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Engineering Economic Analysis Practices for Highway Investment PDF

127 Pages·2003·2.63 MB·English
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126 pages; Perfect Bind with SPINE COPY = 22.50 pts (can reduce type to 12 pts) ***UPDATE PAGE COUNT = FM + PAGES * ONLY ADJUST SPINE FOR McARDLE JOBS*** NATIONAL COOPERATIVE HIGHWAY RESEARCH NCHRP PROGRAM SYNTHESIS 424 Engineering Economic Analysis Practices for Highway Investment A Synthesis of Highway Practice NCHRP Synthesis 424 TRB TRANSPORTATION RESEARCH BOARD 2012 EXECUTIVE COMMITTEE* OFFICERS Chair: Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Vice Chair: Deborah H. Butler, Executive Vice President, Planning, and CIO, Norfolk Southern Corporation, Norfolk, VA Executive Director: Robert E. Skinner, Jr., Transportation Research Board MEMBERS J. Barry Barker, Executive Director, Transit Authority of River City, Louisville, KY William a.V. Clark, Professor of Geography and Professor of Statistics, Department of Geography, University of California, Los Angeles eugene a. Conti, Jr., Secretary of Transportation, North Carolina DOT, Raleigh James m. Crites, Executive Vice President of Operations, Dallas-Fort Worth International Airport, TX Paula J. C. Hammond, Secretary, Washington State DOT, Olympia miCHael W. HanCoCk, Secretary, Kentucky Transportation Cabinet, Frankfort CHris t. HendriCkson, Duquesne Light Professor of Engineering, Carnegie-Mellon University, Pittsburgh, PA adiB k. kanafani, Professor of the Graduate School, University of California, Berkeley gary P. lagrange, President and CEO, Port of New Orleans, LA miCHael P. leWis, Director, Rhode Island DOT, Providence susan martinoViCH, Director, Nevada DOT, Carson City Joan mcdonald, Commissioner, New York State DOT, Albany miCHael r. morris, Director of Transportation, North Central Texas Council of Governments, Arlington neil J. Pedersen, Consultant, Silver Spring, MD traCy l. rosser, Vice President, Regional General Manager, Wal-Mart Stores, Inc., Mandeville, LA Henry g. (gerry) sCHWartz, Jr., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, MO BeVerly a. sCott, General Manager and CEO, Metropolitan Atlanta Rapid Transit Authority, Atlanta, GA daVid seltzer, Principal, Mercator Advisors LLC, Philadelphia, PA kumares C. sinHa, Olson Distinguished Professor of Civil Engineering, Purdue University, West Lafayette, IN tHomas k. sorel, Commissioner, Minnesota DOT, St. Paul daniel sPerling, Professor of Civil Engineering and Environmental Science and Policy; Director, Institute of Transportation Studies; and Acting Director, Energy Efficiency Center, University of California, Davis kirk t. steudle, Director, Michigan DOT, Lansing douglas W. stotlar, President and CEO, Con-Way, Inc., Ann Arbor, MI C. miCHael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin EX OFFICIO MEMBERS reBeCCa m. BreWster, President and COO, American Transportation Research Institute, Smyrna, GA anne s. ferro, Administrator, Federal Motor Carrier Safety Administration, U.S.DOT leroy gisHi, Chief, Division of Transportation, Bureau of Indian Affairs, U.S. Department of the Interior, Washington, DC JoHn t. gray ii, Senior Vice President, Policy and Economics, Association of American Railroads, Washington, DC JoHn C. Horsley, Executive Director, American Association of State Highway and Transportation Officials, Washington, DC miCHael P. Huerta, Acting Administrator, Federal Aviation Administration, U.S.DOT daVid t. matsuda, Administrator, Maritime Administration, U.S.DOT miCHael P. melaniPHy, President and CEO, American Public Transportation Association, Washington, DC ViCtor m. mendez, Administrator, Federal Highway Administration, U.S.DOT tara o’toole, Under Secretary for Science and Technology, U.S. Department of Homeland Security, Washington, DC roBert J. PaPP (adm., u.s. Coast guard), Commandant, U.S. Coast Guard, U.S. Department of Homeland Security, Washington, DC CyntHia l. Quarterman, Administrator, Pipeline and Hazardous Materials Safety Administration, U.S.DOT Peter m. rogoff, Administrator, Federal Transit Administration, U.S.DOT daVid l. striCkland, Administrator, National Highway Traffic Safety Administration, U.S.DOT JosePH C. szaBo, Administrator, Federal Railroad Administration, U.S.DOT Polly trottenBerg, Assistant Secretary for Transportation Policy, U.S.DOT roBert l. Van antWerP (lt. gen., u.s. army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC Barry r. Wallerstein, Executive Officer, South Coast Air Quality Management District, Diamond Bar, CA gregory d. Winfree, Acting Administrator, Research and Innovative Technology Administration, U.S.DOT *membership as of february 2012. NAT IONAL COOPERAT IVE H IGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 424 Engineering Economic Analysis Practices for Highway Investment A Synthesis of Highway Practice conSultant MicHAEl J. MArkow Teaticket, Massachusetts SubScriber categorieS Administration and Management • Economics • Highways Research Sponsored by the American Association of State Highway and Transportation Offcials in Cooperation with the Federal Highway Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2012 www.TRB.org NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 424 Systematic, well-designed research provides the most effective Project 20-05, Topic 41-03 ISSN 0547-5570 approach to the solution of many problems facing highway ISBN 978-0-309-22343-0 administrators and engineers. Often, highway problems are of local Library of Congress Control No. 2011943707 interest and can best be studied by highway departments individually or in cooperation with their state universities and © 2012 National Academy of Sciences. All rights reserved. others. However, the accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a COPYRIGHT INFORMATION coordinated program of cooperative research. Authors herein are responsible for the authenticity of their materials and for In recognition of these needs, the highway administrators of the obtaining written permissions from publishers or persons who own the American Association of State Highway and Transportation copyright to any previously published or copyrighted material used herein. Offcials initiated in 1962 an objective national highway research Cooperative Research Programs (CRP) grants permission to reproduce program employing modern scientifc techniques. This program is material in this publication for classroom and not-for-proft purposes. supported on a continuing basis by funds from participating Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, or Transit member states of the Association and it receives the full cooperation Development Corporation endorsement of a particular product, method, or and support of the Federal Highway Administration, United States practice. It is expected that those reproducing the material in this document Department of Transportation. for educational and not-for-proft uses will give appropriate acknowledgment The Transportation Research Board of the National Academies of the source of any reprinted or reproduced material. For other uses of the was requested by the Association to administer the research material, request permission from CRP. program because of the Board’s recognized objectivity and understanding of modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee NOTICE structure from which authorities on any highway transportation subject may be drawn; it possesses avenues of communications and The project that is the subject of this report was a part of the National cooperation with federal, state, and local governmental agencies, Cooperative Highway Research Program, conducted by the Transportation universities, and industry; its relationship to the National Research Research Board with the approval of the Governing Board of the National Council is an insurance of objectivity; it maintains a full-time Research Council. The members of the technical panel selected to monitor this project and research correlation staff of specialists in highway transportation to review this report were chosen for their special competencies and with matters to bring the fndings of research directly to those who are in regard for appropriate balance. The report was reviewed by the technical a position to use them. panel and accepted for publication according to procedures established The program is developed on the basis of research needs and overseen by the Transportation Research Board and approved by the identifed by chief administrators of the highway and transportation Governing Board of the National Research Council. departments and by committees of AASHTO. Each year, specifc The opinions and conclusions expressed or implied in this report are those areas of research needs to be included in the program are proposed of the researchers who performed the research and are not necessarily those to the National Research Council and the Board by the American of the Transportation Research Board, the National Research Council, or the Association of State Highway and Transportation Officials. program sponsors. Research projects to fulfll these needs are defned by the Board, and qualified research agencies are selected from those that have submitted proposals. Administration and surveillance of research The Transportation Research Board of the National Academies, the National contracts are the responsibilities of the National Research Council Research Council, and the sponsors of the National Cooperative Highway and the Transportation Research Board. Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered The needs for highway research are many, and the National essential to the object of the report. Cooperative Highway Research Program can make signifcant contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Offce 500 Fifth Street, NW NOTE: The Transportation Research Board of the National Academies, the Washington, DC 20001 National Research Council, the Federal Highway Administration, the American Association of State Highway and Transportation Offcials, and the individual and can be ordered through the Internet at: states participating in the National Cooperative Highway Research Program do http://www.national-academies.org/trb/bookstore not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of this report. Printed in the United States of America The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished schol- ars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and techni- cal matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Acad- emy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achieve- ments of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Acad- emy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transportation Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisci- plinary, and multimodal. The Board’s varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transporta- tion, and other organizations and individuals interested in the development of transportation. www.TRB.org www.national-academies.org NCHRP COMMITTEE FOR PROJECT 20-05 COOPERATIVE RESEARCH PROGRAMS STAFF CHRISTOPHER W. JENKS, Director, Cooperative CHAIR Research Programs CATHERINE NELSON, Oregon DOT CRAWFORD F. JENCKS, Deputy Director, Cooperative Research Programs MEMBERS NANDA SRINIVASAN, Senior Program Offcer KATHLEEN S. AMES, Michael Baker, Jr., Inc. EILEEN P. DELANEY, Director of Publications STUART D. ANDERSON, Texas A&M University BRIAN A. BLANCHARD, Florida DOT SYNTHESIS STUDIES STAFF CYNTHIA J. BURBANK, PB Americas, Inc. STEPHEN R. GODWIN, Director for Studies and Special Programs LISA FREESE, Scott County (MN) Community Services Division JON M. WILLIAMS, Program Director, IDEA and Synthesis Studies MALCOLM T. KERLEY, Virginia DOT JO ALLEN GAUSE, Senior Program Offcer RICHARD D. LAND, California DOT GAIL R. STABA, Senior Program Offcer JOHN M. MASON, JR., Auburn University DONNA L. VLASAK, Senior Program Offcer ROGER OLSON, Minnesota DOT TANYA M. ZWAHLEN, Consultant ROBERT L. SACK, New York State DOT DON TIPPMAN, Senior Editor FRANCINE SHAW-WHITSON, Federal Highway Administration CHERYL KEITH, Senior Program Assistant LARRY VELASQUEZ, JAVEL Engineering, Inc. DEMISHA WILLIAMS, Senior Program Assistant DEBBIE IRVIN, Program Associate FHWA LIAISON JACK JERNIGAN TOPIC PANEL MARY LYNN TISCHER LEIGH BOSKE, University of Texas–Austin NORMAN S. J. FOSTER, City of New Orleans TRB LIAISON MARTINE A. MICOZZI, Transportation Research Board STEPHEN F. MAHER DOUGLAS S. McLEOD, Florida Department of Transportation PEGGY TADEJ, Northern Virginia Regional Commission, Fairfax CHRIS WILLIGIS, System Metrics Group, San Francisco, CA RICHARD Y. WOO, Maryland State Highway Administration NATHANIEL D. COLEY, JR., Federal Highway Administration (Liaison) NADARAJAH “SIVA” SIVANESWARAN, Federal Highway Administration, McLean, VA ACKNOWLEDGMENTS The development of the case examples in chapter three and the and Kumiko Izawa, Traffc and Collision Analysis Engineer, all with implementation guidelines in chapter four would not have been pos- the Capital Program Development & Management Offce, Washington sible without the cooperation of knowledgeable state transportation State DOT for the Planning and Programming: Mobility and Safety and FHWA personnel. Twenty-fve responses to the synthesis screen- Projects case; Michael B. Johnson, Chief, Offce of Specialty Investiga- ing survey helped guide the selection of case examples. The author tions & Bridge Management, Structure Maintenance & Investigations, is indebted to those state DOTs and FHWA division offces listed in California DOT for the Bridge Project Programming and Permitting Appendix C that participated in the screening survey. Their responses case; Louis H. Adams, Acting Director, System Performance & Asset to the questionnaire refected a degree of time and thought that sig- Management Bureau, New York State DOT for the Economics-Based naled their understanding of the importance of this synthesis topic. Tradeoff Analysis case; Robert R. Locander, Pavement Design Engi- Valuable help in identifying case examples and in suggesting key neer, Materials and Geotechnical Branch, Colorado DOT for the Pave- agency contacts was also provided by members of the 41-03 Topic ment Type Selection case; Thomas Van, FHWA; Kurt Lieblong, State Panel, the TRB Transportation Economics Committee (ABE20), and Production Support Engineer, Florida DOT; and Troy Tusup, Value the TRB Asset Management Committee (ABC40). The author thanks Analysis Program Manager, California DOT for the Value Engineering all of these individuals for their time, perspectives, and contributions to case; and John L. Wilson, Economic Policy Analyst, Offce of Capital formulating this synthesis. The author further acknowledges with grati- Programs and Performance Measures, Minnesota DOT for the Accel- tude the cooperation of Douglass B. Lee, Jr., Chair of TRB Committee eration of Project Delivery case; with earlier contributions provided