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FederalHighwayAdministration>Publications>PublicRoads>Vol.64No.3>UsingMonteCarloSimulationforPavement
CostAnalysis

Nov/Dec2000
Vol.64No.3

UsingMonteCarloSimulationforPavementCostAnalysis
byKeithD.Herbold
Lifecyclecostanalysis(LCCA)modelsthatarecurrentlyusedbystatehighwayagenciestreatinput
variablesasdiscrete,fixedvalues.Inactuality,manyinputvariablesarenotfixedtheyareuncertain.
InconductinganLCCA,itisimportanttorecognizetheuncertaintyofinputvariablesandtheuncertainty
thatthisvariabilitycreatesintheresults.Uncertaintycomesfromtheassumptions,estimates,and
projectionsthataremadefortheinputparameters,suchastheinitialandfutureagencyandusercosts
andthetimingofrehabilitationactivities.
TheFederalHighwayAdministration'sDemonstrationProjectNo.115(DP115),LifeCycleCostAnalysis
inPavementDesign,isatechnologytransferefforttodemonstratetheapplicationofLCCAtopavement
design.DP115wasinitiatedinfall1996andincludedanintroductiontotheuseofaprobabilistic
approachsometimescalledriskanalysisinthetreatmentofuncertainLCCAdatainputs.
TobetterunderstandthepracticalaspectsoftheuseofprobabilityandMonteCarlosimulationinLCCA,
theFederalHighwayAdministration(FHWA)developedamodelandmadearrangementswith10state
highwayagencies,theAmericanConcretePavementAssociation,andtheNationalAsphaltPavement
AssociationtopreparecasestudiesillustratingtheapplicationofriskanalysistoLCCAinpavement
design.CasestudyparticipantswererequestedtoperformanLCCAonanexistingprojectusingtheir
currentdeterministicproceduresandalsousingtheproceduresoutlinedinFHWA'sLifeCycleCost
AnalysisinPavementDesign,atechnicalbulletin.1
Thisarticlesummarizestheresultsofthecasestudies,whichshowthatwithlimitedtrainingin
probabilisticprinciplesandintheapplicationofriskanalysissoftware,statehighwayagencypersonnel
canapplytheprobabilisticapproachtotheircurrentlifecyclecostanalysisprocedures.Thentheycan
answerthreebasicquestions:Whatcanhappen?Howlikelyisittohappen?Whataretheconsequences
ifithappens?Byexposingtheseareasofuncertaintytypicallyhiddeninthetraditionaldeterministic
approachtoLCCA,theanalystcanadvisethedecisionmakerabouttherisksassociatedwithvarious
coursesofactionandtheprobabilityofanoutcomeactuallyoccurring.Byapplyingthisinformation,the
decisionmakercanselectthebest,mostcosteffectivesolutionstoprovidethegreatestlongterm
benefits.
CurrentProcedures
ThetraditionalapproachtoaddressinguncertaintyinLCCAhasbeentoignoreit.Theanalystmakesa
seriesof"bestguesses"forthevaluesofeachoftheinputvariablesandthencomputesasingle
deterministicresult.Theproblemwiththisapproachisthatinformationthatcouldimprovethedecisionis
oftenexcluded.
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Insomecases,alimitedsensitivityanalysismaybeconductedinwhichvariouscombinationsofinputs
areselectedtoqualitativelyassesstheireffectonanalysisresults.However,evenwithasensitivity
analysis,thisdeterministicapproachtoLCCAcanconcealareasofuncertaintythatmaybeacriticalpart
ofthedecisionmakingprocess.Often,stakeholdersseizeupontheuncertaintyassociatedwithLCCA
inputsandvigorouslydebatethevalidityoftheresults.Traditional,deterministicLCCAresultscan
generateendlessdebateoverwhichalternativereallyhasthelowestlifecyclecost.Thisprocess
encouragesdivisionandunproductivedebate.
Theneedtomakestrategiclongterminvestmentdecisionsundershorttermbudgetconstraintsforces
statehighwayagenciestoincorporaterisk(eitherimplicitlyorexplicitly)asacriterioninjudgingcourses
ofaction.Also,decisionmakersneedananalysistoolthatexposesareasofuncertaintyofwhichthey
maynotbeaware.Basedonthisnewinformation,thedecisionmakerthenhastheopportunitytotake
mitigatingactiontodecreaseexposuretorisk.
Riskanalysisisatechniquethatexposesareasofuncertaintythataretypicallyhiddeninthetraditional
deterministicapproachtoLCCA,anditallowsthedecisionmakertoweightheprobabilityofanyparticular
outcome.Riskanalysiscombinesprobabilitydescriptionsofuncertainvariablesandcomputersimulation
tocharacterizeriskassociatedwiththeoutcome.
Byincludingallpossibleinputsintotheanalysisandweighingtheprobabilityofoccurrenceofeach,risk
analysiselevatesthedebatefromthevalidityofLCCAresultstodecidingbestpublicpolicy.Withthe
emergenceofuserfriendlycomputersoftware,quantitativeriskanalysisconceptsandtechniquescanbe
easilyintegratedintothedecisionmakingprocessofastatehighwayagency.
InOctober1997,priortodevelopingacasestudy,eachparticipantreceivedriskanalysistrainingusinga
softwarepackagecalled"@Risk."@Risk,anaddontoMicrosoftExcel,providesanefficientmeansto
incorporatesimulationcapabilityintoaspreadsheet.
Withouttheaidofsimulation,aspreadsheetmodelwillonlyrevealasingleoutcome,generallythemost
likelyoraveragescenario.Spreadsheetriskanalysisusesbothaspreadsheetmodelandsimulationto
automaticallyanalyzetheeffectofvaryinginputontheoutputofthemodeledsystem.2
Table1summarizestheeconomicinputsusedbyeachstudyparticipant.Asshown,allstateparticipants
currentlyusenetpresentvalue(NPV)astheeconomicindicatorofchoice,longperiodsofanalysis,anda
discountrateofaround4percent.Allparticipantscurrentlyuseadeterministicprocedure.Itshouldbe
pointedoutthatOhioincorporatesasensitivityanalysisofdiscountratesintotheanalysis.
Table1LCCAInputVariablesUsedbyParticipants
Study
Participant

