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User Guide - Alberta Ministry of Transportation

1. BRET IAs m BENEGNNENENNEEEE P PPS E pio e ee TE ERBESNEEGEENSEE HI IPL i ITT P m Ever Ir BEL ee err TI 5111 5 P LIT ee TIPI TT PTE Ro ITIS Pr P EL ae 9 BENEFIT COST r rr rare Ce ieee gt B RATIO 1
2. 28 Model NENNT T TER 28 rr M M 28 eS Atel see c Poir Mer 29 MIR MEM Mc 29 Construction Cost CAleQ ONES 30 Operating amp Maintenance Cost Categories Specified Maintenance 30 Maintenance Cost Categories by Surface Type Scheduled a 31 EAE H 31 a Su u u LU UT 31 Road User Gradient Factor Categories Texas Curvature amp Gradient 35 Road Usar SO u u 35 Bal ge ANAE ETES EN E E AAE A TE EE wenn EAS E TE E A EE A A A A E 36 Fi T j uuu E E E E DIEM E REPERI N E 37 Appendix 1 Summan or Model Varligbi uuu u uyu aa Ve bp d En DDR a nata ata 39 Appendix 2 Alberta Traffic Collision 24 80 44 Appendix 3 Benefit Cost Analysis Guide ATU 1991 48 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Glossary Ordered alphabetically Ben
3. Linear f 100 Do Not Use Linear 100 Do Not Use Linear EDU Do Nat Use T Linger 300 Du Not Uso Linear 10 Do Not Use Linear T SHE Do Not Use Linear Cam Do Not Use Linear 1 Not Use mar 0 a Note ILL M LL Linear 1 Do Not Usa 7 It Tua 4 70 7 _DoNotUse _ Linear 100 Do Not Use The individual data items contained in this table include gt Segment Name Enter a unique identifying name for each segment of the project gt Length Enter the length of the segment in km Surface Type Texas Curvature amp Gradient Vehicle Running Costs Only Select either Paved or Gravel gt Road Type Texas Curvature amp Gradient Vehicle Running Costs Only Select either 2 lane 4 lane undivided 4 lane divided expressway or 4 lane divided freeway Gradient Texas Curvature amp Gradient Vehicle Running Costs Only Enter a grade that best reflects the average for the segment an integer between 8 to 8 Traffic Direction Texas Curvature amp Gradient Vehicle Running Costs Only Select either 1 Way or 2 Way Curvature Radius Texas Curvature amp Gradient Vehicle Running Costs Only Enter the value that best reflects the average for the segment Curvature Superelevation Texas Curvature amp Gradient Vehicle Running Costs Only Enter the value that best reflects the average for the segment gt Tra
4. 23 2 5 Period of 51 24 3 Applications in the Department 3T TH cos dex Saleh pre eS o DE e e beat es 24 3 2 Application Variations 26 3 3 Roadway Projects 27 3 3 1 Roadway Project Factors 28 4 Analysis Methods RS QU PRI 30 4 2 Analysis ma ad aa 30 4 2 1 Net Present Value NPV 30 4 2 2 Benefit Cost Ratio B C Ratio 31 4 2 3 Internal Rate of Return IRR 31 4 2 4 Equivalent Uniform Annual Costs EUAC 32 4 2 5 Other Methods 33 4 3 Sensitivity Tests The Significance of Deviations 33 5 Department Procedures 5 1 Long Term Projects 35 5 1 1 Present Values 36 5 1 2 Internal Rate of Return 37 9 1 3 Testing Two or More Alternatives 38 5 2 Special Cases voca eod e x raa etri bw race S RE Vea 42 9 2 1 EUAC and Alternate Methods 42 9 3 Presentation of 5 44 5 4 Checks and Balances 46 Benetit Cost nalysis Guide Alberta Transportation and Utilities 6 Study Design 6 1 To Study or Not to
