Sustainability concepts For Civil Engineering

Lec.03: Economic Sustainability

Mostafa Salari
Mostafa.salari2@ucalgary.ca
Schulich School of Engineering
Department of Civil Engineering
 TRADITIONAL SUSTAINABLE ECONOMICS

Traditional economic considerations of sustainability revolve around three main points: local impact,
material savings, and reuse.

Ø Local impact: sustainable practices provide employment and stimulate local economy

Ø Material savings, and reuse: reusing existing materials, organizations can reduce upfront costs,
reduce the transportation of materials, and reduce onsite waste. By utilizing fewer natural
resources, future savings are gained in many areas, such as reducing the amount of material
going to landfills.

what is the problem with this consideration?

2 Instructor: Mostafa Salari

 Limitation:

Ø They are limited in the fact that raw costs are not the only factor; what is more, maintenance and
disposal costs may be quite different depending on the manufactured product or the engineering
infrastructure

Ø long-term performance is not taken into account ( or not even known)

These are certainly challenges while considering the economic perspectives of sustainability,
but there are several concepts that can aid in more accurately capturing the full life span.

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 LIFE CYCLE COST ANALYSIS (LCCA)

Ø A method of quantifying long-term economic impacts.

Ø Takes into account both initial and discounted future costs in an attempt to identify the best value
over the life of either a manufactured product or engineering infrastructure.
Ø The importance of stating assumptions in the analysis, as different stakeholders in a project could
make very different assumptions
Ø Another key aspect of an LCCA is determining the analysis period

Analysis period can cover either a portion or the full life of a product or infrastructure and can
even extend through the salvage of material at the end of life.

Care must be taken when stating assumptions and defining the analysis period to reduce confusion.

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 LIFE CYCLE STAGES

Example: Portland cement concrete (PCC)

Pavement Project

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 Salvage value

The economic value of either a product or infrastructure at the end of the analysis period for the product or
infrastructure. If no specific data is available to calculate the salvage value, it is assumed to be zero.
Salvage Value = Purchase Price – (Annual Depreciation × Number of Years).
Anny issue with this formula?

The Federal Highway Administration uses the following for pavements:

More complicated measurements for salvage value have been developed for pavements, including the
CLR is the cost of the last resurfacing,
CRI is the cost of the lower asphalt layers remaining from the initial construction

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 Depreciation:

Decrease in value of a property over period of time due to any of the causes

Causes:
Ø Physical deterioration
Ø Technological advances
Ø Economic changes

Annual Depreciation = (Purchase Price of Asset – Salvage Value) / Useful Life

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 Steps of LCCA:

Ø Establish alternative design strategies for the analysis period,

Ø Determine performance periods and activity timing
Ø Estimate agency and user costs,
Ø Develop expenditure stream diagrams,
Ø Compute net present value (NPV),
Ø Analyze results and re-evaluate design strategies.

Establish alternative design strategies for the analysis period,

Allows the engineer to decide what different options are worthy of being explored. While skyscrapers
will probably never be constructed from aluminum (for both cost and material properties), the debate
of steel versus PCC is always of interest, as is traditional steel designs such as moment frames
versus diagrids. Therefore, understanding the options and then deciding the analysis period provide
the foundation for the LCCA.

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 Steps of LCCA:

Determine performance periods and activity timing

Ø Determining the performance periods and activity timing. Typical performance periods include
maintenance and rehabilitation schedules.

Difference between maintenance and rehabilitation:

wood structure example: If the wood is exposed, it needs to be sealed at least every 3–5 years in
order to maintain integrity. Sealing is an example of maintenance. However, after several seals, often,
individual pieces of wood must be replaced. It is anticipated that every 10–15 years, a portion of the
structure will need to be replaced. However, the entire structure should not need to be replaced at 10–
15 years if properly maintained.

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 Steps of LCCA:

Estimate agency and user costs

Ø Often the most difficult step for the LCCA, is estimating the agency and user costs.
Ø Not only the initial cost, but the maintenance cost, the rehabilitation cost, and the salvage
value should all be quantified as well.
Ø Pavements are an excellent example of breaking out agency and user costs. For state agencies,
examples of agency costs include: materials, production, and construction for the initial cost. A
popular comparison of two different pavements is asphalt concrete versus PCC.

