Guidelines for Life Cycle Cost Analysis

Download Final Report

CAIT project no.: 91 RU942

Fiscal Year: 1999/2000

Status: Final

Rutgers-CAIT Author(s): Kaan Ozbay, Dima Jawad

External Author(s): Neville A. Parker, Sajjad Hussain, Nicholas Vitillo



Life Cycle Cost Analysis (LCCA) is an indispensable technique that employs well-established principles of economic analyses to evaluate long term performance of competing investment options. The LCCA process is performed by summing up the discounted monetary equivalency of all benefits and costs that are expected to be incurred in each option. The investment option that yield the maximum gains to the society is considered the optimal option. The analytical framework of LCCA further serves as a support system for making informed and conversant choices in infrastructure management. This report summarizes a thorough research that establishes the guidelines for conducting LCCA.

Most of the LCCA input parameters are inherently uncertain, such as the discount rate, the analysis period, and the type and timing of future rehabilitation activities that will take place in each of the life cycle options. In order to conduct LCCA in a reliable and trustworthy manner, a thorough understanding of the theoretical engineering and economics background must be acquired.

The report starts by setting LCCA in its broad perspective. It reviews the economic theory of LCCA, discusses the types and levels of analysis in project evaluation, and briefly goes over the historical background of LCCA. Next a systematic and generic approach for conducting LCCA is presented. Then, a discussion about the state of- the-practice of LCCA in State DOTs in comparison with state-of-the-art of LCCA is introduced. After that, detailed discussions of every component of LCCA are provided. The uncertainty component in LCCA is deliberated along with the probabilistic approach. A review of the available and significant LCCA models is presented as well. Towards the end, the report discusses a distinct application of LCCA in monitoring contractor’s pay schedule.

The LCCA guidelines, presented in this report, aim mainly at providing the reader with sufficient knowledge on how to perform LCCA, how to estimate its input parameters, and how to interpret its results.