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1. Life A User's Manual Analysis Example
2. Stress Analysis Manual

Chapter 5. Estimate Life-Cycle Costs of TSM&O Strategies

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Overview

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Estimating the costs of TSM&O strategies is complex. Compared to more traditional infrastructure improvements, TSM&O improvements typically incur a greater proportion of their costs as continuing O&M costs, as opposed to upfront capital costs. Much of the equipment associated with TSM&O strategies typically has a much shorter anticipated useful life than many traditional improvements, and must be replaced as it reaches obsolescence. Further complicating the TSM&O cost estimation process is the fact that TSM&O deployment costs are greatly impacted by the degree to which equipment and resources are shared across different deployments and jurisdictions.

Despite these difficulties, it is critical that planners fully consider and account for all the costs of TSM&O strategies when evaluating and developing deployment and O&M plans. Failure to recognize and accurately forecast these costs may result in future funding or resource shortfalls, or worse, the inability to properly operate and maintain deployed TSM&O improvements. The cost estimation capability developed within the TOPS-BC support tool is intended to assist planners in estimating and predicting high-level cost and resource requirements of planned TSM&O strategies.

The prior two capabilities described in this User’s Manual were primarily involved with conducting research in order to make more informed decisions. The life-cycle cost estimation capabilities provide the first example of analysis where you will be entering data representing an existing or planned improvement in order to generate values that will be directly used in the comparison of benefits and costs. As such, you are encouraged to carefully think about your file structure – multiple copies of the TOPS-BC file may be required to analyze different projects – as you will likely want to save the data you have entered separately for each one.

Using Capability 3 to Estimate Life-cycle Costs of TSM&O Strategies

The estimation of life-cycle costs is initiated by selecting the capability from the OPENING SCREEN worksheet, or selecting the COST ESTIMATION worksheet tab. This action takes you to an instructional sheet, as shown in Figure 5-1. This sheet also contains links to the worksheets where individual strategies will be analyzed. You may also jump to a particular cost estimation worksheet for a specific strategy by selecting the appropriate hyperlink in the Navigation Menu.

Figure 5-1. Partial Screen View of COST ESTIMATION Worksheet Instructions

Source: Federal Highway Administration.

Prior to initiating a life-cycle cost analysis in TOPS-BC, familiarize yourself with the cost structure and terminology used in the tool. TOPS-BC considers the following cost categories:

• Capital costs – Include the upfront costs necessary to procure and install equipment related to the TSM&O strategy. These costs will be shown as a total (one-time) expenditure, and will include the capital equipment costs, as well as the soft costs required for design and installation of the equipment.
• O&M costs – Include those continuing costs necessary to operate and maintain the deployed strategy, including labor costs. While these costs do contain provisions for upkeep and replacement of minor components of the system, they do not contain provisions for wholesale replacement of the equipment when it reaches the end of its useful life (see Replacement costs). These O&M costs will be presented as annual estimates.
• Replacement costs – Include the periodic cost of replacing/redeploying system equipment as it becomes obsolete and reaches the end of its expected useful life in order to insure the continued operation of the strategy.
• Annualized costs – Represent the average annual expenditure that would be expected in order to deploy, operate, and maintain the TSM&O strategy; and replace (or redeploy) any equipment as it reaches the end of its useful life. Within this cost figure, the capital cost of the equipment will be amortized over the anticipated life of each individual piece of equipment. This figure is added with the recurring annual O&M cost to produce the annualized cost figure. This figure is particularly useful in estimating the long-term budgetary impacts of TSM&O deployments.

The complexity of many TSM&O deployments warrants that these cost figures be further segmented to ensure their usefulness. Within each of the capital, O&M, and annualized cost estimates, costs are further disaggregated to show the infrastructure and incremental costs. These are defined as follows:

