Economic Analysis

HIGHWAY ENGINEERING
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 Introduction

 Practice of engineering involve many choices

among alternative designs, procedures, plans, and
methods.
 Question – will the benefit of the project worth the
cost? (Will it pay?)
 Basic questions and issues – what approach to be
taken, what data are needed, what analytical
techniques to be used.
 Net Present Worth (NPW)

NPW = -Co - [𝐶𝑛 - 𝐵𝑛 ] (P/A - i – n)

Co : capital cost / first cost

Cn : continuing costs (maintenance, operating, etc)
Bn : benefits ( saving, salvage, revenues etc)
(1+𝑖)𝑛 −1
(P/A - i – n): P = A [ ]
𝑖(1+𝑖)𝑛
 Example

 The department of Traffic is considering three improvement plans for a

heavily traveled intersection within the city. The intersection improvement
is expected to achieve three goals : to improve travel speeds, to increase
safety and to 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. If
the economic life of the road is considered to be 50 years and the
discount rate is 3 percent, which alternative should be selected? Solve the
problem using the NPW methods for economic analysis.
 Benefit Cost Ratio

 The ratio of the present worth (PW) of Net project benefits (all of the savings, revenue &
etc) and Capital costs is called the benefit – cost ratio (BCR).
 BCR used to show extend to which investment will result in benefit to society
 Negative flows are considered costs and positives flows as benefits.
 The saving in the transport cost are considered as benefits.
 If the B/C ratio is more than one, the project is worth undertaking.
 Need to do comparison to determine added benefit with added investment
BCR 2/1 = (B2 – B1) / (C2 – C1)

B/C = benefit in the reference year / Capital costs

 BCR l/DN = [(-1500 + 5000 + 3000 + 500) / (185 000 x (A/P -3-50)]
 BCR ll/DN = ?
 BCR lll/ll or BCR lll/DN =