Determining the treatments applied to an asset over its lifetime is addressed in Chapter 5. For more detailed information, please refer to the chapter.
Asset treatments are laid out in an asset’s lifecycle strategy. These treatments include at a minimum those typically performed on the asset in addition to potential treatments which may impact an asset’s future value.
- Step 1 – Review Treatment Data:
For each asset class and type of component being valued, review the asset lifecycle strategy and/or other available agency data to determine what treatments are typically performed on an asset class or component, and what treatment data are consistently tracked.
- Step 2 – Identify Mandatory Treatments:
Identify treatments that will be considered independently in the valuation calculation, in addition to the initial construction or acquisition of an asset. These include treatments that reset the asset age or restore an asset to “like new” condition.
- Step 3 – Select Potential Additional Treatments:
Determine whether additional treatments should be considered in the analysis. Consideration of additional treatments is typically unnecessary for calculating current asset value, but can be important for predicting future value. Treatments may be added to the analysis if they have some impact on asset remaining life or condition and if adding them to the analysis will help support TAM decisions. Any treatments not explicitly modeled are assumed to occur based on the agency’s lifecycle policy.
A highway agency needs to calculate asset value for pavements and bridges to support development of its TAMP. The agency is interested in exploring two different approaches to asset valuation, both of which utilize replacement cost for the calculation of initial value: a simplified approach in which only asset construction/reconstruction is considered in the calculation, and a more comprehensive approach that more accurately reflects the impacts of rehabilitation and preservation treatments on asset value.
The agency starts by reviewing different pavement and bridge treatments performed by the agency. This process is complicated by the fact that different terms are used for describing asset treatments in different systems. The agency reviews existing TAMPs to determine how different treatments have been represented by other agencies. Table 5-2 provides an example of the mapping of different treatments between pavements and bridges based on data presented in the Louisiana Department of Transportation Development (LADOTD) TAMP (34). The table shows, for pavements and bridges, the five work categories described by FHWA in its TAMP requirements, corresponding work types used when reporting data for federally-funded projects in the FHWA Financial Management Information System (FMIS), and the treatments actually considered by the agency’s asset managers. As shown in the table, for any one of the FHWA work categories there may be between zero and four corresponding different work types in FMIS. The work types in FMIS may map to a number of different specific treatments.
Table 5-2. Example Mapping of FHWA Work Categories, FMIS Work Types and Agency Treatments
| FHWA Work Category | FHMIS Work Types | TAM Treatments |
|---|---|---|
| Pavement | ||
| Initial Construction | 01-New Construction Roadway | New Roadway Construction |
| Maintenance | N/A | Seal Joints and Cracks Polymer Surface Treatment |
| Preservation | 05-4R Maintenance Resurfacing | Microsurfacing Thin Overlay Medium Overlay In Place Stabilization |
| Rehabilitation | 06-4R Maintenance Restoration/Rehabilitation | Structural Overlay Minor Rehab Major Rehab |
| Reconstruction | 03-4R Reconstruction - Added Capacity 04-4R Reconstruction - No Added Capacity 07-4R Relocation | Reconstruction Unbonded Concrete Overlay |
| Bridge | ||
| Initial Construction | 08-Bridge New Construction | Bridge New Construction |
| Maintenance | N/A | N/A |
| Preservation | 40-Special Bridge 47-Bridge Preventative Maintenance 48-Bridge Protection 59-Bridge Deck Resurfacing | Painting Deck Scour Mitigation Cleaning, Refurbishing or Replacing Service Elements |
| Rehabilitation | 13-Bridge Rehabilitation - Added Capacity 14-Bridge Rehabilitation - No Added Capacity | Re-Decking Widening Paint with Major Structural Steel Repairs Scour Mitigation with Major Substructure or Other Major Bridge Work |
| Reconstruction | 10-Bridge Replacement - Added Capacity 11-Bridge Replacement - No Added Capacity | Remove Existing Structure Replace Existing Structure |
All of the specific agency treatments listed in the table could conceivably be included in the asset valuation calculation. Adding treatments supports a more detailed and potentially more accurate calculation of how asset value varies over time, but entails quantifying more data.
Table 5-3 shows the results of the agency’s assessment, indicating which treatments the agency will include in the asset value calculation using each approach. For the comprehensive approach the agency elects to include a number of additional treatments, given these improve asset condition and result in shortening asset life if needed treatments are not performed.
