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Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 1
MODULE 10. ECONOMIC APPRAISAL AND PRIORITIZATION
HSM Vol. 1 (Part B) Chapters 7 & 8
10-1
Roadway Safety Management
Process
Network Screening
Diagnosis andCountermeasure Selection
Economic Appraisal and Prioritization
Safety Effectiveness Evaluation
10-2
Learning Outcomes
Economic Appraisal• Overview project
benefits and costs • Economic evaluation
methods • Non-monetary
considerations• Prioritization Methods• Applications
Prioritization• Prioritization
methods • Ranking methods• Optimization
methods• Prioritization results• Prioritization
application
10-3
• Determine if a project is economically justified
• Identify projects with the greatest value for the investment
Economic Appraisal
Objectives
10-4
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 2
Economic Appraisal Process
Quantify Crash
Reduction
Cost‐Effectiveness Analysis
Benefit‐Cost Analysis
10-5
Data Needs
• Estimated change in crashes by severity• Monetary value of crashes by severity• Service life and countermeasure cost • Discount rate
10-6
Societal Crash Cost Estimates by Crash Severity
10-7
National Safety Council Values
• Fatality - $1,290,000
• Disabling Injury $ 68,000
• Property damage Only $3,200
10-8
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 3
Economic Appraisal Inputs Example
• Countermeasure costs– Roundabout construction (30 yr service life)– Protected left-turn signal (10 yr service life)
• Other inputs– 4% discount rate– 2% annual traffic increase
10-9 10-10
Countermeasure 1Install a Single-lane
Roundabout
Countermeasure 2Protected Left-turn Signal
Service Life 30 Years Service Life 10 YearsAnnual Traffic Growth 2.0%
Annual Traffic Growth 2.0%
Discount Rate 4.0% Discount Rate 4.0%Project Cost $1,500,000 Project Cost $100,000
CMF CMF Total Crashes 0.52 Total Crashes 0.94Fatal and Injury Crashes 0.51
Fatal and Injury Crashes 0.92
Countermeasure Information
10-11
Countermeasure 1: RoundaboutCalendar Year ∆ NPred(FI)
FI Crash Cost AM y(FI) ∆ NPred(PDO)
PDO Crash Cost AM y(PDO) AM y(TOT)
2005 1.010 $158,200 $159,768 1.751 $7,400 $12,960 $172,7282006 1.037 $158,200 $164,002 1.795 $7,400 $13,282 $177,2842007 1.064 $158,200 $168,352 1.839 $7,400 $13,611 $181,9632008 1.092 $158,200 $172,821 1.885 $7,400 $13,949 $186,7692009 1.121 $158,200 $177,411 1.932 $7,400 $14,294 $191,7062010 1.151 $158,200 $182,127 1.980 $7,400 $14,649 $196,7762011 1.182 $158,200 $186,972 2.029 $7,400 $15,012 $201,9842012 1.213 $158,200 $191,949 2.079 $7,400 $15,384 $207,3342013 1.246 $158,200 $197,062 2.130 $7,400 $15,766 $212,8282014 1.279 $158,200 $202,315 2.183 $7,400 $16,156 $218,472: : : : : : : :: : : : : : : :
2034 2.171 $158,200 $343,504 3.562 $7,400 $26,359 $369,863
Calculate Economic Analysis Convert Countermeasure Benefit to Monetary Value
Annual Monetary Value of Crash Reduction
Calculate Benefits Present Value Based on Annual Benefit
Convert Non-Uniform Annual Benefit to Present Value:
(P/F,i,y) = (1+i)(-y) (Equation 7-2)
where i is the discount rate and y is the year in the service life of the countermeasure
10-12
Countermeasures 30 Year Service Life
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 4
10-13
Countermeasure 1: RoundaboutCalendar Year AM y(TOT) (P/F,i,y) Present Value
(PVB)2005 $172,728 1.00 $172,7282006 $177,284 0.96 $170,4652007 $181,963 0.92 $168,2352008 $186,769 0.89 $166,0372009 $191,706 0.85 $163,8712010 $196,776 0.82 $161,7362011 $201,984 0.79 $159,6312012 $207,334 0.76 $157,5562013 $212,828 0.73 $155,5112014 $218,472 0.70 $153,495: : : :: : : :
2034 $386,863 0.32 $118,597Total $4,316,570
Present Monetary Value of Benefits for Crash Reduction Benefit-Cost Analysis
• Net Present Value (NPV)NPV = (Present Value of Benefits) – (Present Value of Project Costs)
• Benefit-Cost Ratio (BCR) • BCR = (Present Value of Benefits)/(Present
Value of Project Costs)
10-14
Present Value of Crash Reductions Benefits - Intersection 2
Countermeasure Present Value ($)Roundabout $4.32 M
Protected left‐turn signal $0.64 M
Red light Camera ‐$0.38 M
Interchange $ 2.46 M
10-15 10-16
Present Value of Countermeasure Cost
Counter-measures
Initial Cost ($ M)
Present Value Initial Cost ($ M)
Second 10-
year's Cost ($ M)
Present Value for Second
10-year’s Cost ($ M)
Third 10-year's
Cost ($ M)
Present Value for
Third 10-year’s
Cost($ M)
Total Cost(PVC)
Round-about $1.5 $1.5 $1,500,000
Protected Left-turn
Signal $0.1 $0.1 $0.1 $0.068 $0.1 $0.046 $213,195Red-light-running Camera $0.1 $0.1 $0.1 $0.068 $0.1 $0.046 $213,195Install Inter-
change $15 $15 $15,000,000
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 5
Benefits Costs ComparisonMethod 1: Net Present Value
• Also referred to as net present worth• If NPV >0, then the individual project
is economically justified
For countermeasure 1: Roundabout NPV $4,316,570 – $1,500,000 = $2,816,570
10-17
Benefits Costs ComparisonMethod 2: Benefit-Cost Ratio
(BCR)If BCR >1.0, the project is
economically justified
For countermeasure 1: Roundabout BCR $4,316,570 / $1,500,000 = 2.88
10-18
Net Present Value and Benefit-Cost Ratio Results - Intersection 2
Countermeasure NPV ($) BCR
Roundabout $2.82 M 2.88
Protected left‐turn signal $0.43 M 3.01
10-19
Cost-Effectiveness Index
• Cost-Effectiveness Index = (Present Value of Project Costs) /
(Estimated Average Annual Crash Reduction)
• Crash reductions and project costs mustapply to the same time period
Method does not consider crash severities.10-20
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 6
Benefits Costs ComparisonMethod 3: Cost-Effectiveness
Analysis• Countermeasure cost-effective analysis
is expressed as annual cost per crash reduced [equation 7-5, p. 7-10, Vol. 1 (Part B) of the HSM].
