Life-Cycle Cost Analysis for Infrastructure Project Pavement Design

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Life-Cycle Cost Analysis for Infrastructure Project Pavement Design


A. Whyte*, and A. Pham*

* Civil Engineering Dept., Curtin University, GPO Box U1987, Perth, Australia
(E-mail: andrew.whyte@curtin.edu.au)


ABSTRACT
Asset management and decision-support tools at the planning phase and throughout the life-cycle of
civil infrastructure projects are essential for stakeholders charged with the determination of cost-
effective design-solutions over an asset’s useful life. The need for a life-cycle cost analysis (LCCA)
to guide economic decision-making when comparing competing alternatives is explored by case-
study that juxtaposes the pavement design options of: concrete; and, asphalt. Discussion below
outlines briefly the processes involved in developing a new infrastructure LCCA model. Specific
design alternatives of: continually reinforced concrete pavement (CRCP); and, thin asphalt surfaced
unbound granular pavement (AC) were input for direct whole-life cost comparison. Using life-span
periods of 30, 60 and 100 years, with a discount rate calculated at 8%, (incorporating sensitivity
analyses) the findings suggest that the asphalt pavement alternative is the cheapest in all cases, with
a clearance of up to 34%. Overall, the outcomes of this project validate and vindicate the need for
an LCCA for infrastructure projects, while specifically recommending that an asphalt pavement is a
cheaper alternative than a concrete pavement in this particular environments locally.


KEYWORDS
Infrastructure Asset-Management, Life-cycle Costing, Engineering Economics

INTRODUCTION
Asset management and the need for decision-support tools both at the planning phase and
throughout the life-cycle of civil infrastructure is a key issue for the Australian construction
industry; it remains a challenge (for civil engineers) to reduce the costs involved, of a resource or
asset, over the duration of its useful design life. In particular, pavement engineers are often faced
with alternative specifications to choose from. Comparison of the available alternatives may find
that one option is clearly the cheapest according to the initial construction costs. However upon
inspection of the costs induced over the life-time of the (pavement) component, it may well be that
the maintenance and repair costs outweigh the costs initially saved at construction. Life-cycle cost
analysis (LCCA) give a means and method to determine which alternative gives the most cost
benefit over the long term.

Component comparison methodology is presented in Section 3; this paper gives a practical
investigation of LCCA, via development of a LCCA spreadsheet model and application of a case-
study that best represents civil infrastructure. To demonstrate the benefits of applying a LCCA, the
research conducted analysis of the alternatives of concrete pavement and asphalt pavement for a
high volume highway. The subject was deemed appropriate, with the potential to influence greatly
the civil infrastructure industry, given that roads make up a large proportion of total civil
infrastructure in Australia. In addition, highways are major schemes that are owned by the State
Government for their whole life, as opposed to smaller roads which may be built by developers and
owned thereafter by the local council. Thus, due to the sole ownership, the whole-of-life costs
would be applicable to the one Government transportation agency.

In particular, the alternatives for the case study were chosen based on an apparent/anecdotal
preference for bitumen pavement in Western Australia, rather than a concrete alternative. Concrete
pavement is adopted in other places such as parts of the United States and Europe, as well as having
gained popularity in the Eastern States of Australia. Why is concrete not readily adopted in Western
Australia? Purely on a cost assertion, it would seem that asphalt pavements are favoured due to their
cheaper acquisition costs. However, with low initial costs one could assume hefty maintenance
costs thereafter. This hypothesis is supported by several sources such as the American Concrete
Pavement Association (ACPA, 2002), which states, ‘concrete roadways cost as little as one-third
the total cost of building, maintaining and repairing asphalt roadways’. Similarly Sharp (70) claims
that ‘it is certain that many local authorities would, if they kept and analysed their records
accurately, find that concrete roads are considerably cheaper than any alternative form of
construction on an annual cost basis.’ The objective then was to conduct a LCCA to determine
whether this claim was true over the asset’s whole- life.


