This section presents the background on LCCA and describes the process currently being used by the Federal Highway Administration.

Background
Agencies have historically used some form of life cycle cost analysis (LCCA) to assist in the evaluation of alternative pavement design strategies. For example, the 1986 AASHTO Guide for the Design of Pavement Structures, the use of LCCA was encouraged and a process laid out to evaluate the cost effectiveness of alternative designs (4). However, until the National Highway System (NHS) Designation Act of 1995, which specifically required agencies to conduct LCCA on NHS projects costing $25 million or more, the process was only used routinely by a few agencies (5). The implementing guidance did not recommend specific LCCA procedures, but rather specified the use of good practice.

The FHWA position on LCCA is defined in its Final Policy Statement published in the September 18, 1996, Federal Register (5). FHWA policy indicates that LCCA is a decision support tool. As a result, FHWA encourages the use of LCCA in analyzing all investment decisions.

Although the Transportation Equity Act for the 21st Century (TEA-21) has removed the requirement for agencies to conduct LCCA on high cost projects, it is still the intent of FHWA to encourage the use of LCCA for NHS projects. As a result, FHWA has developed a training course titled "Life Cycle Cost Analysis in Pavement Design" (Demo Project 115) to train agencies in the importance and use of sound procedures to aid in the selection of alternate designs or rehabilitation strategies (6).

LCCA process
LCCA should be conducted as early in the project development cycle as possible. The level of detail in the analysis should be consistent with the level of investment. Basically, the process involves the following steps:
1) Develop rehabilitation and maintenance strategies for the analysis period
2) Establish the timing (or expected life) of various rehabilitation and maintenance strategies
3) Estimate the agency costs for construction, rehabilitation, and maintenance
4) Estimate user and non-user costs
5) Develop expenditure streams
6) Compute the present value
7) Analyze the results using either a deterministic or probabilistic approach
8) Reevaluate strategies and develop new ones as needed
The application of these steps to the present study are described below.

Establish alternative design strategies
The primary purpose of a LCCA is to quantify the long-term economic implications of initial pavement decisions. Various rehabilitation and maintenance strategies can be employed over the analysis period (Figure 1a). This first step is to identify alternate strategies over the analysis period, typically 40 years. Alternate design strategies used in Arizona and California for asphalt pavement were obtained through personal interviews. Typical strategies used in these states are summarized in Table 1. For each of the scenarios considered, there is a logical comparison between conventional mixtures and mixtures containing asphalt rubber. The pavement alternates receive different maintenance (or rehabilitation) treatments until the life reaches the analysis period of 40 years (see Figure 1b).

Determine expected life of rehabilitation and maintenance strategies
The next step was to obtain estimates of expected lives for the various rehabilitation and maintenance strategies (7). This was also determined based on interviews with state and local agencies in each state. Estimates for pavement life for each of the scenarios considered by the local agencies are given in Tables 2 and 3. Similar data was collected for the state highway agencies surveyed in Arizona and California (7). The table includes an average life, the lowest and highest expected life for a given strategy. The low and high values represent the 10 and 90 percentile values for expected life. It should be emphasized that the estimated lives are best estimates only and in many cases the AR alternatives have not yet reached the 90% value.

a) Analysis period for a pavement design alternative

Estimate agency costs
Agency costs include all costs incurred directly by the agency over the life of the project. These costs typically include expenditures for preliminary engineering, contract administration, construction, including construction supervision, and all future maintenance (routine and preventive), resurfacing and rehabilitation. Estimates for these costs were obtained from Arizona and California and these are also summarized in Tables 2 and 3 (7). The low and high values represent the 10 and 90 percentile values for expected costs.

Salvage value represents the value of an investment alternative at the end of the analysis period. The method used to account for salvage value was prorated-based on the cost of final rehabilitation activity, expected life of rehabilitation, and time since last rehabilitation activity as shown below:

(1)

Estimate user and non-user costs
In simple terms, user costs are those incurred by the highway user over the life of the project. They include vehicle operating costs (VOC), user delay costs, and accident costs. For most pavements on the national Highway System (NHS), the VOC are considered to be similar for the different alternatives. However, slight differences in VOC rates caused by differences in roughness could result in huge differences in VOC over the life of the pavement. For purposes of this paper, VOC rates are assumed to be equal.

Delay cost rates have been derived for both passenger cars and trucks. These can range from $10-$13/veh-hr for passenger cars and $17-$24/veh-hr for trucks (5). Because these costs require project specific information for inclusion in LCCA and the value of delay costs is often questioned, the authors opted to use a simpler approach using lane rental fees. Typical values for lane rental fees might vary with traffic volume as follows (7):

Develop Expenditure Streams
Expenditure streams are graphical or tabular representations of expenditures over time. They are generally developed for each pavement design strategy to visualize the extent and timing of expenditures. Figure 2 is an example of an expenditure stream. Normally, costs are depicted as upward arrows and benefits are reported as negative cost (or downward arrows). The only benefits, or negative cost, included herein are the costs associated with the salvage value.

Compute net present value (NPV)
LCCA is a form of economic analysis used to evaluate the cost efficiency of various investment options. Once all costs and their timing have been established, the future costs must be discounted to the base year and added to the initial cost to determine net present value (NPV). NPV is calculated as follows:

(2)

Both agency and user cost are incorporated into the analysis. The results can be presented using a deterministic or probabilistic approach as will be discussed in the examples to follow.

Analyze results
Once completed, all LCCA results should be subjected to a sensitivity analysis to determine the influence of major input variables. Many times the sensitivity analysis will focus on inputs with the highest degree of uncertainty (i.e., life) in an attempt to bracket outcomes. For example, if a conventional project lasts 10 years, how long must an asphalt rubber design last for it to be cost effective?

Reevaluate design strategy
Once the NPV has been computed for each alternative, the analyst needs to reevaluate competing design strategies. Questions to be considered include:

1. 1) Are the design lives and maintenance and rehabilitation costs appropriate?
2. 2) Have all the costs been considered (e.g., shoulder and guard rail)?
3. 3) Has uncertainty been adequately treated?
4. 4) Are there other alternates which should be considered?

Many assumptions, estimates, and projections feed the LCCA process. The variability associated with these inputs can have a major influence on the results.