How Assumptions Influence the Results of a Cost Benefit Analysis
By Wayne Davies
The national guidelines for transport systems management (NGTSM) provides guidance for how cost benefit analysis (CBA) should be conducted for transport and road projects. These guidelines are supplemented by material provided by the Bureau of Infrastructure, Transport and Regional Economics (BITRE), Austroads and the state road authorities. This paper attempts to investigate if following the guidelines alone is always sufficient to achieve both transparency and consistency for CBAs.
In this paper, a number of real life case studies from Queensland have been included. These case studies include road interchange upgrades, bridge upgrades, flood immunity improvements, and public transport projects. The CBAs of the case studies follow the guidelines provided (consistent unit values and formulae) but the results of the CBAs fluctuate for reasons outside of the material provided in the guidelines. These reasons largely relate to the adoption of assumptions. The assumptions considered in this paper relate to the base case, the use of transport models, treatment of incomplete information and data, road user behaviour, and forecast demand.
The paper proposes evaluating projects as part of a program as an approach to mitigate or resolve inconsistencies between CBAs that might use different assumptions if evaluated as individual projects. The problems identified in the case studies are revisited and discussed in the context of a program approach. The paper discusses how the application of a program approach enhances the value of CBA outputs to decision-makers.
Davies, W. (2016) How Assumptions Influence the Results of a Cost Benefit Analysis, 27th ARRB Conference, available at: http://18.104.22.168/Presto/content/Detail.aspx?q=d2F5bmUgZGF2aWVz&ctID=MjE1ZTI4YzctZjc1YS00MzQ4LTkyY2UtMDJmNTgxYjg2ZDA5&rID=ODA2Ng==&qcf=&ph=VHJ1ZQ==&bckToL=VHJ1ZQ==&
What Effect do Queensland’s Major Road Infrastructure Projects have on Traffic Volumes and Growth Rates?
By Wayne Davies
This paper investigates the effect that major road infrastructure projects have on the traffic volumes and traffic growth rates on sections of the network directly affected by the project. The paper also considers whether such changes in traffic volume, possibly induced traffic, influences the economic viability of such major projects.
A sample of major projects located along Queensland highways and motorways have been used in this study. Traffic volumes before and after the completion of the project are compared to determine if traffic volumes and/or traffic growth rates are influenced by the project. The types of major road infrastructure projects considered in the study are town bypasses, deviations, and major road widening projects. Major projects are compared based on a number of factors such as project type, volume capacity ratio at the time of construction, and the extent of the increase in capacity. These comparisons have been used to determine the extent project and network related factors influence changes to traffic volumes and growth rates.
The results of the study aim to determine the extent that induced traffic influences the benefit streams for major projects. Two hypothetical examples have been included in the paper, one example assumes that traffic growth is unaffected by the project and the other example assumes traffic growth follows a pattern similar to the case studies investigated. This paper will discuss the significance of the impact induced traffic has on the economic viability of projects and the types of projects that are more likely to have their benefit streams eroded by induced traffic.
Davies, W. (2015), What Effect do Queensland’s Major Road Infrastructure Projects have on Traffic Volumes and Growth Rates? Australasian Transport Research Forum 2015, available at: http://atrf.info/papers/2015/files/ATRF2015_Resubmission_210.pdf
Dealing with Projected Capacity Constraints in Road Project Appraisals
By Mark Best and Wayne Davies
Saturation of road infrastructure has considerable impact on vehicle operating speeds and traffic volumes. Projects can be designed to increase the capacity of the road or network so that operating speeds are maintained. Information is often limited regarding future traffic behaviour in the base case; this is especially true if the road is expected to reach capacity before the end of the applied evaluation period. If a road is projected to reach capacity in the base case and not the project case there will be a disparity in traffic volumes between the cases. This disparity can present a number of problems for the analyst.