Table 5-3. Treatments Included Using Simplified and Comprehensive Approaches
| Treatment | Include in Value Calculation | Notes | |
|---|---|---|---|
| Simplified | Comprehensive | ||
| Pavement | |||
| Construction | Yes | No | |
| Overlay | No | Yes | Includes thin and medium overlays |
| Other Maintenance and Preservation | No | No | Includes crack sealing, surface treatment, and microsurfacing |
| Rehabilitation | No | Yes | Includes structural overlay, minor rehab and major rehab |
| Reconstruction | Yes | Yes | |
| Bridge | |||
| Construction | Yes | Yes | |
| Deck Repair | No | Yes | |
| Other Maintenance and Preservation | No | No | Includes cleaning, element repairs, spot painting, and deck protection |
| Deck Replacement | No | Yes | |
| Superstructure Rehabilitation | No | Yes | Includes paint replacement and major steel repairs |
| Substructure Rehabilitation | No | Yes | |
| Rehabilitation | No | Yes | |
| Reconstruction | Yes | Yes | |
Unit replacement costs are established by asset class/component using expert judgement and/or industry defaults.
Unit replacement costs are established through a one-time analysis of project data and updated in subsequent years based on inflation.
Unit replacement costs are established through a well-documented process that includes: analysis of project data; assessment of how assets should be grouped for analysis (e.g., by system, material and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Asset purchase or construction and reconstruction are included in the asset value calculations. Supplemental analysis is not performed to consider inclusion of other treatments.
An analysis is performed to determine what treatments to include in the analysis, and what treatments are assumed to occur based on the agency’s life cycle strategy. The analysis is conducted separately from establishing asset life cycle strategies.
An analysis is performed to determine what treatments to include in the analysis, and what treatments are assumed to occur based on the agency’s life cycle strategy. The analysis is conducted as part of the development of asset life cycle strategies and/or strategies are updated as appropriate following the analysis.
Asset age is not well established. Costs by asset class are calculated by year and depreciated without associating costs to specific assets.
Asset or component age is known or can be estimated based on inventory and treatment data, supporting calculation of depreciation at an asset class, asset and/or component level.
Asset age or component age is known or can be estimated based on inventory and treatment data. An analysis is performed of the consumption of asset benefits. A custom pattern of benefit consumption is used if supported by the analysis. Depreciation is calculated based on the selected approach by asset class, asset and/or component.
Asset value is calculated for major assets at an aggregate level as required to support financial reporting and TAMP requirements.
Asset value is calculated for major assets. Either the calculations are performed at an asset/component level or supplemental analysis is performed to confirm use of the approach for aggregating asset value calculations.
Asset value is calculated for major assets. Either the calculations are performed at an asset/component level or supplemental analysis is performed to confirm use of the approach for aggregating asset value calculations. Sensitivity analyses are periodically conducted to show the effect of changes in key analysis parameters.
Asset value is reported in agency documents, including financial reports and the agency’s TAMP, but approaches used in different documents may be inconsistent.
Asset value is reported in agency documents, including financial reports and the agency’s TAMP. Discrepancies between different estimates are documented.
Asset value is reported in a consistent manner in different agency documents, including financial reports and the agency’s TAMP. Multiple approaches for reporting value are used as needed to maintain consistency between documents while satisfying reporting requirements.
Treatment costs should be measured in today’s dollars with the effects of inflation removed. The methods described in Chapter 4 and Step 2: Initial Value Calculation may be applied here as well. When considering the effects, the common frames of reference are “will this restore my asset to ‘like new’ conditions?” or “will it increase the useful life?”. In both scenarios, the treatment effect should be represented in the change in an asset’s effective age.
- Step 1 – Collect Data on Past Treatments:
Collect data on cost and treatment timing for each treatment being considered for each asset class and subcomponent. Data are not required for treatments that are assumed to occur and incorporated in the estimate of asset useful life.
- Step 2 – Assess Available Data:
Decide whether historic data are sufficiently detailed to support use of actual costs, or if unit costs will be used to estimate changes in value from past treatments. For most applications it is more practical to use unit costs. An exception to this is where value is being calculated for a specific asset (e.g., a toll road) based on historic costs.
- Step 3 – Develop Treatment Unit Costs:
Develop unit costs as described in Chapter 4, resulting in unit costs for each treatment.
