Economic Models as Basis For Investment Decisions

Paper by HUVSTIG from ISCR 9th 2004 Instanbul Turkey

There is a trend to work with the influence of roads on the whole society. The quality level, and the initial investment cost, for pavements and road superstructures, should therefore be grounded on Life Cycle Cost analysis (LCC). LCC or Whole Life Costing (WLC), is described in a PIARC document (ISBN: 2-84060-114-1), written by the author of this paper. LCC analyses are often grounded on an economic model, which is called the Net Present Cost (NPC). This paper will prove that NPC is not either logical or mathematical correct. In spite of this, the NPC model is also more or less used in many countries (USA, Great Britain, Sweden, South Africa etc.) Many countries are using the NPC model in their guides for LCC calculations (for example COMPARE in Great Britain and recommendations in South Africa). Some consequences are: • The use of the NPC model gives unnecessary high maintenance costs, and also an inferior society economy! • High quality pavement, with good values on the surface characteristics, and small maintenance costs, like concrete pavements, are treated unfairly! • Countries, with high interest rate (12-14%), have to build roads with a very low quality, which gives very high maintenance costs in the near future, which is very bad for their economy in a long view.

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