This paper focuses on the evaluation of town bypass projects. Town bypasses increase the capacity of the network by allowing through traffic to avoid urban areas. These urban areas often have insufficient capacity to cater for projected traffic volumes. In the context of town bypasses, this paper aims to identify the problems in determining benefits when such capacity issues arise and identify the approaches that can be applied to remedy these problems.
An applied case study is used to illustrate the practical effects of applying differing theoretical approaches. Alternate scenarios illustrate evaluation results using various suggested theoretical approaches. The rationale behind the application of these alternate approaches is explored and discussed with the goal of matching theory with enhanced analytical rigour and accuracy. Ultimately, this paper discusses economically rigorous approaches and reports results from the application of different approaches in dealing with excessive traffic volumes.
Best, M. and Davies, W. (2013), Dealing with Projected Capacity Constraints in Road Project Evaluation, Australasian Transport Research Forum 2013, available at: http://www.atrf.info/papers/2013/2013_best_davies.pdf
Is Road Infrastructure that Improves Operating Speed a Double-edged Sword when it comes to Road Safety?
By Wayne Davies
Building new or upgrading existing road infrastructure is a common practice to reduce congestion and improve travel time. Road infrastructure projects that successfully improve operating speeds throughout the day or just during peak periods also have an impact on safety.
This paper aims to address how new or upgraded road infrastructure primarily constructed to improve operating speed impacts road safety. Is road safety improved, worsened or negligibly changed? Literature indicates that higher speeds increase the severity of road accidents but new and upgraded road infrastructure is generally built to a standard that will reduce the probability of accidents occurring. Does the reduced probability of an accident occurring offset the more severe accidents likely to occur from the higher operating speeds? The matter is further complicated when the new or upgraded infrastructure eliminates particular severe accident types that occur even at lower speeds such as head-on collisions on existing single carriageway roads.
In this paper, three types of road projects are considered, town bypasses, duplication of carriageways and overtaking lanes. These three types of projects have been selected due to the different nature of safety implications for each project type. The accident costs for each of these projects have been calculated using both the Austroads’ human capital approach and Hensher’s willingness to pay approach. Reductions in accidents are calculated based on model road state (MRS) and percentage reductions based on particular treatments. The safety implications for projects may not be as predictable as one would expect.
Davies, W. (2014), Is Road Infrastructure that Improves Operating Speed a Double-Edged Sword When it comes to Road Safety? 26th ARRB Conference, available at: http://22.214.171.124/Presto/content/Detail.aspx?ctID=MjE1ZTI4YzctZjc1YS00MzQ4LTkyY2UtMDJmNTgxYjg2ZDA5&rID=NDEzMw==&qcf=&ph=VHJ1ZQ==&bckToL=VHJ1ZQ==&
Proposed Changes to the Cost Benefit Analysis Decision Criteria for Road Projects
By Wayne Davies
The Australian Transport Council (ATC) have identified that the benefit cost ratio (BCR), the net present value (NPV) and first year rate of return (FYRR) decision criteria are appropriate inputs to project prioritization, mutual exclusive project selection and optimal timing respectively. This paper suggests the net benefit investment ratio (NBIR), the incremental net benefit investment ratio (INBIR) and the internal rate of return (IRR) subject to decision criteria incorporating the marginal project as alternatives to those proposed by the ATC. The proposed decision criteria aim to reduce the impact of uncertainty surrounding discount rates and opportunity costs of capital, hence improving the quality of the quantitative inputs provided to decision makers.
Davies, W. (2012), Proposed Modifications to the Cost Benefit Analysis Decision Criteria for Road Project Evaluation to Improve Decision-making (Industry Note), Transportation Journal, 51, (4), 473-486, available at: http://muse.jhu.edu/journals/transportation_journal/summary/v051/51.4.davies.html
Upgrading Rural Bridges for Improved Freight Efficiency
By Wayne Davies
This paper focuses on the methods and approaches of evaluating the benefits of upgrading bridges that are currently structurally deficient to carry vehicles above certain tonnage or do not cater for certain heavy vehicle dimensions. Many of these bridges are located in rural areas where traffic volumes tend to be low. Benefits for most road projects are driven by traffic volume. If a project has high capital costs and low traffic volumes, a cost benefit analysis (CBA) would normally imply the project is not economically viable.