• Infrastructure costs – Include the basic “backbone” infrastructure equipment (including labor) necessary to enable the system. For example, in order to deploy a camera (closed-circuit television (CCTV)) surveillance system, certain infrastructure equipment must first be deployed at the traffic management center to support the roadside Intelligent Transportation System (ITS) elements. This may include costs, such as computer hardware/software, video monitors, and the labor to operate the system. Once this equipment is in place, however, multiple roadside elements may be integrated and linked to this backbone infrastructure without experiencing significant incremental costs (i.e., the equipment does not need to be redeployed every time a new camera is added to the system). These infrastructure costs typically include equipment and resources installed at the traffic management center, but may include some shared roadside elements as well.
• Incremental costs – Include the costs necessary to add one additional roadside element to the deployment. For example, the incremental costs for the camera surveillance example include the costs of purchasing and installing one additional camera. Other deployments may include incremental costs for multiple units. For instance, an emergency vehicle signal priority system would include incremental unit costs for each additional intersection and for each additional emergency vehicle that would be equipped as part of the deployment (note that many of the default unit costs for communications capabilities are based on figures originally developed for the ITS National Infrastructure. These communications costs typically represent the cost to lease the capabilities. You may want to review these cost assumptions and modify the values to best represent how you plan to deploy and operate communications systems).

Structuring the cost data in this framework provides the ability to readily scale the cost estimates to the size of potential deployments. Figure 5-2 provides a sample view of the cost data organized according to the defined structure in the TOPS-BC application for a ramp meter deployment, as taken from the individual cost estimation strategy worksheet for centrally controlled ramp metering (the green tabbed worksheet named “RM-Central Control”). Infrastructure costs would be incurred for any new technology deployment. Incremental costs would be multiplied by the appropriate unit (e.g., number of intersections equipped, number of ramps equipped, number of variable message sign locations, etc.); and added to the infrastructure costs to determine the total estimated cost of the deployment. Presenting the costs in this scalable format provides the opportunity to easily estimate the costs of expanding or contracting the size of the deployment, and allows the cost data to be reused in evaluating other corridors.

Figure 5-2. Partial Screen View of Cost Data Organization for a Ramp Meter System

Source: Federal Highway Administration.

In the ramp meter example shown in Figure 5-2, the Annualized Costs for any individual piece of equipment equals the Capital Costs (which represents the total cost to deploy or redeploy that piece of equipment) divided by the Useful Life (to amortize the cost of the equipment over the anticipated life), plus the annual cost of operating and maintaining the piece of equipment. This methodology assumes that the piece of equipment is replaced at the end of its useful life. For example, the Annualized Costs for the equipment called “TMC Hardware for Freeway Control” is calculated as:

Annualized Costs = (Capital Costs/Useful Life) + Annual O&M Costs
or
Annualized Costs = ($22,500/5 years) + $2,000 = $6,500

Some equipment does not have upfront Capital Costs, but only has recurring annual O&M Costs, as illustrated by the “Labor” costs in the Figure 5-2 example. In these situations, the annualized cost is simply the annual O&M Costs.

In the TOPS-BC application, you are able to enter the quantity of Infrastructure and Incremental equipment units you want to deploy, as shown in Figure 5-2; and the tool will calculate the total cost of the selected deployments based on these entries (For most TSM&O strategies, the number of “Infrastructure” deployments will be one, as only one deployment of this equipment is necessary to support multiple deployments of the “Incremental” units. However, you have the opportunity to deploy more than one “Infrastructure” unit if planned deployment is configured in a nontypical manner (e.g., managed from multiple Traffic Management Centers) or enter zero if you already have the Infrastructure deployed. In situations where the infrastructure equipment supports more than one strategy (or multiple deployments of the same strategy on more than one corridor), a fraction may be entered in the User Input cell. For example, if in the sample deployment shown in Figure 5-2, the deployment of 10 ramp meters was meant to analyze one of four corridors that were being planned for deployment, you may want to enter a value of .25 as the number of infrastructure deployments, to represent that each corridor would be expected to incur one-fourth of the infrastructure costs). Average Annual Costs for the ramp metering example, assuming 10 ramp meter locations were included in the deployment, would be calculated as:

Average Annual Costs = (# of Infrastructure Deployments * Annualized Costs of Infrastructure Deployment) + (# of Incremental Deployments * Annualized Costs of Incremental Deployment)
or
Average Annual Costs = (1*$296,500) + (10*$6,740) = $363,900

Outputs from this process include the following:

• An Average Annual Cost – A single expected cost compiling upfront capital, ongoing O&M, and future equipment replacement costs in a single figure.
• A Projected Stream of Costs – An output showing year-by-year expected expenditures over the next 30-year timeframe. This output can be used to calculate Net Present Value (NPV) over any time horizon you choose, if you chose to use NPV instead of average annual costs in your analysis.