LIFE-CYCLE COST ANALYSIS
LCCA is defined by Kirk and Dell’Isola (95) as ‘an economic assessment of competing design
alternatives, considering all significant costs of ownership over the economic life of each
alternative, expressed in equivalent dollars.’ For pavement designs, life cycle costing can be more
specifically described as, ‘an economic assessment of road infrastructure and its use during its life’
(BTCE’90). LCCA takes into account all costs that occur over the effective life of the resource. It
begins with the analyst defining a schedule that encompasses all the activities and associated costs
involved over the entire project life for each design alternative. The technique of discounting is then
applied so that all costs induced over several time periods are converted into present dollars and
summated into a net present value (NPV) for each alternative, allowing the analyst to establish and
recommend the best alternative in terms of cost. In many cases after LCCA is performed on the
alternatives, it can be seen that the long term costs of operation and maintenance in fact are much
greater than the initial costs of construction. LCCA is therefore an effective tool and should be
applied as early on in the development of the project as possible to yield the best outcomes and
allow for possible changes to occur during planning (Demos ‘06). Figure 1 shows how the cost of
making changes increases, while the opportunity for savings decreases as time progresses.


Figure 1. Potential Savings And Cost Relationship; Nsw Treasury (‘04)

The time value of money refers to the changing value of the dollar over time, due to the effects of
inflation and interest, and is taken into account by a discount rate. ‘Inflation is the general increase
in the price of goods and services over time’, whereas, Interest is somewhat the opposite and
represents a ‘return on an investment’ comments the American Concrete Pavement Association
(2002). The analysis period is the time frame in which the costs are compared, and is not
necessarily equal to the design or service life of the pavement. Net present value (NPV) is ‘the
present value of proceeds minus present value of outlays’ states Barringer (‘03), so that an effective
comparison may be made and where effectively the greatest NPV (where costs are considered to be
negative) is considered the option with the competitive edge. The NPV for each alternative can be
calculated using equation (1) as follows:
NPV=Initial cost+∑(Future cost*(1+r)^(-N) ) (1)

Of particular importance is the determination of the discount rate for the analysis, as variation of
this can lead to differing results. The discount rate is a measure of the time value of money and is
measured as a percentage per annum. This is often defined as the ‘actual rate of increase in the time
value of money’ (Kirk ‘95), which takes into account both the interest and inflation rates. Extensive
literature has been written on the determination of the discount rate and whilst much debate exists,
it seems no one method has been universally accepted by construction stakeholders and civil
engineers. The discount rate employed by many analysts depends largely on personal judgment
along with economic and political factors, argues the BTCE (‘90).

In some transportation agencies the discount rate is simply taken as an acceptable and familiar value
when conducting a LCCA. Among these different agencies, the discount rate used can be seen to
vary, from the Eastern state Victoria ‘VicRoads’ opting for a value of 7%, to the National Road
Transport Commission (NRTC) (2009)of Australia recommending 5%. In this research, the
discount rate was calculated and based on a derivation of equations which takes into account the
factors of treasury-bond rate of return, inflation rate and average equity return rate. The resulting
discount rate is outlined in Section 4.1.

For pavements, the costs induced over the considered analysis period could be categorized as initial
construction costs, maintenance costs, rehabilitation and reconstruction costs and salvage (residual)
value. Initial construction costs are directly related to the construction of the pavement, including
costs relating to ‘subgrade preparation; base; subbase, and surface materials; labour; equipment;
drainage and the like’ (ACPA, 02). Maintenance costs can be defined as ‘actions taken to restore a
system or piece of equipment to its original capacity, efficiency, or capability’ (Vanier ‘01).
Typically for pavements these costs include ‘contracts, materials and equipment, staff salaries, and
the like for the maintenance of the pavement surface, shoulders, striping, and drainage’ (ACPA
,02). To determine the maintenance costs, previous projects should be referred to but altered as
appropriate for the proposed project at hand.

When the serviceability reaches the minimum acceptable level and user satisfaction is
compromised, rehabilitation works are required to increase such serviceability to an acceptable
level. The need for rehabilitation works as the pavement deteriorates is shown in an example case
for competing alternatives in Figure 2. Rehabilitation incorporates the costs made in the future for
maintaining a pavement at a serviceable condition. Rehabilitation for concrete pavements includes
methods such as full-depth repair, slab stabilization or joint and crack resealing (ACPA, 02).
Rehabilitation to do with asphalt pavement may involve activities such ‘leveling and resurfacing,
performed in conjunction with widening’ (Wallace 67). Reconstruction is similar to rehabilitation
but relates to more extreme works similar to the initial construction and is usually implemented at
the end of the service life. Residual value (or salvage value) is the estimated value of the pavement
once its useful life is deemed to be complete. If parts can be recovered at the end of the analysis
period, this value is considered to be positive, otherwise if demolition is required the costs of
demolishing and disposal of such wastage is included as a negative value. For pavements, the
residual value often bears insignificant value in the evaluation of the pavement’s worth. It is
generally perceived as a small value once discounted to present value, considering that over the life
of the alternative, the costs incurred would be much greater than the salvageable portions at the end
of its useful life, argues BTCE (‘90). Finally, the intangible user costs are argued by Smith & Walls
(’98) to be the ‘costs incurred by the highway user over the life of the project’. These include user
delay costs, vehicle operating costs, and accident or crash costs (ACPA ‘02). Although applicable to
pavement engineering these are often excluded in the analysis as they are difficult to prepare to a
dollar value.


