Acceptance Testing Report

The United Republic of Tanzania
Ministry of Works
Tanzania National Roads Agency

(TANROADS)
Good roads for national development
Consultancy Services for Preparation of a Manual for

Carrying out Economic Appraisal and Evaluation of
Trunk and Regional Roads Investment Projects
Acceptance Testing Report
Intercontinental Consultants
and Technocrats Pvt. Ltd.
A-8, Green Park, New Delhi - 110 016, India
in association with
Grant Thornton Advisory Private Ltd.

L 41, Connaught Circus, New Delhi 110001, India
(Sub-Consultant)
and
Afrisa Consulting Ltd.

P.O. Box 66607, Plot 274, Block D, Kunduchi,
Bagamoyo Road, Dar Es Salaam, Tanzania
(Sub-Consultant) 2015
The United Republic of Tanzania
Ministry of Works
Tanzania National Roads Agency

(TANROADS)
Good roads for national development
Consultancy Services for Preparation of a Manual for

Carrying out Economic Appraisal and Evaluation of
Trunk and Regional Roads Investment Projects
Acceptance Testing Report
Intercontinental Consultants
and Technocrats Pvt. Ltd.
A-8, Green Park, New Delhi - 110 016, India
in association with
Grant Thornton Advisory Private Ltd.

L 41, Connaught Circus, New Delhi 110001, India
(Sub-Consultant)
and
Afrisa Consulting Ltd.

P.O. Box 66607, Plot 274, Block D, Kunduchi,
Bagamoyo Road, Dar Es Salaam, Tanzania
(Sub-Consultant) 2015
Consultancy Services for Preparation of a Manual for Carrying Out
Economic Appraisal and Evaluation of Trunk & Regional Roads Acceptance Testing Report
Investment Projects 2015
Table of Contents
List of Abbreviations ................................................................................................................................ ii

ACCEPTANCE TESTING REPORT
1. Project Background ......................................................................................................... 1
2. Objectives of the Assignment ........................................................................................... 1
2.1 Overall Objectives .................................................................................................................... 2
2.2 Specific Objectives of the Consultancy Services ..................................................................... 2
2.3 Present Report ......................................................................................................................... 3
3. Acceptance Testing Plan .................................................................................................. 3
3.1 Step 1: Stakeholder Consultations ........................................................................................... 4
3.2 Step 2: Stakeholders Workshop ............................................................................................... 4
3.3 Step 3: Economic Appraisal: FAQs .......................................................................................... 5
3.3.1 What is an economic appraisal of highway investment projects? ................................ 5
3.3.2 What is the process to carry out an economic appraisal? ............................................ 6
3.3.3 How can I estimate baseline traffic? ............................................................................. 7
3.3.4 What are the factors to be considered in forecasting traffic demand? ......................... 7
3.3.5 How to carry out traffic demand forecasting? ............................................................... 8
3.3.6 What shall be the scope or extent of design in feasibility studies? ............................... 9
3.3.7 What are the engineering surveys to be carried out to develop a preliminary design?
.................................................................................................................................... 10
3.3.8 What are the guidelines to be referred to while carrying out preliminary design in
Tanzania? ................................................................................................................... 10
3.3.9 What are the likely externalities and dis-benefits/costs of the road development
interventions? .............................................................................................................. 11
3.3.10 What are the costs to be considered in feasibility studies? ........................................ 11
3.3.11 How to derive the costs for items considered in the preliminary design? ................... 12
3.3.12 How to determine the economic cost and Standard Conversion Factor (SCF) for the
economic appraisal? ................................................................................................... 13
3.3.13 What are the benefits to be considered and what are the methods available for
valuing these benefits? ............................................................................................... 13
3.3.14 How these benefits can be identified & quantified? .................................................... 15
3.3.15 What are the software(s) to be employed for undertaking economic appraisal? ....... 16
3.3.16 How can I configure HDM-4 to suit Tanzanian conditions? ........................................ 17
3.3.17 What are the calibration requirements of HDM-4? ..................................................... 17
3.3.18 What are the input data to be considered in estimating VOC and VOTT in HDM-4? . 18
3.3.19 What are the input data required to determine road accident benefits in HDM-4? .... 18
3.3.20 What are the major outputs in HDM-4, which can be used in economic appraisal and
decision-making? ........................................................................................................ 19
3.3.21 What is sensitivity & risk analysis and how can this be incorporated in the economic
appraisal? .................................................................................................................... 20
3.3.22 What should be the content of the feasibility report? .................................................. 21
4.0 Sum Up .......................................................................................................................... 22
Intercontinental Consultants and in

Grant Thornton Afrisa Consulting
association and
Technocrats Pvt. Ltd. (ICT) Advisory Private Ltd. Ltd.
with
i
List of Abbreviations
AADT Annual Average Daily Traffic

ADT Average Daily Traffic
DFR Draft Final Report
DP Development Partner
EIRR Economic Internal Rate of Return
FAQs Frequently Asked Questions
GDP Gross Domestic Product
GoT Government of Tanzania
HDM-4 Highway Development and Management
ISOHDM International Study of Highway Development and Management
IWT Inland Water Transport
NGO Non-Government Organization
NMT Non-motorized Traffic
NPV Net Present Value
RED Road Economic Decision
RSA Road Safety Audit
RUC Road Users Charges
SCF Seasonal Correction Factor
TANROADS Tanzania National Roads Agency
ToR Terms of Reference
TRRL Transport Road Research Labouratory
VFM Value for Money
VOC Vehicle Operating Cost
VOTT Value of Travel Time
VRU Vulnerable Road User

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ACCEPTANCE TESTING REPORT
1. Project Background
Development of transport infrastructure in general, and road network in particular, is very
important for the socio-economic growth of the country. Road network development has two
major components, viz. (i) construction of new roads; and (ii) preservation or maintenance of
the existing roads. In any developing country including Tanzania, for undertaking both these
activities, judicious and optimum utilization of the limited resources is important. This
requires proper and consistent economic appraisal for road investment projects to ensure
good value for the money spent.
It is generally observed that the road improvement needs are usually more than the available
financial resources; hence the investment appraisal exercise is carried out to establish the
economic strength and desirability of road projects. The investment appraisal exercise,
among others, is useful in setting priorities of different road improvement interventions. The
economic appraisal exercise needs a variety of data inputs, such as all the cost components,
and identification and valuation of the benefits and externalities. The results of economic
appraisal are obtained for the set appraisal period in terms of economic internal rate of
return (EIRR), net present value, (NPV), etc. using discounted cash-flow technique.
While undertaking the above exercise, different input data reflecting the costs and benefits
streams for the appraisal period, discount rates, and several other parameters are utilized,
which influence the results of the appraisal exercise considerably. In fact, the approach and
methods adopted by different experts for carrying out the investment appraisal exercise may
not be necessarily uniform, which, in turn, yield different results and also difficult to set
priorities for different projects. Under this situation, it would be difficult to set any decision-
making criteria and also decisions.
With the above background, TANROADS entrusted the Consultancy Services for
Preparation of a Manual for Carrying out Economic Appraisal and Evaluation of Trunk and
Regional Roads Investment Projects. The Study aims at developing standard procedures
and processes, which could minimize the deviations from an acceptable and prescribed
range.
2. Objectives of the Assignment

