HIGHWAY EVALUATION

NEW CONSTRUCTED TRANSPORT BENEFITS

•Reduce vehicle operating cost

•Savings in time of passengers and cargo
•Reduction of accidents
•Stimulate regional development
•Increase the comfort and convenience
•Better national integration
•National security
•Greater self-sufficiency
•Equal distribution of income
•Prestige of the country
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 INTRODUCTION
 The study of Economic analysis benefits used

 To determine feasibility of the project

 To Compare alternative locations
 To Evaluate various features of highway
designs. E.g. Type of Pavement.
 To determine priority of improvement

 The studies is based on the concept of life

cycle analysis.
 To determine benefits and costs associated with
the road investment, we use HDM soft ware
(Various Version).
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 ECONOMIC ANALYSIS

Economic analysis
Economic analysis used to compare the
viability of different alternatives
I) Paved road alternatives, e.g.:
- overlay at specified condition or time
- reseal first and overlay later
- reconstruct at specified condition or time
- do nothing or do minimum (patching)
- widen pavement at specified time or V/C
- improve alignment or add lane

II) Unpaved road alternatives, e.g.:

- grading at interval of some time
- upgrade to paved standard at time or condition
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 Cont.....
Economic analysis involves the following task
- Identification of Problem & formulation of alternatives
- Quantification of life cycle costs and benefits
- Modelling future impacts on the proposed performan-
ce and traffic flow.
- Comparison of different alternatives.

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 OPTIMISATION

• It Concerned where budget levels are known with

reasonable certainty and select road works within
the budget constraint.
• Strategy analysis determine either types of road
to maximize economic benefits or determine
budget required for a long term target network
condition.

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 CLASSIFICATION OF BENEFITS & COSTS

Costs and benefits due to road investments classified in

to three:-
I) Benefits and costs expressed in monitory terms
E.g. Vehicle operating costs, saving in travel time,
accident costs.
II) Quantified Benefits and costs not expressed in
monitory terms.
E.g. Road safety, pollution from vehicle emission
and noise.
III) Non quantified Benefits and costs
E.g. Better social welfare, ecological impacts.

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 Cont...

The following quantified benefits and costs are

considered in our analysis:-
1) Cost incurred by road administration
2) Road user costs
3) Environmental effects
4) other benefits and costs
1) Cost incurred by road administration
I) Road development (Construction
II) Pavement Maintenance
III) Road side or off carriage way
activities

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 Cont...

2. Road user costs

I) Motorised vehicle operating costs
- Fuel and Lubricant consumption
- Tyre and parts consumption
- Labour
- Capital Crew
- Crew
- Over head cost
II) Travel time cost
III) Non motorised transport (NMT)
IV) Accident costs

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 Road User Costs Model

Road Driver,
Geometry, Traffic
Condition Flow

Vehicle
Characteristics

SPEED
Fuel & Lubricants
COMPSUMPTION

Tire
Maintenance Parts & Labor
Crew Time
Depreciation & Interest
Passenger & cargo time
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 Road User Costs

Heavy Truck
Road User Costs ($/veh-km)

Bus

Pickup/utility

Car

Rickshaw

Good Road Condition (IRI) Poor

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 ENVIRONMENTAL EFFECTS
Vehicle emission
Energy use
Traffic noise

SAVINGS IN ROAD USER COSTS

o Savings in motorized vehicle operating cost
o Savings in travel time costs-Motorized
vehicles
o Savings in NMT time and operating costs
o Reduce in accident costs
o Road user Benefits

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 UNIT COSTS

Unit costs
- Used to produce cost estimates in investment
decisions and budget preparation.
- Should be expressed in economic terms for
economic analysis, and in financial terms for
financial analysis.

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 Financial & Economic Unit Costs

Do not reflect the

• Financial Prices real scarcity value
Market Prices of the inputs
• Economic Prices
Shadow Prices
Social Prices Developing Countries
- Government Controls
Taxes
Subsidies
Regulations
- Rapid Inflation
- Overvaluation of Domestic
Currency
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Paved Road Deterioration Model
Road Administration cost
Traffic,
Moisture, Loading
Temperature
Aging

Pavement
Materials,
Thickness

Cracking
Ravelling
Potholing
Rutting
Roughness

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 Economic analysis

• Costs and benefits are measured in

money terms
• Road construction and maintenance
costs are compared with estimates of the
direct primary benefits going to road
users and road agency
• Secondary benefits are usually ignored
• Economic prices are used in constant
terms 16
 Cont...

• Costs and Benefits are forecast over the

planning time horizon (usually between 10 and
20 years)
• Future Benefits are valued less as time
progresses using the planning discount rate.