Ø Construction cause congestion. Lost time!

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 How to calculate the costs?

Usually accounts for 70% or so of LCCA

Ø Materials
• Unit prices and quantities
How to calculate user cost? Example
Ø Labor
• Daily/hourly rates
• May be part of material unit prices
Ø Traffic Control
• Daily/hourly costs

Only consider mutually exclusive costs

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Example:
80% commuters, 20% non-commuters
Value of time for commuters: 20$/hr
Value of time for non-commuters:10$/hr
Travel time in 1KM corridor Dropped from 80 km/h
to 30 km/hr.
Average number of people in each car: 1.3
Flow in congestion=30 veh/hr
Construction in the morning peak:4hrs

User cost in terms of lost time?

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 Steps of LCCA:

Develop expenditure stream diagrams

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 Before talking about next step:PRESENT, FUTURE, AND ANNUAL WORTH

When analyzing economic alternatives, it is often convenient to present monetary amounts

in different forms

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 PRESENT, FUTURE, AND ANNUAL WORTH

Future worth example:

For example, if an agency is attempting to predict the funds available in 10 years for a highway
rehabilitation, current funds may need to be converted into future dollars to, for example, account for
inflation.

Annual form example:

When a company is attempting to compare the different energy costs associated with the heating and
ventilation system in their building, for instance, it can be helpful to define costs on a yearly basis in
order to better budget future costs

Give more examples on the future and annual worth

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 Simple Example (Practice):

What will $100 grow to after 8 years at 6% ?

How much would you have to invest today at 6% in order to have $159.40 in 8 years?

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 Compute net present value (NPV)

PV is the current worth of a future sum of money or stream of cash flows given a specified rate
of return.

Future cash flows: Project value in the future.

NPV: The difference between the present value of cash inflows and the present value of cash
outflows.

Formula for future value and Present value:

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 Steps of LCCA:

Compute net present value (NPV)

The fifth step of the traditional LCCA is computing the NPV. The NPV takes all anticipated future
costs and converts the costs to today’s dollar value. When these converted future costs are
added to the initial cost, a single number is created and multiple alternatives can be compared
directly.
•

The term “interest rate” is used when referring to the present value of money and its future growth. The term
“discount rate” is used when looking at an amount of money to be received in the future and calculating its present
value. The word “discount” means “to deduct an amount.”

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 Steps of LCCA:

Analyze results and re-evaluate design strategies.

The sixth and final step to the traditional LCCA analysis is comparing the NPV of different design
strategies and re-evaluating the strategies and assumptions to determine if any important details were
overlooked.

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 BOLD ASSUMPTION IN LCCA

Cost analysis done for the traditional LCCA Effect of Discount Rate on NPV
has been deterministic 4% Discount Rate
6% Discount Rate
100
90
80
70
60
50
40
30
20
10
0
0 5 10 15 20 25 30 35 40

Year

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 Probabilistic LCCA

A popular alternative to a deterministic LCCA evaluation is a probabilistic LCCA analysis

The basic principles are the same as those of deterministic analysis

Instead of choosing a single number, a probabilistic analysis recognizes that there is a distribution of
potential costs, especially when considering future costs.
Benefits:
Ø The price of raw materials is rarely linear, and often single, unpredictable events ? (such as the
2008 housing crisis) can shift the global demand for the material.
Ø Determining the proper discount rate is also very difficult. The discount rate is loosely related to
bank interest rates, which do have a high level of variability, often as a function of the health of the
economy
Ø Therefore, if a historical rehabilitation schedule is used with new materials and equipment, there is a
chance that rehabilitation may need to occur either more or less frequently (ideally, less with an
increase in technology). Using a probabilistic analysis builds in these sources of uncertainty and
variability, and allows for a more robust analysis.
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 Probabilistic LCCA using monte-carlo simulation

Interest rate follows a discrete/ continuous uniform distribution. EX: [0.2-0.6]

Initial cost follows a discrete/ continuous uniform distribution. EX: [10k-15k]

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