by ABE20, and Kathryn Zimmerman, Chair of TRB Committee ABC40, Abigail McKenzie, (formerly) Director, Offce of Investment Manage- in willingly scheduling a presentation on this synthesis at their respec- ment (now retired); and Ed Idzorek, Offce of Capital Programs and tive committee meetings. Performance Measures, Minnesota DOT. Managers in the several case-example agencies took the additional Members of the Washington State DOT also provided signif- time to defne and describe their proposed case, send documentation cant information for chapter four on implementation. The author of relevant information, participate in follow-up telephone interviews, acknowledges with thanks and appreciation the contributions of the and review drafts of their respective cases. A heartfelt nod of appre- following WSDOT managers: Pat Morin, Manager, Systems Analy- ciation and gratitude goes to the following managers who contributed sis & Programming, WSDOT Capital Program Development & Man- so positively to the case examples: Mark Seaman, Senior Economist, agement Offce; and Jeff S. Uhlmeyer, State Pavement Engineer, Port Authority of New York and New Jersey, for the Critical Interstate and Mark Russell, State Pavement Design Engineer, State Materials Transportation Facilities case; Pat Morin, Manager, Systems Analysis & Laboratory-Pavements Division, WSDOT Environmental and Engi- Programming; Faris Al-Memar, Manager, System Analysis & Planning; neering Programs. FOREWORD Highway administrators, engineers, and researchers often face problems for which infor- mation already exists, either in documented form or as undocumented experience and prac- tice. This information may be fragmented, scattered, and unevaluated. As a consequence, full knowledge of what has been learned about a problem may not be brought to bear on its solution. Costly research fndings may go unused, valuable experience may be overlooked, and due consideration may not be given to recommended practices for solving or alleviat- ing the problem. There is information on nearly every subject of concern to highway administrators and engineers. Much of it derives from research or from the work of practitioners faced with problems in their day-to-day work. To provide a systematic means for assembling and evaluating such useful information and to make it available to the entire highway commu- nity, the American Association of State Highway and Transportation Offcials—through the mechanism of the National Cooperative Highway Research Program—authorized the Transportation Research Board to undertake a continuing study. This study, NCHRP Project 20-5, “Synthesis of Information Related to Highway Problems,” searches out and synthesizes useful knowledge from all available sources and prepares concise, docu- mented reports on specifc topics. Reports from this endeavor constitute an NCHRP report series, Synthesis of Highway Practice. This synthesis series reports on current knowledge and practice, in a compact format, without the detailed directions usually found in handbooks or design manuals. Each report in the series provides a compendium of the best knowledge available on those measures found to be the most successful in resolving specifc problems. PREFACE This study has looked at how U.S. transportation agencies have applied engineering eco- By Jon M. Williams nomics (beneft–cost analyses and similar procedures) to decisions on highway investments. Program Director State departments of transportation (DOTs) are most likely to use economic methods when Transportation considering investments in pavement and bridge preservation, safety improvements, and Research Board major projects on trunk lines and in urban areas. This study, however, has found agencies that use economic information across their key business and decision processes. Information was gathered through literature review, presentations at conference com- mittee meetings, a screening survey of state DOTs, and interviews leading to case studies. Michael J. Markow, Teaticket, Massachusetts, collected and synthesized the information and wrote the report. The members of the topic panel are acknowledged on the preced- ing page. This synthesis is an immediately useful document that records the practices that were acceptable within the limitations of the knowledge available at the time of its preparation. As progress in research and practice continues, new knowledge will be added to that now at hand. CONTENTS 1 SUMMARY 5 CHAPTER ONE INTRODUCTION Background, 5 Defnitions, 6 Perspectives on Engineering Economic Analyses, 7 Study Approach, 10 Synthesis Organization, 11 12 CHAPTER TWO ENGINEERING ECONOMIC ANALYSIS Policy and Procedural Guidance, 12 Texts on Engineering Economic Analysis, 13 Methods, 13 Challenges to Wider U.S. Application of Economic Methods, 21 International Experience, 22 Screening Survey, 25 Preview of Case Examples, 29 32 CHAPTER THREE CASE EXAMPLES Impact of Critical Interstate Transportation Facilities, 32 Planning and Programming: Mobility and Safety Projects, 38 Bridge Project Programming and Permitting, 48 Economics-Based Tradeoff Analysis, 53 Pavement Type Selection, 57 Value Engineering, 60 Acceleration of Project Delivery, 64 Case Closure, 73 74 CHAPTER FOUR IMPLEMENTATION Value of Engineering Economic Analysis, 74 Strengthened Agency Decision Making, 75 Level of Effort, 77 Success Factors, 79 Useful Resources, 80 Economic Analysis and Performance Management, 81 Communication and Reporting, 86 Ongoing and Emerging Areas of Analysis, 87 90 CHAPTER FIVE CONCLUSIONS Study Objectives and Case Development, 90 Findings, 91 Impediments to Wider Application, 93 Research Suggestions, 94 97 ABBREVIATIONS AND ACRONYMS 99 REFERENCES 105 BIBLIOGRAPHY 106 APPENDIX A SURVEY QUESTIONNAIRE 112 APPENDIX B INTERVIEW GUIDE 113 APPENDIX C SCREENING SURVEY PARTICIPANTS 114 APPENDIX D S ELECTED FEDERAL REQUIREMENTS FOR HIGHWAY ECONOMIC ANALYSES Note: Many of the photographs, fgures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the Web at www.trb.org) retains the color versions. EnginEEring Economic analySiS PracticES for HigHway invEStmEnt Summary To paraphrase a recent study in performance management: Although the bureaucratic ten- dency in government is often to avoid doing something wrong, economic analyses can demon- strate that public agencies actually do something right. This synthesis has looked at how U.S. transportation agencies have applied engineering economics—beneft–cost analyses and simi- lar procedures—to decisions on highway investments. Although beneft–cost calculations are often regarded as methods of project appraisal, occurring early in planning and design, experi- ence shows that these methods have been successfully and productively applied throughout the project life cycle. Most U.S. state departments of transportation (DOTs) actually conduct economic analyses for at least certain types of highway investments. Past research suggests that the most widely used applications of economic methods occur when considering invest- ments in pavement and bridge preservation (a practice correlated with economic algorithms in pavement and bridge management systems), safety improvements (considering the social costs potentially avoided by reducing fatalities, injuries, and property damage resulting from collisions), and major projects on trunk lines and in urban areas. What the fndings of this synthesis have demonstrated, however, is that more broad-based applications of engineering economic analyses are conducted by agencies that are conversant in economic concepts and methods to a greater than average degree. These agencies have developed a level of prof- ciency that enables them to integrate economic analyses throughout their daily operations. Agencies that successfully apply engineering economic analyses across their business processes strive to develop and maintain the tools and capabilities to perform these analyses effectively, but in a practical, common-sense way. These tools and capabilities include effec- tive guidance and executive support, staff knowledge and skills, fnancial and administra- tive resources, the incorporation of appropriate analytic methods within business processes, effective data collection and analysis, accessible information technology systems, and sup- porting institutional relationships with other organizations. The perspective is fundamentally one of incorporating economic analyses within the normal, routine business processes that an agency must perform to do its job effectively, rather than one of viewing economic analyses as additional, somewhat isolated, adjuncts to other activities. Executives in these agencies value economic information on proposed highway investments. Their managers and staff work diligently to develop and maintain the capabilities needed to provide this information for key business and decision processes. Case examples have been critical to developing the fndings of this synthesis. Several mech- anisms were used to identify candidate agencies: a literature review, presentations at confer- ence committee meetings, interviews with topic panel members and other industry experts, and a screening survey. The screening survey questionnaire was sent to state DOT represen- tatives on AASHTO’s Standing Committee on Highways, with copies to each state DOT’s Research Advisory Committee member, and a corresponding questionnaire to each state’s FHWA division offce. Responses were received from 17 state DOTs and 8 FHWA division offces. For two states, responses were received from both the DOT and the FHWA division offce; these were combined to produce a single response for each state, resulting in 23 unique state responses. Of these 23 responses, 20 states reported using engineering economic analyses, whereas 3 described themselves as not using such analyses. The 20 affrmatively responding states were considered as candidates for case examples; the 3 states that responded negatively

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