Analysis
Method

AnalysisPeriod
(years)

DiscountRate(%)

Kentucky

NPV

3540

210

Nevada

NPV

NorthCarolina

NPV

30

Ohio

NPV

35

Sensitivityanalysis0to6

Pennsylvania

NPV

2040

Texas

NPV

Notapplicable

Washington

NPV

40

Wisconsin

NPV

50

Table2showsthatallparticipatingstatesaddresscostsbyusinguninflated(real)costs.
Table2TreatmentofAgencyCosts

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State

AgencyCostTreatment

Kentucky

Realcostsforbothinitialconstructionandfuturerehabilitation
activitiesarebasedonaverageunitbidprices.Trafficcontrol
costsareestimatedbasedonprojectsofsimilarscope.
Salvagevalueisdeterminedbycalculatingthetotalquantityof
materials(bothoriginalconstructionandrehabilitation)inplace
ontheroadwayandgivingthemthevalueofinplacedense
gradedaggregate.

Nevada

Includesrealcostsforfunctionalandstructuraloverlaysand
trafficcontrolbasedonthetabulationofbidsreceivedfrom
contractorsforsimilarprojects.Maintenancecostsare
estimatedat$1000peryearperdirectionalmileforflexible
pavements.Salvagevalueisdefinedasthelastrehabilitation
cost(excludingsurfacesealsandannualmaintenance)
multipliedbytheratioofthelastrehabilitation'sremaining
servicetototallife.

NorthCarolina

Realcostsforinitialandrehabilitationconstruction.Annual
maintenancecosts,trafficcontrolcosts,andsalvagevalueare
typicallynotavailableand,therefore,notincludedinthe
analysis.Thesecostsareincludediftheyareavailable.

