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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2014. Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland. Washington, DC: The National Academies Press. doi: 10.17226/22280.
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TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2015 www.TRB.org The Second S T R A T E G I C H I G H W A Y R E S E A R C H P R O G R A M REPORT S2-L35B-RW-1 Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland Kaveh FaroKhi Sadabadi and ThomaS h. JacobS Center for Advanced Transportation Technology University of Maryland Sevgi erdogan and FredricK W. ducca National Center for Smart Growth Research & Education University of Maryland Lei Zhang National Center for Strategic Transportation Policies, Investments and Decisions University of Maryland

Subject Areas Economics Highways Operations and Traffic Management Planning and Forecasting

SHRP 2 Reports Available by subscription and through the TRB online bookstore: www.mytrb.org/store Contact the TRB Business Office: 202-334-3213 More information about SHRP 2: www.TRB.org/SHRP2 The Second Strategic Highway Research Program America’s highway system is critical to meeting the mobility and economic needs of local communities, regions, and the nation. Developments in research and technology—such as advanced materials, communications technology, new data collection tech- nologies, and human factors science—offer a new opportunity to improve the safety and reliability of this important national resource. Breakthrough resolution of significant transportation problems, however, requires concentrated resources over a short time frame. Reflecting this need, the second Strategic Highway Research Program (SHRP 2) has an intense, large-scale focus, integrates multiple fields of research and technology, and is fundamentally different from the broad, mission-oriented, discipline-based research programs that have been the mainstay of the highway research industry for half a century. The need for SHRP 2 was identified in TRB Special Report 260: Strategic Highway Research: Saving Lives, Reducing Congestion, Improving Quality of Life, published in 2001 and based on a study sponsored by Congress through the Transportation Equity Act for the 21st Century (TEA-21). SHRP 2, modeled after the first Strategic Highway Research Program, is a focused, time- constrained, management-driven program designed to com- plement existing highway research programs. SHRP 2 focuses on applied research in four areas: Safety, to prevent or reduce the severity of highway crashes by understanding driver behavior; Renewal, to address the aging infrastructure through rapid design and construction methods that cause minimal disruptions and produce lasting facilities; Reliability, to reduce congestion through incident reduction, management, response, and mitigation; and Capacity, to integrate mobility, economic, environmental, and community needs in the planning and designing of new trans- portation capacity. SHRP 2 was authorized in August 2005 as part of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The program is managed by the Transportation Research Board (TRB) on behalf of the National Research Council (NRC). SHRP 2 is conducted under a memo- randum of understanding among the American Association of State Highway and Transportation Officials (AASHTO), the Federal Highway Administration (FHWA), and the National Academy of Sciences, parent organization of TRB and NRC. The program provides for competitive, merit-based selection of research contractors; independent research project oversight; and dissemination of research results. SHRP 2 Report S2-L35B-RW-1 ISBN: 978-0-309-27432-6 © 2015 National Academy of Sciences. All rights reserved. Copyright Information Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copy- right to any previously published or copyrighted material used herein. The second Strategic Highway Research Program grants permission to repro- duce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, or FHWA endorsement of a particular prod- uct, method, or practice. It is expected that those reproducing material in this document for educational and not-for-profit purposes will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from SHRP 2. Note: SHRP 2 report numbers convey the program, focus area, project number, and publication format. Report numbers ending in “w” are published as web documents only. Notice The project that is the subject of this report was a part of the second Strategic Highway Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical committee selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical committee and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the second Strategic Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report.

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars 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 Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical 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 Academy 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. C. D. (Dan) Mote, Jr., 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. Victor J. Dzau 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 Academy, 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. C. D. (Dan) Mote, Jr., 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

