Pannapa Herabat, Ph.D. Adjo Amekudzi, Ph.D. Poovadol Sirirangsi

1. Capturing the Effects of Sound Maintenance Practices in Highway Asset Valuation: the Replacement Cost Approach versus the Book Value Method Pannapa Herabat, Ph.D. Adjo Amekudzi, Ph.D. Poovadol Sirirangsi

2. Objectives of the Study • Explore the cost approach and the book value method as tools for capturing the added value of sound maintenance practice • Compare the effects of decisions on the type and timing of maintenance actions on pavement value estimated by the cost approach and the book value method

3. Cost Approach • Cost approach relates asset value and its performance. • Concept: • Asset value (AVt) = Land value (Lt) + Replacement cost (Rt) – Accrued Depreciation (Dt) [Source: AIREA, 1987]

4. Cost Approach-Pavement Value

5. Book Value Method • The book value of an asset is determined based on the historical expenditures that are made in constructing and maintaining the asset, adjusted by its depreciation. • Related expenditures to build an asset are capitalized as a gross book value when the construction is completed. • It is useful for accounting records. • There is no relationship with the actual condition of an asset. • Depreciation is selected based on an organization accounting policy. Source: [Anthony and Reece, 1989]

6. Book Value Method • The straight-line method is applied to estimate accrued depreciation. • The study assumes no salvage value of pavement and a service life of 20 years. • Due to the unavailability of data prior to the early 1990s, depreciation is calculated starting from the year 1996. • For maintenance treatment, Thai Accounting Standard no. 32 suggests that maintenance cost be accounted for separately because pavements need to be maintained periodically, and the service life after maintenance should be different once construction has occurred. • The service life of maintenance is assumed to be 7 years based on the maintenance cycle for rehabilitation and overlay used by Thailand DOH. • Depreciation of maintenance treatment is calculated proportionally using the straight-line method.

7. Overviews of Case Study Pathumthani Highway District • General Information • Managing a network of 360 kilometers of asphaltic concrete highway • Managing a network of 512 kilometers of concrete highway • Eight representative sections of Route 345, 3111, 3215 and 3309 are selected in the case study • Four highway carries 37504, 11933, 8699 and 6318 AADT per day respectively (year 2000)

8. Physical Characteristics of Sub-Control Sections of Route 345, 3111, 3215 and 3309

9. Pavement Value Determination • Scenario I: different types of maintenance actions • Scenario II: different timing of maintenance actions The overlay 40 mm (OL-40) treatment is tested in five different years which are 1998, 1999, 2000, 2001 and 2002. Scenario I Comparison between book value and cost approach Five different maintenance which are OL-40, OL-50, OL-60, OL-80 and REH-AC are applied in the same year (2000). Scenario II Comparison between book value and cost approach

10. Scenario I -Different types of maintenance actions • examines which type of maintenance treatment should be applied to a pavement section in a particular year. • For simplicity, the year 2000 is selected as the base year for this study. • This scenario is realistic because maintenance treatments for all DOH routes are competitively selected based on multiple factors, e.g., engineering factors such as the current condition of the roadway or its traffic volumes, and political factors such as the location of roadway. • Five different maintenance are considered • OL-40, OL-50, OL-60, OL-80 and REH-AC

11. Scenario I: Different Types of Maintenance Actions - Cost Approach

12. Scenario I: Different Types of Maintenance Actions - Book Value

13. Scenario I: Different Types of Maintenance Actions - Results • The difference between between the cost approach and book value is that the pavement value based on the cost approach does not necessarily increase whenever the maintenance is performed. • For the cost approach, there is added value from spending extra funds to implement OL-50 versus OL-40 for sub-section 03450100-000-01 while there is no added value from spending extra funds to implement OL-60 versus OL-80.

14. Scenario I: different types of maintenance actions - Results • According to the cost approach, an increase in pavement value depends on improved physical condition due to maintenance treatment and may not be equal to its maintenance cost. • The book value captures maintenance actions by simply adding on the maintenance cost to the asset value. • Therefore, the pavement value based on the book value increases associated with the incremental cost of maintenance activity when the maintenance treatment is performed.

15. Scenario II: different timing of maintenance actions • The second scenario focuses on capturing the impacts of the maintenance timing based on a fixed type of maintenance. • This scenario may occur if the district has to decide which route(s) must be maintained as a high priority under a specified type of maintenance with available resources, which are usually limited. • By keeping the maintenance treatment constant, this scenario may provide district engineers or politicians with an overview of the impacts of deferred or accelerated maintenance on pavement value.

16. Scenario II: Different Timing of Maintenance Actions - Cost Approach

17. Scenario II: Different Timing of Maintenance Actions - Book Value

18. Scenario II: Different Timing of Maintenance Actions-Results • The book value technique captures a steady decline in pavement value over time. • The cost approach shows that replacement value does not proportionately decay with time in the absence of maintenance since the cost approach captures the loss of value as a function of deterioration. • According to the previous figure, the cost approach shows the suitable time for maintenance to avoid a loss in the asset value.

19. Return on Investment (ROI) • Return on Investment (ROI) is used to rank the relative priority of both scenarios. • The ROI is calculated based on the change of pavement value that is divided by its cost. • The best alternative for the cost approach is determined from the highest return on ROI. • Only the ROI based on the cost approach is calculated since there are no differences among the ROI of different maintenance alternatives of the book value technique.

20. Scenario I: Different Types of Maintenance Actions – ROI & Ranking Note: Total Cost = Opportunity Cost + Maintenance Cost

21. Scenario I: Different Types Maintenance Actions - ROI & Ranking Note: Efficiency of maintenance management = Change in pavement value/total cost

22. Scenario I: Different Types of Maintenance Actions - Results of ROI & Ranking • The best alternatives are OL-50 for sub-section 03450100-000-01 and OL-40 for the other sub-sections. • Sub-section 03450100-000-01 has 4.27 m/km of IRI value and carries traffic volume over 37,540 vehicles per day while the other sub-sections has 4.27 m/km of IRI value and carries traffic volume less than 12,000 vehicles per day. • It is consistent with the fact that rougher road with high traffic volume requires a more aggressive type of maintenance in order to maintain a pavement at the same level of service.

23. Scenario II: Different timing of Maintenance Actions - ROI & Rankings

24. Best Time for Maintenance for each sub-section Scenario II: Different timing of Maintenance Actions - ROIs & Ranking Note: Efficiency of maintenance management = Change in pavement value/total cost

25. Scenario II: Different Timing of Maintenance Actions - Results of ROI & Ranking • The previous figure illustrates that the best year for applying OL-40 treatment for sub-section 03450100- 000 -01 is 1998. • This is earlier than the best years of the other sub-sections due to the fact that this sub-section have a highest IRI and traffic volume. • It is consistent with the fact that rougher road with high traffic volume requires earlier time of maintenance in order to maintain at the same level of service.

26. Conclusions • Capturing the effects of sound maintenance practices between the cost approach and the book value method • Two Scenarios: different types of maintenance actions and different timing of maintenance actions • The results of the study indicate that the cost approach can provide useful information on the more cost-effective treatments to preserve the replacement value of the assets, as well as the critical times to apply maintenance treatments to avoid losses in the replacement value of the asset. • These results indicate that the cost approach can be used as a decision support tool for evaluating maintenance practices.