The extent traffic volume is a causation of benefits for bridge upgrades is not as obvious as for other road project types. In this paper, the key determinants for deriving benefits for these bridge upgrades are discussed in some detail. These key determinants include the number of heavy vehicles, extent of restrictions (tonnage, size and length), length of diversion route required by heavy vehicles to avoid load and size restricted bridge/s, total distance heavy vehicles are required to travel to reach their destination and the maintenance costs required if the bridge is not upgraded.
In this paper, three approaches of evaluating benefits of upgrades to bridges are discussed. These approaches centre on the behaviour of heavy vehicle road users when a bridge can no longer be traversed due to structural deficiencies. First approach assumes heavy vehicle road users will divert to avoid the bridge, second approach assumes heavy road users will switch to smaller vehicles that are within the load restrictions of the bridge and the third approach is a hybrid of the first two approaches. To demonstrate the above-mentioned approaches, two case studies from Queensland Australia have been included in the paper.
Davies, W. (2014), Upgrading Rural Bridges for Improved Freight Efficiency, 2014 European Transport Conference, available at: http://abstracts.aetransport.org/paper/index/id/4326/confid/19
Calculation of Transport Mode Shift in the Absence of Complex Transport Models
By Wayne Davies
The extent of mode shift induced by any transport initiative is often an essential input to an economic appraisal. Transport modelling is often time consuming and expensive. Transport modelling is often not available at the earlier planning stages and sometimes not available at all for some projects. To address the often lack of availability of data from sophisticated transport models, a simple methodology to determine mode shift has been developed. This paper explains the methodology to determine mode shift and the applications for this methodology to CBA models.
The methodology applies triangle distributions of perceived costs for travel for various modes. The interaction of these triangles determines the number of commuters utilizing each mode from the calculated integrals of the triangle distributions (two linear functions). The triangles were constructed using maximum, minimum and mean values for perceived costs. Triangle distributions were selected mostly due to the ease of manipulation using maximum, minimum and mean values.
The triangle distribution methodology has been applied to a non-infrastructure model (TRIMM). This model was designed to evaluate non-infrastructure solutions for road and transport. Detailed modelling is rarely available for non-infrastructure solutions. The application of the triangle distribution methodology was deemed an appropriate solution for the TRIMM model considering the success of many non-infrastructure solutions for transport relies upon mode shifts. The application of the triangle distribution methodology can potentially extend beyond just transport and road projects to any analysis of behaviour that can be defined within a set of parameters.
Davies, W. (2014), Calculation of Transport Mode Shift in the Absence of Complex Transport Models, 26th ARRB Conference, available at: http://126.96.36.199/Presto/content/Detail.aspx?ctID=MjE1ZTI4YzctZjc1YS00MzQ4LTkyY2UtMDJmNTgxYjg2ZDA5&rID=NDE2Ng==&qcf=&ph=VHJ1ZQ==&bckToL=VHJ1ZQ==&
The Bruce Highway Action Plan Program Evaluation
By Wayne Davies
The Bruce Highway Action Plan (BHAP) Program Evaluation was a momentous task conducted in most part by the Transport and Main Roads (TMR) Cost Benefit Analysis (CBA) Team. The evaluation included 189 overtaking lanes, 404kms of road widening and shoulder sealing in various places between Brisbane and Cairns, 56 capacity focused projects and 16 flood immunity focused projects. The total projected capital costs of all projects proposed as part of the BHAP amounted to over Sixteen Billion Dollars. The program evaluation conducted, due to the short timeframes, lack of available data and strategic nature of the plan, has been ‘coined’ a strategic evaluation.