Figure 2. Rehabilitation Works For Competing Alternatives; Smith (98)

The requirement for a LCCA methodology comes as a result of the prevalent issue that designers
often face regarding their recommendations to the client for the best, cost-effective solution in the
long term. Providing an estimate of the initial cost of purchase followed by the associated follow-on
costs can be time-consuming and costly, unless a reliable and efficient methodology is followed.
Thus, LCCA is a technique that allows all these costs over the analysis period to be considered in an
organised manner that ultimately allows comparison of competing alternatives.


METHOD
In addition to the extensive background research pertaining to LCCA, the research presented here
developed a spreadsheet to reinforce the value of applying LCCA in today’s Australian pavement
engineering industry. A mixed methods approach was used to carry out the study, encompassing
mainly quantitative research with elements of qualitative analysis. Qualitative measures in the form
of objective industry comment were required for an understanding of the applicability of LCCA for
local pavements. A more quantitative approach was necessary in the development of the LCCA
spreadsheet itself, especially in the collection of cost data. In addition to this data acquisition,
quantitative methods, as stated by Creswell (05), entailed the explanation of ‘how one variable
affects another’ and addressed the need to relate respective cost variables in order to ultimately
calculate a net present value for each pavement alternative, therefore allowing direct comparison.

A new, unique LCCA model/spreadsheet was developed using Microsoft Excel for this West
Australian infrastructure case-study (off-the-shelf LCC software was deemed too indistinct for the
specific in-depth study proposed here, not least due to an inability of existing software to calculate
the discount rate). The framework developed by the authors enabled each component of the analysis
to be tied together to generate a desired outcome of which alternative would prevail as the most cost
effective. Development of such a model required the inclusion of the theories of time value of
money by the use of the discount rate (and appropriate sensitivity analyses) to achieve reliable
results. Formulae depicting the effect of the time value of money based upon secondary research
were programmed into the spreadsheet accordingly. The design of the spreadsheet allowed different
cost components over the useful life of the pavement to be entered under respective appropriate
times within the life cycle, whereby an automated analysis consequently revealed the desired, cost
effective alternative. The user-friendly model developed here, is deemed a tool to allow replicable
analysis.

In order to conduct the study several primary information sources were sought; quantitative data
was obtained not only from industry standards/building-cost-information-services (BCIS) but also
from specific contacts within the Roads and Traffic Authority (RTA) New South Wales, for typical
cost values for both alternatives of asphalt surfaced (thin asphalt surfaced unbound granular
pavement (AC)) and concrete pavement (continually reinforced concrete pavement (CRCP))
designs. In addition to quantitative data acquisition, qualitative research methodology (via semi-
structure stakeholder interviews) clarified, maintained, confirmed and validated the specification(s),
cost and maintenance data generated.

As discussed above a key component required for this research was the assessment of an
appropriate discount rate, deemed to play a significant role in the outcomes of the life cycle cost
analysis. Components of inflation rate, treasury-bond rate, and average equity return rates were
necessary for specific discount rate calculations (section 4.1 below). By adopting a mixed methods
approach, the methodology for this study is argued as suitable to achieve successfully the objectives
of: justifying the use of LCCA in the civil engineering industry; as well as, providing a specific
recommendation to pavement design engineers in relation to the competing alternatives of asphalt
compared with concrete pavements.