The Terms of Reference outline the objectives of the assignment as follows: the purpose of
this study is to develop an evaluation (appraisal) framework in which impacts of
transportation investments can be better assessed in the context of economic growth. This
arises from the recognition that investment in infrastructure can result in high rates of
economic growth, which are fundamental to the economic well being of Tanzania.
The need for this assignment is motivated by the fact that failure of transportation
investments to maintain pace with growing demand renders the provision of infrastructure
more expensive than it would have been both in terms of the time value of money and the

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competitiveness of Tanzanian products competing in the global marketplace. This

assignment will help provide a methodology by which TANROADS will derive information
necessary to guide policy and investment decisions towards achievement of national
development objectives.
2.1 Overall Objectives

The main purpose of the Consultancy Services is to strengthen the investment appraisal
function within TANROADS and the wider road sub-sector in general. The ultimate objective
is to provide updated guidelines, frameworks and baseline data to be used by TANROADS
and other stakeholders mainly consultants for investment appraisals (both ex-ante and ex-
post assessments) in order to aid decision making at strategic, program and project levels.
This effort will serve to standardize the approaches taken by various consultants employed
by TANROADS in executing feasibility studies for various activities thus defining the overall
direction for strategy, policy and investment decision making for the National Roads in
Tanzania.
The overall objectives of the assignment are therefore summarized as to:

 Develop a standardized methodology and procedural guide (manual) for evaluating or
appraising trunk and regional road investment at strategic, program and project level that is
consistent with international best practices in the highway infrastructure field; and
 Provide training to TANROADS in the application of the proposed highway investment
appraisal tools and procedures.
2.2 Specific Objectives of the Consultancy Services
 Develop a standardized framework and procedure for road investment appraisal for strategic,
program and project level;
 Develop a standardized framework and procedures for all basic inputs (as well as definition of
data collection protocols) to the road investment appraisal tools, namely HDM-4, RED and
other related road investment including requirements for model calibration / customization;
 Collect baseline input data and updating the VOC which were established in 2004; and
 Identify all economic and social factors (i.e. social benefits) to be considered during
preparation of feasibility study report.
The consultancy services have been carried out through the mandated deliverables
illustrating the progress of the study at defined intervals. The sequence of the deliverables to
complete the consultancy services is shown below, in terms of milestones achieved. The
Acceptance Testing Report is the final deliverable under the Study.

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2.3 Present Report

The present document is the Acceptance Testing
Report on the TANROADS’ Investment Appraisal
Manual (2015) prepared under the consultancy
services as per the requirements of the ToR. The
Acceptance Testing Report, besides the study
background and project objective, includes the
Acceptance Testing Plan for the investment
appraisal system. For the purpose, the Consultants
have developed a series of questions and
corresponding answers, pertaining to the feasibility
study and the economic appraisal for road
development projects, referring the same to the
relevant chapters / clauses in the Manual.
These Qs&As are particularly designed in such a
manner so that it could also conform to the
application of the TANROADS’ Investment Appraisal
Manual (2015) for undertaking the economic
appraisal of road investment projects. The
Acceptance Testing Plan consists of the entire spectrum and functional areas of a feasibility
study and economic appraisal with concepts, approach and methods, etc. in a simple
language to understand and effective usage of the Manual. The Plan also highlights the
suitable references for specific tasks for higher level of applications with proper
understanding.
3. Acceptance Testing Plan

During the consultancy services, the Consultants organized a series of presentations on the
intermediate outcomes of different analyses, small group workshops, discussions, etc. on a
regular basis to update the activities including contents of the draft and final versions of all
the mandated deliverables, determination of all the baseline values of the components of
vehicle operating cost (VOC), value of travel time (VOTT), accident cost, use and application
of the HDM-4 Model including configuration, calibration, major data inputs, obtaining outputs
and its analysis for decision making, etc.
The Consultants have been particularly engaged in discussions with the TANROADS
Officials concerned on several issues relating to the feasibility studies and economic
appraisal of road and bridge projects. A brief note on the consultations with relevant
stakeholders during the Study is presented in the Final Report (Chapter 6). These interactive
sessions, and the feedback given by the participants of TANROADS and other stakeholders
have been duly incorporated in all the subsequent deliverables under the Study, particularly
in the TANROADS’ Investment Appraisal Manual (2015). The present Acceptance Testing
Report is also based on the feedback and suggestions given by the TANROADS Officials
during the presentations made on the TANROADS’ Investment Appraisal Manual (Draft
Version).

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The Consultants have envisaged the plan for the acceptance testing of the Manual in three
following steps:
 Step 1: Continuous consultation with TANROADS’ Officials and other stakeholders
during the preparation of the Manual;
 Step 2: Present the economic appraisal in the context of Tanzania and the tentative
contents of the Manual during the Stakeholders Workshop on the Study bringing
together wide range of Users, and soliciting their views; and
 Step 3: Preparation of list of ‘Frequently Asked Questions (FAQs) about economic
appraisal and linking the answers of the same to the contents presented in the Manual
and the Final Report, to test the coverage and its acceptance for its intended usage.
3.1 Step 1: Stakeholder Consultations

In order to get feedback and suggestions on the approach and methodology to be adopted
for undertaking the consultancy services, an extensive stakeholders’ consultation was
organized at different stages of the Study. Through the consultation process, the
Consultants were benefitted in acquiring knowledge of the ground reality, valuable guidance,
and identifying concerns on several important components of the economic appraisal of the
Trunk and Regional roads under TANROADS. The Final Report (Chapter 6) compiles
summary of the meetings with different stakeholders, which also conforms to the
requirements of the ToR. It may be stated that the consultation was one of the basic
approach and methods adopted to solicit the views of different stakeholders representing
different groups of policy makers, planners, and decision makers in transport and allied
sectors, international agencies funding transport infrastructure projects, different groups of
road users – organized or unorganized, the NGOs and civil societies engaged in different
activities in transport sectors, etc.
For the purpose, the Consultants made extra efforts to identify the relevant stakeholders with
active participation of the officials of TANROADS, and prepared a comprehensive list of the
stakeholders, and grouped in (i) the Ministries and Government Departments; (ii) Training
Institutions and Professional Bodies; (iii) Private Sector Organizations; (iv) Civil Society
Organizations / NGOs; and (v) Development Partners (DPs). The list of stakeholders is given
in the Final Report (Annexure 6.1).
3.2 Step 2: Stakeholders Workshop

As part of the ToR, the Consultants organized the Stakeholders Workshop (December 2014)
after submission of the Draft Final Report (DFR). The DFR included the detailed background
document towards the preparation of the TANROADS’ Investment Appraisal Manual. Theme
of the Workshop was to present the outcomes of the DFR and the contents and application
of the Model so that the participants drawn from different ministries and entities could be
sensitized on the Study, the application of extant Economic Analysis Models, and also the
coverage and contents of the TANROADS’ Investment Appraisal Manual.
The Consultants made all the necessary arrangements and handouts on the presentation
with the Analytical Executive Summary (print and electronic copies) of the DFR and other