- Step 4 – Determine Treatment Effects:
For each treatment determine the effect the treatment has on an asset. The effect can be specified in terms of the change in asset life or the change in condition. Condition changes are equated to asset life in calculating depreciation, as described in Chapter 6.
The agency described in Example 5-1 next quantifies the cost and effects of the different treatments. The agency uses treatment costs from its management system, together with a separate assessment of the cost of initial construction of a pavement or bridge performed as described in Chapter 4.
Treatment effects are established based on a combination of expert judgement and parameters from the agency’s management systems. Table 5-4 shows the resulting assumptions concerning treatment effects. For pavement, treatment effects are expressed in terms of a treatment’s impact on Pavement Condition Index (PCI). This is an agency-specific measure of pavement condition expressed on a scale from 0 to 100. Pavement treatments have the effect of resetting pavement age and returning PCI to 100, setting PCI to a specific value, or increasing PCI by a specified amount.
For bridges treatment effectives are expressed in terms of a treatment’s impact on the deck, superstructure, and/or substructure ratings defined in the NBI. These are expressed on a 0 to 9 scale, with 9 representing the best condition obtained for a new bridge. Bridge treatments have the effect of resetting age and returning all ratings to 9, or setting one or more ratings to a specific value.
Table 5-4. Example Treatment Effects
| Treatment | Treatment Effect | |
|---|---|---|
| Simplified | Comprehensive | |
| Pavement | ||
| Construction | Age = 0, PCI = 100 | Age = 0, PCI = 100 |
| Overlay | None | PCI increases by 10 |
| Rehabilitation | None | PCI set to 90 |
| Reconstruction | Age = 0, PCI = 100 | Age = 0, PCI = 100 |
| Bridge | ||
| Construction | Age = 0, Deck/Super/Sub Ratings = 9 | Age = 0, Deck/Super/Sub Ratings = 9 |
| Deck Repair | None | Deck Rating = 6 |
| Deck Replacement | None | Deck Rating = 7 |
| Superstructure Rehabilitation | None | Superstructure Rating = 7 |
| Substructure Rehabilitation | None | Substructure Rating = 7 |
| Rehabilitation | None | Deck/Super/Sub Ratings = 7 |
| Replacement | Age = 0, Deck/Super/Sub Ratings = 9 | Age = 0, Deck/Super/Sub Ratings = 9 |
Based on the assessment of treatment effects, the agency establishes that with the more comprehensive approach it would be necessary to represent bridges at a component level, modeling the deck, superstructure and substructure of a bridge separately, given that several of the treatments have an impact on only one component.
Neither historic costs nor asset age can be reliably obtained at an asset level. Overall expenditures by work type and system are used as the basis for calculating asset value without relating expenditures to specific assets.
An asset inventory is available detailing asset age. Historic costs are not reliably tracked by asset but can be estimated using unit replacement costs and asset age
Actual costs of construction/asset purchases are tracked by asset.
The analysis is limited to asset purchase or construction and reconstruction. Asset reconstruction is assumed to have the same cost and effect as initial construction.
Treatment costs are established through a one-time analysis of project data and updated in subsequent years based on inflation. Treatment effects are based on expert judgement or a one-time analysis.
Treatment cost and effects are established through a well-documented process that includes: analysis of treatment data; assessment of how assets should be grouped for analysis (e.g., by system, material, and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Condition data are sufficient for estimating the condition distribution at a network level. Condition is mapped to effective age and depreciation is calculated by asset class based on current condition.
An assessment is performed to determine how best to calculate effective age, potentially using actual age and/or condition. Depreciation is calculated based on effective age by asset class, asset and/or component.
An analysis is performed of the consumption of asset benefits. A custom pattern of benefit consumption is used if supported by the analysis. Otherwise, an assessment is performed to determine how best to calculate effective age, potentially using actual age and/or condition. Depreciation is calculated based on the selected approach by asset class, asset and/or component.
The agency prepares a balance sheet as part of its financial reporting, but does not attempt to reconcile asset value in the financial report with TAM estimates.
Differences in approaches between financial reporting TAM asset valuation are documented as a one-time exercise performed when preparing the TAM asset valuation.
Consistent approaches are used where possible to prepare the balance sheet in the agency’s financial report and value assets for TAM. Differences in approaches are resolved where possible, and regularly reviewed and documented in financial and TAM reports where they remain.