Ohio

Realcostsforbothinitialconstruction,futurerehabilitation,and
contractmaintenance.RoutinemaintenancebyOhioDOT
forcesisignored.Salvagevalueisnotused.Designertriesto
balancethemaintenancestrategiessuchthatthealternatives
haveapproximatelythesameconditioninyear35.

Pennsylvania

Realcostsforconstructionexpendituresoverthelifeofthe
project,includingtrafficcontrolandmaintenance.Annual
maintenancecostsareestimatedat$825perlanemileforrigid
pavementand$1,825perlanemileforflexiblepavement.
Salvagevalueisnotincludedsinceitisassumedthatthe
pavementwillneedreconstructionattheendoftheanalysis
period.

Texas

Realcostsforinitialconstruction.

Washington

Realcostsbasedonthemostrecentbiditemcostsand
quantityforinitialandfuturerehabilitation.Maintenancecosts
arenotincludedbecausethesecostsarelowandtheir
differencesarenegligiblebetweenalternatives.Salvagevalue
determinedbymultiplyingthelastrehabcostbytheratioofits
remaininglifetoitsexpectedlife.

Wisconsin

Realcostsforconstruction,futurerehabilitation,and
maintenance.

Usercostsaredefinedascostsincurredbyusersofahighwayfacility,includingexcesscoststothose
whocannotusethefacilitybecauseofagencyorselfimposeddetourrequirements.Usercostsarea
combinationofvehicleoperating,delay,andcrashcosts.Mostoftheparticipantsdonotdirectly
calculateusercostshowever,thesecostscanbeconsideredindirectly.Forexample,Ohiousesthe
numberoflaneclosuredaystoindirectlymeasurethecoststotheuser.Asummaryofthestates'current
proceduresfordeterminingusercostsisshownintable3.
Table3CurrentProceduresforUserCosts
State

https://www.fhwa.dot.gov/publications/publicroads/00nov/lifecycle.cfm

UserCostProcedure

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Kentucky

Afixedusercostof$5,000/dayisused.Thisismultipliedby
thenumberofdaysrequiredtocompletetheworktogetthe
totalcost.Typically,120daysisassumedforinitial
constructionand30daysforeachrehabilitation.

Nevada

Notcalculated.

NorthCarolina

Notcalculated.

Ohio

Usercostsarenotcalculated.Analternativeistodeterminethe
numberoflaneclosuredays.

Pennsylvania

Reducedspeeddelaytraversingworkzone.Analysisdoesnot
includeuserdelaycostsduetoqueuing.Usestopping,idling,
andaddedtimeaccordingtoNCHRP133(adjustedforinflation).
Valueoftime$3perhourforpassengercarsand$5perhourfor
alltrucks.

Texas

Notcalculated.Whileuserdelayisnotgenerallyconsideredon
adollarbasis,negativeuserimpactisoftenamajorfactorfor
phasingandmaterialchoices.

Washington

Reducedspeeddelaytraversingworkzone.Averagevalueof
timeis$6.25forallvehicletypes.

Wisconsin

Notcalculated.

Finally,thevaluesreportedbyeachstatefortheperformancelivesofalternativesaresummarizedin
table4.
Table4TreatmentPavementPerformanceLivesbyState
State

TreatmentPerformance

Lives

Kentucky Flexible:Year10mill
37.5mm,overlay37.5
mmYear20mill37.5
mm,overlay100mm
Year30mill37.5mm,
overlay37.5mmRigid:
Year15cleanand
resealjointsYear30
cleanandresealjoints
Nevada

North
Carolina

Ohio

State

TreatmentPerformance
Lives

Composite:Fulldepthrigid
repairs,milling,andan
overlayevery812years
Unbondedconcrete
overlay:Maintenance
Expertopinion,pavement
similartothatofarigid
performanceanalysis

pavementFracturedslab
program
techniques:Year812
thinoverlay,32mmto80
Flexible:Year10mill
mm,withorwithoutmilling
andreplaceYear20
Year1622thickoverlay,
mill,replace,andoverlay