Figure 5-3 shows a sample view of the Projected Stream of Costs generated for the ramp meter strategy illustrated in Figure 5-2. In this view, the Capital Costs are not amortized over the life of equipment, but appear in the year they are incurred. Your Upfront Capital Costs appear in the first year of deployment, and Replacement Costs are incurred in future years, as equipment needs to be replaced. In the ramp metering example, the full Capital Cost of deployment is incurred in year 2013, and the same value is incurred again in year 2018, since the equipment involved in the deployment has reached the end of its useful life by this date. Space is provided to view costs up to a 50-year time horizon. You may calculate the Net Present Value (NPV) of the costs by selecting a time horizon (in number of years) and an appropriate discount rate. Defaults are provided, but you may override those defaults by entering different values. The user is encouraged to review information in Chapter 5 of the Desk Reference for more information on calculating and using NPV. The Desk Reference also has information to guide you in selecting an appropriate discount rate to apply in your analysis.

Figure 5-3. TOPS-BC Projected Stream of Costs Output

Source: Federal Highway Administration.

The default view of the stream of costs shown in Figure 5-3 rolls up all Infrastructure and Incremental costs into single values for easy viewing; however, located in hidden rows underneath the display of the stream of costs, a separate working calculations sheet shows the breakout of costs by year, by equipment type for accounting purposes if needed. Figure 5-4 shows a view of this information (in an unhidden view). You are discouraged from directly editing any of the values in this calculations sheet.

Figure 5-4. TOPS-BC Cost Estimation Working Calculations Area

Source: Federal Highway Administration.

To estimate the life-cycle cost of any individual strategy, visit the cost estimation sheet for the selected strategy and enter the appropriate information on the number of infrastructure and incremental units, as well as the Year of Deployment, as shown in Figure 5-5. The Average Annual Cost and Stream of Costs will automatically update based on the inputs.

Figure 5-5. Strategy Cost Estimation Data Input

Source: Federal Highway Administration.

If you intend to use only the default data available in TOPS-BC, there is no need to make any further modifications, other than to enter the number of Infrastructure and Incremental units, and the Year of Deployment. You are strongly encouraged to carefully review the default cost data and make modifications as necessary. You may change the predicted useful life, base unit cost of equipment, or continuing O&M cost for any piece of equipment. You may also delete pieces of equipment or add pieces of equipment to better match your own anticipated equipment mix for the strategy.

Note that if an additional row(s) is needed in order to add a new piece of equipment, you should insert an entire row by first copying an existing row of data. You can do this by highlighting an entire row by clicking on the row number at the far left of the page, conducting a right click, and selecting “Copy.” Right click on the highlighted row number again and select “Insert Copied Cells.” This will create a new row that is properly formatted and contains the cell formulas necessary to maintain the integrity of the analysis. (If you simply decide to “Insert” a new row, you will need to manually merge cells and copy/paste formulas to match the existing equipment rows.) If you are only interested in using the Average Annual Costs in your calculations, no further modifications are needed. If you are interested in viewing the Stream of Costs and calculating the Net Present Costs and Net Present Benefit, you will additionally need to check and see if the added equipment has been added to the Working Calculations Sheet at the bottom of the individual cost estimation sheet [Figure 5-4]. In some cases, due to the manner in which the row was added or the version of Excel being used, the added equipment may not have automatically been generated in the Working Calculations Sheet. Therefore, it is recommended that you check to see that the equipment has been added to the Working Calculations Sheet. If the new equipment is not there, simply follow the directions above for copying and inserting copied rows within the appropriate section of the Working Calculations Sheet to replicate the addition of the new equipment in this Working Calculations Sheet. (Again, you should first copy and “Insert Copied Cells” to ensure the formatting and calculations are maintained.)

As rows are added, the Navigation Menu will temporarily be distorted as gaps will appear in the content; however, once you leave the page where the rows have been added and then return, the Navigation Menu will once again correctly display.

When changing data, note that any modification to the default data requires that the modified data match the data format of the default data. For example, you may enter a new piece of equipment for a particular strategy; however, it must have supporting data on the useful life, capital cost, and annual O&M cost to work within TOPS-BC’s estimation structure.