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required facilitation for conducting the Stakeholders Workshop. The Workshop was
considered as grand success, as the presentations were rated as excellent with very active
presence with constructive suggestions and observations of the participations. The
Consultants recorded all the feedback received from the participants of the Workshop, which
have been duly addressed in the Manual. The key observations received from the various
stakeholders and corresponding compliance by the Consultants are presented in the Final
Report (Annexure 20.2).
3.3 Step 3: Economic Appraisal: FAQs

For effective reference and utilization of the contents of Final Report (2015) and the
TANROADS’ Investment Appraisal Manual (2015)1, the Consultants have framed relevant
questions, to understand the need as well as methods for undertaking the economic
appraisal for investment in road development projects. These questions are framed in such a
way to provide conceptual clarity to the users of the Manual and to act as a guide for
effective use of the Manual and the Final Report. The questions relating to different
functional areas of economic appraisal are linked with the corresponding answers and
reference to the contents presented in the Final Report and the Manual, to test the coverage
and its acceptance for its intended usage. The following sections present the questions and
the answers addressing the economic appraisal issues.
3.3.1 What is an economic appraisal of highway investment projects?

[Ref.: Chapter 2: Overview of Economic Appraisal of the Manual deals with the above question]
The basic concept and purpose of carrying out an economic appraisal for investments in
road development projects is to ensure better allocation of national resources, which could
enhance income for investment and consumption. The objective of the economic appraisal
of a project is to measure its economic costs and benefits from the point of view of the
country as a whole to estimate whether the net benefits are more than those obtainable from
other investment opportunities. The economic analysis of a project also aims to choose the
means using the least resources for a given output. It is important to note that all resource
inputs and outputs have an opportunity cost through which the extent and value of project
items are estimated. Project should be chosen where the resources would be used most
efficiently.
Economic appraisal is a systematic process for exploring and examining alternative uses of
resources, focusing on assessment of needs, objectives, options, costs, benefits, risks,
funding, affordability and other factors relevant to decisions. Economic appraisal is defined
as “process of justifying and reaching a decision to invest resources in the road being
appraised”.
In other words, the economic appraisal is a type of decision making tool applied to a project,
program or policy that takes into account a wide range of costs and benefits, denominated in
monetary terms or for which a monetary equivalent can be estimated. It is also a key tool for
achieving value for money (VFM) and satisfying requirements for decision accountability.
1
Referred to as the “Manual” in the Question-Answer Sections.

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The economic appraisal of road investment projects should not be considered as a

mechanical process; while undertaking the appraisal a high degree of analytical ability and a
broad imagination need to be applied. The consequences of a project being appraised must
be clearly understood and formulated, and the feasible alternatives must be fully considered.
Economic appraisal should ensure the sustainability of project effects, e.g. intended benefits
to the road users of road development for long-term, and preserving the national road asset
by maintaining it adequately. In fact, projects are sustainable, if the proposed benefits are
realized throughout the appraisal period, e.g. 20 years. Sustainability should also adequately
address the social and environment concerns, which might occur on account of the
proposed interventions of road development. The appraisal should also cover the distribution
of project effects and judging project social acceptability and it is important to determine who
benefits and who pays the costs.
With the overall basic concept, as mentioned above, the economic appraisal compares the
total economic cost implications of ‘with project’ option (investment proposal for road
development project) and ‘without project’ option (either do nothing or do minimum). The
above exercise is based on the concept of benefits forgone from not using a good or
resource in its best alternate use.
3.3.2 What is the process to carry out an economic appraisal?

[Ref.: Chapter 2: Overview of Economic Appraisal of the Manual also addresses the above question]
The feasibility study process has been discussed in the Manual (Section 2.3), in which
selecting the preferred option for a road development project, identifying and working out the
project costs and benefits, and undertaking the cost-benefit analysis duly supported with the
sensitivity and risk analysis, etc., need to be elaborated for making any decision for the
investments in specific road project or program. The table given below presents the main
tasks to be carried out in a feasibility study. The contents of the following table may also be
considered as a checklist of the activities.
Stage Task
Context & Define objectives and rationale of the project
Objectives Locate the project within its geographic, economic and social context
Fieldworks & Assess traffic demand (both vehicular and person movements)
Surveys Geotechnical investigations for route location, materials, hydrology, etc.
Pavement and Materials Investigation
Environmental surveys
Social surveys
Safety assessment
Engineering Pavement design
Design Geometric design
Design of structures and drainage
Road Safety Audit
Selecting the Establishing project costs
Preferred Option Establishing project benefits
Comparative analysis (economic or cost-effectiveness, and financial if applicable)
Sensitivity and risk analysis
Reporting the feasibility study

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3.3.3 How can I estimate baseline traffic?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the estimation of baseline traffic]
Establishment of the baseline traffic data is foremost task for the traffic demand analysis.
The data are collected to assess the existing level of traffic, its movement and loading
pattern on the project road(s). The baseline traffic data are established by undertaking the
primary surveys on the project road, such as:
 Classified Traffic Volume Count;

 Origin-Destination & Commodity Movement Surveys;
 Axle Load Survey;
 Travel Time Survey;
 Junction Turning Movement Survey; and
 Stakeholder Consultations.
It is also suggested that appropriate Seasonal Correction Factors (SCFs) need to be
obtained from the TANROADS’ Baseline Traffic Study (2009), and suitably used on the
average daily traffic to derive the annual average daily traffic.
Traffic surveys must be planned in a comprehensive manner by studying the project
influence area in view of observing the movement pattern of the traffic and competing roads
from where the traffic may be diverted or use the new project road. Similarly, additional
surveys may be planned where there is a possibility of diversion of traffic from competing
modes of travel, e.g. railways, IWT, etc.
3.3.4 What are the factors to be considered in forecasting traffic demand?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the methods of forecasting traffic demand]
The demand for transportation refers to as a demand stemming from the requirements of
some commodities and services at different places. It is basically derived from the need for
persons to travel to another location, and transport goods to make them available where
they can be used/stored/consumed/processed. Traffic is generated as a result of the
interplay of a number of contributory factors. Forecast of traffic has, therefore, to be
dependent on the forecast of different factors, such as population, gross domestic product,
vehicle ownership, agricultural output, fuel consumption, agricultural production and
associated activities. There could be various factors influencing future traffic, including those
not known presently, which might alter the traffic demand in future. However, the main
factors considered for forecasting model are as follows: (i) growth in population; (ii) changes
in economic performance; and (iii) changes in operational traffic and/or road network
characteristics resulting in changes in vehicle operating costs (VOCs), route choice, time
saving, comfort and convenience, and also boosting up the agricultural activities in the rural
areas with improved road transport infrastructure.
In order to establish the traffic-forecasting model for the Trunk and Regional roads in
Tanzania and subsequent projection of traffic for future years, procedure/guidelines
recommended in the TANROADS’ Baseline Traffic Study, 2009 (Chapter 8) should be
referred to.

