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