitation activities that typically would limit flow capacity. User costs in these circumstances would be expected to be insignificant because they are mainly a function of pavement roughness, which is anticipated to be maintained at a high level. During these operating conditions, there should be little dif- ference between crash costs and delay costs resulting from pavement design decisions. Furthermore, it may be difficult to ascertain any difference between vehicle operating costs since roughness will be maintained at a high level. Consequently, relative to the user costs associated with work-zone operations (which pertain to user costs associated with periods of construction, maintenance, and/ or rehabilitation activities), the only relevant costs would be those related to delays caused by monitoring or repair activities, as these would be key to achieving the long performance life. Pavement maintenance and rehabilitation alternatives are often selected based on LCCA evaluations. To make consistent and cost-effective decisions, LCCA should take into account all costs. Simple models to evaluate the additional road-user costs in work zones can be employed to assist in determining life-cycle costs of various repair alternatives. CA4PRS, discussed in the section “Construction Productivity and Traffic Impacts” in Chapter 1 of this Guide, can accomplish this and is gaining use among SHAs in the United States. There is a range for the dollar value of time delay used by various agencies. Table 5.2 gives the recommended dollar value used by WSDOT in 2010 dollars (WSDOT Pave- ment Guide, Vol. 1, 2009). TABLE 5.2. RECOMMENDED DOLLAR VALUES PER VEHICLE HOUR OF DELAY Vehicle Class Value per Vehicle Hour Value ($) Range ($) Passenger vehicles 15.10 13–17 Single-unit trucks 24.16 22–26 Combination trucks 29.08 27–31 Note: FHWA, adjusted to 2010 dollars (http://data.bls.gov/cgi-bin/cpicalc.pl).

345 LIFE-CYCLE COST ANALYSIS Compute Net Present Value In its broadest sense, LCCA is a form of economic analysis used to evaluate the long- term economic efficiency between alternative investment options. Economic analysis focuses on the relationship between costs, timing of costs, and discount rates em- ployed. Once all costs and their timing have been developed, future costs are often discounted to the base year and added to the initial cost to determine the NPV for the LCCA alternative. As noted earlier, NPV is the amount at various points in time back to some base year: i NPV Initial Cost Future Cost 1 1 k n k N 1 k ∑ ( )= + × +      = (5.1) where i = discount rate and n = year of expenditure. The component within the bracket of the formula is referred to as the present value (PV) factor for a single future amount. PV factors for various combinations of discount rates and future years are available in discount factor tables (more commonly referred to as interest rate tables). PV for a particular future amount is determined by multiplying the future amount by the appropriate PV factor. For example, if the initial cost is $26 million and the future cost is $9 million, with a discount rate of 4%, if the year of expenditure is 20 years, the NPV will become $30.1 million by Equation 5.1 as depicted by Figure 5.2. The NPV can be categorized in two ways: one is the agency NPV, and the other is the user-cost NPV. Because user costs may dominate total NPV, agency costs and user costs must be computed separately. Discount rates are typically set by a SHA and are rarely changed; however, the fed- eral Office of Management and Budget sets these rates annually via Circular A-94—and they do vary from year to year. For example, the real discount rates for 30-year-plus analyses have varied from a low of 2.7% (for 2009 and 2010) to a high of 7.9% (for 1982). On average, the real discount rate over a span of about 30 years is 4.3%. Risk Analysis The concept of risk comes from the uncertainty associated with future events (i.e., the inability to know what the future will bring in response to a given action today). Risk can be subjective or objective. Subjective risk is based on personal perception (i.e., intuitively deciding how risky a situation may be). For example, you may view flying as more risky than driving. This perception of risk may be related to the consequences of failure as well as the inability to control the situation. Objective risk is based on theory, experiment, or observation. Because individuals’ perceptions of risk vary, deci- sions incorporating risk-management concepts will depend to a large extent on the decision maker’s tolerance for risk.

346 GUIDE TO USING EXISTING PAVEMENT IN PLACE AND ACHIEVING LONG LIFE Analysis Period Initial Design 1st Rehab Pa ve m en t C on di tio n Years . $9 Million A ge nc y C os ts Years $26 Million 0 20 Figure 5.2. Net present value computation example. Source: Walls and Smith, 1998. Risk analysis is concerned with three basic questions: (1) What can happen? (2) How likely is it to happen? and (3) What are the consequences of its happening? Risk analysis attempts to answer these questions by combining probabilistic descrip- tions of uncertain input parameters with computer simulation to characterize the risk associated with future outcomes. It exposes areas of uncertainty typically hidden in the traditional deterministic approach to LCCA, and it allows the decision maker to weigh the probability of an outcome actually occurring. Many analytical models treat input variables as discrete fixed values, as if the values were certain. In fact, the majority of input variables are uncertain. Economic models used in a typical LCCA are no exception. In conducting LCCA, it is impor- tant to be aware of the inherent uncertainty surrounding the variables used as inputs into the analysis. Uncertainty results from the assumptions, estimates, and projections made in conducting the analysis. Table 5.3 summarizes LCCA input variables and the general basis used to determine their values.

