URBAN TRANSPORTATION

PLANNING
TOPIC:
TRANSPORTATION
PROJECTS EVALUATION AND
ECONOMICS
PART 1
LECTURER: ING. DR. ALBERT FORDE
 Contents
Introduction
BasicIssues in Transportation Projects
Evaluation
Elements of Cost
Economic Evaluation Methods
Example
Assignments
 INTRODUCTION
 The basic concept of transportation evaluation is simple and
straightforward, but the actual process itself can be complex and
involved.
 A transportation project is usually proposed because of a
perceived problem or need.
 For example, the Integrated and Resilient Urban Mobility Project
was based on the need to mitigate congestion and to improve
mobility along critical corridors in Freetown.
 In most instances, there are many ways to solve the problem, and
each solution or alternative will result in a unique outcome in
terms of project cost and results. For instance, two alternatives
could be proposed to address the congestion issue along the
Lumley corridor.
 INTRODUCTION
 The first proposal could be to install traffic signals at the three
major intersections, and construction pedestrian/foot bridges to
separate vehicular and pedestrian traffic.

 The second proposed could be to construct a flyover from Lumley

Police station to Juba/Pennisula highway.

 These two solutions are quite different in terms of their costs and
effectiveness.

 The first solution will be less costly then the second, but it also
will be less effective in reducing delay.
Basic Issues In Transportation Project Evaluation
 A transportation improvement can be viewed as a mechanism for
producing a result desired by society at a price.
 The question is, will the benefits of the project be worth the cost?
 In some instances, the results may be confined to the users of the
system, whereas in other instances, those affected may include
persons in the community who do not use the system.
 Prior to beginning an analysis to evaluate a transportation
alternative, the engineer or planner should consider a number of
basic questions and issues.
 These will assist in determining the proper approach to be taken,
what data are needed, and what analytical techniques should be
used. These issues are as follows:
Basic Issues In Transportation Project Evaluation

 Objectives of Evaluation

 Identifying Project Stakeholders

 Selecting and Measuring Evaluation Criteria

 Measures of Effectiveness

 Evaluation Procedures and Decision Making

 Objectives of Evaluation

 The objective of an evaluation is to furnish the appropriate

information about the outcome of each alternative so that a
selection can be made.
 The evaluation process should be viewed as an activity in which
information relevant to the selection is available to the person or
group who will be making a decision.
 An essential input in the process is to know what information will
be important in making a project selection.
 In some instances, a single criterion may be paramount (such as
cost); in other cases, there may be objectives to be achieved.
 The decision maker may wish to have the relative outcome of each
alternative expressed as a single number, whereas at other times, it
may be more helpful to see the results individually for each criteria.
and each alternative.
 Identifying Project Stakeholders

 Who will use the information, and what are their view points?
 A transportation project can affect a variety of groups in different
ways.
 In some instances, only one or a few groups are involved; in other
cases, many factions have interest.
 Examples of groups that could be affected by a transportation
project include the system users, transportation management,
labor, citizens in the community, business, etc.
 Each of these groups may have special concerns, since these
viewpoints may differ from group to group, the elements of the
evaluation process itself will be reflective of the viewpoint
expressed.
 Selecting and Measuring Evaluation Criteria

 What are the relevant criteria, and how should these be measured?
A transportation project is intended to accomplish one or more
goals and objectives, which are made operational as criteria.

 The numerical or relative results for each criteria are called

Measures of Effectiveness. For example, in a railroad grade
crossing problem, if the goal is to reduce accidents, the criteria
can be measured as the number of accidents expected to occur for
each of the alternatives considered.

 In another goal is to reduce waiting time, the criteria could be the

number of minutes per vehicle delayed at the grade crossing. Non-
quantifiable criteria also can be used and expressed in a relative
scale, such as high, medium, and low.
 Measures of Effectiveness

 How are measures of effectiveness used in the evaluation process itself? One
approach is to convert each measure of effectiveness to a common unit, and
then, for each alternative, compute the summation for all measures.

 A common unit is money, and it may be possible to make a transformation of the

relevant criteria to equivalent dollars and then compare each alternative from an
economic point of view.

