highway engineering chapter 5

7/24/2019 highway engineering CHAPTER 5

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Economic Analysis forHighway

Highway Engineering 2


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Introduction

Practice of engineering involve many choices amalternative designs, procedures, plans, and met

Question will the benet of the project worth t(ill it pay?!

"asic #uestions and issues what approach to bta$en, what data are needed, what analyticaltechni#ues to be used.


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Basic issues in analysis

% project to improve sarailroad grade crossingaccident or time delayscrossing site.

&' to solve this prob

&% is another altern

&)*& of the solution+aworth the cost?


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%lternative

)nstall gates and -ashing light

%lternative

*onstruct a grade separated


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Objectives

/eneral objective 0 to furnish the appropriate information about the outcoalternativeso that the selection can be made.

1ome of the specic objectives in carrying out economic evaluation are0

). o decide whether the scheme under consideration is worth investment a)). o ran$ the scheme competing for scarce resources in order of priority

))). o compare and select the most economic and

)2. o assist in phasing the program


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Basic Principles

3conomic analysis involves choice between alternatives.4 do nothing or im55 to select the most attractive solution.

)n economic analysis, all past actions are irrelevant and the prime importafuture -ow of costs and benet.

2iew point of the nation as a whole not to any subset i.e highway agencbusses operators.

3conomic analysis should not be misunderstood with nancial analysis.

3conomic analysis should ta$e place within a set of established criteria, suminimum attractive rate of return, interest rate, etc.


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electing and measuring evalucriteria

*riteria selection is a basic element of theevaluation process because the measure usedbecomes the basis on which project is

compared.

*riteria must be closely related to the stated

objective. *riteria not only relevant to the problem but

should have other attributes.

*riteria should be easy to measure andsensitive changes made in eachalternatives.


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Evaluation based on economcriteria

o consider economic worth of improvement 0 calculate improvement costwith the cost maintain the facility in its present condition (the do nothing a

wo approaches0

1. Compare dif in cost and dif in benet 4 select project i net increase innet increase in cost

2. Consider total cost each alternatives, including user and acility, -> project ith loest total cost

7eed to identify elements of cost0

1. acility costs ! construction, maintenance, operation

2. user costs ! travel time, accidents, vehicle operating cost "voc#


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!acility "osts

wo components0

rst cost (design, row (right of way!, construction!

4 continuing cost (annual maintenance, operation and admi

*ost common to both project can be e8cluded 4 since thconcern is in cost di9erences.

:or most capital projects, a service life must be determi

3stimate salvage value at end of service life (salvage vathe worth of an asset at the end of its service life!


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#oad $ser "osts

)ncludes voc, travel time, and accidents

1ometimes referred as benets due to the savingor reduction in user cost

;oad user cost factors

1. $%C ! "vehicle operating cost# signicant items since improvement that recost reduction or e&ample a road improvement that eliminates grades

tra'c signals "shortening the route#. "uel, lubricant, tires, parts, mdepreciation, toll, road ta&, insurance, interest#

2. (ravel time ! increase speed 6 reduce travel time, ho to convert)) *commercial vehicle "time value, passenger, good, vehicle#

. ccident costs ! need to estimate number and type o accidents 45 atproperty damage, injury-related accident valued rom insurance data, hum

/. 0ociety ! environment, land value, discomort inconvenience


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#oad $ser "osts


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Bene%t from Highway chem

;epresent the di9erence in costwith new facility compaold facility.

*an be grouped into, benet to0

1. *&isting tra'c, by reducing road user cost

2. enerated tra'c

. iverted tra'c rom other routes and modes

/. (ra'c operating on other routes and modes via reductitra'c by ne acility


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&ime 'alue of (oney

:undamental premise on which all economic evaluation methods r

money earns over a period of time

;


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!ormulae

i D an interest rate per intperiod (also sometimesrepresented by r!n D number of interest peP D presentsum of money

: D a sum of money at theperiods from the present dis e#uivalent to P with inte% D the end of period payreceipt in a uniform seriescontinuing for the comingperiods, the entire e#uiva

o nd :, given P (:+ P4i4n! 0

: o nd %, given P (%+ P4i4n! 0

% D P E F o :ind :, given % (:+ %4i4n! 0

: D % E F


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"ash !low )iagram

o )n solving economic to visualiHe the cos(benet! that will occtime of the project udiagram.

o )n this diagram, time the horiHontal a8is along the vertical a8is

o he relationship bePresent EPF, future E:Fis illustrate in the cash


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Economic Analysis (ethod

Present orth (P!+ Present 2alue

3#uivalent Iniform %nnual *ost (3I%*!+ %nnual

"enet *ost ;atio ("*;!

)nternal ;ate of ;eturn (;';!%ll will produce same results but just a matter ofconvenience.


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Present *orth

P the most straight forward since represent current value of all the costincurred over the lifetime of the project.

P D D :acility and user costs incurred in year n

n D service life

i D discount rate

38ample0

%s a routine maintenance wor$, ;


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Present *orth

38ample0

%s a routine maintenance wor$, ;


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+et Present *orth ,+P*-

7P present worth of both cost and benet (net0 di9erence in cost and bproject!