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3.3.5 How to carry out traffic demand forecasting?

[Ref.: Chapter 4: Traffic Demand Analysis discusses the methods of forecasting traffic demand]
Traffic demand analysis is back-bone for economic appraisal of any road development
project, as the outcomes of traffic demand analysis are important inputs for selection of road
geometric design elements, pavement design, road safety, environmental and social impact
analysis; and finally for carrying out the economic appraisal of the investment in the project.
The traffic demand analysis aims at analyzing:
 Base Year Traffic, i.e. Average Daily Traffic (ADT), and Annual Average Daily Traffic
(AADT) duly adjusted with the appropriate seasonal adjustment factor(s);
 Traffic movement pattern in the project area(s);
 Probability of traffic diversion from the existing routes and competing modes of transport;
 Incidence of the generated traffic on account of reduced transportation cost due to the
improved transport facilities;
 Additional traffic (if any) due to increased socio-economic activities and opportunities in
the project area; and
 Traffic forecasting model and subsequent traffic projection on the project road(s).
Traffic Demand being a derived demand, is based on different influencing factors. Hence, it
needs to be analyzed on a comprehensive basis in view of suitable supply of future
infrastructure to the road users. Traffic demand should essentially include all passenger and
freight carrying vehicles – Motorized and Non-motorized (NMT); as well as the Vulnerable
Road User (VRU) Groups, i.e. pedestrians, old age people and NMT.
Further, traffic serving local, inter-regional, national, international/regional (East Africa) or
any specific project or purpose, and also consideration of vehicle fleet modernization due to
technical up-gradation in long term should be considered in traffic demand analysis. In order
to establish the traffic-forecasting model for the Trunk and Regional roads in Tanzania and
subsequent projection of traffic for future years, procedure/guidelines recommended in
Chapter 8 of the TANROADS’ Baseline Traffic Study (2009) should be referred to. For ready
reference, the following components should be considered for establishing the traffic
forecast model.
(i) Trend Analysis: The traffic forecast model for Tanzania should be based on several
historical data, such as traffic on different sections on the primary road network, registration
of different types of vehicles, consumption of fuel (diesel/petrol), particularly by transport
sector, etc.
(ii) Econometric Models: This exercise is mainly based on various causal
interdependent relations, viz. (i) growing population and transport needs, (ii) growth in
different economic activities (primary: agriculture, mining, etc.; secondary: manufacturing,
construction, etc.; and tertiary: transport and communications, trade and business, etc.) and
transport demand; and (iii) growth in the national gross domestic product (GDP) and per
capita income, and contribution of the transport sector or related sector(s). These analyses
are required to be carried out as per the available historical data at national and regional
levels.

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(iii) End User Approach: Effects of transport requirements of new or forthcoming

projects in the catchment area in nth year need to be assessed for passenger and freight
traffic, duly converted into specific type of vehicles. Such projects usually come up in phases
spread over a few years or on certain intervals; and their demand for transportation would
also be accordingly changing, so due care is required to capture the reality while estimating
the transport needs. The results of above analysis should be added in the traffic project
suitably.
(iv) Divertible Traffic: Due to improvement of a particular road, there would be a high
probability of traffic moving from alternative routes/modes/roads to the improved road, if
beneficial to the road users mainly on account of operating cost, time, distance and comfort
advantages. Hence, while undertaking the forecasting exercise, the extent of the divertible
traffic from the existing alternate route/modes/roads must be estimated.
(v) Generated Traffic: The concept of generated traffic is governed by the general
demand theory, i.e. demand is a function of price, as transport demand will increase if
transport cost decreases. With this functional relation, any improvement option in the
transport infrastructure, e.g. improved road would reduce the vehicle operating costs
considerably, and in turn, reduction in overall transport cost, and accordingly, increase in
traffic demand, i.e. generated traffic. The level of increase in traffic demand on account of
generated traffic would depend on the prevailing transport market of the project area. The
extent of generated traffic needs to be incorporated while formulating the traffic forecast on
any road improvement option.
It may be noted that the HDM-4 Model requires the following data relating to the traffic
demand analysis for economic appraisal:
 Base year classified traffic in terms of AADT for all the representative vehicles: Motorized
and Non-motorized;
 Vehicle-wise Annual Traffic Growth Rates;
 Diverted Traffic after the improvement;
 Generated Traffic; and
 Step-in traffic (End User Traffic), wherever relevant.
Also, any additional traffic with the project scenario, e.g. due to increase in agricultural
activities in the rural area should be taken as exogenous benefits for the economic appraisal
as outlined in the Manual (Section 4.6.1).
3.3.6 What shall be the scope or extent of design in feasibility studies?

[Ref.: Chapter 5: Engineering Design presents the coverage on the design issues]
One of the principal objectives of feasibility studies should be to make recommendations

about the geometric design standards for a project so that the optimum balance between the
road construction cost and road user cost is obtained over the project analysis period. The
geometric design elements and the pavement design have significant influence on the total
project cost. Hence, it is important to design both of these components at feasibility study
stage to a reasonable level of accuracy, to enable appropriate decision making regarding
proposed investment.

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Selection of routes and appropriate cross section of the highway are the important
considerations in feasibility study, e.g. choice between the requirement of a bypass or a
route through an urban center shall be established at feasibility stage. Further, it is important
to include all the design considerations to incorporate the needs of all road users at
feasibility study stage. For example, appropriate surveys shall be conducted to provide for
the needs of pedestrians, pedal cyclists, motor cyclists, mini buses, motor bikes, parking
requirements on built up areas, bridge and culvert types, etc.
The need for footpaths, pedestrian over bridges or underpasses, wide shoulders, cycle
lanes/ cycle tracks, right turning lanes, additional land for appropriate junctions, bus bays,
laybys for trucks, etc. have to be established at the feasibility study stage since they have
significant influence on road safety and project costs.
The preliminary design should cover all the drainage requirements, particularly at junction
locations. The detail design of all safety elements, like road furniture, traffic signs and road
markings, etc. shall be done at the detail design stage. However, provisions for the same
shall be considered at feasibility study stages, so that project costs include a tentative
estimate for such items.
It is important to identify the extra width of land required at the feasibility study stage. For
example, at the location of junctions, it may be that more land is required to accommodate
the extra width required for facilities for pedestrian movement, parking, loading etc.
At the feasibility study stage, different design options shall be developed for economic
appraisal, e.g. choice between an alignment with bypasses having two lane cross section
and a route through an urban center having two lane plus paved shoulder cross section are
two design options to be considered for economic evaluation.
3.3.7 What are the engineering surveys to be carried out to develop a

preliminary design?
[Ref.: Chapter 5: Engineering Design brings out a detailed note on the engineering surveys]
The surveys to be carried out depend upon the type of proposed improvements, i.e. whether
the project is an upgrade from gravel road to paved standards, widening of existing paved
road, construction of entirely new paved road or maintenance of the existing road, etc. The
type of surveys to be carried out for different projects is detailed in the Manual (Chapter 5),
and the formats to be used for different surveys are provided in the Final Report (Annexures
9.1 to 9.6 of Chapter 9).
3.3.8 What are the guidelines to be referred to while carrying out preliminary
design in Tanzania?
[Ref.: Chapter 5: Engineering Design presents the list of guidelines and manuals for preliminary
design]
The Ministry of Works and TANROADS have issued various guidelines for data collection,
field investigations and engineering design, to which the design engineers and consultants
can refer to while developing various design options for feasibility studies. The list of major
guidelines is given as follows.