100mmto200mm,with
Rigid:Year10sawand
milling,pavementrepair
resealjointsYear20
Year2432thinoverlay,
sawandresealjoints
32mmto80mm,withor
Flexible:Year1015
withoutmilling,
thinoverlay,32mmto75
microsurfacing,crack
mm,withorwithout
sealingWhitetopping:
millingYear1825thick
Maintenancesimilarto
overlay,75mmto180
thatofarigidpavement
mm,withmillingYear28
Pennsylvania Flexible:8yearstofirst
32thinoverlayor
resurfacing8yearinterval
microsurfacingorcrack
betweenresurfacingRigid:

https://www.fhwa.dot.gov/publications/publicroads/00nov/lifecycle.cfm

Ohio(cont'd)

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sealingRigid:Year1825
2percentto10percent
fulldepthrigidrepairs,1
percentto5percent
Texas
Washington
partialdepthbonded
repairs,diamond
grinding,75mmto150
mmoverlay,sawing,and
sealingYear28321
percentto3percentfull
Wisconsin
and/orpartialdepth
repair,thinoverlay,32
mmto50mm,withor
withoutmilling,sawing
andsealing,
microsurfacing,crack
sealing,diamondgrinding

30yearstofirst
resurfacing8yearinterval
betweenresurfacing
Expertopinion
Flexible:815yearstofirst
resurfacing8to15year
intervalbetween
rehabilitationRigid:20
yearstofirstrehabilitation
Combinationofpavement
managementdataand
expertopinion

ProbabilisticApproach
EachparticipantwasrequestedtoperformtheanalysisusingtheproceduresexplainedinFHWA's
technicalbulletin.Asnotedearlier,NPVistheeconomicindicatorofchoice,andthebasicNPVformula
fordiscountingdiscretefutureamountsatvariouspointsintimebacktosomebaseyearisshownas
follows:

where:i=discountrateand
n=numberofyearsintofuture
N=numberofrehabilitations

The
componentoftheaboveformulaisreferredtoasthepresentvalue(PV)factorforasingle
futureamount.PVfactorsforvariouscombinationsofdiscountratesandfutureyearsareavailablein
discountfactortables,whicharemorecommonlyreferredtoasinterestratetables.Thepresentvaluefor
aparticularfutureamountisobtainedbymultiplyingthefutureamountbytheappropriatePVfactor.
Intheprobabilisticapproach,uncertainvariables(forexample,initialcost,futurerehabilitationcost,
discountrate,andyearofrehabilitation)aremodeledusingprobabilitydistributions.Randomsamplingis
thenusedtocomputeNPV,andthroughmanyiterations,aprobabilitydistributionofresultsisobtained.
Theresultsgeneratedfromeachiterationarecapturedforlaterstatisticalanalysis.
Computerscanreadilyperformthesecalculationsthousandsoftimesinafewseconds,andthemost
commonapproachiscalledMonteCarlosimulation.MonteCarlosimulationisnamedafterthecasinoin
MonteCarlo,Monaco,wheregamesofchanceexhibitingrandombehaviorareplayed.Thewaythat
MonteCarlosimulationselectsvariablevaluesatrandomtosimulateamodelissimilartothecasino's
gamesofchancethathaveaknownrangeofvaluesbutanuncertainvalueforanyparticulartimeor
event.2
MonteCarlosimulationiseasytouse.Determiningtheuncertaintyoftheresultswhencombiningseveral
uncertainvaluescanbeverycomplex.However,usingMonteCarlosimulation,thisandsimilareffects
arehandledautomaticallysoyoudonothavetoknowmuchaboutstatisticstogetaccurateresults.3
Thefeaturesofeachstate'sriskanalysismodelaresummarizedintable5.Manyareasofcommonality
areevidentinhowtheparticipatingstatesconstructedtheirprobabilisticmodels.Forexample:
Allofthemusedmultiplesheetswithintheirspreadsheettoconstructthemodel(ratherthan
placingeverythinginoneverylargetable).
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Onlyoneuseddropdownmenusandnavigationbuttonsinconstructionofthemodelonthe
spreadsheet.
Allbutoneincludedaprobabilitydistributionfortheperformancelifeoftheinitialconstruction.
Theperformancelifeoffuturerehabilitationactivitieswasmodeledasaprobabilitydistributionby
all.
Allincludeddifferenttypesofrehabilitationactivities.
Allderivedagencycostsfromunitquantities.
Manyotherfeatureswerecommonlyusedbyallbecausetheyhadbeendirectedtofollowthe
recommendationsofthetechnicalbulletin.
Ontheotherhand,differenceswerefoundinsomekeyareas:
Someusedthesoftware'scapabilitytoprovideexplanatorycellcommentsontheirspreadsheetto
documenttheirmodelwhileothersdidnot.
Somesetasideanareaofthespreadsheettocontainalluserinputs,butothershadinputcells
includedinvariouspartsofthespreadsheet.
Differentapproacheswereusedtoinputthehoursofoperationforworkzones.
Themodelerswereequallydividedonwhetherthediscountrateshouldbefixedorhavea
probabilitydistribution.
Thevaluesoftimeandagencycostsweresimilarlymodeledbysomeasafixedvalueandby
othersasaprobabilitydistribution.
Finally,someconsideredsalvagevalueforusercosts,butothersdidnot.Thiscanhavea
considerableinfluence,especiallyforalternativesthatincurarehabilitationneartheendofthe
analysisperiod.