For countermeasure 1: Roundabout Cost-effectiveness Index = $1,500,000/122.177 = $12,277
10-21
Cost-Effectiveness Index Intersection 2
Countermeasure Cost Per Crash Reduced
Roundabout $12,277
Protected left‐turn signal $14,280
10-22
MI Time of Return (TOR)
• Estimate impact of treatment benefits• Estimate cost of treatment• Determine number of years to recover
investment
10-23
Additional Considerations Influence Decisions
• Non-monetary*– Public perceptions– Air Pollution– Energy Consumption
• Other monetary– Road user costs (delay, operating costs)– Maintenance and operations– Costs to achieve environmental standards– Costs to achieve ecological protection
*Not every benefit or cost can be translated to monetary terms
10-24
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 7
Other Countermeasure Implementation Issues
• Interchange construction
• Roundabout construction
• Protected left-turn signal
• Red-light cameras
R/W, capital cost, NEPA issues, access to businesses change, traffic and other impacts during construction; public acceptance
Increased delays and potential queues (effects on adjacent driveways)
Implementation and maintenance costs, public perceptions
10-25
HSM Effectiveness Measures to Consider
• # total crashes reduced• # fatal and incapacitating injury crashes
reduced• # fatal and injury crashes reduced• Cost-effectiveness index• Project costs
10-26
Economic Rating Criteria
Greatest $ Return in Benefits for Each $1.00 of Public Funds
Invested (i.e. costs)
10-27
HSM Economic Prioritization Methods
• Total costs (present value of benefits must be equal)
• Net present value (present value of costs must be equal)– Benefit-cost ratio (for independent
alternatives)– Incremental benefit-cost analysis (mutually
exclusive alternatives)
• Optimization methods• Monetary value of project benefits 10-28
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 8
10-29
Ranking with Net Present ValueCountermeasure Net Present Value
($)Rank
Roundabout $2.82 M 1
Protected left‐turn signal
$0.43 M 2
NPV Ranking does not consider initial costs and should generally be applied to alternatives with equal costs 10-30
Benefit‐Cost Ranking for One SiteCountermeasure BCR Rank
Roundabout 2.88 2
Protected left‐turn signal 3.01 1
Cost-Effectiveness Index at One Site
Countermeasure Cost Per Crash Reduced
Rank
Roundabout $12,277 1
Protected left‐turn signal $14,280 2
10-31Cost-effectiveness ranking does not consider crash severities.
Optimization Methods
Optimization methods identify a project set that will maximize benefits within a fixed budget and other constraints.• Linear programming• Integer programming• Dynamic programming
10-32
Module 10: Economic Appraisal and Prioritization
HSM Training Module 10 ‐ 9
Multi-Objective Resource Allocation
C 3 X 35
Score for Alternative A
Criterion Performance Measures
MeasuredValue
Weight CriterionScore
Alternative C
3 X 40 = 120
2 X 35 = 70
5 25X = 125
315Score for Alternative C
Affordability
ReduceCongestion
EconomicDevelopmentC 3 X 3
5Score for Alternative A
Criterion Performance Measures
MeasuredValue
Weight CriterionScore
Alternative B
6 X 40 = 240
9 X 35 = 315
4 25X = 100
655Score for Alternative B
Affordability
ReduceCongestion
EconomicDevelopment
C 3 X 35
Score for Alternative A
Criterion Performance Measures
MeasuredValue
Weight CriterionScore
Alternative A
7 X 40 = 280
6 X 35 = 210
4 25X = 100
590Score for Alternative A
Affordability
ReduceCongestion
Improve Safety
10-33
Roadway Safety Management
Process Overview
10-34
Network Screening
Diagnosis and Countermeasure Selection
Economic Appraisal and Prioritization
Safety Effectiveness Evaluation
MODULE 10. ECONOMIC APPRAISAL AND PRIORITIZATION
Summary
10-35
Summary