Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations

Rob Treiture; Leonore van der Meer; Jaap Bakker; Martine van den Boomen; Rob Schoenmaker; Rogier Wolfert

Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations

Rob Treiture, Leonore van der Meer, Jaap Bakker, Martine van den Boomen, Rob Schoenmaker, Rogier Wolfert

Integral Design & Management

Research output: Chapter in Book/Conference proceedings/Edited volume › Conference contribution › Scientific › peer-review

1 Citation (Scopus)

Abstract

Life cycle costing analysis for public infrastructure assets is not a straight forward exercise and may be sensitive to input data and calculation approaches. In general alternatives are compared on net present value (NPV) of life cycle costs (LCC) over a bounded calculation horizon. However, alternatives may differ in life cycle characteristics. Issues to address include the chosen calculation horizons, the truncation method for the end of horizon cash flows, the discount rates and inflation rates. This study investigates the deviations of NPV calculations with horizons of 100, 200 and 300 years with an NPV calculation over an infinite time hori-zon. Three public infrastructure asset case studies with their specific LCC characteristics are considered: a bridge, a high way and a dike revetment. A sensitivity analysis for the discount rate and differential inflation is performed. This study develops generic guidelines for approximation errors as a consequence of a premature truncation of cash flows in public infrastructure LCC calculations.

Original language	English
Title of host publication	Life-Cycle Analysis and Assessment in Civil Engineering
Subtitle of host publication	Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018
Editors	Robby Caspeele, Luc Taerwe, Dan M. Frangopol
Publisher	CRC Press
Pages	1475-1482
Number of pages	8
Edition	1
ISBN (Electronic)	9781315228914
ISBN (Print)	978-1-138-62633-1
Publication status	Published - 2019
Event	6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018 - Ghent, Belgium Duration: 28 Oct 2018 → 31 Oct 2018 Conference number: 6 http://www.ialcce2018.org/#/home

Conference

Conference	6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018
Abbreviated title	IALCCE 2018
Country/Territory	Belgium
City	Ghent
Period	28/10/18 → 31/10/18
Internet address	http://www.ialcce2018.org/#/home

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Cite this

Treiture, R., van der Meer, L., Bakker, J., van den Boomen, M., Schoenmaker, R., & Wolfert, R. (2019). Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations. In R. Caspeele, L. Taerwe, & D. M. Frangopol (Eds.), Life-Cycle Analysis and Assessment in Civil Engineering: Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018 (1 ed., pp. 1475-1482). CRC Press.

Treiture, Rob ; van der Meer, Leonore ; Bakker, Jaap et al. / Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations. Life-Cycle Analysis and Assessment in Civil Engineering: Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018. editor / Robby Caspeele ; Luc Taerwe ; Dan M. Frangopol. 1. ed. CRC Press, 2019. pp. 1475-1482

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title = "Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations",

abstract = "Life cycle costing analysis for public infrastructure assets is not a straight forward exercise and may be sensitive to input data and calculation approaches. In general alternatives are compared on net present value (NPV) of life cycle costs (LCC) over a bounded calculation horizon. However, alternatives may differ in life cycle characteristics. Issues to address include the chosen calculation horizons, the truncation method for the end of horizon cash flows, the discount rates and inflation rates. This study investigates the deviations of NPV calculations with horizons of 100, 200 and 300 years with an NPV calculation over an infinite time hori-zon. Three public infrastructure asset case studies with their specific LCC characteristics are considered: a bridge, a high way and a dike revetment. A sensitivity analysis for the discount rate and differential inflation is performed. This study develops generic guidelines for approximation errors as a consequence of a premature truncation of cash flows in public infrastructure LCC calculations.",

author = "Rob Treiture and {van der Meer}, Leonore and Jaap Bakker and {van den Boomen}, Martine and Rob Schoenmaker and Rogier Wolfert",

year = "2019",

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booktitle = "Life-Cycle Analysis and Assessment in Civil Engineering",

publisher = "CRC Press",

edition = "1",

note = "6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018, IALCCE 2018 ; Conference date: 28-10-2018 Through 31-10-2018",

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Treiture, R, van der Meer, L, Bakker, J, van den Boomen, M, Schoenmaker, R & Wolfert, R 2019, Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations. in R Caspeele, L Taerwe & DM Frangopol (eds), Life-Cycle Analysis and Assessment in Civil Engineering: Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018. 1 edn, CRC Press, pp. 1475-1482, 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018, Ghent, Belgium, 28/10/18.

Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations. / Treiture, Rob; van der Meer, Leonore; Bakker, Jaap et al.
Life-Cycle Analysis and Assessment in Civil Engineering: Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018. ed. / Robby Caspeele; Luc Taerwe; Dan M. Frangopol. 1. ed. CRC Press, 2019. p. 1475-1482.

Research output: Chapter in Book/Conference proceedings/Edited volume › Conference contribution › Scientific › peer-review

TY - GEN

T1 - Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations

AU - Treiture, Rob

AU - van der Meer, Leonore

AU - Bakker, Jaap

AU - van den Boomen, Martine

AU - Schoenmaker, Rob

AU - Wolfert, Rogier

N1 - Conference code: 6

PY - 2019

Y1 - 2019

N2 - Life cycle costing analysis for public infrastructure assets is not a straight forward exercise and may be sensitive to input data and calculation approaches. In general alternatives are compared on net present value (NPV) of life cycle costs (LCC) over a bounded calculation horizon. However, alternatives may differ in life cycle characteristics. Issues to address include the chosen calculation horizons, the truncation method for the end of horizon cash flows, the discount rates and inflation rates. This study investigates the deviations of NPV calculations with horizons of 100, 200 and 300 years with an NPV calculation over an infinite time hori-zon. Three public infrastructure asset case studies with their specific LCC characteristics are considered: a bridge, a high way and a dike revetment. A sensitivity analysis for the discount rate and differential inflation is performed. This study develops generic guidelines for approximation errors as a consequence of a premature truncation of cash flows in public infrastructure LCC calculations.

AB - Life cycle costing analysis for public infrastructure assets is not a straight forward exercise and may be sensitive to input data and calculation approaches. In general alternatives are compared on net present value (NPV) of life cycle costs (LCC) over a bounded calculation horizon. However, alternatives may differ in life cycle characteristics. Issues to address include the chosen calculation horizons, the truncation method for the end of horizon cash flows, the discount rates and inflation rates. This study investigates the deviations of NPV calculations with horizons of 100, 200 and 300 years with an NPV calculation over an infinite time hori-zon. Three public infrastructure asset case studies with their specific LCC characteristics are considered: a bridge, a high way and a dike revetment. A sensitivity analysis for the discount rate and differential inflation is performed. This study develops generic guidelines for approximation errors as a consequence of a premature truncation of cash flows in public infrastructure LCC calculations.

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M3 - Conference contribution

SN - 978-1-138-62633-1

SP - 1475

EP - 1482

BT - Life-Cycle Analysis and Assessment in Civil Engineering

A2 - Caspeele, Robby

A2 - Taerwe, Luc

A2 - Frangopol, Dan M.

PB - CRC Press

T2 - 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018

Y2 - 28 October 2018 through 31 October 2018

ER -

Treiture R, van der Meer L, Bakker J, van den Boomen M, Schoenmaker R, Wolfert R. Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations. In Caspeele R, Taerwe L, Frangopol DM, editors, Life-Cycle Analysis and Assessment in Civil Engineering: Towards an Integrated Vision - Proceedings of the 6th International Symposium on Life-Cycle Civil Engineering, IALCCE 2018. 1 ed. CRC Press. 2019. p. 1475-1482

Assessing approximation errors caused by truncation of cash flows in public infrastructure net present value calculations

Abstract

Conference

UN SDGs

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