Kiscount rate (i! used to convert money to particular time 45 depends on economic conditions

Ise cash -ow diagram to depict costs and revenues (benet!

"enets are treated as L ve and costs are treated 4 ve

1elect project with a positive 7P or highest 7P

7P D E F

where,

Bnis the benefit of the nth year,

Cnis the cost of the

nth year,

nis the number of ears.

'r


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E.ample / +P*

he cost of improving an e8isting road, @ $m stretch is ;< M million per $of road users, accident and maintenance for with and without imprtabulated below for a = year period after the completion of the im%ssuming a discount rate of =A nd out whether the project is economIse 7P method.

0ear,n-

#oad $ser "osts Accident "osts (aintenance"osts

Ben

ith ithout ith ithout ith ithout

= 4=

=@.@ >.@ . J. J.@ .@

=.J J. . J. J.@ .@

J @.N JN.O . J.@ J.@ .@

M .> [email protected] . J. J.@ .@


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E.ample / +P*

0ear,n-

#oad $ser "osts Accident "osts (aintenance"osts

Bene

ith ithout ith ithout ith ithout

> JM.= >.= .J M.= J.@ .@

M=. >N.O .M M.= J.@ .@

N M.N .= .@ M.M J.@ .@

O @@. N>. .> M. J.@ .@

= >.O O@. .> M.O J.@ .@

otal*ontinued

*ost of improvements D ;< M million 8 @ $m D == million

7P D ;< 444 million, since the 7P is positive, the project is economicall


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7P D 4*o 4 E 4 F (P+% 4 i n!

*o 0 capital cost + rst cost

*n 0 continuing costs (maintenance, operating, etc!

"n 0 benets ( saving, salvage, revenues etc!(P+% 4 i n!0 P D % E F


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E.ample 2 +P*

he department of rac is considering three improvement plans ftraveled intersection within the city. he intersection improvement is achieve three goals 0 to improve travel speeds, to increase safety anoperating e8penses for motorists. he annual dollar value of savings coe8isting conditions for each criterion as well as additional cons

maintenance costs is shown in table. )f the economic life of the road is cbe @= years and the discount rate is J percent, which alternative should 1olve the problem using the 7P methods for economic analysis.


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E.ample 2 +P*

Alternative "onstruction "ost

Annualaving inaccident

Annual&ravel &ime

Bene%ts

AnnualOperatingavings

) R N@ === R @ === R J === R @==

ll R = === R @ === R > @== R @==

lll R J= === R === R > === R N==


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Bene%t "ost #atio

he ratio of the present worth (P! of 7et project benets (all of the savin6 etc!and *apital costs is called the benet cost ratio ("*;!.

"*; used to show e8tend to which investment will result in benet to soci

7egative -ows are considered costsand positives -ows as benets.

he saving in the transport cost are considered asbenets.

)f the "+* ratio is more than one, the project is worth underta$ing.

7eed to do comparison to determine added benet with added investmen

"*; 21/ D (" "! + (* *!

"+* D benet in the reference year + *apital costs


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"ost and Bene%ts

he economic analysis of highway schemes is generally done by computintransport cost which consists of the following components0

). *ost of construction of the facility

)). *ost of maintenance of the facility

))). ;oad user cost

)2. *ost to the society.he agencies providing the facility incurs e8penditure in construction whic

land ac#uisition, earthwor$, road pavement and structures. hese agenciemoney in maintenance.


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E.ample / B"#

% single lane road M= $m long, is to be widened. *ost of widening is ;< $m inclusive of all improvements. he cost of vehicle operation on the sinis ;


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E.ample / B"#

otal cost of improvements (present!

:ind the annual given present for n D =, iD =A

% D P E F

"+* D benet in the reference year + annual cost

D E(Ki9erence road user cost on e8isting 6 improved road! 4 Ki9erent in annucosts F+

%nnual total cost of improvement


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E.isting road Improved road Be

%nnual 0;oad user cost

;< .== 8 @== 8J>@ 8 M= D Jmillions

;< .@= 8 @== 8J>@ 8 M= D @M.@millions

;< J 4;< N.

%nnual 0


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E.ample 2 B"#

he department of rac is considering three improvement plans ftraveled intersection within the city. he intersection improvement is achieve three goals 0 to improve travel speeds, to increase safety anoperating e8penses for motorists. he annual dollar value of savings coe8isting conditions for each criterion as well as additional consmaintenance costs is shown in table. )f the economic life of the road is cbe @= years and the discount rate is J percent, which alternative should 1olve the problem using the "*; methods for economic analysis.

Alternative "onstruction "ost

Annualaving inaccident

Annual&ravel &ime

Bene%ts

AnnualOperatingavings

) R N@ === R @ === R J === R @==

ll R = === R @ === R > @== R @==

lll R J= === R === R > === R N==


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"*; l+K7 D E(4@== L @=== L J=== L @==! + (N@ === 8 (%+P 4J4@=!F

"*; ll+K7 D ?

"*; lll+ll or "*; lll+K7 D

highway engineering chapter 5

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