The cost to maintain current asset value is calculated using annual depreciation and reported in the agency’s TAMP.
The cost to maintain current asset value is calculated using the agency’s management systems. The cost to maintain and ASR are reported in the agency’s TAMP.
The cost to maintain current asset value is calculated using the agency’s management systems. The cost to maintain and ASR are reported in the agency’s TAMP. The cost to maintain and ASR are reviewed when establishing asset investment levels.
Asset useful life is the expected time an asset will remain in service, given that the asset is removed from service when it is most cost-effective, the planned treatments take place, and separate life-restoring treatments are separately considered.
- Step 1 – Review Available Agency Data:
Collect and review records on when assets have been replaced. Ideally data on past replacements should be accompanied by information on what motivated the replacement.
- Step 2 – Review Defaults and Past Assumptions:
Review other sources of data for asset life assumptions, including information on treatments compiled as described in Section 5.2.1, past calculations performed by the agency (e.g., for previous TAMPs or financial reports), asset-specific analyses, the defaults listed in Table 5.2, and the TAM literature.
- Step 3 – Specify the Useful Life by Asset Class/Component:
Determine a useful life for each asset class and component being valued using either the agency’s data or the defaults. The useful life should be developed assuming treatments occur according to the agency’s lifecycle strategies.
Refer to NCHRP Report 713 and Chapter 13 of OECD Measuring Capital for more discussion of advanced approaches for establishing asset useful life.
The agency described in the previous example seeks to establish useful lives for bridges for the simplified and comprehensive cases outlined in the previous examples. The agency uses NCHRP Report 713 (18) for guidance. Following the approach described in this report, the agency first defines end-of-life criteria for its bridge components. The agency’s bridge managers recommend that when a deck, superstructure or substructure deteriorates to a rating of 5 on the 9-point NBI scale (classified as fair condition) the component has reached the end of its useful life, given the agency typically schedules rehabilitation work at this point to prevent the bridge from deteriorating into poor condition. Note that if the end of life was defined as the point when replacement of the bridge is required, then a lower rating value would be used as the definition for end-of-life. The agency uses the national defaults in Appendix B of Report 713 to estimate the time required for bridge components to deteriorate to a value of 5. These were developed using NBI data and implicitly include effects from routine maintenance. The national estimates in the report are:
- Deck – 42 years
- Superstructure – 48 years
- Substructure – 45 years
These values are used for the comprehensive case described in the above examples, in which bridges are represented at a component level, and rehabilitation treatments are included in the analysis.
For the simplified analysis the agency performs a separate analysis to determine a useful life for bridges assuming that maintenance, repair and rehabilitation work is performed consistent with the agency’s lifecycle policy. The agency reviews data on recent projects to establish a typical life, omitting projects where replacement was triggered by an external factor (e.g., the bridge crossed a roadway that was being widened to increase capacity). The agency compares this to the NCHRP Report 713 values for the time for component ratings to reach a value of 3, a point at which the agency would schedule replacement of a bridge. These are as follows:
- Deck – 79 years
- Superstructure – 83 years
- Substructure – 78 years
Based on review of agency data and other sources the agency establishes a useful life of 75 years for a bridge for the simplified case in which maintenance, repair and rehabilitation treatments are assumed to occur in a timely fashion over a bridge’s life.
Market value is estimated based on expert judgement and/or industry defaults.
Market value is established through a one-time analysis of asset resale or other data and updated in subsequent years based on inflation.
Market value is established through a well-documented process that includes: analysis of asset resale or other data; assessment of how assets should be grouped for analysis (e.g., by system, material and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Asset useful life is estimated based on expert judgement and/or industry defaults.
A one-time analysis is performed to establish asset useful life based on analysis of historic data and/or asset models.
Asset useful life assumptions are based on models used in an agency’s management systems. The assumptions are periodically validated and updated through a well-documented process.
Cost to maintain current value, ASR and asset ACR are or can be calculated using annual depreciation and expenditures.
Cost to maintain current value, ASR and asset ACR are or can be calculated using annual depreciation and expenditures. In addition, supplemental analysis is performed using the agency’s management systems to establish the cost to maintain current value.
Cost to maintain current value, ASR, ACR and AFR are calculated and used to support investment decisions. Supplemental analysis is performed using the agency’s management systems to establish the cost to maintain current value and the cost to achieve the desired state of good repair.
