Engineering Economic Analysis Practices for Highway Investment (2012) / Chapter Skim
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12 chapter two EnginEEring Economic AnAlysis Policy And ProcEdurAl guidAncE There are a number of policy statements and guidelines that govern application of EEAs to highway investments nationwide. There are also research reports that explain methods and procedures available for use.
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13 three will cite additional federal and state laws, guidelines, and research studies applicable to the particular case at hand. • A compilation of federal laws beyond those cited in the case examples, which call for economic analyses of highway investments, is contained in Appendix D to illustrate the breadth of these requirements for economic analyses.
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14 ognized in federal policy. Provisions of Executive Order 12893 acknowledge that nonmonetized (or non- market)
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15 resolve the need for investments to serve additional needs and purposes such as the following: – Various aspects of equity: the need to ensure a fair distribution of investments and impacts thereof across the state. Examples might include geographic equity (e.g., maintaining a fair balance of road investments across rural and urban needs)
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16 This synthesis adopts this position, which is based on the following precepts: • All of the engineering economic methods are based on a LCCA of investment alternatives. The LCCA is a discounted cash flow analysis of monetized cost and benefit streams.
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17 (e.g., uniform, normal, or beta) and a set of parameter values that define the key characteristics of the selected distribution.
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18 In Winfrey's view, average interest rates or bond rates are not appropriate discount rates (i.e., the discount rate is not necessarily equal to these interest or bond rates, although the case examples indicate that rates on selected instruments can be part of the calculation of discount rates)
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19 the rail forecasts was evident, owing to a greater degree of competition for rail funding and "deliberately slanted forecasts" that provided optimistic projections of ridership and revenues, accompanied by underestimation of costs (Flyvbjerg et al.
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20 With these distinctions, the case examples in chapter three fall into the following categories: • Spatial relationships are not critical for certain cases; therefore, locational or network information is optional; for example, for GIS mapping, or if the analytic system already includes locational or network descriptions for other purposes. Pavement type selection is a case example that does not require spatial information other than to locate and identify the particular highway segment.
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21 chAllEngEs To WidEr u.s. APPlicATion oF Economic mEThods government Accountability office Findings Although the guidance documents listed at the beginning of this chapter identify the advantages of using EEAs and encourage wider application, practical experience raises a number of concerns that challenge this effort.
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22 number of common errors were evident in the submittals (Timothy 2010) : • Incorrect treatment of some economic development and local construction impacts as project benefits.
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23 EC Guide and the recommended use of economic analysis within the project life cycle differ from the U.S. examples provided in this synthesis.
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24 Transport canada guide Overview of Guide Transport Canada has published a guide on BCA (Guide to Benefit–Cost Analysis .
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25 cost the level of service is now higher, or (3) a combination of these two situations.
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26 • Whether this information is used by the agency's chief executive office in considering decisions on highway investment. • For those agencies that do not employ economic analyses in their decision making, the reasons for their reservations about economic methods and information.
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27 TABLE 3 USE OF ENGINEERING ECONOMIC ANALYSIS AT DIFFERENT STAGES OF DECISION MAKING Investment Program Planning Programming Resource Allocation Project Design and Development Bid Evaluation (e.g., for Best-Value Procurement) Other Stage of Decision Making No.
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28 • The planning unit within another agency uses BCA when alternate routes are being evaluated for selection based on differences in their respective road user costs. Integration Within Business Process New Jersey DOT On an annual basis, the New Jersey DOT prepares asset management plans, which are instrumental in developing the department's Statewide Capital Investment Strategy (SCIS)
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29 statistically representative portrayals of nationwide positions on EEA. In particular, only three states claimed that they do not use EEA in highway investment decision making, whether reported by the state DOT itself or by the FHWA division office.
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30 Decision-Making Stage Exam ple EEA Applications Selected Illustrations in Case Examples in Chapter Three Set Policy Goals, Objectives, and Perform ance Measures Translate aspirational goals into practical, achievable objectives Define performance m easures that can be incorporated within EEA analyses Set perform ance targets using engineering and econom ic criteria Although EEA is not described at this stage in case examples, the cases illustrate explicitly or im plicitly how goals, objectives, and perform ance measures drive decision making. This guidance is established in a practical, meaningful way for use in subsequent decision and evaluation stages.
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31 the themes that differentiate these agencies from the larger population of transportation organizations, to identify more fully the factors underlying successful applications of EEAs. A brief overview of the cases is provided in Table 5, indicating for each stage of decision making the types of uses to which EEAs may be applied and the corresponding case example in chapter three.
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