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Manual / Standard Prepared by

Road Geometric Design Manual (2011) TANROADS
Pavement and Materials Design Manual (1999) Ministry of Works
Laboratory Testing Manual (2000) Ministry of Works
Standard Specifications for Road Works (2000) Ministry of Works
Field Testing Manual (2003) TANROADS
Road Maintenance Manual (2009) TANROADS
2
A Guide to Traffic Signing (2009) Ministry of Infrastructure Development
A Guide to Road Safety Auditing (2009) Ministry of Infrastructure Development
Environmental Code of Practice for Road works (2009) Ministry of Infrastructure Development
Road Sector Compensation and Resettlement Guidelines Ministry of Infrastructure Development
Land Surveying and Mapping Standard of Tanzania (Land Ministry of Lands, Housing & Human
Surveying Regulation CAP 390) Settlements Development
TRRL Laboratory Report 706: The TRRL East African
TRRL, D Fiddes 1974
Flood Model
TRRL Laboratory Report 623: The Prediction of Storm
TRRL, D Fiddes 1974
Rainfall for East Africa
British Standards, BS 5400 British Standards
3.3.9 What are the likely externalities and dis-benefits/costs of the road
development interventions?
[Ref.: Chapter 6: Project Cost – Identification & Valuation should be referred to address the question]
The development of roads causes a wide range of environmental impacts including

damages to the existing flora and fauna of the area where the activities are proposed, and
this may cause some dis-benefits along with the intended benefits to the target groups,
which should be thoroughly addressed and mitigated, and the entire cost implications should
be brought out accordingly. The costs required for environmental and social impact
mitigation measures should be included in cost estimate for economic appraisal at feasibility
study stage (Final Report, Annexures 9.7 and 9.8 of Chapter 9). Based on preliminary
design, need and extent of acquisition of land and settlements should be established at the
feasibility study stage.
3.3.10 What are the costs to be considered in feasibility studies?

One of the major objectives of a feasibility study is to identify and estimate the total cost
implications of the improvement works, which would be appropriately used in the economic
appraisal of the proposed investment. The decisions on whether project should be taken up
for implementation depend upon various economic performance indicators obtained from the
2
The Ministry of Infrastructure Development was later restructured and responsibilities were assigned to the
Ministry of Transport and the Ministry of Works; at the time of writing this report, there is no Ministry of
Infrastructure Development in GoT.

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estimated cost of the project and probable benefits. Hence, it is important to get the project
cost nearer to accurate as much as possible (within +/- 10% limits). Cost of the following
components must be included in deriving the total cost of the project:
 Engineering works;
 Relocation of utilities;
 Environmental mitigation and monitoring works;
 Land acquisition;
 Compensation for resettlement;
 Allowance for contingencies;
 Construction supervision;
 All Taxes; and
 Road maintenance costs during the appraisal period.
The engineering works must include costs for site clearance/ clearing and grubbing, removal
of topsoil, earthworks, pavement layers (surface, binder, base and sub-base courses),
concrete works (bridges, culverts, kerbs and others), shoulders (paved and unpaved),
drainage works, junction improvements, traffic signs and road markings, roadside safety
barriers, rest areas, bus bays and laybys, road studs, footpaths and cycle tracks, pedestrian
over bridges/ underpasses, street lighting, etc. All facilities provided to improve road safety
must be taken into account while costing the civil works.
3.3.11 How to derive the costs for items considered in the preliminary design?
At the feasibility study stage, it is not practical to estimate the costs of individual projects to a
high level of accuracy. However, good procedures at this stage should enable a fairly
reasonable level of accuracy to enable irreversible decision on investments. The cost for
each item of engineering works depends on the type of technology adopted for the execution
of that particular item of civil work, i.e. labor intensive or technology intensive. Ideally, rate
analysis needs to be carried out for each item of civil works, based upon the unit rate of
labor, equipment and materials to be consumed for implementation of considered item of
civil works.
However, analysis of rates has not been well developed for Tanzania, and adoption of
schedule of rates of other countries may not be appropriate for the conditions in Tanzania
during feasibility study stage. Therefore, it is most suitable to collect the historical item rates
adopted in similar contracts in the region where the proposed project is located and apply
these rates to various items included in the road works with provision for escalation, if
required. This approach would be more realistic and much nearer to the cost likely to be
incurred by the road agency for implementing the project. The components of project costs
are detailed in the Manual (Chapter 6).

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3.3.12 How to determine the economic cost and Standard Conversion Factor
(SCF) for the economic appraisal?
[Ref.: Chapter 7: Project Benefits – Identification & Valuation of the Manual elaborates the above
issues]
In an economic appraisal, the input data for different cost components are required in terms
of economic cost. The costing exercise of different components in a feasibility study is
generally based on the market prices, i.e. also known as financial cost. It is important to
highlight that the market prices of different traded commodities do not necessarily represent
the true or resource cost to the economy. This phenomenon is observed due to the market
imperfection that usually exists in developing countries. The market prices of different cost
components of man, machine and materials also consist of varieties of taxes, duties, levies,
surcharge, cess, development charges, subsidies, etc., which are merely transfer of
payments in an economy, as they don’t contribute or add value to the economy.
The factors distorting resource costs, which are built in the market prices, require to be
corrected. The economic costing exercise addresses this issue, so that the economic
appraisal is based on the economic costs of the respective components. There are several
methods of economic costing based on different concepts and approaches, but the basic
idea is to capture the resource cost. For imported products, the common practice is to obtain
the border price, and for domestic products and resources, the costs should be net of taxes,
duties and subsidies. These are widely accepted methods in road development projects, as
these methods are easy to follow and full-fill the criteria to a large extent.
For determining the Standard Conversion Factor (SCF), the relative weights observed in a
typical road development / intervention costs in different studies in Tanzania should be
obtained. The weights obtained should broadly represent the major cost components in
terms of: (i) man (labor: skilled, semi-skilled and unskilled); (ii) machine (plant, machineries,
transport vehicles, road construction equipment, etc.); and (iii) materials (cement, aggregate,
sand, earth work, granular materials, bitumen, steel, etc.). For the purpose, the component-
wise cost data need to be collected, and analyze the cost structure in terms of man, machine
and materials.
Using the above technique, the Consultants have estimated the SCF to be adopted in road
investment projects in Tanzania. Refer to the Manual for detailed understanding of the SCF
(Chapter 7, Section 7.15).
The value of SCF is estimated as 0.83 in the Manual, which should be appropriately used in the
economic appraisal.
3.3.13 What are the benefits to be considered and what are the methods
available for valuing these benefits?
question]
The basic approach for identification and estimation of investment benefits of the road
development is largely based on comparing the costs under two situations, viz. with project
case (i.e. with the proposed intervention), and without project case (i.e. base case or doing

