5. Step 5: Estimate infrastructure operating costs

Steps

5.1 Identify infrastructure operating costs and classify them into time- and usage-related components

5.2 Make Base Case and Project Case projections and take the difference

5.1 Identify infrastructure operating costs and classify them into time- and usage-related components

The term infrastructure operating costs refers to the costs of continuing to provide the infrastructure after the initiative has commenced operation. The primary infrastructure operating cost is maintenance.

Maintenance costs are typically classified into routine and periodic categories. Routine maintenance costs involve small tasks that are undertaken frequently. Periodic maintenance costs involve more expensive works undertaken at intervals of several years.

For cost estimation purposes, it is useful to split infrastructure operating costs into time-related and usage-related costs. Time-related costs are the same each year, regardless of the level of traffic. Routine maintenance costs tend to be largely time-related (as opposed to usage-related) and reasonably constant from year to year. Usage-related costs vary with the level of traffic and, therefore, are dependent on demand projections. Vehicle or train mix, gross weights and speeds may also be relevant.

Maintenance costs in either the usage- or time-related categories can be affected by the weather and by major accidents leading to random variations from year to year. If impacts of uncertain events are potentially significant, use the techniques for dealing with risk in Section 12.

If unit costs are indexed over the appraisal period for increases in real wages or other input costs, infrastructure operating costs will need to be adjusted accordingly. See the discussion of indexation in Section 7.1 below.

5.2 Make Base Case and Project Case projections and take the difference

Estimate infrastructure operating costs for the Base and Project Cases, projecting them forward over the life of the initiative. If Project Case operating costs are below Base Case operating costs, the difference between them is a benefit or negative cost for the initiative. This could occur if the new infrastructure replaces ageing infrastructure that was costly to maintain. Conversely, if Project Case operating costs exceed Base Case operating costs, the difference between them is a cost or negative benefit to the initiative. This occurs if the new infrastructure generated new maintenance costs on top of those of the existing infrastructure.

If the timing of major periodic maintenance differs between base case and project case infrastructure, there may be large positive and negative spikes in annual maintenance savings benefits.