# Calculation Steps

Calculation Steps

These six, simple steps walk through the asset value calculation from start to finish, they acknowledge and account for each of the three perspectives (cost, economic, and market perspective), and they highlight each of the key decisions in the asset value process. Within each step, there are questions to guide your decisions and detailed instructions for each of the alternative methods.

The information presented in each step is a summary of the relevant chapter. It is intended to provide a quick reference point for users seeking to get straight to the crux of the calculation. For more background information and more detailed explanations, please check out the guide chapters.

Figure 2-5. Calculation Steps

1
Define the Analysis Scope

Determine which assets to incorporate and the level of detail of the calculation. Assets may be incorporated based on their asset type, class or system, they can be analyzed in their entirety or in component parts, and they may have different treatments applied over their lifetimes.

2
Establish Initial Value

In many TAM applications the preferred approach for initial value uses the cost perspective and the current replacement cost. However, in some applications other methods are valuable, including the economic perspective, market perspective and historic cost.

3
Determine Treatment Effects

The inclusion or exclusion of treatment effects depends on the factors which influence the asset’s expected useful life. Often, treatments may be excluded from analysis, but it is worth documenting the anticipated maintenance plan and understanding which treatments impact the expected useful life.

4
Calculate Depreciation

The best method for depreciating an asset varies based on the intended application of the calculation, the asset type, the value perspective, and the resources and data available. The three proposed methods for calculating depreciation are straight-line depreciation, condition-based depreciation, and non-linear benefit consumption.

5
Calculate Value and Supporting Measures

To support the final asset value and its application in the agency, several additional measures may be determined using the same asset data. These measures include: cost to maintain value, asset sustainability ration (ASR), asset consumption ratio (ACR), asset funding ratio (AFR), the net present value (NPV), and others.

6
Communicate and Apply the Results

Lastly, the asset value should be interpreted, communicated and applied to appropriate decisions within transportation asset management and beyond. Sensitivity analyses may describe the accuracy of the calculated value and identify any assumptions or variables which significantly impact the final asset value.