 For example, if the cost of an accident is known and the value of travel time can
be determined, then for a railroad grade crossing problem, it would be possible to
compute a single number that would represent the total cost involved for each
alternative, since construction, maintenance, and operating costs are already
known in dollar terms, and accident and time costs can be computed using
conversion rates.
 Measures of Effectiveness

 A second approach is to convert each measure of effectiveness to a

numerical score. For example, if a project alternative does well in
one criterion, it is given a high score; if it does poorly in another
criterion, it is given a low score.
 A single number can be calculated that represents the weighted
average score of all the measures of effectiveness that were
considered.
 This approach is similar to calculating grades in a course. The
lecturer establishes both a set of criteria to measure a student`s
performance (for example, homework, midterms, finals, class
attendance, etc.) and weights for each criterion.
 The overall measure of the student`s performance is the weighted
sum of the outcome for each measure of effectiveness.
 Evaluation Procedure and Decision Making

 How well will the evaluation process assist in making a decision?

 The decision maker typically needs to know what the costs of the
project will be; in many instances, this alone will determine the
outcome.
 Another question may be, do the benefits justify the expenditure of
funds for transportation, or would the money be better spent
elsewhere?
 The decision maker also will want to know if the proposed project is
likely to produce the stated results.
 It may be necessary to carry out a sensitivity analysis that shows a
range of values rather than a single number.
 Evaluation Procedure and Decision Making

 The decision maker also may wish to know if all the alternatives
have been considered and how they compare with the one being
recommended.

 Are there other ways to accomplish the objective, such as using

management and traffic control strategies that would eliminate the
need for a costly construction project?

 It may be that providing separate bus and carpool lanes results in

significant increases in the passenger-carrying capacity of a
freeway, thus eliminating the need to build additional highway lanes.

 The decision maker may want to know the cost to highway users as
the result of travel delays during construction.
 ELEMENTS OF COST

 The cost of a transportation facility improvement includes two components:

first/initial/capital cost and continuing costs.

 Since an evaluation is concerned with costs differences, those costs that are
common to both projects can be excluded.

 The first cost for a highway or transit project may include engineering design,
right of way, and construction.

 Each transportation project is unique, and the specifics of the design will dictate
what items will be required and at what cost.

 Continuing costs include maintenance, operation and administration. These are

recurring costs that will be incurred over the life of the facility and are usually
based on historical data for similar projects.
 ELEMENTS OF COST

 For example, if one alternative involves the purchase of buses, then

the first/initial/capital cost is the price of the bus, and the operating
and maintenance cost will be known from manufacturer data or
experience.

 Expenses for administration or other overhead charges are usually

excluded in an economic evaluation, because they will be incurred
regardless of whether or not the project is selected.

 Other excluded costs are those that already have been incurred.
These are known as sunk Costs and as such are not relevant to the
decision of what to do in the future since these expenditures have
already been made.
 ELEMENTS OF COST

 For most capital projects, a service life must be determined and a

salvage value estimated. Salvage value is the worth of an asset at
the end of its service life.

 For example, a transit bus costing $150,000 may be considered to

have a service life of 12 years and a salvage value of $ 20,000, and a
concrete pavement may have a service life of 15 years and no
salvage value.

 Three commonly used measures of user costs as included in a

transportation project evaluation are as follows:
Cost for vehicle operation
Travel time costs
Cost of accidents
 ELEMENTS OF COST

Figure 1. Road User Cost Factors

 Vehicle Operating Cost

 User costs for motor-vehicle operation are significant items in a

highway project evaluation.

 For example, a road improvement that eliminates grades, curves,

and traffic signals (as well shortening the route) can result in
major cost reductions to the motorist.

 Agencies, such as the U.S. Department of Transportation (or

Ministry of Transport, in the context of Sierra Leone) and various
vehicle manufacturers, furnish data about vehicle costs on
highways or at intersections.
 Travel Time Cost

 One of the most important reasons for making transportation

improvements is to increase speed or to reduce travel delay. In the
world of trade and commerce, time is equivalent to money.