Chapter 1. Introduction

Project Background and Purpose

Due to the competitive fiscal environment, state, regional, and local transportation planning organizations around the country are increasingly being asked to justify their programs and expenditures. Transportation System Management and Operations (TSM&O) programs have not escaped this scrutiny and are routinely asked to rank their projects against traditional expansion projects, as well as conduct other “value”-related exercises.

This requirement can put TSM&O projects at a disadvantage since many specialists in this arena have limited experience in performing benefit/cost (B/C) analysis; and often, many of the established tools and data available for conducting B/C analysis for traditional infrastructure projects are poorly suited to analyzing the specific performance measures, project timelines, benefits, and life-cycle costs associated with operational improvements.

In response to the needs of system operators to conduct these analyses, a number of initiatives have been undertaken in recent years at the national, state, and regional levels to develop enhanced analysis tools, methodologies and information sources to support the conduct of B/C analysis for many specific TSM&O strategies. It often remains difficult, however, for practitioners to sift through the various information and guidance sources in order to understand and apply an appropriate methodology for meeting a specific analysis need.

The FHWA Operations Benefit/Cost Analysis Desk Reference Project

The Federal Highway Administration (FHWA) Office of Operations initiated this project in recognition of practitioners’ need for relevant and practical guidance on how to effectively conduct B/C analysis for a wide spectrum of TSM&O strategies. The Operations Benefit/Cost Analysis Desk Reference is intended to meet the needs of a wide range of practitioners looking to conduct B/C analysis of operations strategies. The guidance provided in the Desk Reference includes fundamental background information on B/C analysis, including basic terminology and concepts, intended to support the needs of practitioners just getting started with B/C analysis, who may be unfamiliar with the general process. Building off this primer base, the Desk Reference also describes some of the more complex analytical concepts and latest research in order to support more advanced analysts in conducting their analyses. Some of the more advanced topics include capturing the impacts of travel time reliability; assessing the synergistic effects of combining different strategies; and capturing the benefits and costs of supporting infrastructure, such as traffic surveillance and communications.

The Tool for Operations Benefit/Cost (TOPS-BC)

The Operations Benefit/Cost Analysis Desk Reference is supported by a decision support tool, called the Tool for Operations Benefit/Cost (TOPS-BC). This spreadsheet-based tool is designed to assist practitioners in conducting B/C analysis by providing four key capabilities, including the following:

• Investigate Impacts – The ability to investigate the expected range of impacts associated with previous deployments and analyze many TSM&O strategies;
• Research Methods – A screening mechanism to help identify appropriate tools and methodologies for conducting a B/C analysis based on analysis needs;
• Estimate Costs – A framework and default cost data to estimate the life-cycle costs (including capital, replacement, and continuing O&M costs) of various TSM&O strategies; and
• Estimate Benefits – A framework and suggested impact values for conducting simple B/C analyses for selected TSM&O strategies.

In addition to these capabilities, TOPS-BC also is intended to serve as a repository of relevant parameters and values appropriate for use in B/C analyses. Figure 1.1 shows the opening screen of TOPS-BC, which provides navigation to the capabilities within the support tool. This User’s Manual provides specific guidance on the proper use and setup of the TOPS-BC application. It is intended to support the Desk Reference document and contains many references to that publication.

Transportation planning activities and associated Federal planning requirements can be generally categorized into the following four stages:

1. Visioning and Screening;
2. Long Range Planning;
3. Transportation Improvement Program Development; and
4. Project Development.

The sketch planning capabilities (Capability 4 “Estimate Benefits and Conduct B/C Analysis”) within TOPS-BC are generally applicable for analyses in Stage 1 and partly Stage 2 for screening and estimating the order of magnitude of benefits. The more complex and detailed analysis required for program and project development in Stages 3 and 4 may warrant the application of a more robust analysis tool. TOPS-BC has the ability to help you screen and identify appropriate tools and methodologies for conducting a B/C analysis based on your analysis needs (Capability 2 “Research Available Analysis Methods and Tools”) and may recommend you apply more rigorous tools for more complex analyses.

Figure 1-1. Capabilities Provided by TOPS-BC

Source: Federal Highway Administration.