ACKNOWLEDGMENTS This work was sponsored by the Federal Highway Administration in cooperation with the American Asso- ciation of State Highway and Transportation Officials. It was conducted in the second Strategic Highway Research Program (SHRP 2), which is administered by the Transportation Research Board of the National Academies. This project was managed by Stephen J. Andrle, SHRP 2 Deputy Director; William Hyman, Senior Program Officer for SHRP 2 Reliability; and Matthew Miller, Program Officer for SHRP 2 Reliability. Ralph Hessian, Special Consultant for SHRP 2 Reliability, and Onno Tool, SHRP 2 Visiting Professional, also contributed to the project. The University of Maryland’s Center for Advanced Transportation Technology jointly with the National Center for Smart Growth Research & Education was the primary contractor for this research project, with subcontract support from Cambridge Systematics, Inc., and Dunbar Transportation Consulting. Thomas H. Jacobs and Fredrick W. Ducca were co-principal investigators for this study. The primary authors of this report were Kaveh Farokhi Sadabadi and Sevgi Erdogan of, respectively, the University of Maryland’s Center for Advanced Transportation Technology and National Center for Smart Growth Research & Education. Kaveh Farokhi Sadabadi led the development and application of the travel-time data-driven methodology for estimating value of reliability and wrote Part 2: Description of the Method. Other authors include the co-principal investigators and Lei Zhang of the University of Maryland’s National Center for Strategic Transportation Policies, Investments and Decisions. Research support was provided by Richard A. Margiotta of Cambridge Systematics, Inc., and Julie Dunbar of Dunbar Transportation Con- sulting. The University of Maryland research team also acknowledges the technical contributions of Cinzia Cirillo at the University of Maryland, as well as Sabya Mishra at the University of Memphis. Finally, the University of Maryland research team acknowledges Subrat Mahapatra, Transportation Engineering Manager, Office of Planning and Preliminary Engineering, Maryland State Highway Admin- istration, for providing leadership and guidance. SHRP 2 STAFF Ann M. Brach, Director Stephen J. Andrle, Deputy Director Neil J. Pedersen, Deputy Director, Implementation and Communications Cynthia Allen, Editor Kenneth Campbell, Chief Program Officer, Safety Jared Cazel, Editorial Assistant JoAnn Coleman, Senior Program Assistant, Capacity and Reliability Eduardo Cusicanqui, Financial Officer Richard Deering, Special Consultant, Safety Data Phase 1 Planning Shantia Douglas, Senior Financial Assistant Charles Fay, Senior Program Officer, Safety Carol Ford, Senior Program Assistant, Renewal and Safety James Hedlund, Special Consultant, Safety Coordination Alyssa Hernandez, Reports Coordinator Ralph Hessian, Special Consultant, Capacity and Reliability Andy Horosko, Special Consultant, Safety Field Data Collection William Hyman, Senior Program Officer, Reliability Linda Mason, Communications Officer David Plazak, Senior Program Officer, Capacity and Reliability Rachel Taylor, Senior Editorial Assistant Dean Trackman, Managing Editor Connie Woldu, Administrative Coordinator

Transportation agencies have traditionally used average travel times and travel time savings to measure system performance and benefits of improvement investments. The reliability of travel times from day to day has recently emerged as an important component of system performance for agencies and, of equal importance, for users who may rely on the road- way system for on-time arrival at their destinations. Unreliable travel can have significant negative consequences for individuals and businesses and thus requires that the value of reliability be considered in the selection of performance improvement projects. There is a need to understand the benefits of providing reliable travel time, establishing appropriate monetary values, and incorporating the additional dimension of travel time reliability into the economic analysis methods that support alternative project investment evaluations and programming decisions that will lead to better operational performance. This report will be of interest to transportation agencies and professionals involved in the analysis and selection of highway improvement projects for operational and capital programming. Traffic congestion continues to grow on the nation’s highways, increasing the concerns of transportation agencies, the business community, and the general public. Congestion includes recurring and nonrecurring components. Recurring congestion reflects routine day- to-day delays during specific time periods when traffic demand exceeds available roadway capacity. Road users come to expect these daily traffic patterns and adjust their travel plans accordingly to achieve timely arrivals. Nonrecurring congestion results from random inci- dents such as crashes, weather, and work zones, which cause unexpected extra delays. Road users are frustrated by these unexpected delays, which can make for late arrival times at their destination. The SHRP 2 Reliability research objective focuses on reducing nonrecurring congestion through incident reduction, management, response, and mitigation. Achieving this objective will improve travel time reliability for both people and freight. Earlier in SHRP 2 research, Reliability Project L11: Evaluating Alternative Operations Strategies to Improve Travel Time Reliability presented a novel approach to establishing an economic value for travel time reliability. The approach is based on the real options theory from the financial sector, in which an individual purchases an insurance premium to protect against an undesirable outcome. The travel analogy is when a traveler knows the normal travel time to a destination but chooses an earlier departure time to reduce the risk of a late arrival. This extra travel time has a monetary value and represents the insurance premium that a traveler is willing to pay. The method is data driven, using actual local historical travel times as the basis for establishing a value of reliability, whereas previous methods have used behavioral modeling techniques. The Maryland State Highway Administration currently has a project development and programming process to address short-term congestion relief that includes the value of travel time reliability based on consolidated past research and methodologies. This project’s purpose was to further develop and pilot the viability of the options-theoretic approach in Maryland, establish a localized range of reliability values based on state travel time data, F O R EWO R D Ralph Hessian, P.Eng., FITE, SHRP 2 Special Consultant, Capacity and Reliability