Needed funding is reported in the agency’s TAMP. Needed funding is assumed to be equal to the cost to maintain current value.
A separate analysis is performed using the agency’s management systems to support the calculation of the funding needed to achieve and maintain the agency’s desired state of good repair.
A separate analysis is performed using the agency’s management systems to support the calculation of the funding needed to achieve and maintain the agency’s desired state of good repair. Needed funding is considered in establishing asset investment levels.
Residual value is the value of the asset once it has reached the end of its useful life. Any assets discarded at the end of their life will have a residual value (salvage value) of zero. For assets where this is not the case, a typical method for calculating residual value is to subtract the cost required to restore an asset to ‘like new’ conditions from the initial construction cost (with all values in today’s dollars).
- Step 1 – Classify Assets and Components:
For each asset class and component being valued, establish whether or not the asset is periodically rehabilitated or renewed using treatments that differ in cost from the initial purchase or construction of an asset. This determination depends on the nature of the treatments performed on the assets and the determination of which treatments are being modeled.
Complex assets such as pavements and bridges are periodically rehabilitated or renewed. However, the analyst has the choice concerning whether to consider rehabilitation/renewal treatments or assume these occur according to the agency’s lifecycle strategy.
- Step 2 – Calculate Salvage Value:
For assets not subject to periodic rehabilitation or renewal calculate the residual value as the salvage value of the asset, or the value obtained for an asset that has reached the end of its useful life and is being replaced. Refer to the OECD document Measuring Capital for discussion of how to establish this value for complex cases when the distribution of asset useful life cannot be easily approximated.
- Step 3 – Calculate the Cost Difference:
For assets that are subject to periodic rehabilitation or renewal, calculate the residual value as the difference between the cost of initial purchase or construction and the cost of asset rehabilitation or renewal.
A transit agency seeks to calculate residual value for its vehicles, facilities, track and equipment. Based on the guidance in Section 5-2, the agency calculates residual value for selected assets as shown in Table 5-5.
Table 5-5. Example Approaches for Calculating Residual Value for Transit Assets
| Asset Class | Subclass | Calculation Approach | Notes |
|---|---|---|---|
| Vehicles | Buses | Resale or auction value | Feasible when vehicles are auctioned or sold at the end of their useful life |
| Rail Vehicles | Scrap value | Assumes asset is used until it is scrapped | |
| Facilities | Administrative/Maintenance Facility | Difference between construction and rehabilitation cost | Complex assets that are rarely completely reconstructed |
| Passenger Facility | |||
| Infrastructure | Track | ||
| Structures | |||
| Power | 0 | Typically obsolete when replaced – minimal resale or scrap value | |
| Signals | |||
| Equipment | Service Vehicles | Resale or auction value | Feasible when vehicles are auctioned or sold at the end of their useful life |
| Other Equipment | Scrap Value | Assumes asset is used until it is scrapped |
Calculations of economic value rely on estimates of detour distance and speed to estimate changes in user costs from addition or removal of an asset, but do not attempt to quantify the impact of changes in travel demand.
Calculations of economic value rely on estimates of detour distance and speed to calculate changes in user costs from addition or removal of an asset. The elasticity of travel demand is used to estimate changes in traffic volumes.
Calculations of economic value utilize travel demand models to quantify impacts of potential changes to the network from addition or removal of an asset.
The analysis is limited to asset purchase or construction and reconstruction. Asset reconstruction is assumed to have the same cost and effect as initial construction (resulting in a residual value of 0).
A determination is made for each asset class and component concerning whether to calculate residual value based on salvage value or the difference between asset construction and reconstruction. Salvage values are established based on expert judgement.
A determination is made for each asset class and component concerning whether to calculate residual value based on salvage value or the difference between asset construction and reconstruction. Salvage values are established based on analysis of historic data.
Asset value is reported by asset class and system in the agency’s TAMP or supporting documents.
Asset value and supporting measures such as the cost to maintain current condition, ASR, AFR and ACR are reported by asset class and system in the agency’s TAMP or supporting documents.
Asset value and supporting measures such as the cost to maintain current condition, ASR, AFR and ACR are reported by asset class and system in the agency’s TAMP or supporting documents. Information on asset value and related measures is used to support decisions concerning the allocation of funding between asset class and system.