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nothing). The analysis would aim at estimating the implications of project cost to the
economy under the two above-mentioned situations. The exercise refers to that if the
proposed intervention does not come into being what would be the economic costs under ‘do
nothing’ situation. Difference in the costs under the two situations, i.e. with project and
without project (i.e. opportunity foregone), would be the project benefit.
For an illustration, on a road with poor pavement condition (i.e. considered as base case or
without project case), the cost of vehicle operation would be much higher than that on a road
with good pavement condition (with project case). If one compares the cost of vehicle
operation under these two situations, there would be lower vehicle operating cost (VOC) on
the good road than the poor road, and that is the “project benefit”. With this basic framework,
the identification of project benefits is worked out. In other words, the identification of
benefits should aim at un-surfacing the influence (positive and negative) of the proposed
intervention, i.e. investment in road development project.
Spectrum of Benefits: Direct & Indirect: Investment in a road development project brings
out benefits in many forms, such as travel comfort and convenience, reduced travel time and
reduced operating cost to the road users, inhabitants of the project area in general and
marketing of their produce in particular, society at large on account of increased level of
facilities utilization, general economic development due to improved transport infrastructure,
etc. So, there are several direct and indirect benefits of a road development project, but
some of benefits are quantifiable (tangible), and some non-quantifiable (intangible). The
benefits, which are normally considered while carrying out economic appraisal, are as
follows:
 Direct savings on the costs of operating vehicles;
 Economies in road maintenance;
 Time savings by travelers and freight;
 Reduction in road accidents; and
 Other benefits not captured in the above (like wider effects on the economic
development of the region, and social and environment development).
It may be noted that the valuation for assessing the economic benefits including rural road
development is based on the following two main approaches: (i) Consumer Surplus; and (ii)
Producer Surplus.
(i) Consumer surplus: the approach is the most widely used for estimation of benefits
to traffic in the economic appraisal of investment in road development project. This
technique is based on the economic theory of consumer surplus, as an individual consumer
derives from consumption of a particular good, and the utility from other goods, which the
individual has to forgo in order to purchase this particular good, i.e. the measure of surplus
utility the consumer derives from the consumption of this good. The benefits estimation
based on the consumer surplus approach, are largely measurable, so tangible in nature,
which cover: vehicle operating costs; time costs; road accident costs; and a combination of
these three.

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(ii) Producer surplus: the approach is an alternative to the consumer surplus method.
Instead of measuring the benefits to traffic, the benefits to production as a result of the
investment are estimated. While carrying out the economic appraisal of rural roads with low
volume traffic, the producer surplus method aims at identifying the changes in agriculture
output/benefit in the project area. In cases, where no road exists and a significant change in
vehicle accessibility is planned, the producer surplus method can appear to be the most
appropriate procedure.
3.3.14 How these benefits can be identified & quantified?

question]
The estimation of tangible benefits, i.e. quantifiable, of a road development project, are
illustrated in the following sections.
(i) Savings in Vehicle Operating Costs (VOCs)
Due to any road development project, the saving in VOC is one of the most important
components in the economic appraisal, which is tangible benefit. The exercise of VOC
estimations for different vehicles under different road conditions (with or without road
improvement option) is carried out with the help of standard software, viz. HDM-4 and RED.
Chapter 8 of the Manual presents the working and baseline values of different components
of the VOC. It is important to mention that data relating to various components of VOC are
collected at market prices, and those need to be converted into the economic cost for
carrying out the economic appraisal.
(ii) Economies in Road Maintenance
It is often observed in developing countries that routine and periodic maintenance on the
existing road network, in general, is either non-existent or not adequately carried out.
Consequently, the road network “fails” and requires rehabilitation with higher capital
investments, i.e. a road development activity or with project option, not maintenance. It may
be noted that there would be savings in road maintenance cost from a project of
rehabilitation of the same road, i.e. in poor condition, as under with project situation, the fund
allocated for maintenance in without project situation would be saved. Maintenance savings
can be observed with the following types of project: (i) Paving a gravel road where traffic
levels have increased; and (ii) Strengthening or reconstructing a road that has deteriorated
badly. On account of this, savings in maintenance cost due to road improvement is a
potential benefit. For the purpose, the road agencies need to be approached to collect
details on the ongoing maintenance cost and related information, which could be used in the
economic appraisal.
(iii) Savings in Travel Time
Savings in travel time is also one of the tangible benefits in an economic appraisal of the
investment in road improvement project. Due to the higher speed on an improved road (i.e.
with project situation), as compared to poor road condition (i.e. without project situation),
there would be savings in travel time for passenger and freight traffic. Overall savings in
travel time would depend on the length of road section, level of road improvement, proper

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traffic management, particularly in commercial and inhabited areas, type of traffic mix
(motorized and non-motorized vehicles). Chapter 8 of the Manual brings out a detailed note
on the estimation of value of travel time (VOTT) with methods and assumptions for
passenger (working and non-working trips) and freight traffic.
(iv) Reduction in Road Accidents

It is desirable to estimate the level of reduction in road accidents, and also to consider the
same as one of the benefits in the economic appraisal of a road development plan. A
detailed note determining the cost of accidents for fatal and injuries with rationale, method of
estimations and supporting assumptions has been presented in the Manual (Chapter 10).
The argument in support of considering the reduction in road accident is largely based on
the assumptions of comprehensive road safety audit of the design and implementation of its
recommendations. Reduction in road accidents in the economic appraisal should be
considered only when the proper road safety audit (RSA) has been administered in road
design as strongly suggested with specific conditions given. In absence of proper road safety
measures and improved enforcement, there would be rather high probability of increase in
road accidents, due to higher speed, careless driving, and unsafe road infrastructure
resulting in dis-benefits to the society.
3.3.15 What are the software(s) to be employed for undertaking economic

appraisal?
[Ref.: Chapter 4: Review of Economic Appraisal Tools (Final Report) addresses this question]
The Highway Development and Management Model, popularly known as HDM-4, is the most
popular software used for economic appraisal of road improvement projects, particularly in
developing countries. HDM-4 has been produced by the International Study of Highway
Development and Management Tools (ISOHDM), sponsored by the World Bank, the Asian
Development Bank, the Department for International Development (UK), the Swedish
National Road Administration, and other sponsors. The Model is used to combine technical
and economic appraisal of road projects, to prepare road investment programs, and to
analyze road network strategies. The Model also provides a system for the analysis of road
management and investment alternatives.
Apart from HDM-4, the Road Economic Decision (RED) Model, developed by the World
Bank, is used for carrying out economic appraisal for low volume rural roads, having traffic of
50 to 300 vehicles per day. The RED Model performs economic evaluation of road
investment options using the Consumer Surplus Approach, which is customized to the
characteristics and needs of low volume roads, e.g. accessibility to an area and to uplift the
socio-economic condition.
In the case of TANROADS, it is recommended to use HDM-4 Model since it can be used for
economic analysis in nearly all the situations, while RED Model is used exclusively for low
volume rural roads. Moreover, the latest version of HDM-4 Model is well suited for
addressing the requirements of economic appraisal including low volume roads, for
undertaking feasibility studies in Tanzania. The specific aspects of various aspects used for
economic appraisal and its merits and demerits have been detailed in the Final Report
(Chapter 4).

