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HSM Roadway Safety Management Process. Session #6: Economic Appraisal and Prioritization. HSM Economic Appraisals and Prioritization Methods. Describe the Economic Appraisal Process Converting Crash Reduction Benefits to Present Value Dollars Describe the Project Prioritization Process

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Presentation Transcript
slide1

HSM Roadway Safety Management Process

Session #6:

Economic Appraisal and Prioritization

learning outcomes

HSM Economic Appraisals and Prioritization Methods

  • Describe the Economic Appraisal Process
    • Converting Crash Reduction Benefits to Present Value Dollars
  • Describe the Project Prioritization Process
    • Ranking Projects by Economic Effectiveness Measures

Learning Outcomes:

slide4

Determine if a project is economically justified

Identify projects with the greatest value for the investment

Engineering Economics

slide5

HSM Part B – Economic Appraisal

Estimate Crash Costs/Benefits

  • Estimate Change in Crashes
    • Use Part C – Predictive Methods
  • 2. Compute Annual Monetary Value
    • Societal Crash Costs by Severity
    • Translate Crashes into Dollars
  • 3. Convert to Present Value (PV)
    • Accounts for service life (“resilience”) and discount (Return On Investment)
crash severity categories
Crash Severity Categories

K

  • K crash
    • One or more persons died within 30 days
  • A crash
    • Incapacitating injury
  • B crash
    • Non-incapacitating evident injury
  • C crash
    • Possible injury
  • O crash
    • No injuries - reportable property damage

A

B

C

O

slide8

HSM Part B – Economic Appraisal

Estimate Project Costs

  • Estimate All Project-Related Costs
    • Up-Front Costs (e.g. Const, ROW)
    • Recurring Costs (e.g. Maintenance)
  • 2. Convert to Present Value (PV)
    • Up-Front already is PV
evaluation methods

Net Present Value:

  • A project with a NPV > zero = economically justified
  • Ranked from the highest to lowest NPV.
  • 2) Benefit-Cost Ratio:
  • Ratio > 1.0 = economically justified
  • Ranked from highest to lowest BCR
  • not valid for prioritizing multiple projects or multiple alternatives for a single project – (incremental benefit-cost analysis)
  • 3) Cost Effectiveness Index:
  • Related directly to project costs
  • Expressed as the annual cost per crash reduced
  • Ranked from the lowest to highest CEI
Evaluation Methods
slide10

HSM Part B – Economic Appraisal

Convert Annual Benefits to Present Value

* Equation slightly different if non-uniform

slide11

HSM Part B – Economic Appraisal

  • Example:
  • reduce 5 fatal/injury crashes per year
  • reduce 11 PDO crashes per year
  • Project Cost (PVcost) = $3.0 M

NPV = $3.9 M – 3.0 M = $0.9 M

NPV >0 = justified

prioritize projects chapter 8

HSM Part B – Prioritize Projects

Prioritize Projects Chapter 8
  • Economically justified improvements
    • Specific sites
    • Across multiple sites
  • Improvement projects
    • Cost
    • Mobility
    • Environmental impacts
slide13

HSM Part B – Prioritize Projects

Prioritization Methods

  • Ranking by economic effectiveness measures
  • Incremental benefit-cost analysis ranking
  • Optimization methods
slide14

HSM Part B – Prioritize Projects

Ranking by Economic Effectiveness Measures

  • Project costs,
  • Monetary value of project benefits,
  • Number of total crashes reduced,
  • Number of fatal and incapacitating injury crashes reduced,
  • Number of fatal and injury crashes reduced,
  • Cost-effectiveness index, and
  • Net present value (NPV)
slide15

HSM Part B – Prioritize Projects

Ranking by NPV (benefits – costs)

Ranking by CEI (cost to reduce crash)

slide16

HSM Part B – Prioritize Projects

  • Benefit/Cost Ratio
    • Used to determine the most valuable countermeasure(s) for a specific site or to evaluate economic justification of individual projects
    • Not valid for prioritizing multiple projects or multiple alternatives for a single project
    • As long as B/C Ratio > 1.0 OK (“EJ”)
  • Incremental B/C Ratio
    • Compares multiple alternatives/projects to each other to ensure that for every additional dollar (increment) spent, an equivalent (or better) incremental benefitis obtained
benefit cost analysis
Benefit/Cost Analysis

