SD10 - The Study of Appropriate Methodologies for Determining Life-Cycle Costs for Highway System Maintenance and Facilities

Executive Summary:
Life-cycle cost analysis (LCCA) refers to an economic evaluation or methodology for determining present and future costs of an investment action. Principles of engineering economics such as interest rates and cash flow analysis are applied to proposed investment alternatives and are used to determine what the costs for the life of the project will be, beginning with design and culminating with salvage.

The Virginia Department of Transportation's (VDOT) value engineering (VE) program has applied LCCA on numerous projects since value engineering became a permanent program in 1986. Sixty VE studies were conducted in FY 94-95 on construction and maintenance projects resulting in a savings of over $18 million. Although not all the VE projects or items within the projects were deemed candidates for LCCA, the VE program routinely evaluates all projects for functional value and the desired life-cycle of the product.

VDOT's Integrated Maintenance Management System (IMMS) project is currently reengineering all maintenance business processes, including the practices for the Pavement Management System, Bridge Management System, drainage, roadside, traffic items, and special facilities (rest areas, tunnels, etc.). A major element of this reengineering is the redefining of the levels of service for maintenance assets and the assignment of conditions, costs, and expected life. Specific LCCA strategies and asset alternatives are also being evaluated by IMMS. Examples of these reengineering processes include the analysis of statewide asset rating procedures based on professional standards, the evaluation of budget and allocation processes driven by performance targets, and the identification of performance targets driven by customer requirements. In addition, strategies will include analyses of "repair versus replacement" of assets, "make versus buy" decision models, customer service planning, and quality management principles built into performance approaches.

The Virginia Department of Planning and Budget (DPB) is responsible for the policies and procedures governing the funding of new or renovated state buildings. Although VOOT's Administrative Services Division manages and monitors the capital outlay program, DPB's approval is required for all facilities and buildings in the Six-Year Capital Outlay Plan. A copy of this response and a copy of SJR 21 will be forwarded to DPB for their comments on LCCA of buildings.