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Fritz Jooste Administrator Posts: 81
2/13/2020
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Fritz JoosteAdministrator Posts: 81
This post deals with the method of calculating Residual Value (RV) in JunoViewer. As such, it deals with the HOW of RV calculation. To learn WHY you should consider using Residual Value in your Benefit-Cost Analysis (BCA) models, please see this post.
Currently, JunoViewer has only one method of calculating Residual Value, which we have coded as method "A1". You can also omit RV calculation completely if you choose to. As our framework keeps on developing and we get more feedback from users, we will add more methods.
To omit RV use/calculation in your BCA model, set the Residual Value Calculation Method parameter on the General Sheet of your DMS to 'none'. Note that the default value for this parameter is also 'none', so if you do not include this parameter on your General Sheet, then by default RV calculation will not be taken into account in your BCA models.
If you do not specify the Residual Value Calculation Method parameter as 'none', then you must use one of the available methods for RV calculation. As noted, above, there is currently only one method for RV calculation, which has a JunoViewer code name "A1" (picking an appropriate name other than a short code is really hard, given the complexity involved!).
The A1 Method:
This method calculates the Residual Value as follows:
RV = (Discounted Cost of Last Treatment) x (RLF)
where:
RV = Discounted Residual Value in terms of year 0 money;
RLF = Residual Life Fraction;
The residual life fraction, RLF is in simply:
RLF = (Remaining Life of Last Treatment, in last modelling year) / (Expected Life of Last Treatment)
Note that the RLF, and thus the RV, can become negative! This may happen when the treatment age is higher than the expected life. So if a treatment age is 3 years older than its expected life, and the expected life is 10 years, the RLF will be -3/10 = -0.3. Effectively, this will mean that a negative RV will be subtracted from the total Cost of Use, thereby effectively increasing the Cost of Use. In this way, the RV can penalize strategies that allow treatments to grow too old without putting in one or more follow-up treatments.
To use this method:
- set the Residual Value Calculation Method parameter on the General Sheet of your DMS to "A1" or "a1".
- Next, you need to specify the value of the Residual Life Fraction Parameter, also on the General Sheet of your DMS. The value you specify for the Residual Life Fraction Parameter (RLF) has to match exactly the name of one of your model parameters in which you hold the calculated RLF. Details on the RLF are given below.
Note that JunoViewer does not calculate the RLF for you. You need to create a parameter in which the RLF value is held. This is because JunoViewer does not know what the Expected Life and Remaining Life of the last treatment is, and asking for these details will unnecessarily complicate the definition of Treatments in your DMS. So you need to create a model parameter (you can call it anything, but we suggest you stick to "RLF") that will calculate the RLF as defined above. JunoViewer will automatically select the RLF in the last modelling year for RV calculation, but we suggest you set up the RLF parameter so that it calculates in each year. This will make it easy for you to debug and check that the calculated RLF is correct.
Example:
For a certain strategy, the model places an Overlay in year 15 with a discounted treatment cost of $200,000. The expected life of an overlay is 9 years, and the modelling period is 20 years.
First, we calculate the RLF. Noting that in year 20 the overlay is 5 years old (since it was placed in year 15), the remaining life in year 20 will be (9-5) = 4 years. Thus the RLF = 4/9 = 0.444.
Thus the RV = $200,000 x 0.444 = $88,889
This method is defined in the following research report from Auburn University, and was noted as the generally accepted method for RV calculation by many road authorities:
Gu F. and N. Tran. Best Practices for Determining Life Cycle Costs of Asphalt Pavements. National Centre for Asphalt Technology, Auburn University, Auburn, AL, 36830. NCAT Report 19-03. 2019.
edited by admin on 2/13/2020
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