compare the new values to those already in use, apply the newly established values in the project development and analysis process, and conduct an assessment of the findings and results. A travel time data-driven methodology was constructed to produce a range of local values for reliability, and the sensitivity of this range of values was examined using an actual short-term congestion relief project to better understand application effects. While the data- driven method shows promise, additional validation is required on the underlying theories, method, and test application results. Suggestions for further research are presented. In addition, the applicability of incorporating the value of reliability into long-range project development, prioritization, and selection was explored as a proof of concept. Although the Maryland State Highway Administration is the basis for this pilot study, the underlying theory, principles, and data-driven method, as well as the further research sug- gestions, could be informative to other agencies and jurisdictions that have an interest in considering incorporating travel time reliability into their project development and pro- gramming decision-making process.

C O N T E N T S 1 Executive Summary 2 Select and Defend a Value or Range of Values 3 Use VTTR in the Maryland SHA Project Development Process 4 Report the Step-by-Step Process Used by the Maryland SHA 5 Conclusions and Recommendations 6 PART 1: BAckgrouNd ANd ApplicAtioN of thE MEthod 7 CHAPTER 1 Background 7 Introduction 7 Previous Approaches to Reliability Valuation 10 Applying VTTR in Decision Making 13 Summary and Conclusions 15 CHAPTER 2 research Approach 15 Describe SHA’s Established Processes 15 Identify and Acquire Data Needed to Perform Research 15 Identify Method to Forecast Future Travel Time Reliability Measures 16 Calculate a Local Value of Travel Time Reliability 17 Incorporate Value of Travel Time Reliability into Project Evaluation Process 17 Brief SHA Management on Methods Used to Select and Defend Local Value of VTTR and Impacts of Application to Existing Decision Processes 18 CHAPTER 3 findings and Applications 18 Overview of Process Used to Apply Value of Travel Time Reliability in Maryland 18 Description of Established Processes 19 Description of Reliability in Congestion Relief Project Decision Making 23 Proposed Travel-Time Data-Driven Methodology for Estimating Value of Reliability/Reliability Ratio 26 Incorporating Results into Short-Term Prioritization and Project Selection 27 Improvement Projects 30 Incorporating Results into Long-Term Prioritization and Project Selection 37 Results of Presentation to SHA Management 42 CHAPTER 4 conclusions and Suggested research 42 Overall Findings 42 Suggested Future Research 44 references: Part 1 46 Appendix A. Overview of Maryland Department of Transportation Planning 55 Appendix B. MATLAB Code 58 Appendix c. Presentation to Maryland State Highway Administration

73 PART 2: dEScriptioN of thE MEthod 74 CHAPTER 5 introduction 75 Real Options and Applicability to Travel Time Reliability Valuation 76 CHAPTER 6 Background 76 Travel Time and Cost 76 Discrete Choice Analysis and Random Utility/Consumer Theory 76 Classic VOT and VOR Estimation 77 Utility-Based Reliability Valuation 78 Consumption-Based Asset Pricing Model 80 What Is a Real Option? 80 Real Options in Transportation Projects 80 Real Options in Trip and Route Choice Decision Making 80 Real Options in Travel Time Reliability Valuation 82 CHAPTER 7 Methodology 82 Travel Time Evolution 82 Random Walk Representation of Geometric Brownian Motion 84 Payoff Characterization 86 Guaranteed Travel Time 86 Duration of Travel Time Insurance Policy 86 Certainty-Equivalent Payoff Valuation 88 CHAPTER 8 Summary 88 Comparison Between the Proposed Approach and the SHRP 2 Project L11 Methodology 92 CHAPTER 9 Value of reliability Savings Quantification 94 CHAPTER 10 corridor Methodology Example Applications 101 references: Part 2 103 Appendix d. Background on Stochastic Processes 109 Appendix E. Details on Corridor Examples

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TRB’s second Strategic Highway Research Program (SHRP 2) Report S2-L35B-RW-1: Value of Travel Time Reliability in Transportation Decision Making: Proof of Concept—Maryland addresses how an agency can include a value of travel time reliability in a benefit–cost analysis when making congestion reduction–related project investment decisions.

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