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Life Cycle Cost Analysis

The underlying life cycle concept [implemented in HDM-4], is the same for project, programme, and strategic analysis. In each case, the model predicts the life cycle pavement conditions and costs over a specified analysis period under a user specified scenario of circumstances. The primary cost set includes the cost of capital investment, maintenance, and vehicle operating costs, to which travel time costs can be added as an option. The societal costs of accidents, energy consumption and/or environmental pollution may also be included.

Interacting sets of costs, related to those incurred by the administration and those incurred by road users, are added together over time in discounted present values. Costs are determined by first predicting physical quantities of resource consumption and then multiplying those by their unit prices or costs. Economic benefits are then determined by comparing the total cost streams for various maintenance and construction alternatives with a base case [do nothing or do minimum alternative], usually representing minimal routine maintenance.

The value of life cycle cost analysis is that it provides a tool for evaluation of resource trade-offs and prioritisation for a longer period of years than is normally used for capital budgeting decisions. Road investments [periodic maintenance, capacity and safety improvements, and new works] have useful lives of 5-25 years. Expenditure decisions must weigh the trade-offs between ranges of investment cost values which would produce a range of consequences in terms of the rate of asset deterioration. The choices will impact road user costs and the total asset preservation costs over a relative long time horizon. Life cycle analysis evaluates streams of costs and benefits over the user specified time horizon.