347 LIFE-CYCLE COST ANALYSIS TABLE 5.3. LCCA INPUT VARIABLES LCCA Component Input Variable Source Initial and future agency costs Preliminary engineering Estimate Construction management Estimate Construction Estimate Maintenance Assumption Timing of costs Payment performance Projection User costs Current traffic Estimate Future traffic Projection Hourly demand Estimate Vehicle distributions Estimate Dollar value of delay time Assumption Work-zone configuration Assumption Work-zone hours of operation Assumption Work-zone duration Assumption Work-zone activity years Projection Crash rates Estimate Crash cost rates Assumption Net present value (NPV) Discount rate Assumption This uncertainty is often ignored in an LCCA. For example, the analyst may make a series of best guesses of the values for each input variable and compute a single deter- ministic result. The problem with this approach is that it often excludes information that could improve the decision. In some cases, a limited sensitivity analysis may be conducted, whereby various combinations of inputs are selected to qualify their effect on analysis results. However, even with a sensitivity analysis, this deterministic approach to LCCA often conceals areas of uncertainty that may be crucial to the decision-making process. The need to make strategic long-term investment decisions under short-term bud- get constraints is encouraging SHAs to consider risk as a criterion for judging a course of action. Risk analysis exposes areas of uncertainty for the decision maker. Based on this information, the decision maker has the opportunity to take mitigating action to decrease exposure to risk. With the emergence of user-friendly computer software, like RealCoast (available from FHWA), a SHA should consider integrating quantitative risk analysis concepts into the decision-making process (Figure 5.3). Reevaluate Strategies Once the NPVs have been computed for each alternative and limited sensitivity analysis performed, the analyst needs to reevaluate the competing design strategies. The overall benefit of conducting LCCA is not necessarily to obtain LCCA results themselves, but rather to learn how the designer can use the information resulting from the analysis to modify the proposed alternatives and develop more cost-effective strategies.

348 GUIDE TO USING EXISTING PAVEMENT IN PLACE AND ACHIEVING LONG LIFE For example, if user costs dwarf agency costs for all alternatives, the analysis may indicate that none of the alternatives analyzed are viable. It could indicate that the designer needs to evaluate the current design strategies’ impacts on future traffic main- tenance and ensure that the design strategies reflect the need for additional capacity in the out-years to mitigate the impact on highway users. The solutions might include the following: • The use of the shoulders in subsequent rehabilitation traffic control plans, • Enhanced structural design of the mainline pavement to minimize the frequency of subsequent rehabilitation efforts, • Reduction of the overall construction period, • Restriction of contractor work hours or imposition of lane rental fees, and • Planning for additional lanes and/or routes and shifting to alternative modes of travel. It is important to note that restricting the contractor’s hours of operation or the number of work days allowed will increase agency cost. LCCA results are just one of many factors that influence the ultimate selection of a pavement design strategy. The final decision may include a number of additional fac- tors outside the LCCA process, such as local politics, availability of funding, industry capability to perform the required construction, and agency experience with a particu- lar pavement type, as well as the accuracy of the pavement design and rehabilitation models. Chapter 3 of the AASHTO Guide for Design of Pavement Structures (1993) discusses these other factors in greater detail. When these other factors weigh heavily in the final pavement design selection, it is imperative to document their influence on the final decision. $ % Inputs Net Present Value Results M O D E L Figure 5.3. Risk analysis approach. Source: Walls and Smith, 1998.

349 LIFE-CYCLE COST ANALYSIS The accuracy of LCCA results depends directly on the analyst’s ability to reasonably forecast such variables as future costs, pavement performance, and traffic years into the future. To deal effectively with the uncertainty associated with these forecasts, a probabi- listic risk analysis approach is increasingly essential to quantitatively capture the uncer- tainty associated with input parameters in LCCA results. REFERENCES Federal Highway Administration. “Life Cycle Cost Analysis Primer Office of Asset Manage- ment,” FHWA-IF-02-047, U.S. Department of Transportation, 2002. Guide for Design of Pavement Structures, American Association of State Highway and Transportation Officials (AASHTO), Washington, D.C., 1993. Walls, J., and M. R. Smith. “Life Cycle Cost Analysis in Pavement Design,” FHWA- SA-98-061, Federal Highway Administration, Washington, D.C., 1998. Washington State Department of Transportation (WSDOT). “Pavement Policy,” Draft Document, Olympia, Wash., January 2010. http://www.wsdot.wa.gov/NR/rdonlyres/ A0A917B4-5BBB-4A7B-87F6-B89DAD4A1B13/0/DraftWSDOTPavementPolicy2210.pdf.