Estimate Civil Life Cycle Costs for PM Scenarios (Step 11)

Find below additional details for Step 11 of the Civil RBI Methodology.

Enhanced Cost Profile

The cost profile created in Step 5 (Consequence of failure) does not include financial parameters such as the discount rate and inflation, although for a financial appraisal of long-term investments these parameters are commonly used. Due to the long design life for civil assets that can be 20 years or more, it is recommended to use financial parameters to come to a meaningful comparison of long-term plans. This section explains how these parameters should be applied.

Present Value

Future payments or a series of future payments can be expressed as Present Value, in which the value of those payments is discounted (i.e. reduced) to reflect the time value of money and other factors such as investment risk. The value of payments that will be done in the far future, is discounted more than payments done sooner to reflect that from a financial point of view it is more favorable to postpone investments as long as possible.

The Present Value is calculated as follows:

Parameters:

Present Value factors:

By adding all discounted costs of the tasks that together define the maintenance scenario, a cost profile can be established. This is shown in the example hereafter.

Example: Cost Profile for Maintenance Scenario     

• The study is carried out in 2005
• A maintenance scenario comprises of one task that is executed every 3 years, starting in 2006
• If carried out in 2005 the task would cost 10k USD
• The window over which the maintenance plan is optimized is 11 years, i.e. up to the year 2016

The table gives an overview of the discount factors and cumulative costs that are associated with this maintenance scenario. The figure below presents the cumulative discounted cost.

Cumulative Discounted Cost for maintenance scenario over time:

Year	Cost (USD)	Discount Factor (-)	Discount Cost (USD)	Cumulative Discount Cost (USD)
2006	10,000	0.93	9,300	9,300
2009	10,000	0.76	7,600	16,900
2012	10,000	0.62	6,200	23,100
2015	10,000	0.51	5,100	28,200

Cumulative Discounted Cost for maintenance scenario.

If the evaluation concludes that two alternative scenarios have the same approximate cumulative cost, then it is advised to take a better look at the cost figures that are used as input to determine which one is the most cost-effective. Furthermore, other parameters than cost should also be considered such as management attention, workload of personnel and plant logistics.

Estimate Cost Profile (for budget purposes)

The key question here is: ”What is the budget required to execute the preferred maintenance scenario?”

The evaluation of the PM plans has resulted in a preferred maintenance scenario, i.e. generally the PM plan with the lowest cumulative cost over the Life Cycle Period. The final step is to determine the expected budget for the PM plan by including inflation.

The Inflation Factor is calculated by taking the average annual inflation rate of the time period that is being considered. The financial department of the operating unit should provide the required inflation rate.

The Inflation Factor can be calculated as follows, in which Years denote the number of years in the future that the cost materializes:

The budget cost should be calculated for each cost, in the following way:

Take Note that this step happens outside IMS.

Maintenance Cost Profile for Non-Age-Related-Failures

The occurrence of non-age-related failures can be assessed when (sufficient) statistical information is available about comparable failures and their consequences. If such information is available. then the likelihood of failure can be determined statistically, and the annual cost of a non-age-related failure can be calculated from the following equation:

Risk Matrix. The maximum value of the applicable likelihood range is taken for calculation purposes, e.g. 1% when the range 0.1 to 1% is applicable. The minimum value of the applicable consequence range is taken for calculation purposes, e.g. 0.1M USD when the range 0.1 – 1M USD is applicable.

The cost profile is established by adding the discounted annual costs over the period considered (Life Cycle Period).

Example:     

• The study is carried out in 2005
• The total cost of the damages caused by event-related failure are estimated in the range of 1M to 10M USD, this means that 1M USD is taken for calculation purposes
• The likelihood of failure is estimated in the range of 0.1 to 1%, this means that 1% is taken for calculation purposes

The table gives an overview of the figures that are used to determine the profile of the cumulative discounted cost over time. The figure shows the cost profile, whereby the incremental steps decrease over time because of the discount factor.

Cumulative Discounted Cost for maintenance scenario over time:

Year	Consequence of Failure (USD)	Likelihood of Failure (%)	Annual Cost (USD)	Discount Factor (-)	Discount Annual Cost (USD)	Cumulative Discount Cost (USD)
2006	1,000,000	1	10,000	0.93	9,300	9,300
2007	1,000,000	1	10,000	0.87	8,700	18,000
2008	1,000,000	1	10,000	0.82	8,200	26,200
2009	1,000,000	1	10,000	0.76	7,600	33,800
2010	1,000,000	1	10,000	0.71	7,100	40,900
2011	1,000,000	1	10,000	0.67	6,700	47,600
2012	1,000,000	1	10,000	0.62	6,200	53,800
2013	1,000,000	1	10,000	0.58	5,800	59,600
2014	1,000,000	1	10,000	0.54	5,400	65,000
2015	1,000,000	1	10,000	0.51	5,100	70,100
2016	1,000,000	1	10,000	0.48	4,800	74,900

Cumulative Discounted Cost for maintenance scenario over time.