RESULTS AND DISCUSSION
1) Discount Rate: The discount rate was calculated as 8.0% which necessarily takes into account the
factors of inflation and interest and: a 5.44% treasury-bond rate of return, based on a reasonable 10
year yield (Bloomerberg ‘08); the inflation rate as depicted by the Reserve Bank of Australia’s
website of 1.5%, and confirmed by Words (07); and, the average equity return rate assessed as
13.6%, taken from Investment Wise (‘09). These values allowed the discount rate to be calculated
as 8.0%, when inserted into equation 2 to equation 4 below, where risk is assumed to be half that of
the average risk premium discount rate. The resultant discount rate calculation is argued as robustly
accurate. It is noteworthy that the overall outcome of the LCCA was not jeopardized when a
sensitivity analysis was applied to this discount rate. The following logical applies:
No Risk Return = Treasury Bond Rate of Return – Inflation;
Average Risk Premium Discount Rate = Average Equity Return – Treasury Bond; and,
Discount Rate = No Risk Return + 0.5*Average Risk Premium Discount Rate.

2) Overall Comparison: In the overall comparison of net present values of asphalt and concrete
pavement alternatives (thin asphalt surfaced unbound granular pavement (AC) and, concrete
pavement continually reinforced concrete pavement (CRCP)) considered over the analysis periods
of 30, 60 and 100 years, the asphalt alternative prevailed as the obvious cheaper alternative in all
cases when considering the time value of money. The summary of these results are below in Table 1.

Table 1. Summary Of Results
Option / Type of
Pavement
Construction
Cost ($/m
2
)
Maintenance
Costs ($/m
2
)
Rehab/Recon
costs ($/m
2
)
Salvage Value
($/m
2
)
NPV
($/m
2
)
30 year Analysis Period
1
AC
1

74.20
14.52
0
0
88.72
2
CRCP
2

133.00
2.45
0
0
135.45
60 year Analysis Period
1
AC
74.20
15.33
6.04
2.65
98.22
2
CRCP
133.00
2.87
1.48
-0.74
136.61
100 year Analysis Period
1
AC
74.20
15.46
6.31
2.77
98.74
2
CRCP
133.00
2.91
1.51
-0.75
136.67
1
thin asphalt surfaced unbound granular pavement (AC)
2
continually reinforced concrete pavement (CRCP)

The remainder of the results discussion focuses on the analysis period of 60 years as this was
deemed sufficient to include the design lives of both concrete and asphalt pavements. Moreover, the
results for the 30 year and 100 year analysis periods ultimately achieved the same outcome. The
overall net present value (NPV) at the end of the 60 year period revealed the cheaper alternative to
be the asphalt pavement option, as depicted in Figure 3.

Figures and tables should appear in numerical order, be described in the body of the text and be
positioned close to where they are first cited. Make sure all figures and tables will fit inside the text
area. Please ensure all text inside figures is legible; minimum of 8pt equivalent is required.

0
20
40
60
80
100
120
140
160
0 5 10 15 20 25 30 35 40 45 50 55 60
Cumulative Cost, $/m^2
Years
Asphalt
Concrete

Figure 3. Cumulative Discount Costs (NPV) For Analysis Period Of 60 Years

3) Cost Input Data: In the overall comparison of net present values, the pie-charts for the 60 year
analysis period shown in Figure 4 below, show significant differences in the cost components for
each alternative.

The initial cost for the concrete pavement accounted for half of the total costs, while for asphalt the
initial costs were only 20% of the entire life cycle costs. Maintenance for asphalt conversely was
double that of concrete’s (this was a sub-hypothesis assumed at the beginning of the study). The
results confirm that here, higher costs at the construction phase of the pavement lead to less
maintenance costs over the life of the specification in question (in the case of the concrete
pavement, higher costs lead to less maintenance works over the life of the pavement). The
reconstruction was more expensive for asphalt at $132/m2 compared to the concrete reconstruction
price of $70/m2 reflecting the higher involvements in the removal and replacement of the more
extensive layers associated with the asphalt alternative.

concrete
asphalt

Figure 4. Asphalt V Concrete Total Costs For Analysis Period Of 60 Years

3.1) Initial Costs: The initial costs for the asphalt and concrete alternatives consisted of the costs
involved to construct each option and showed a (somewhat anticipated) large variation. The costs
for the concrete alternative were seen to be significantly greater, by 44%. The costs of concrete
initial construction almost doubled that of asphalt and therefore can be presumed to be a major
factor that deters pavement agencies to choose this option

