Quantifying the Value of Research in Indiana

Tommy NantungINDOT Research and Development Division

AASHTO RAC Annual MeetingJuly 29, 2015

Portland, Oregon

INDOT/JTRP Research Program

Three primary responsibilities: Conduct, oversee, implement and partner in

effective research that benefits our customers (currently 92 active research projects and 185 implementation projects, monitored through SmartSheet).

Conduct and oversee specialized testing programs for INDOT (e.g. Skid Accident Reduction Program, Deflection Program, Accelerated Testing Program).

Assist in technology development, identification and transfer (emerging technology with a 10-year future perspective).

Quantifiable savings Projects selected where costs and

benefits can be reasonably quantified

Individual projects selected represent different research areas

Analysis based on Engineering economic theory

Methodology 3% inflation and 5% discount rates

used

Benefit/Cost Ratio Methodology

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Calculation of Benefits

Benefits Calculation

Pavement B/C Example Cost of research (Present Value) = $88,942 Yearly use of Reclaimed Asphalt = 3.5 Million Tons Savings = $0.13/ton/1% re-use (based on

contract price) Usage for Asphalt base = 20% Savings per year (Annual) = $9.1M

B/C = $113.4M/88,942 = 1,275 : 1

MMMP 4,113$46221.121.9$)05.01(05.0

1)05.01(1.9$

20

20

In 2003 show benefit-cost (based on projects, ratios ranging from as high as 220 to 3 to 1.

Previous B/C in 1999 and 2001 yielded ratios of 35 to 1 and 53 to 1, respectively.

The B/C is based on either a direct replacement cost that was developed or costs and benefits that are expected during the life of a material, component, or system.

Benefit/Cost Analysis Summary

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Other Benefits

Improved specifications and testing procedures

Better methods resulting in improved material performance

Cost-effective policy and procedures Safer highways and work zones New technologies and processes that

improve productivity Environmentally-friendly solutions to

Indiana’s waste problems

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Spreadsheet Program created by INDOT Central Office (no hand calculations)

Calculate the value of return on investment in research and development.

Investment are calculated by the schedule and amount of free cash returned to investor.

Costs to conduct R&D are all inclusive and comprise direct expenditures as well as indirect costs.

Modified Rates-of-Return (MIRR)

Modified Rates-of-Return (MIRR) Benefits can inure to INDOT in the

form of: Improved business practices

Reduce labor, provide savings in costs of material or other supplies and expenses, or reduce the time to develop and construct a project.

Other "soft" benefits can be realized by reducing INDOT's exposure to potential liabilities, improving safety, or complying with new laws and regulations.

Care must be exercised when attempting to place a value on these soft benefits.

Modified Rates-of-Return (MIRR) Methodology

Evaluation period is to begin at the start of the project and extend 10 years from the date of the findings are implemented

INDOT’s Hurdle Rate represents the risk premium it assigns to capital investments

The MIRR represents the internal rate of return for a series of periodic cash flows, considering

The cost of funds used to invest in the project The interest which could be earned on re-investment of

free cash generated. Viable investment is if the MIRR exceeds the

Hurdle Rate

Modified Rates-of-Return (MIRR)

Modified Rates-of-Return (MIRR)

Demonstrating implementation & return on investment is good, but demonstrating IMPACT is even more important

IMPACT can be measured in multiple different ways

Having a diverse portfolio of IMPACT messages is important

It is important to have a variety of traditional and nontraditional media to communicate IMPACT

New Way to Show Benefits

One size does not fit all Metrics include:

Mapping into Executive Staff priorities Saving Dollars Prioritizing Capital Program Safety Outcome Assessment Extending Infrastructure Life Leveraging University Resources Environmental impact National Recognition of Impact

Measuring IMPACT

Technical Reports Electronic repository (e‐Pubs) Print on Demand e‐Books

Posters Pocket Portfolios Electronic Media: Website,

Twitter and Flickr, Newsletters Video Abstracts Conferences, Presentations and

Workshops

Communicating and Dissemination

Communicating and Dissemination

Governor’s Award

Conclusions

Message is very important Show case past efforts Implement new communication

initiatives to support engagement Implement series of case studies

illustrating blended communications tools

Maintain dialog