Stamford University Bangladesh

Department of Civil Engineering

CE 455: Transportation Engineering V

Transport Projects and Operations

Handout # 2 Evaluating Transportation Alternatives

COURSE TEACHER

Md. Majbah Uddin

Lecturer
Stamford University Bangladesh

Spring 2013
www.majbahuddin.wordpress.com

Evaluating Transportation
Alternatives

Evaluating Transportation Alternatives

The basic concept of an evaluation is simple and
straightforward, but the actual process itself can be
complex.
A transportation improvement can be viewed as a
mechanism for producing a result desired by a
society at a price.
The question is, will the benefits of the project
be worth the cost?

Evaluating Transportation Alternatives

The results of the four-step demand forecasting
process furnish the necessary input data to prepare
an evaluation of the relative worth of alternative
projects.
The objective of an evaluation is to furnish the
appropriate information about the outcome of each
alternative so that a selection can be made.
An essential input in the evaluation process is to
know what information will be important in making
project selection.
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Evaluating Transportation Alternatives

In some instances, a single criterion may be
paramount (such as cost).
In other cases, there may be many 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.
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Evaluating Transportation Alternatives

Evaluating Transportation Alternatives

Evaluation can also be made after a project is

completed to determine if the outcomes of the
project are as had been anticipated.
Post Facto evaluation can be very helpful in
formulating information useful for evaluating
similar projects elsewhere or in making
modifications in original designs.
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Evaluating Transportation Alternatives

Identifying Project Stakeholders
Examples of groups (stakeholders) that could be
affected by a transportation project include
System users
Transportation management
Citizens in the community
Business
Local, state, and national government

Evaluating Transportation Alternatives

Identifying Project Stakeholders
For smaller projects, stakeholders will usually be limited to
the system users and transportation management.
A clear definition of whose viewpoint is being considered
in the evaluation is necessary.
A transportation project can affect these groups either
positively or negatively.
For example, a major project could increase business or
expanded construction activity could trigger an economic
boom in the area. The project might also require taking of
land, or it could create other environmental effects.
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Evaluating Transportation Alternatives

Selecting Evaluation Criteria
A transportation project is intended to
accomplish one or more goals and objectives.
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.
If another goal is to improve mobility, the criteria
could be travel speed or travel time.
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Evaluating Transportation Alternatives

Selecting Evaluation Criteria
Criteria selection is a basic element of the
evaluation process, because they become the basis
on which each project (alternative) is compared.
It is important that the criteria be related as
closely as possible to the stated objectives.
Criteria selected should be easy to measure and
sensitive to changes made in each alternative.
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Evaluating Transportation Alternatives

Selecting Evaluation Criteria

It is better to limit the number of criteria to those

that will be most helpful in reaching a decision.
Too much information can be confusing and
counterproductive, and could create uncertainty and
could encourage a decision on political basis.

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Evaluating Transportation Alternatives

Selecting Evaluation Criteria

Examples of Criteria Used for Evaluating Transportation

Alternatives
Capital Costs
Construction
Right-of-way
Vehicles
Maintenance costs
Facility operating costs
Travel time cost
Vehicle operating costs
Accident costs
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Evaluating Transportation Alternatives

Measures of Effectiveness (MOE)

The numerical or relative results for each criterion

are called Measures of Effectiveness (MOE).
It is necessary to decide how the MOEs will be
used in the evaluation process.
There are three different approaches.

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Evaluating Transportation Alternatives

Measures of Effectiveness (MOE)
One approach is to convert each MOE to a common unit
(money), and then, for each alternative, compute the
summation for all measures (criteria).
For example, if the cost of an accident is known and the
value of travel time can be determined, then it would be
possible to compute a single number that would represent
the total cost of each alternative, since the costs of
construction, maintenance, and operation are already in
monetary terms.

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Evaluating Transportation Alternatives

Measures of Effectiveness (MOE)
A second approach is to convert each measure of
effectiveness (MOE) to a numerical score.
For example, if a project alternatives 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
MOEs that were considered.

This approach is similar to calculating grades in a course!

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Evaluating Transportation Alternatives

Measures of Effectiveness (MOE)

A third way is to identify the MOE for each alternative in

a matrix form, with no attempt to combine them.
This approach furnished the maximum amount of
information without prejudging wither how the MOE
should be combined or their relative importance.

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Evaluating Transportation Alternatives

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?
It may be necessary to carry out a sensitivity analysis that
shows a range of values rather than a single number.