Life A User's Manual Analysis Example

Operations Strategies Covered

Together the Desk Reference and the TOPS-BC tool are intended to support the analysis of a wide range of available TSM&O strategies. These “strategies” include the direct application of technologies and infrastructure as physical roadside applications (e.g., deployment of freeway service patrol vehicles), as well as many harder-to-define, nonphysical strategies (e.g., interagency coordination). While it is not possible to comprehensively provide guidance on every type and variation in application of all the many TSM&O strategies (especially in light of the fact that new strategies and technologies are constantly emerging), the TSM&O strategies covered in the TOPS-BC tool and/or the Desk Reference are identified in Table 1-1. Section 3.0 of the Desk Reference document provides expanded discussion of these various strategies, as well as sub-strategies and variations in application within the general categories. Section 3.0 of the Desk Reference also identifies the typical benefits and impact measures associated with the deployment of the strategies.

Table 1-1. Summary of Guidance on Various TSM&O Strategies

TSM&O Strategy	Discussed in Desk Reference	TOPS-BC Analysis Capability
Physical Strategies	Arterial Signal Coordination	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Arterial Transit Signal Priority	Guidance or analysis capability provided.	Life-cycle cost estimation capability only.
Physical Strategies	Ramp Metering	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Traffic Incident Management	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Pretrip Traveler Information	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	En-route Traveler Information	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Work Zone Management	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	HOT Lanes	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Speed Harmonization	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Road Weather Management	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Hard Shoulder Running	Guidance or analysis capability provided.	Guidance or analysis capability provided.
Physical Strategies	Travel Demand Management	Guidance or analysis capability provided.	Life-cycle cost estimation capability only.
Supporting Strategies	Traffic Surveillance	Guidance or analysis capability provided.	Life-cycle cost estimation capability only.
Supporting Strategies	Traffic Management Centers	Guidance or analysis capability provided.	Life-cycle cost estimation capability only.
Supporting Strategies	Communications	Guidance or analysis capability provided.	Life-cycle cost estimation capability only.
Nonphysical Strategies	Active Transportation and Demand Management (ATDM)	Guidance or analysis capability provided.
Nonphysical Strategies	System Integration	Guidance or analysis capability provided.
Nonphysical Strategies	Interagency Coordination	Guidance or analysis capability provided.
Nonphysical Strategies	Regional Concepts for Transportation Operations	Guidance or analysis capability provided.

How to Use the TOPS-BC User’s Manual

Stress Analysis Manual

The TOPS-BC application is designed to be intuitive and easy to use. This User’s Manual is intended to provide clarification on the proper setup and application of the tool. This User’s Manual assumes that you are minimally familiar with B/C analysis and the unique challenges of applying B/C analysis to TSM&O strategies. The Desk Reference may be used by practitioners unfamiliar with fundamental B/C concepts and terminology to learn more about the basics of B/C analysis for TSM&O strategies. This User’s Manual also assumes that you have a basic knowledge of spreadsheet navigation and operation.

The User’s Manual is divided into the following chapters that generally follow the major capabilities of the tool:

• Chapter 2.0 Overview and Getting Started with TOPS-BC provides an overview of the TOPS-BC application and describes the process for installing and initiating an analysis.
• Chapter 3.0 Investigate the Range of Impacts Associated with Various Operations Strategies summarizes the first of the major capabilities by illustrating the use of the tool to research TSM&O strategies and their likely impacts/benefits.
• Chapter 4.0 Map B/C Methodologies to Your Organization’s Needs summarizes the capability of the tool to research different existing tools and analysis methods, and identify those methods that are most appropriate to the particular needs of a specific analysis.
• Chapter 5.0 Estimate Life-cycle Costs provides a description of the cost estimation framework and equipment cost data maintained in the tool.
• Chapter 6.0 Estimate Benefits of Operations Strategies provides step-by-step guidance for using the sketch planning framework for estimating major impacts and benefits of various operations strategies included in the tool. It also provides several innovative approaches and examples for overcoming common analysis challenges.
• Chapter 7.0 Customizing and Maintaining TOPS-BC provides guidance for utilizing the automated processes designed into TOPS-BC for updating information and adding new analysis capabilities.
• Appendix A Frequently Asked Questions provides a quick guide for addressing common questions about the tool and the required data inputs and outputs.