The acquisition cost of an asset is just a portion of the total cost of owning it. Ongoing maintenance significantly adds to that cost, and for a long-lived asset, that cost can be much greater than the initial design, construction, and installation cost. Moreover, failure to keep up with regular asset maintenance can result in premature deterioration and an increased risk of failure, leading to even greater maintenance and rehabilitation costs. Lifecycle cost analysis considers the entire cost of owning the asset, over its useful life. One of the primary benefits of lifecycle costing for capital assets is that during initial asset acquisition, lifecycle cost analysis shows which asset is the most cost-effective over the long term, not just which is the cheapest to acquire. In addition, after the asset has been acquired, lifecycle cost analysis can be used to budget and plan for the most cost-effective maintenance strategies.
Pavement was one of the first asset classes that governments applied lifecycle cost analysis to. (1) This is because pavement is a relatively simple asset to analyze and because of the large cost of paving in government budgets. This article will provide an introduction to lifecycle cost analysis, using pavement and the City/County of San Francisco, California, as an illustration.
In 2010, the city found that the cost of underfunded preventative maintenance on its streets had resulted in the streets deteriorating to the point where almost half of them would require costly reconstruction. In fact, the city found that, without preventative maintenance, a San Francisco street would cost four times more over the course of 70 years than if it had been maintained regularly. (2) The city had a ten-year capital improvement plan that emphasized the need to find a financially sustainable way to keep the streets in acceptable condition. (3) To do so, the city turned to lifecycle cost analysis.
BUILDING LIFECYCLE COST ANALYSIS
San Francisco first needed a basic model for how streets deteriorate and how performance and remediation costs change at different points in the asset's lifecycle. The city built its model around the pavement condition index, or PCI, which is an industry-standard measure of street quality. Under PCI, a street is rated 0 to 100, where 100 is the best condition. A measure of asset condition is essential for lifecycle cost analysis because an asset might require more or less costly maintenance treatments at different conditions. For example, the city found that the average cost to maintain a street block is between $15,000 and $37,000' when the PCI of that street is between 79 and 60. However, when the PCI dips below 60, the same routine maintenance is no longer sufficient to make a meaningful repair. Instead, when the PCI is between 59 and 50, the road must be resurfaced, at a cost of $144,000 per block. Below 50 PCI, and the road must be reconstructed. This can be quite costly. Reconstructing a road between 0 and 24 PCI costs approximately $510,000. Reconstructing a road between 49 and 25 PCI is less costly, but still considerable at $167,000. Obviously, if the city allowed its streets...