HSM Part B – Prioritize Projects

B/C = $1,800,268/$500,000 = 3.6

slide18

HSM Part B – Prioritize Projects

Incremental Benefit-Cost Analysis -An extension of the benefit-cost ratio (BCR) method

Perform a BCR evaluation for each improvement project

Arrange projects with a BCR > 1.0 in increasing order based on their estimated cost

Beginning at the top of the list, calculate the difference between the first and second project’s benefits and cost,

If the BCR > 1.0, the project with the higher cost is compared to the next project. If the BCR < 1.0, the project with the lower cost is compared to the next project

Repeat this process. The project selected in the last pairing is considered the best economic investment

incremental bcr

HSM Exercise III – Prioritize Projects

Incremental BCR
  • Step 3: Compute IBCR for 1st Pair of Projects

PVbenefits 2 – PVbenefits 1

PVcosts 2 – PVcosts 1

Incremental BCR =

Where:

PVbenefits 1 = Present value of benefits for lower-cost project

PVbenefits 2 = Present value of benefits for higher-cost project

PVcosts 1 = Present value of cost for lower-cost project

PVcosts 2 = Present value of cost for higher-cost project

slide20

HSM Part B – Prioritize Projects

Ranking by BCR

Ranking by Incremental BCR

Example in next few slides

Incremental BCR = (PVbenefits 2 – PVbenefits 1) / (PVcosts 2 – PVcosts 1)

incremental benefit cost analysis
Incremental Benefit/Cost Analysis

HSM Part B – Prioritize Projects

B/C between site 1 and 2 =

$3,255,892 - $1,800,268 = 2.08 > 1.0 therefore

$1,200,000 - $500,000 Alt. 1 no longer good

incremental benefit cost analysis1
Incremental Benefit/Cost Analysis

HSM Part B – Prioritize Projects

B/C between site 2 and 3 =

$2,566,476 - $3,255,892= -9.85 < 1.0 therefore

$1,270,000 - $1,200,000 Alt. 3 doesn’t make sense

Stay with Alt. 2

incremental benefit cost analysis2
Incremental Benefit/Cost Analysis

HSM Part B – Prioritize Projects

B/C between site 2 and 4 =

$3,958,768 - $3,255,892 =

$2,100,000 - $1,200,000

0.78 < 1.0

Therefore Alt. 4 doesn’t

make sense, Stay with Alt. 2

Alternative 2 is the best!!

optimization

Prioritization Methods

Optimization

Maximize benefits within a fixed budget and other constraints

  • Linear programming
  • Integer programming
    • Most widely used
    • Usable with MS Excel and with Safety Analyst
  • Dynamic programming

(see HSM Section 8.2.2)

how do we properly consider other factors
How Do We Properly Consider “Other” Factors?

HSM Part B – Prioritize Projects

project prioritization example goals weighting
Project Prioritization - Example Goals Weighting

HSM Part B – Prioritize Projects

multi objective resource allocation
Multi-Objective Resource Allocation

Alternative A

Weight

Criterion

Performance

Measures

MeasuredValue

CriterionScore

25

=

4

100

X

Affordability

35

3

X

Improve

Safety

=

7

40

280

X

Score for Alternative A

ReduceCongestion

210

=

35

6

X

C

C

C

Score for Alternative A

590

HSM Part B – Prioritize Projects

Alternative C

Criterion

Performance

Measures

MeasuredValue

Weight

CriterionScore

Alternative B

Criterion

Performance

Measures

MeasuredValue

Weight

CriterionScore

25

=

5

125

X

Affordability

35

3

X

25

=

4

100

X

Affordability

EconomicDevelopment

=

3

40

120

X

35

3

X

Score for Alternative A

EconomicDevelopment

=

6

40

240

X

ReduceCongestion

=

35

2

70

X

Score for Alternative A

ReduceCongestion

=

35

9

315

X

Score for Alternative C

315

Score for Alternative B

655

slide28

How to Set Priorities?

How does your agency prioritize projects?

learning outcomes1

HSM Economic Appraisals and Prioritization Methods

  • Described the Economic Appraisal Process
    • Converting Crash Reduction Benefits to Present Value Dollars
  • Described the Project Prioritization Process
    • Ranking Projects by Economic Effectiveness Measures

Learning Outcomes: