Economic Analysis

Highway Engineering
 Introduction
• Practice of engineering involve many choices among alternative
designs, procedures, plans, and methods.
• Question – will the benefit of the project worth the cost? (Will it
pay?)
• Basic questions and issues – what approach to be taken, what data
are needed, what analytical techniques to be used.
Net Present Worth (NPW)
NPW = -Co - [𝐶𝑛 - 𝐵𝑛 ] (P/A - i – n)

Co : capital cost / first cost

Cn : continuing costs (maintenance, operating, etc)
Bn : benefits ( saving, salvage, revenues etc)
(1+𝑖)𝑛 −1
(P/A - i – n): P = A [ ]
𝑖(1+𝑖)𝑛
 Example
• The department of Traffic is considering three improvement plans for a
heavily traveled intersection within the city. The intersection improvement is
expected to achieve three goals : to improve travel speeds, to increase safety
and to reduce operating expenses for motorists. The annual dollar value of
savings compared with existing conditions for each criterion as well as
additional construction and maintenance costs is shown in table. If the
economic life of the road is considered to be 50 years and the discount rate
is 3 percent, which alternative should be selected? Solve the problem using
the NPW methods for economic analysis.
 Benefit Cost Ratio
• The ratio of the present worth (PW) of Net project benefits (all of the savings, revenue & etc) and
Capital costs is called the benefit – cost ratio (BCR).
• BCR used to show extend to which investment will result in benefit to society
• Negative flows are considered costs and positives flows as benefits.
• The saving in the transport cost are considered as benefits.
• If the B/C ratio is more than one, the project is worth undertaking.
• Need to do comparison to determine added benefit with added investment
BCR 2/1 = (B2 – B1) / (C2 – C1)

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

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