Table 2. Initial Costs.
Initial Costs
ASPHALT CONCRETE
Description Rate ($/m
2
) Description Rate ($/m
2
)
175 limestone sub-base
230 base-course
Two coat emulsion seal
Tack coat
30 dense graded asphalt
30 open graded asphalt
13.77
30.84
6.76
0.34
13.59
8.90
150mm sub-base LMC including finishing,
curing/provision of typical quants of sub-grade
beams for accesses & intersection
240mm continuously reinforced concrete
pavement: supply & place concrete, &
longitudinal joints and slab anchors
Finish cure and texture base
Supply and place steel reinforcement
35


60


3
35
TOTAL 74.2 TOTAL 133

3.2) Maintenance Costs: The maintenance costs formed a bulk of the overall costs over the life of
each alternative, as depicted in the bar graphs from Figure 5. Results show that the asphalt
alternative (represented by blue) is more regular with higher costs involvements. This is supported
by the fact that asphalt pavement options historically require more routine repairs to fix
deterioration such as potholes and other structural failures. Concrete on the other hand with its
higher durability and strength characteristics can withstand the elements and the same amount of
traffic loading without the extensive restoration techniques required for asphalt pavement.

Peak maintenance costs occur at year 15 and 55 where asphalt resurfacing at $28/m2 is required due
to construction issues that mainly affect the base. The event occurs also at year 30, this time costing
$14/ m2 due to fact that the previous major asphalt resurfacing would have enhanced the quality of
the pavement. The regular maintenance works evident every 5 years are the heavy patching works
to restore the surface failures.

For the concrete alternative the maintenance works are far more spread between works. For the first
25 years, the maintenance works only occur at years 10 and 20 at a rate of $2.25/m2 and $4.50/ m2
respectively for base replacement due to construction activities. The relatively small rates are
Initial cost
residual
recon
maint
Initial cost
maint
residual
reasonable since the concrete has not yet experienced significant deterioration, given its
characteristics of long life. As time progresses, the concrete deteriorates and requires more stringent
maintenance strategies, where at year 49 nearing the end of the concrete’s life expectancy, the
concrete pavement receives its final maintenance strategy at $5.85/m2 in preparation of the
reconstruction which occurs at year 50.





Figure 5: Maintenance Costs For Analysis Period of: 1-20; 21-40; 41-60 Years


3.3) Reconstruction Costs: The reconstruction cost for the concrete pavement was $70/m2 occurring
at year 50, at the end of its design life cycle. The reconstruction cost for the asphalt pavement
conversely carried a much higher rate at around $132/m2. Higher costs are associated with the
asphalt pavement after a long period of time in which high amounts of deterioration deem the
pavement no longer appropriate to simply apply routine maintenance works.

3.4) Residual Costs: The asphalt residual value was calculated as approximately -$58/m2,
representing an addition to the overall costs for the asphalt total life cycle cost; the cost of
reconstruction was significantly higher than the initial costs of construction (in Western Australia
opportunity/ability to recycle/re-use asphalt is limited).

For the concrete pavement the salvage value was assumed to be $35/m2 occurring at the time of
reconstruction, which indicates that the total costs were reduced by this amount. This was based on
RTA’s advice that the concrete pavement’s reconstruction involved re-using part of the existing
pavement for the sub base (RTA, personal communication August 31, 2009).


CONCLUSIONS
LCCA provides guidance for design engineers (and construction stakeholders) to make objective
decisions when faced with opposing alternative specifications. The degree of current local
uncertainty around asset management and the need for building professionals to also act as
(predictive) financial advisors gives due reason for a framework to enable identification of the most
cost effective design-solution. The easy to use LCCA framework developed here for the Western
Australian infrastructure industry does indeed enable whole-of-life costs to be systematically input,
and allows ultimately the summation of these into a single net present value at a base year, for
comparison and hence identification of the cheaper alternative from competing options.

Two major benefits were attained by completing the research study described here. The first was to
prove that LCCA is a valid means for the assessment of alternative component specifications in
terms of whole-cost. A second key achievement is argued to be the contribution made in the
objective recommendation of a particular pavement type from assessed alternatives, for Western
Australian roads. More particularly the research conducted and described here shows that
implementation of the developed LCCA model recommends that an asphalt pavement is cheaper
than a concrete pavement for heavy use/loading highways. This ultimately may be viewed as an
important finding for transport agencies in Western Australia; in other words there is now sufficient
objective evidence to support the continued use of asphalt pavement types on highways locally.


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