Innovative Applications of O.R. Towards optimal life cycle management in a road maintenance setting using DEA Paul Rouse * , Tony Chiu Department of Accounting and Finance, The University of Auckland, Private Bag 92019, Auckland, New Zealand article info Article history: Received 29 August 2005 Accepted 26 February 2008 Available online 15 March 2008 Keywords: Data envelopment analysis Transportation Life cycle management Accountability abstract This paper focuses on local road aspects of the highway system and aims to assess how efficiently, effec- tively and economically the 73 Territorial Local Authorities (TLAs) in New Zealand have maintained their respective local road networks from a life cycle perspective. Measures of quality, quantity and cost, together with nondiscretionary measures of environmental factors, are incorporated in Data Envelop- ment Analysis to evaluate each TLA’s performance in terms of efficiency, effectiveness and economy. TLAs that have high performance on all three measures provide a best practice indication of the optimal main- tenance activity mix to undertake. In this study, the best practice mix of expenditure is 59% routine main- tenance, 27% resealing and 14% rehabilitation. Ó 2008 Elsevier B.V. All rights reserved. 1. Introduction Accountability notions of effectiveness, efficiency and economy are common in public sector agencies. In New Zealand, these no- tions form the basis of ‘value for money’ objectives, especially for road funding authorities. In this paper, we show how they can be used to identify best practice life cycle management in a highway management setting. As the quality of roads deteriorates over time from use and continuous impact from the environment, proper maintenance of the road system is necessary to preserve its ser- viceability and structural integrity, which are important for the effectiveness of transportation, safety of road users and economic development. Since roads are infrastructural assets with long lives, maintenance activities need to be viewed from a life cycle perspec- tive if an optimal balance is to be obtained between benefits and costs, and to assist in agreement between central and local road authorities on appropriate levels of service to provide to road users. Cost, quantity and quality represent important aspects of road maintenance for performance evaluation and their linkages, as pointed out in Ramanathan (1985), help enhance managers’ ability to plan and control by focusing on the three dimensions of effi- ciency, effectiveness and economy (the three Es). The relationship between cost and quantity yields a measure of efficiency; the rela- tionship between quantity and quality yields a measure of effec- tiveness; and the relationship between cost and quality has been proposed to yield a measure of economy (Rouse et al., 1997). Organizations that are efficient may not be effective and vice versa. Organizations that are effective and efficient may not be econom- ical and so on. This paper uses Data Envelopment Analysis (DEA) to measure the three Es in order to identify organizations that per- form highly over all three dimensions. These organizations form a ‘best practice’ reference as a step towards gauging the optimal life cycle management portfolio of road maintenance activities. High performing TLAs tend to undertake a higher level of routine but lower level of periodic maintenance, than low performing TLAs. The best practice maintenance activity mix is found to comprise approximately 59% routine and 41% periodic maintenance (reseal- ing and rehabilitation). The paper proceeds as follows. Section 2 sets out a strategic framework for road maintenance and describes the measures and their relationship to life cycle management. Section 3 describes the DEA models and discusses the implications of alternative in- put- or output-orientations for the evaluation of the three Es. Sec- tion 4 explains some fine tuning required to the data and the incorporation of environmental factors with the results and identi- fication of the best practice maintenance activity mix described in Section 5. Section 6 summarizes the results and discusses limita- tions and avenues for future research. 2. Life cycle management in roads In the cost management literature, Susman (1989) identifies four main consecutive stages of life cycle management and product life cycles – Start-Up, Growth, Maturity, and Decline or Revitalize. Life cycle costing focuses on the costs associated with all these phases of a product’s (or programme’s) life: development, produc- tion, maintenance and operations including support. The life cycle pattern of a road has a more limited correspon- dence from a pavement quality perspective, as shown by Fig. 1, where the quality in terms of serviceability of the road declines 0377-2217/$ - see front matter Ó 2008 Elsevier B.V. All rights reserved. doi:10.1016/j.ejor.2008.02.041 * Corresponding author. Tel.: +64 9 3737999; fax: +64 9 3737406. E-mail address: p.rouse@auckland.ac.nz (P. Rouse). European Journal of Operational Research 196 (2009) 672–681 Contents lists available at ScienceDirect European Journal of Operational Research journal homepage: www.elsevier.com/locate/ejor