Road Improvement Demonstration Program

Economic Analyses

Presented By:Presented By:

Jeff BagdadeJeff BagdadeTraffic EngineerTraffic EngineerAAA MichiganAAA Michigan

Economic tool for Economic tool for comparing the benefits comparing the benefits accrued to the costs accrued to the costs incurred based on the incurred based on the number of crashes number of crashes preventedprevented

Benefit Cost AnalysisBenefit Cost Analysis

When do you conduct When do you conduct benefit cost analyses?benefit cost analyses?

1. To choose potential project locations

2. To determine which engineering countermeasures can be economically justified

3. During Post Improvement Evaluation

What are the BENEFITS?

Crashes Prevented

• Reductions in Congestion and Travel Time

• Reductions in Maintenance Costs

What are the COSTS?

• Societal Costs (National Safety Council)– Wage and Productivity Losses– Medical ExpensesInsurance Costs– Motor Vehicle Damage– Employer Costs– Loss of Quality of Life

• Operations & Maintenance Costs

What are the Current Published Societal Costs?

Fatal Collision = $3.1 million

A-Level Injury = $153,500

B-Level Injury = $39,500

C-Level Injury = $18,800

Typical Average Value used for Injuries = $34,000

Property Damage Only (PDO) = $1,800

Source: National Safety CouncilNSC on the web: www.nsc.org

How do you Calculate the Benefit Cost Ratio?

Benefits

B/C Ratio =

Costs

Choosing Potential Project Locations

MAJOR STREET

MINOR STREET

3 YEAR AVERAGE

CRITICAL3 YEAR

AVERAGECRITICAL

3 YEAR AVERAGE

CRITICAL

Forest Van Dyke 22 22 49% 40% 2.6 1.9

Plymouth Hubbell 36 22 40% 40% 4.8 1.9

Greenfield McNichols 53 8 23% 43% 9.3 1.6

Seven Mile Dequindre 37 22 22% 40% 3.7 1.9

FREQUENCY % INJURY RATE

Source: Michigan State Police

Which location should you choose?

Which Location to Choose?

Step #1 – Determine the average annual costs currently being accrued at each intersection.

Forest & Van Dyke• 11 PDO• 11 InjuriesAnnual Cost=(11*$1800)+(11*$34,000)=$393,800

BENEFIT TERM

• Step #2 – Assuming that crashes and injuries will decrease by 15% each how much will your costs decrease?

PDO Savings = Annual # of PDO * Crash Reduction Factor * PDO Societal Cost

PDO Savings = 11*0.15*$1800 = $2970

Injury Savings = Annual # of Injuries * Crash Reduction Factor * Injury Societal Cost

Injury Savings = (11*0.15*$34,000) = $56,100

BENEFIT TERM

Benefits = PDO Savings + Injury Savings

Benefits = $59,070

BENEFIT TERM

• Step #3a – Estimate the cost to implement the improvements– Estimated Improvement Cost (EIC) =

$100,000

• Step #3b – Assign a discount rate & find the corresponding capital recovery factor (CRF)

Discount Rate = 8% Project Life Span = 10 yearsCRF = 0.149

Costs = EIC * CRF = $100,000 * 0.149 = $14,900

COST TERM

Determine Your B/C Ratiofor Forest & Van Dyke

Benefits $59,070

B/C Ratio = =

Costs $14,900

B/C Ratio = 4:1

* I used the EUAB/EUAC method

Now calculate the B/C Ratio for the following intersections

• Plymouth & Hubbell

• Greenfield & McNichols

• Seven Mile & Dequindre

Which Intersection To Choose?

Intersection B/C RatioForest & Van Dyke 4.0 : 1

Plymouth & Hubbell 5.2 : 1

Greenfield & McNichols 4.9 : 1

Seven Mile & Dequindre 3.3 : 1

Which Engineering Countermeasures are Economically Justified at Plymouth & Hubbell?

Westbound Approach of Plymouth

Southbound Approach of Hubbell

Plymouth & HubbellCondition Diagram

Grocery Store Gas Station

Auto GarageRestaurant

Hu

bb

ellPlymouth

Crash Data from 1998 & 1999Source: UD-10’s from Detroit Police Dept.

ISSUES •Lots of red light running• Left-turns • Driveways• Signal visibility• Sight Distance

Plymouth & HubbellCollision Diagram

Traffic Counts

Plymouth Road = 15,000 vehicles/day

Hubbell Avenue = 8,000 vehicles/day

8039560

16549525

85 175 35

40 250 25

What type of improvements

would you make to this

intersection?

Level of Service

Approach Current Conditions

With LT Phase on Plymouth

Eastbound C A

Westbound C A

Northbound B B

Southbound B B

Economic Analysis of Improvements

Use the same process as was used for choosing intersections to determine whether the countermeasures are justified.

Each group will calculate the B/C ratio for their set of countermeasures. Be able to justify why you chose your specific countermeasures

Economic Analysis of Improvements (cont.)

Signal,PavementMarkings &Signs Only

Signal,PavementMarkings, Signs & Geometric

Group # # of Countermeasures

Crash Reduction

Factor

Project Cost

1 1 15% $70,000

2 2 20% $80,000

3 3 25% $90,000

4 4 30% $100,000

5 1 25% $100,000

6 2 30% $125,000

7 3 35% $150,000

8 4 40% $175,000

B/C Analysis to Meet Specific Criteria

AAA must meet a minimum criteria a B/C ratio of 2:1 over two years for any investment at an intersection.

How do you calculate a maximum investment using a specific B/C criteria?

Step #1: Set the B/C equation equal to the criteria you are tying to meet. Use a B/C of 2:1 over 2 years and assume a crash reduction of 20%, a discount rate of 8% and a project life of 5 years. Assume the intersection has 20 PDO and 7 Injury Crashes.

Benefits Benefits

2 = =

Costs Max Inv * CRF

Calculate the Benefits

Benefits=(20*$1800*0.20)+(7*$34,000*0.20)

Benefits = $54,800

Using Algebra Calculate the

Maximum Investment

Benefits $54,800

Max Inv = =

2*CRF 2*0.2505

Max Inv = $107,784