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3.3.16 How can I configure HDM-4 to suit Tanzanian conditions?

[Ref.: Chapter 11: HDM-4 Model: Data Inputs and Applications covers the above question]
HDM-4 Model Configuration based on the results of the studies undertaken in various
countries defines the default values used in the model. Important default values are given in
the Manual (Annexure 11.1). User should ideally configure these values to reflect local
conditions of the project area in the Model. The basic aspects of the Model are defined with
the configuration parameters listed as follows:
 Traffic Flow Pattern: Commuter, Free Flow, Inter Urban, etc.
 Speed Flow Types: Single Lane, Two Lane, 4-Lane, etc.
 Accident Classes: Number and Type of Road Accidents.
 Climate Zones: Tropical, Sub-Tropical, Humid, Temperate, etc.
 Currencies: Currency for data inputs/outputs
 Road Network Aggregate Parameters: Traffic Volume, Road & Geometry Class,
Compaction, Structural Adequacy, etc.; and
 Road Calibration Sets: Depending on Pavement Types.
3.3.17 What are the calibration requirements of HDM-4?

[Ref.: Chapter 11: HDM-4 Model: Data Inputs and Applications deals with the above question]
HDM-4 Model Calibration is required for accuracy of prediction of certain behavior, e.g.
pavement performance to reflect the local conditions as predicted by the model. The
accuracy of the predicted pavement performance and vehicle resource consumption
depends on the extent of calibration applied to adapt the default values of the Model suitable
to the local conditions.
The pavement performance model needs to be calibrated to reflect the pavement
deterioration on the roads where the model is applied. Depending on the purpose, resources
and time, the HDM-4 calibration could be organized at three levels, which will provide
different levels of accuracy in the prediction behavior. The levels of HDM-4 calibration by
purpose and data requirements are described as follows:
 Level-1 (Application): Based on the desk study of available data, some field
investigations/ surveys and engineering experience of pavement performance;
 Level-2 (Verification): Based on measured pavement condition data collected from a

large number of road sections to verify and adjust the predictive capability of the model;
and
 Level-3 (Adaptation): Experimental data collection required monitoring the long-term

performance of pavements within the study area. Requires well-structured field research
and statistical analysis.
Out of the above, Level-1 calibration of HDM-4 model is essential for undertaking feasibility
studies. The Manual (Annexure 11.2) brings out values of all the parameters required for
Level 1 calibration for HDM-4 analysis and also illustrates the methodology to update these
parameters while undertaking feasibility studies in the future.

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3.3.18 What are the input data to be considered in estimating VOC and VOTT in
HDM-4?
The Manual presents different components of the vehicle operating costs (VOCs) and the
value of travel time (VOTT) and their baseline values, which could be utilized by any
standard software, e.g. HDM-4, for the economic analysis of a road investment project. The
Final Report (2015) illustrates the approach and methodology in detail for determining the
values of different components of the VOC and the VOTT, and also setting up the baseline
values for HDM-4 Model for economic appraisal. For estimating the VOC for different types
of vehicles in HDM-4 model, under varied road, traffic and climatic conditions, the fleet
structure of the country needs to be determined apart from the standing and running charges
of the following components.
Standing Charges Running Charges
Vehicle Prices / Cost (Interest & Depreciation) Fuel & Lubricants
Vehicle Prices / Cost (Interest & Depreciation) Tyre & Tubes
Insurance Charges Crew Costs
Annual Vehicle License Fees Maintenance Charges (Spare Parts and Labor)
Overheads / Operating Charges Miscellaneous Expenditures
The Manual, among others, presents the baseline values of VOC and VOTT in Chapter 8.
3.3.19 What are the input data required to determine road accident benefits in
HDM-4?
[Ref.: Chapter 9: Road Safety in Project Appraisal works out components of road accident benefits]
It is expected that road improvements will result in reduction in road accidents, provided
appropriate engineering features has been provided on the road to improve safety, e.g.,
footpaths or cycle tracks to segregate pedestrians and cyclists from high speed motorized
traffic. Therefore, it is prudent to consider road accident benefits in the economic appraisal.
To estimate road accident benefits, the following information should be obtained:
 Number of road accident fatalities, major injuries and minor injuries on the project road;
 Cost of the road fatalities, major and minor injuries in the country; and
 Potential reduction in road accidents after the road improvements.
The data on number of fatalities, and major and minor injuries can be obtained from the
police stations located along the project road. There are various methods to estimate the
cost of road accident fatalities and injuries. These methods and its merits and demerits are
discussed in detail in the Manual (Chapter 9), and in the Final Report (Chapter 14). The
recommended methods to estimate the cost of road accident fatalities and injuries in
Tanzania are shown as follows.
Particular Equation
Value of Road Accident Fatality 60 * GDP/ Capita
Value of Injury 12 * GDP/ Capita
The reduction in road accidents after road improvement depends upon the type of road
improvements proposed. The Manual (Chapter 9) provides indicative reduction factors in

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road accidents for various types of road improvements. The designer shall use this as a
guide to consider the reduction in road accidents after road improvements. HDM-4 (Version
2.0) considers road accident in terms of fatalities/million vehicle-km, which can be estimated
using the traffic volume count, the current road accident data and potential improvements.
The cost of the road accident fatalities and injuries should be provided as separate input
data. Using the above set of data, HDM-4 will estimate the road accident benefits due to
proposed road improvements.
3.3.20 What are the major outputs in HDM-4, which can be used in economic
appraisal and decision-making?
[Ref.: Chapter 11: HDM-4 Model – Data Inputs & Applications presents outputs of HDM-4 Model]
HDM-4 Model produces several output reports in tabular and graphical forms, showing
results for “with” and “without” project scenarios as illustrated below:
 Traffic: Section-wise AADT details for Motorized and Non-motorized Traffic; and
Volume/Capacity Ratios by flow period
 Road User Effects: Accident Summary; RUC Summary per vehicle-km by vehicle for
Motorized and Non-motorized Traffic; Vehicle free speed and operating speed: and Crew
hours, Labor hours, Fuel Consumption, Depreciation and Overhead Costs, etc.;
 Road Deterioration Work Effects: Average Roughness Section-wise and Project-wise;
Pavement Condition and Road Drainage Condition; and Road Works Summary by
section and by year;
 Cost Stream and Economic Evaluation: Comparison of Cost streams: Discounted and
Undiscounted: Economic Analysis Summary; and Road Agency and User Cost Streams:
Discounted and Undiscounted;
 Program and Strategy Analysis: Optimum Section Alternatives under Constrained and
Unconstrained Budget Scenarios; Work Program Optimized by Section and by year
under Constrained and Unconstrained Budget; and Other Similar Reports;
 Environmental Effects: Emissions and Energy Usage by Vehicle and Annual Summary;
 Input Data Reports;
 Multi-Criteria Analysis Report; and
 Asset Valuation Report.
Of the above, user can select the reports depending on the purpose, scope and objective of
the specific analysis of the economic appraisal.
Customized Reports for Model Based Outputs: In order to appreciate the requirements of
the TANROADS, a number of crucial parameters and performance indicators on different
costs components, benefit areas, sensitivity checks under different scenarios, etc. are
required to be analyzed for making decisions. Accordingly, the Manual presents a
consolidated and customized excel generated report utilizing the HDM-4 analysis results for
decision-making. The proposed format is presented in the Manual (Annexure 11.3).
It is recommended in the TANROADS Investment Appraisal Manual (2015) that whenever an analysis
is carried out, the “object file” produced after any analysis by HDM-4 must be submitted to
TANROADS for monitoring, record and redoing the analysis for changed parameters that may be
required for sensitivity check and viability analysis.

