Evaluating Transportation

Alternatives
By: Renzo Rufin Polino
Evaluating Transportation Alternatives

The basic concept of an evaluation is simple and

straightforward, but the actual process itself can be
complex.
A transportation improvement can be viewed as a
mechanism for producing a result desired by a
society at a price.
The question is, “will the benefits of the project
be worth the cost?”
Evaluating Transportation Alternatives

The results of the “four-step demand forecasting

process” furnish the necessary input data to prepare
an evaluation of the relative worth of alternative
projects.
The objective of an evaluation is to furnish the
appropriate information about the outcome of each
alternative so that a selection can be made.
An essential input in the evaluation process is to
know what information will be important in making
project selection.
Evaluating Transportation Alternatives

In some instances, a single criterion may be

paramount (such as cost).
In other cases, there may be many objectives to
be achieved.
The decision maker may wish to have the relative
outcome of each alternative expressed as a single
number, whereas at other times, it may be more
helpful to see the results individually for each
criteria and each alternative.
Evaluating Transportation Alternatives
Evaluating Transportation Alternatives

Evaluation can also be made after a project is

completed to determine if the outcomes of the
project are as had been anticipated.

Post Factor evaluation can be very helpful in

formulating information useful for evaluating
similar projects elsewhere or in making
modifications in original designs.
Evaluating Transportation Alternatives
Identifying Project Stakeholders

Examples of groups (“stakeholders”) that could be

affected by a transportation project include
System users
Transportation management
Citizens in the community
Business
Local, state, and national government
Evaluating Transportation Alternatives
Identifying Project Stakeholders
For smaller projects, stakeholders will usually be limited to
the system users and transportation management.
A clear definition of whose viewpoint is being considered
in the evaluation is necessary.
A transportation project can affect these groups either
positively or negatively.
For example, a major project could increase business or
expanded construction activity could trigger an economic
boom in the area. The project might also require taking
of land, or it could create other environmental effects.
Evaluating Transportation Alternatives
Selecting Evaluation Criteria

A transportation project is intended to

accomplish one or more goals and objectives.

If the goal is to reduce accidents, the criteria can

be measured as the number of accidents expected
to occur for each of the alternatives considered.

If another goal is to improve mobility, the criteria

could be travel speed or travel time.
Evaluating Transportation Alternatives
Selecting Evaluation Criteria
Criteria selection is a basic element of the
evaluation process, because they become the basis
on which each project (alternative) is compared.

It is important that the criteria be related as

closely as possible to the stated objectives.

Criteria selected should be easy to measure and

sensitive to changes made in each alternative.
Evaluating Transportation Alternatives
Selecting Evaluation Criteria

It is better to limit the number of criteria to those

that will be most helpful in reaching a decision.

Too much information can be confusing and

counterproductive, and could create uncertainly and
could encourage a decision on political basis.
Evaluating Transportation Alternatives
Selecting Evaluation Criteria

Examples of Criteria Used for Evaluating Transportation

Alternatives
 Capital Costs
 Construction
 Right-of-way
 Vehicles
 Maintenance costs
 Facility operating costs
 Travel time cost
 Vehicle operating costs
 Accident costs
Evaluating Transportation Alternatives
Measures of Effectiveness (MOE)

The numerical or relative results for each criterion

are called Measures of Effectiveness (MOE).

It is necessary to decide how the MOEs will be

used in the evaluation process.

There are three different approaches.

Evaluating Transportation Alternatives
Measures of Effectiveness (MOE)

One approach is to convert each MOE to a common unit

(“money”), and then, for each alternative, compute the
summation for all measures (criteria).

For example, if the cost of an accident is known and the

value of travel time can be determined, then it would be
possible to compute a single number that would represent
the total cost of each alternative, since the costs of
construction, maintenance, and operation are already in
monetary terms.
Evaluating Transportation Alternatives
Measures of Effectiveness (MOE)

A second approach is to convert each measure of

effectiveness (MOE) to a numerical score.

For example, if a project alternatives does well in one

criterion, it is given a high score; if it does poorly in another
criterion, it is given a low score. A single number can be
calculated that represents the weighted average score of all
MOEs that were considered.

 This approach is similar to calculating grades in a course!

Evaluating Transportation Alternatives
Measures of Effectiveness (MOE)

 A third way is to identify the MOE for each alternative in

a matrix form, with no attempt to combine them.

This approach furnished the maximum amount of

information without prejudging wither how the MOE
should be combined or their relative importance.
Evaluating Transportation Alternatives
Evaluation Procedure and Decision Making

How well will the evaluation process assist in making a

decision?
The decision maker typically needs to know what the costs
of the project will be (in many instances this alone will
determine the outcome).
Another question may be, do the benefits justify the
expenditure of funds for transportation, or would the
money be better spent elsewhere?
It may be necessary to carry out a sensitivity analysis that
shows a range of values rather than a single number.
Evaluating Transportation Alternatives
Evaluation Procedure and Decision Making

The decision maker may want to know the cost to

highway users as a result of travel delays during
construction.
Also of interest may be the length of time necessary to
finish the project, since public officials are often interested
in seeing work completed during their administration.
 The source of funds for the project and other matters
dealing with its implementation will also be of concern.
Thus, in addition to the fairly straightforward problem of
evaluation based on a selected set of measurable criteria, the
transportation engineer must be prepared to answer any and
all questions about the projects and its implications.
Evaluation Based On Economic Criteria

Elements of Cost
 The cost of a transportation facility improvement
includes two components
 First Cost- engineering design, right-of-way, and
construction.
 Continuing Cost- maintenance, operation, and
administration.
Evaluation Based On Economic Criteria

Elements of Cost

 Expenses for administration or other overhead charges

are usually excluded in an economic evaluation because
they will be incurred regardless of whether or not the
project is selected (sunk cost).

