Life-Cycle Cost Analysis: Overview
The economic justification required by 23 CFR 668.109 (b)(6) can be satisfied by a life cycle cost analysis. This training presents two methods of evaluating the life cycle cost of alternatives. These two methods are designated as:
Historic Approach - Historic records are primarily used to estimate the frequency and severity of future damage. The present worth of expected future repairs, with credit given for remaining service life, plus the initial project delivery cost is used to determine the alternative with the lowest cost (i.e., the preferred alternative).
- HEC-17 Approach (HEC-17 denotes Hydraulic Engineering Circular No. 17) - The probability and expected damage associated with an array of possible flood events are used to generate an annual economic risk. The Present Worth of the annual series over the service life of the alternative plus the initial project delivery cost is used to determine the alternative with the lowest cost.
There are eight discrete steps for both methods:
- Document Past and Current Damage
- Establish Alternatives
- Estimate Future Damage Severity
- Estimate Cost to Repair Damage
- Select Analysis Period and Service Life
- Select Discount Rate
- Compute Life Cycle Costs
- Analyze results
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