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End of Project Costs

Costs that are incurred at the end of a project or period of analysis include:

  • Residual value (a negative cost) — The estimated value of project assets at the end of the period of analysis, representing their expected value in continuing use
  • Salvage value (a negative cost) — The estimated value of an asset in cases where there exists a market for selling the asset
  • Close-out — costs incurred at the end of the project's operation to put the project "to bed," assuming the analysis period coincides with the project's operation period

These costs are relevant to benefit-cost analysis if a project is analyzed over a limited length of time or if two alternative projects have very different service periods or physical components with very different lifespans.

Examples

  • Comparing public ownership and operation of a transit or rail service to contracting with a private operator for service: In the first case, the public agency will have assets with residual and salvage values (rolling stock, rights-of-way and facilities) at the end of the analysis period. In the second case, it will have no such assets.
  • An agency considering a new bus route: At the end of the analysis period, the agency will own the buses and any special facilities used for the route. These will have salvage value because they can be sold.
  • Setting up a temporary container-storage center until a shipping terminal can be expanded: Different storage centers may have different close-out costs, because the different parcels of land may require different treatments to put them into suitable shape for reuse or resale after the center is closed.
Most transportation projects, such as roads, transit systems, and terminal facilities, are in service for a very long time. Equipment may wear out and be replaced, but the project does not end. In such cases, "end of project" costs are not important because the project does not end and therefore does not have salvage or close-out costs. The residual values of alternate investments are closely related to their values during the period of analysis so that including them would not affect the relative attractiveness of alternate proposals. However, if a project alternative has substantial end of project value that is different from other alternatives or if the end of project value is large relative to the total costs, then it may be appropriate to consider these components. Note that an end of project cost is the net value of the assets. For example, buses may be sold, but the cost of selling them should be deducted from the proceeds.

End of project costs should be discounted in the same manner as other costs.