 For example, business ventures that furnish overnight delivery of

small packages have grown and flourished.

 Transoceanic airline service replaced steamships because airplane

reduced the time to cross the ocean from 6 to 9 days to 6 to 9 hours.

 The tunnel between Great Britain and France (known as Chunnel),

which opened in 1994, has shortened trip time by replacing ferries
with rail. The method of handling travel time savings in an economic
analysis has stirred considerable debate.
 Travel Time Cost

 There is general agreement that time savings have economic value,

but the question is “can and how should these be converted to dollar
amounts”.

 One problem is that a typical stream of traffic contains both private

and commercial vehicles, each of which values time savings quite
differently.

 Time savings for a trucking firm can be translated directly into

savings in labor cost by using an hourly rate for labor and equip.
Personal travel , on another hand, is made for a variety of reasons;
some are work related, but many are not(shopping, school, social,
recreation).
 Travel Time Cost

 Time saved in traveling to and from work can be related to wages

earned, but time saved in other pursuits may have little, if any,
economic basis for conversion.
 The value of time saved also depends on the length of trip and
family income.
 If time savings are small- less than 5 minutes- they will not be
perceived as significant and therefore have little value.
 If time savings are above a threshold where they could make
noticeable difference in total travel time- over 15 minutes- then they
could have significant economic value.
 The apparent monetary savings from even small travel time
reductions can be quite large.
 Travel Time Cost

 For example, if a highway project that will carry average daily traffic
(ADT) OF 50,000 autos saves only 2 minutes per traveler, and the
value of time for the average motorist is estimated conservatively at
$ 5/hr., the total minimum annual saving is

50,000 × (2/60)× 365× 5 = $ 3,041,667.

 At 10 percent interest, these savings could justify spending a total of

almost $ 26 million for a 20-year project life.
 Crash or Accident Costs

 Loss of life, injury, and property damage incurred in a transportation

crash or accident is a continuing national concern.

 Reflecting the economic costs of crashes requires both an estimate

of the number and type that are likely to occur over the life of the
facility and an estimate of the value of each occurrence.

 Property damage and injury-related crashes can be valued using

insurance data. The value of a human life is “priceless”, but in
economic terms, measures such as future earnings have been used.
 Crash or Accident Costs

 There is no simple numerical answer to the question “what is the

value of a human life loss in a highway crash?”.

 There is general agreement that economic value does exist and

published data vary widely.

 The most prudent approach, if an economic value is desired, is to

select a value that appears most appropriate for the given
situation.
 ECONOMIC EVALUATION METHODS

 An economic evaluation of a transportation project is completed

using one of the following methods:

Present Worth(PW)
Equivalent Uniform Annual Cost(EUAC)
Benefit-Cost Ratio (BCR)
 Each method, when correctly used will produce the same results.
The reason for selecting one over the other is preference for how
the results will be presented.

 Since transportation projects are usually built to serve traffic over

a long period of time, it is necessary to consider the time-
dependent value of money over the life of a project
 Present Worth

 The most straightforward of the economic evaluation methods is the

present worth (PW), since it represents the current value of all the
costs that will be incurred over the lifetime of the project.
 The general expression for present worth of a project is

Where
facility and user costs incurred in year n
N = service life of the facility(in years)
i = rate of interest
 Net Present Worth

 The present worth of a given cash flow that has both receipts and
disbursements is referred to as the Net present worth (NPW).

 The use of an interest rate in an economic evaluation is common

practice because it represents the cost of capital.

 Money spent on a transportation project is no longer available for

other investments.

 Therefore, a minimal value of interest rate is the rate that would have
been earned if the money were invested elsewhere.
 Net Present Worth

 For example, if $ 1000 were deposited in a bank at 8 percent

interest, its value in five years would be

 Thus, the PW of having $ 1469.33 in five years at 8 percent interest

is equal to $ 1000, and the opportunity cost is 8 percent.
 Discount rates can be higher or lower, depending on risk of
investment and economic conditions.
 It is helpful to use a cash flow diagram to depict the costs and
revenues that will occur over the lifetime of a project.
 Time is plotted as the horizontal axis and money as the vertical axis,
as illustrated in the Figure below
Net Present Worth
 Net Present Worth

Using the Equation below, the NPW of the project is given as:

Where,
 initial construction cost
 n = a specific year
 maintenance cost in year n
 maintenance cost in year n
 user cost in year n
 salvage value
 revenues in year n
 service life, years

 Net Present Worth

 In this manner, we have converted a time stream of costs and

revenues into a single number: the NPW.