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 ECONOMIC DECISION CRITERIA

Comparing Cost and Benefit:-

The following Economic indicator’s are computed from
the time streams of benefits and costs at the user
specified discount rate:-

 Net Present Value (NPV)

 Internal Rate of Return (IRR)
 Benefit/Cost Ratio (BCR)
 First Year Benefits (FYB)

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 NPV and IRR
The Net Present Value (NPV) of a project
alternative relative to the without project
alternative is the sum of the discounted
annual net benefits.

The Internal Rate of Return (IRR) is the

discount rate at which the NPV is zero.

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 NPV DECISION RULE

1. If the NPV is positive, for the chosen

discount rate, then the alternative is
acceptable.
2.If the NPV is negative, for the chosen
discount rate, then the alternative is
unacceptable.
3.If the NPV is zero, for the chosen
discount rate, then the alternative is
indifferent to the without project
alternative.

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 Discount Rate

 The discount rate is opportunity cost of

capital in the public sector, i.e the rate of
return on marginal public sector investments
 The discount rate to be used will be given by
the planning authority responsible for the
project.
 The World Bank traditionally has not
calculated a discount rate for each project
but has used 10 to 15 percent as a notional
opportunity cost of capital in developing
countries.

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 Comparison of Alternatives
• Evaluation Period = 20 years
• Discount rate = 12.00 %
---- Present Values ---------------- Internal
Construction & Road Net Rate of
Length Maintenance User Total Present Return
(km) Alt. Costs Costs Costs Value (%)

10.0 Without 0.18 5.10 5.28

With 1.75 3.10 4.85 0.43 15.5

Is the project economically justified?

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 Net Economic Benefits
Stream of Economic Costs (M US$)
Without Project With Project
Road Road Total Road Road Total Net Discount Rate Sensitivity
Year Agency User Society Agency User Society Benefits Discount Net Present
2006 0.01 0.47 0.48 1.60 0.49 2.09 -1.61 Rate Value, NPV
2007 0.01 0.50 0.51 0.02 0.29 0.31 0.20 (%) (%)
2008 0.01 0.53 0.54 0.02 0.30 0.32 0.22 5.0% 2.03
2009 0.01 0.55 0.56 0.02 0.31 0.33 0.23 6.0% 1.71
2010 0.01 0.57 0.58 0.02 0.32 0.34 0.24 7.0% 1.42
2011 0.10 0.59 0.69 0.02 0.33 0.35 0.34 8.0% 1.17
2012 0.01 0.56 0.57 0.02 0.34 0.36 0.20 9.0% 0.95
2013 0.01 0.63 0.64 0.02 0.35 0.37 0.27 10.0% 0.75 Net
2014 0.01 0.66 0.67 0.02 0.36 0.39 0.28 11.0% 0.58 Present
2015 0.01 0.68 0.69 0.02 0.38 0.40 0.29 12.0% 0.43 Value
2016 0.01 0.70 0.71 0.02 0.39 0.41 0.30 13.0% 0.29 at 12%
2017 0.10 0.73 0.82 0.02 0.40 0.43 0.40 14.0% 0.16
2018 0.01 0.68 0.69 0.02 0.42 0.44 0.25 15.0% 0.05
2019 0.01 0.77 0.78 0.02 0.43 0.46 0.33 15.5% 0.00
2020 0.01 0.80 0.81 0.25 0.45 0.70 0.12 16.0% -0.05
2021 0.10 0.83 0.93 0.02 0.47 0.49 0.44 17.0% -0.14
2022 0.01 0.78 0.80 0.02 0.48 0.51 0.29 18.0% -0.22
2023 0.01 0.88 0.90 0.02 0.50 0.52 0.37 19.0% -0.29
2024 0.01 0.92 0.93 0.02 0.52 0.54 0.39 20.0% -0.36 Internal
2025 0.01 0.95 0.96 -0.62 0.54 -0.08 1.04 Rate of
Present Value at 12% Discount
5.28 4.85 0.43 Return
Net Present Value at 12% (M US$) 0.43

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 NPV AND IRR CALCULATION

8000

6000 NPV at 12%

Discount Rate
Net Present Value (M$)

4000

2000
Internal Rate
of Return
0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

-2000

-4000
Discount Rate (%)

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 NPV VERSUS IRR
10000

8000
NPV at 12%
Discount Rate
6000
Net Present Value (M$)

4000
Internal Rate
2000
of Return

0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

-2000

-4000
Discount Rate (%)

- The IRR and NPV will not necessarily rank the alternatives by
the same order
- Always use NPV to compare project alternatives

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