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Conclusions
Thisstudyhasshownthatthestatehighwayagenciescanreadilyusethelatestinanalyticaltoolsto
assesstheriskofthedecisionstheymake.Theycanexposeareasofuncertaintytypicallyhiddeninthe
traditionaldeterministicapproachtoLCCA,advisethedecisionmakeroftherisksassociatedwithvarious
coursesofactionandtheprobabilityofanoutcomeoccurring,andtherebyaidtheselectionofcost
effectivesolutionsthatprovidethegreatestlongtermbenefits.
References
1. LifeCycleCostAnalysisinPavementDesign,PublicationNo.FHWASA98079,FederalHighway
Administration,Washington,D.C.,1998.
2. "WhatisMonteCarloSimulation?"DecisioneeringWebsite,www.decisioneering.com/montecarlo
simulation.html.
3. "SimulationBasics,"VanguardSoftwareCorp.Website,
www.vanguardsw.com/Dphelp/dph00118.htm.
KeithD.HerboldisapavementengineerinFHWA'sMidwesternResourceCenterinOlympiaFields,Ill.
HehasmanagedtheMidwesternpavementprogramsince1985.Inadditiontohisservicetostate
highwayagencies,heworksonavarietyofpavementrelatedexperttaskgroupsandpanels,servesas
secretaryoftheMaintenanceManagementTaskForceoftheAmericanAssociationofStateHighway
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andTransportationOfficials(AASHTO)SubcommitteeonMaintenance,isamemberofAASHTO'sLead
StateTeamonPavementPreservation,andinteractswithseveralTransportationResearchBoard
committees.HeisveryactiveasatrainerandhaspresentedcoursesthroughouttheUnitedStatesand
overseas.HerboldjoinedFHWAin1968,andhiscareerhasincludedgeotechnical,materials,and
pavementengineeringassignmentsinboththeWashington,D.C.,headquartersandtheformerRegion5.
Hehasabachelor'sdegreeincivilengineeringfromNorthDakotaStateUniversityandamaster'sdegree
incivilengineeringfromtheUniversityofKentucky.HerboldisamemberofAmericanSocietyofCivil
Engineers,andheisaregisteredprofessionalengineerinIllinois.
PageOwner:OfficeofCorporateResearch,Technology,andInnovationManagement
ScheduledUpdate:ArchiveNoUpdate
TechnicalIssues:TFHRC.WebMaster@dot.gov
Updated:04/07/2011

UnitedStatesDepartmentofTransportationFederalHighwayAdministration

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