This paper focuses on the methodology applied to the projects proposed in the BHAP. A TMR designed project/program evaluation model (CARP V1.0) was used to evaluate the majority of the proposed BHAP projects. The model produces streams of discounted benefits and costs of the projects and program using limited and incomplete data. The large scale of work and the close proximity of projects allowed for an integrated approach to the analysis, which considered the impact projects have on each other.
The result of the program if all evaluated projects are included is a benefit cost ratio (BCR) of approximately 0.71 at a discount rate of 7%. If the less viable projects are removed from the program, the program can obtain a benefit cost ratio of greater than one with a sufficiently large number of projects remaining.
Reference Journal Version:
Davies, W. (2015), Bruce Highway Action Plan Program Evaluation, Journal of Civil Engineering and Architecture, 9, (3), 350-367, available at: http://www.davidpublisher.com/index.php/Home/Article/index?id=3923.html
Original Conference Version Titled ‘Program Evaluation: An Applied Case Study’
Davies, W. (2013), Program Evaluation: An Applied Case Study, Australasian Transport Research Forum 2013, available at: http://www.atrf.info/papers/2013/2013_davies.pdf
Advanced Methods of Evaluating Benefits from Improved Flood Immunity in Queensland
By Wayne Davies
The regular occurrence and the high costs of flooding to both road agencies and communities is a strong impetus to investigate the methodologies applied to evaluating flood immunity road projects. Very little literature exists on methods of evaluating the benefits of improving flood immunity through better road infrastructure. This paper attempts to address some of the numerous issues hindering the accurate evaluation of flood immunity road projects. The methodologies presented in this paper are designed to evaluate benefits that are not normally included or not fully considered in evaluations. The application of these methodologies is demonstrated in an example of a typical rural network subjected to regular flooding.
Davies, W. (2013), Advanced Methods of Evaluating Benefits from Improved Flood Immunity in Queensland, Journal of Civil Engineering and Architecture, 7, (9), 973-991, available at: http://www.davidpublishing.com/show.html?13744 (Also presented at the Australasian Transport Research Forum 2011, available at: http://www.atrf.info/papers/2011/2011_Davies.pdf)
Road Program Evaluation: Assessing the Bigger Picture
By Wayne Davies
Road projects are typically evaluated individually before submission for funding to either State or Federal Government Programs. However, there are occasions when projects are grouped together and evaluated as a program and the program is then submitted for funding. This paper focuses on the quantitative evaluation of programs and the methods of ranking and evaluating proposed projects within a program.
Three methods of program evaluation are discussed in this paper. The first method applies an approach dubbed the ‘simultaneous’ approach. This approach involves evaluating all projects simultaneously under the assumption that either all the proposed projects are constructed or none of the proposed projects is constructed. The second method applies an approach dubbed the ‘sequential’ approach. This approach involves evaluating projects in the sequence of a predetermined level of priority. The third method adopts both the simultaneous and sequential approaches.
The $670,000,000 Warrego Highway Upgrade (WHU) program and the $40,000,000 Nation Building Bruce Highway Overtaking Lane (NBBHOL) program have been included in this paper as examples of programs with different approaches to evaluation. The WHU program was evaluated using the sequential approach while the NBBHOL program was evaluated using the simultaneous approach.
Davies, W. (2012), Road Program Evaluation: Assessing the Bigger Picture, 25th ARRB Conference, available at: http://188.8.131.52/Presto/content/Detail.aspx?ctID=MjE1ZTI4YzctZjc1YS00MzQ4LTkyY2UtMDJmNTgxYjg2ZDA5&rID=MzE5Nw==&qcf=&ph=VHJ1ZQ==&bckToL=VHJ1ZQ==&
Is the Pursuit of Higher Education Worth the Cost?
By Wayne Davies
Davies, W. (2007), Is the Pursuit of Higher Education Worth the Cost? Griffith University Masters Thesis (Also presented as a poster at the 38th Australian Conference of Economists 2009). The full thesis is available at: http://www.4shared.com/office/XR6rgDL8ce/Complete_Thesis.html
The master’s was completed in 2007. Some of the views of the author have changed since the submission.