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3.3.21 What is sensitivity & risk analysis and how can this be incorporated in
the economic appraisal?
[Ref.: Chapter 7: Project Benefits – Identification and Valuation elaborates on this issue]
While carrying out the economic appraisal of an investment, the results of the exercise are
normally based on the prevailing known and ideal conditions, and the corresponding costs
and benefits are accordingly estimated with the assumptions that the prevailing condition
would remain unchanged in future as well, which may not be correct in real life situation,
particularly for long-term. So, in order to evaluate the economic strength and robustness of
any investments against any critical and adverse conditions, a number of analyses are
carried out so that the decision could be taken with higher level of confidence, whether the
project would sustain against risk and uncertain situations. For assessing the risk and
uncertainties, which may occur in future, there are several methods used depending on the
size of the project and anticipated threat to the output of the project, which are briefly
discussed in the following sections:
(i) Sensitivity Analysis
For assessing the economic strength of an intervention option against any adverse
conditions, the Sensitivity Analysis is carried out under different scenarios, i.e. by changing
the values of key variables of the “Costs and the Benefits” considered in the appraisal
exercise. The analysis incorporates the effects of adverse situations by changing the values
of certain crucial parameters applied in the project. Under this analysis, values of key
variables, e.g. (i) intervention cost [i.e. project cost], (ii) estimated and projected traffic level,
(iii) delays in project implementation, etc., are changed in the sensitivity analysis one at a
time, or in combination, to adjudge the sustainability of the intervention option against those
changes or anticipated adverse conditions.
This analysis is simple to carry out and also easy to appreciate the impact of changes in the
values in an appraisal for decision process. The sensitivity analyses are recommended to be
carried out by: (i) increasing the intervention cost by 10% in normal condition and 20% for
higher level uncertainty; (ii) decreasing the benefits by lowering the level of projected traffic
[the project beneficiaries] by 10% in normal condition and 20% for higher level uncertainty;
(iii) delaying the project implementation or completion by one year, for illustration, which
would affect the delays in realization of benefits by one year; and (iv) combination of two or
three above-mentioned adverse conditions to observe the results on the values of EIRR and
NPV, whether the investment in project is viable or not if compared with the given cut-off
rate, i.e. 12% commonly used in developing countries including Tanzania. However, the
sensitivity analysis should be carried out as per the requirements of the ToR of the specific
study for road investment projects.
(ii) Risk & Uncertainty Analysis
The analysis of project risks associated with the value of key project variables with the
probability of its remaining at the same level, and, thus, the risk is associated with the overall
project result. It may be appreciated that the economic analysis of projects is necessarily
based on uncertain future events and inexact data and, therefore, inevitably involves
probability judgment. Accordingly, the economic evaluation considers the sources,
magnitude, and effects of the risks associated with the project by taking into account the

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possible range of the values of the basic variables and assessing the robustness of the
project’s outcome with respect to the changes in these values.
The exercise is carried out on an iterative basis with number of changes by specifying the
probability of an individual input variable obtaining a range of values. With this method, the
probability distribution of the NPV and other output parameters can be worked out. The
above analysis is carried out with deploying standard software capable of the stochastic risk
analysis on the central deterministic NPV and EIRR estimates.
(iii) Switching Value Analysis
Under this analysis, impact of the percentage change in a particular crucial variable in the
appraisal exercise is evaluated for the project decision, to get the NPV at zero or the EIRR to
fall to the cut-off rate. In terms of NPV, the value of each variable must assume to reduce the
NPV of the project to zero. This exercise establishes the sensitivity of particular variable in
the economic appraisal.
All the above-mentioned methods, viz. sensitivity analysis, risk and uncertainty analysis, and
the switching value analysis aim at evaluating the robustness of an investment in any
intervention against external adverse conditions. The application of these methods are
important and integral part of the economic appraisal for the decision making process. While
undertaking the sensitivity, risk and uncertainty, and the switching value analyses under an
economic appraisal, it is important to note that the most suitable methods should be used
considering the size of project in terms of monetary and physical, socio-economic-political
situations, and also conforming to the requirements of given terms of reference (ToR) and
scope of the feasibility studies.
3.3.22 What should be the content of the feasibility report?

The feasibility study report marks the end of the appraisal process and should recommend
whether the project should go ahead, and to what standard it should be built. In case of the
intended project found not viable, the report should recommend alternative designs or
approaches to the project that would increase the economic rate of return.
The main objective of the feasibility study is to assess the technical and economic viability of
the road investment project for detail design and implementation. The major outputs of the
feasibility study are:
 Traffic demand analysis;
 Preliminary engineering design;
 Environmental and social impact assessment and mitigation measures;
 Estimation of project costs;
 Estimation of project benefits;
 Cost-benefit analysis; and
 Risk analysis of proposed investment.
A full checklist of what the feasibility study report should contain and the general order of
topics to be covered in the feasibility study report are given in the Manual (Chapter 12).
However, the user can opt for a different method, if the objectivity and the coverage of the
feasibility study can be presented in more legible manner.

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4.0 Sum Up
A proper economic appraisal will facilitate the road agencies in making right decisions for
investments in road development projects in a transparent manner ensuring the project
benefits the society at large and ensures efficient use of resources. Therefore, it is important
to have an economic appraisal model for the country and the road agencies to ensure the
investment on road network infrastructure yields optimum benefits and value for money.
Towards this, the TANROADS’ Investment Appraisal Manual (2015) is to ensure a
consistency in approach and methodology for undertaking the economic appraisal of the
investment road development projects in Tanzania. It may be noted that the primary
objective of the present Manual is not to address the issue whether to invest in roads or in
some other infrastructure development, as most of such decisions will already have been
taken before the project is initiated for feasibility studies. Therefore, the purpose of economic
appraisal is to decide for the most appropriate type of road improvement and its economic
returns, considering the cost implications and expected benefits, and economic returns.
However, it is important to note that the economic appraisal of road improvement projects
should not be considered as a mechanical process; rather a high degree of analytical ability
and a broad imagination are required. The consequences of a project being appraised must
be clearly understood and formulated, and the feasible alternatives must be fully considered.
The Manual is, inter alia, formulated keeping the above issues in view.
________________

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