 Salvage value is the worth of an asset at the end of its

service life (usually considered in economic evaluation).
Evaluation Based On Economic Criteria

Elements of Cost
 Three commonly used measures of user costs are:
Vehicle operating costs
Travel time costs
costs of accidents

They are sometimes referred to as benefits since the

improvements to a transportation facility are likely to reduce
(lower) the cost of vehicle operation, cost of travel time,
and cost of accidents.
Evaluation Based On Economic Criteria

 Interaction Between Road User Costs and Highway

Geometric and Operational Factors
Economic Evaluation Methods

 An economic evaluation of a transportation project is

completed using one of the following methods:
Present Worth (PW)
Equivalent Uniform Annual Cost (EUAC)
Benefit-Cost Ratio (BCR)
Internal Rate of Return (ROR)
Economic Evaluation Methods

Present Worth (PW) is the most straightforward of the

methods, since it represents the current value of all costs
that will be incurred over the lifetime of the project.

Net Present Worth (NPW) is the PW of a given cash flow

that has both receipts and disbursements.
Economic Evaluation Methods

 NPW of a projectis:
Economic Evaluation Methods

Equivalent Uniform Annual Worth (EUAW) is a

conversion of a given cash flow to a series of equal annual
amounts. If the amounts are considered to occur at the end
of the interest period, then
Economic Evaluation Methods

 Similarly,
Economic Evaluation Methods
The benefit-Cost Ratio (BCR) is a ratio of the PW of net project
benefits and net project costs.
 The formula for BCR is: B2 /1
BCR2/1 
C2/1
Where,
B2/1 = reduction in user and operation costs between higher cost
alternative 2 and lower cost alternative 1, expressed as PW
or EUAB
C2/1 = increase in facility costs, expressed as PW or EUAC

If the BCR is 1 or greater, then the higher cost alternative is

economically attractive. If BCR is less than 1, this alternative is discarded.
Economic Evaluation Methods
Internal Rate of Return (ROR) method determines the
interest rate at which the PW of reductions in user and
operation costs B2/1 equals the PW of increases in facility
costs C2/1.

If the ROR exceeds the interest rate, the higher cost
project is retained. If the ROR is less than the interest rate,
the higher cost project is eliminated.

 The procedure for comparison is similar to that used in

the BCR method.
 Economic Evaluation Methods
Illustration
The department of traffic is considering three improvement plans for a heavily
traveled intersection within the city. The improvement is expected to achieve
three objectives: improve travel speeds, increase safety, and reduce operating
expenses for drivers. The annual dollar value of savings compared with existing
conditions for each criterion as well as additional construction and maintenance
costs is shown in as follows. If the economic life of the road is considered to be
50 years and the discount (interest) rate is 3%, which alternative should be
selected?
Economic Evaluation Methods
Illustration
Economic Evaluation Methods
Illustration
Economic Evaluation Methods
Illustration
Economic Evaluation Methods
Illustration

34
 Economic Evaluation Methods
Illustration

• Solve by ROR Method:

(in this situation, we solve for the
interest rate for which NPW = 0
1. Compute ROR for alternative I versus DN:
NPW= 0 = -185,000 + (-1500+5000+3000+500)(P/A-i-50)
(P/A-i-50) = 185000/7000 = 26.428
35
{(1+i)50 – 1}/i(1+i)50 = 26.428
Solving, i = 2.6%
► Since ROR is less than 3%, we discard alternative I.
Economic Evaluation Methods
Illustration

• Solve by ROR Method: (in this situation, we

solve for the interest rate for which NPW = 0
2. Compute ROR for alternative II versus DN:
NPW= 0 = -220,000 + (-2500+5000+6500+500)(P/A-i-50)
(P/A-i-50) = 220000/9500 = 23.16

{(1+i)50 – 1}/i(1+i)50 = 23.16

Solving, i = 3.6%
► Since ROR is greater than 3%, we select alternative II over
DN.
Economic Evaluation Methods
Illustration

• Solve by ROR Method: (in this situation, we solve

for the interest rate for which NPW = 0
3. Compute ROR for alternative III versus alternative II:
NPW= 0 = -(310,000-220,000) + (12,800-9,500)(P/A-i-50)
(P/A-i-50) = 90000/3300 = 27.27

{(1+i)50 – 1}/i(1+i)50 = 27.27

Solving, i = 2.7% 37

► Since the increased investment in alternative III yields an ROR

less than 3%, we do not select alternative III,
but again pick alternative II.
THE END