 The term is known as the present worth factor of a single payment

and is written as,

 where P is the present value given the future amount F, and N is the
years of service life.
 Equivalent Uniform Annual Worth

 The conversion of a given cash flow to a series of equal annual

amounts is referred to as the equivalent uniform annual worth
(EUAW).

 If the uniform amounts are considered to occur at the end of the

interest period, then the formula is

 EUAW =NPW = NPW() Equ 3.

Similarly,
 NPW = = () Equ. 4
 Equivalent Uniform Annual Worth

Where
EUAW = equivalent uniform annual worth
NPW = net present worth
i = interest rate, expressed as a decimal
N= number of years
P = present lump sum
F = future lump sum
A= annual lump sum
 The terms in the brackets in Equ 3 is referred to as the capital
recovery factor and represents the amount necessary to repay $1 if
N equal payments are made at interest rate i .
 For example, if a loan is made for $ 5000 to be repaid in equal
monthly payments over a five-year period at 1 percent /month, then
 Equivalent Uniform Annual Worth

EUAW =5000= 5000(0.02225) = 111.25

 Thus, 60 payments of $111.25 would repay $ 5000 debt, including

both principal and interest.

 The NPW of a cash flow is converted to a EUAW by multiplying the

NPW by the capital recovery factor.

 The inverse of the capital recovery factor is the present worth factor
for a uniform series, as stated in Equ 4. Thus, the present value of 60
payments of $111.25 at 1 percent per month, is
NPW = = 111.25(44.96) = 5000
 Equivalent Uniform Annual Worth

 Formula solutions for values of i and N that convert a monetary value

from a future to a present time period) and from a present time
period to equal end-of-period payments ().

 The following Table lists values of single-payment present worth

factors (P/F) and capital recovery factors (A/P) for selected range of
interest.
Equivalent Uniform Annual Worth
 BENEFIT– COST RATIO

 The ratio of the present worth of net project benefits and net project
costs is called benefit-cost ratio (BCR).
 This method is used in situations where it is desired to show the
extent to which an investment in a transportation project will result in
a benefit to the investor.
 To do this, it is necessary to make project comparisons to determine
how the added investment compares with the added benefits. The
formula for BCR is

Where
 reduction in user and operation costs between higher-cost
Alternative 2 and lower-cost Alternative 1, expressed as PW or EUAW
 increase in facility costs, expressed as PW or EUAW
 BENEFIT– COST RATIO

 If the BCR is 1 or greater, then the higher cost alternative is

economically attractive. If the BCR is less than 1, this alternative is
discarded.
 Correct application of the BCR method requires that costs for each
alternative be converted to PW and EUAW values.
 The proposal must be ranked in ascending order of capital cost,
including the do-nothing alternative, which usually has little, if any,
initial cost.
 The incremental BCR is calculated for pairs of projects, beginning
with the lowest cost alternative.
 If the higher cost alternative yields a BCR less than 1, it is
eliminated and the next –higher cost alternative is compared with
the lower cost alternative.
 BENEFIT– COST RATIO

 If the higher cost alternative yields a BCR equal to or greater

than 1, it is retained and the lower cost alternative is eliminated.

 This process continues until every alternative has been

compared.