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Evaluating Transportation Alternatives

Evaluation Procedure and Decision Making

The decision maker may want to know the cost to

highway users as a result of travel delays during
construction.
Also of interest may be the length of time necessary to
finish the project, since public officials are often interested
in seeing work completed during their administration.
The source of funds for the project and other matters
dealing with its implementation will also be of concern.
Thus, in addition to the fairly straightforward problem of
evaluation based on a selected set of measurable criteria, the
transportation engineer must be prepared to answer any and
all questions about the projects and its implications.
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Evaluation Based On Economic Criteria

Elements of Cost
The cost of a transportation facility improvement
includes two components
First Cost- engineering design, right-of-way, and
construction.
Continuing Cost- maintenance, operation, and
administration.

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Evaluation Based On Economic Criteria

Elements of Cost
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 (sunk cost).
Salvage value is the worth of an asset at the end of its
service life (usually considered in economic evaluation).

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Evaluation Based On Economic Criteria

Elements of Cost
Three commonly used measures of user costs are:
Vehicle operating costs
Travel time costs
costs of accidents
They are sometimes referred to as benefits since the
improvements to a transportation facility are likely to reduce
(lower) the cost of vehicle operation, cost of travel time,
and cost of accidents.
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Evaluation Based On Economic Criteria

Interaction Between Road User Costs and Highway

Geometric and Operational Factors

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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)
Internal Rate of Return (ROR)

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Economic Evaluation Methods

Present Worth (PW) is the most straightforward of the
methods, since it represents the current value of all costs
that will be incurred over the lifetime of the project.

Net Present Worth (NPW) is the PW of a given cash flow

that has both receipts and disbursements.
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Economic Evaluation Methods

NPW of a project is:

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Economic Evaluation Methods

Equivalent Uniform Annual Worth (EUAW) is a
conversion of a given cash flow to a series of equal annual
amounts. If the amounts are considered to occur at the end
of the interest period, then

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Economic Evaluation Methods

Similarly,

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Economic Evaluation Methods

The benefit-Cost Ratio (BCR) is a ratio of the PW of net project
benefits and net project costs.
The formula for BCR is:

BCR2 /1

B2 /1
C2 / 1

Where,
B2/1 = reduction in user and operation costs between higher cost
alternative 2 and lower cost alternative 1, expressed as PW
or EUAC
C2/1 = increase in facility costs, expressed as PW or EUAW
If the BCR is 1 or greater, then the higher cost alternative is
economically attractive. If BCR is less than 1, this alternative is discarded.
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Economic Evaluation Methods

Internal Rate of Return (ROR) method determines the
interest rate at which the PW of reductions in user and
operation costs B2/1 equals the PW of increases in facility
costs C2/1.

If the ROR exceeds the interest rate, the higher cost

project is retained. If the ROR is less than the interest rate,
the higher cost project is eliminated.
The procedure for comparison is similar to that used in
the BCR method.
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Economic Evaluation Methods

Illustration
The department of traffic is considering three improvement plans for a heavily
traveled intersection within the city. The improvement is expected to achieve
three objectives: improve travel speeds, increase safety, and reduce operating
expenses for drivers. The annual dollar value of savings compared with existing
conditions for each criterion as well as additional construction and maintenance
costs is shown in as follows. If the economic life of the road is considered to be
50 years and the discount (interest) rate is 3%, which alternative should be
selected?

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Economic Evaluation Methods

Illustration

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Economic Evaluation Methods

Illustration

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Economic Evaluation Methods

Illustration

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Economic Evaluation Methods

Illustration

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Economic Evaluation Methods

Illustration
Solve by ROR Method: (in this situation, we
solve for the interest rate for which NPW = 0

1. Compute ROR for alternative I versus DN:

NPW= 0 = -185,000 + (-1500+5000+3000+500)(P/A-i-50)
(P/A-i-50) = 185000/7000 = 26.428

{(1+i)50 1}/i(1+i)50 = 26.428

Solving, i = 2.6%
Since ROR is less than 3%, we discard alternative I.

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Economic Evaluation Methods

Illustration
Solve by ROR Method: (in this situation, we
solve for the interest rate for which NPW = 0

2. Compute ROR for alternative II versus DN:

NPW= 0 = -220,000 + (-2500+5000+6500+500)(P/A-i-50)
(P/A-i-50) = 220000/9500 = 23.16

{(1+i)50 1}/i(1+i)50 = 23.16

Solving, i = 3.6%
Since ROR is greater than 3%, we select alternative II over
DN.

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Economic Evaluation Methods

Illustration
Solve by ROR Method: (in this situation, we
solve for the interest rate for which NPW = 0

3. Compute ROR for alternative III versus alternative II:

NPW= 0 = -(310,000-220,000) + (12,800-9,500)(P/A-i-50)
(P/A-i-50) = 90000/3300 = 27.27

{(1+i)50 1}/i(1+i)50 = 27.27

Solving, i = 2.7%
Since the increased investment in alternative III yields an
ROR less than 3%, we do not select alternative III, but
again pick alternative II.

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