 The alternative selected is the one with the highest initial cost
and a BCR of 1 or more with respect to lower cost alternatives
and a BCR less than 1 when compared with all higher cost
projects.
 EXAMPLE

The Department of Traffic is considering three improvement plans for a

heavily travelled intersection within the City. The intersection
improvement is expected to achieve three goals: improve travel speeds,
increase safety, and reduce operating expenses for motorists. The
annual dollar value of savings compared with existing conditions for
each criterion as well as additional construction and maintenance
costs is shown in Table 1. If the economic life of the road is considered
to be 50 years and the discount rate is 3%, which alternative should be
selected? Solve the problem using the four methods of economic
analysis.
 EXAMPLE
Table 1 Cost and Benefits for Improvement Plans with Respect to Existing Conditions
 SOLUTION

 Compute the NPW of each project

Net Present Worth (NPW/NPV) = —Construction cost + (—Annual Maintenance Cost + Annual Savings in
accidents + Annual Travel Time benefits + Annual Operating savings)×(present worth factor)
)= =
= - 185,000 + (- 1500 + 1500 + 3000 + 300))
= - 185,000 + (7000)(25.729)
= - 4897

= - 220,000 + (- 2500 + 5000 + 6500 + 500))

= - 220,000 + (9500)(25.729)
= + 24,465
= - 310,000 + (- 3000 + 7000 + 6000 + 2800))
= - 310,000 + (12,800)(25.729)
= + 19,331
The project with the highest PW is alternative II.
 SOLUTION

 Solve by the EUAW method

Equivalent Uniform Annual Worth (EUAW) = —(Construction cost)×(Capital Recovery Factor) +(—Annual
Maintenance Cost + Annual Savings in accidents + Annual Travel Time benefits + Annual Operating savings)

Note: ) = 1/25.729 = 0.03887

= - 185,000) - 1500 + 5000 + 3000 + 500
= - 185,000(0.03887) + 7000
= - 190
= - 220,000) - 2500 + 5000 + 6500 + 500
= - 220,000(0.03887) + 9500
= + 949
= - 310,00 )- 3000 + 7000 + 6000 + 2800
= - 310,000(0.03887) + 12,800
= + 750
The project with the highest EUAW is alternative II, which is as expected since EUAW =
 SOLUTION

Solve by the BCR method

Step 1. Compare the BCR of Alternative I with respect to do-nothing (DN)

Since is less than 1, we would not build Alternative I.

Step 2. Compare the BCR of Alternative II with respect to do-nothing (DN)

Since > 1, we would select Alternative II over DN.

Step 3. Compare the BCR of Alternative III with respect to Alternative II

Since BCR is less than 1, we would not select Alternative III. We reach the
same conclusion as previously, which is to select Alternative II.
 Assignment 1(Due 18th June,2024)

Submit Assignment in Pdf ([email protected])

Question 1
Derive the equation to compute the equivalent annual cost given the capital cost
of a highway, such that A=(A/P) × P, where A/P is the capital recovery factor.
Compute the equivalent annual cost if the capital cost of a transportation project
is $ 100,000, annual interest = 5% , and n = 15 years.
Question 2
A highway project is expected to cost $ 1,500,000 initially. The annual operating
and maintenance cost after the first year is $2000 and will increase by $ 250
each year for the next 10 years. At the end of the fifth year, the project must be
resurfaced at a cost of $300,000.
(I) Draw a cash flow diagram for this situation
(II) Calculate the present worth of costs for this project if the annual interest
rate is 8%
 Assignment

Question 3
Three transportation projects have been proposed to increase the
safety in and around a residential neighborhood. Each project consists
of upgrading existing street signing to highly retro reflective sheeting
to increase visibility. The following table shows the initial construction
costs, annual operating costs, useful life of the sheeting, and the
salvage values for each alternative. Assume that the discount rate is
8%. Calculate the present worth for each alternative and determine the
preferred project based on the economic data.
 Assignment

Question 4
Two designs have been proposed for a short span bridge in a rural area,
as shown in the following table. The first proposal is to construct the
bridge in two phases (Phase I now and Phase II in 25 years). The
second alternative is to construct it in one phase. Assuming that the
annual interest rate is 6%, determine which alternative is preferred
using present worth analysis.

Annual
Construction Service
Alternative Maintenance
Costs($) Period(Years)
Cost($)
I(Phase I) 14,200,000 75,000 1 — 50
I(Phase II) 12,600,000 25,000 26 — 50
II 22,400,000 100,000 1 — 50