5. C 38 Interest rate relationships C 39 summary of C 40 Interpretation of the formulae C 41 Analysis steps and procedures Establishing input values C 42 Calculating economic indictors C 43 and checking resulls C 44 Results and their interpretation Present Worth or C 45 Internal Rate of C 46 Comparing IRR and B C 47 Comparing C 48 Format for displaying input data and results C 49 C 24 What is 11 LY SIS THE DETERMINATION AND COMPARISON OF ALLOCATIVE OR ASSIGNED COSTS AND BENEFITS FOR A PROPOSED WORK OR PURCHASE FOR THE DURATION OF IT S USEFUL LIFE said in another way A BENEFIT COST ANALYSIS FOR ANY ACTIVITY BEING TESTED IS THE DETERMINATION ITS STREAM OF DIRECT COSTS OR EXPENDITURES AND CALCULATION OF THE RETURN TO BE GAINED FROM THE BENEFITS WHICH RESULT BENEFIT COST ANALYSIS IS AN AID TO JUDGMENT BENEFIT COST ANALYSIS What it is not IT IS NOT A FORECAST OF GENERAL ECONOMIC CONSEQUENCES NOR AN ECONOMETRIC MODEL PROVIDING INSIGHT INTO THE
6. 48 6 2 Establishing Parameters 48 6 2 1 Homogeneousness and Diminishing Returns 49 6 2 2 ADDIICSDIIITV aw eee ae ELE 49 7 Short Cut lt 50 8 Examples 8 1 General Descriptions 51 8 2 Example Features 51 8 2 1 Highway 88 Example 52 8 2 2 Culvert Example er ELE eS eed be 52 8 2 3 Guardrail Example 52 8 2 4 Speed Change Example 53 8 3 Highway 88 Project 54 8 4 Life Cycle For Culverts 64 8 5 Guardrail vs Sideslope Improvement 72 8 6 Speed Change Example 76 OSS ANY ETE 92 Appendices Appendix A Lists of Committee Members A 1 Appendix Interest Formulae 8 Examples B 1 Appendix Training Material C 1 List of Figures and Tables Figure 2 1 Reduction in Travel Costs 18 Figure 2 2 Reduction in Travel Costs and Consumer Surplus 18 Figure 2 3 Discounting Constant Dollars 23 Figure 2 4 Discounting Current Dollars 23 Figure 3 1 Roadway Capital and Maintenance Cost Factors 28 Figure 3 2 Input
7. values Vehicle Operating Costs Default Value Change The default values for vehicle operating costs used for the California Fuel amp Non Fuel approach to estimating vehicle running costs from the Parameters tab can be modified for the project by entering the desired value in the Project Specific Values field This updated value is then reflected in the Values Used in the Model portion of the table Vehicle Operating Costs Default Values Project Specific Values Values Used in the Model Fuel Fuel Mon Fuel Effieciancy Hon Fuel Effiaciency Non Fuel Vehicle Fuel Fuel litra 100 Vehicle Fuel Fuel litre 100 Vehicle Fuel CosUkm CosuLitre Taxes Litre km Costkm Taxes Litre km Costkm CosuLitre ica 1 Passenger U6 115 025 55 m Sms PURI uw 076 68 1 6 024 115 8 n25 m 5 1 15 5 024 5 Lis 5 0 25 33 0 d 1 j 5 0 24 5 1 15 Single Unil Truck 5 UM 1155 025 Tinto o oe I 024 amp 1356 Simi Traller Combo 024 5 115 8 025 330 ym pe erp ns naa 5 1 15 Hybrid Passenger 016 5 1158 025 DEL Se 9 SS Rea 6 o 16 1 15 Electric Passenger 0 16 1 45 5 0 25 5 0 16 5 1 15 rs TEE iF tt E ET p S 5 x ES e F l TS TE I r F F z Re Sp 6 ANE I g Values from
8. 3 samme meme UY saamaan cca i ere ma Is s L I T T eee ee T re cel E ee ea DOIOLT DR I L Li Nui l L T LI TL CL T T T gt L Sa GG MD SE Lg Lp LL IG SEE Sa FEE SER SE ER e ESE EEL SER Ni p pop SEL 12174222 ears Alternative 2 TITI tlt td 1 te th op E TI wawa m FERC EEE EEE EEE eR er EER ERS LLL IL TUTA ILI L B DRE i j er j i ll WG Coe 65 TT T T T c P Inerema ntali W M ES NS SG ES E SE EE Sa SE tS HE ms SE EE Internal Rate ot Return
9. e 4 5181100 jo suoij lN Ul 8an eA 1095914 I8N 2050 2040 2030 2020 2010 2000 1990 1980 Year PEE AHHH ER HT EH TH EE EHEAXEDEEELDEHTHE TET HELEEELI TE T2 lI AC T TIT I THI II LLLEHLINEEELELLLELLETLETELEBEETTET APE ANE HH RH RH gu ALWE T H 44 4 8 8 H H 2849 94 jo 2050 2040 2030 2020 2010 2000 1990 1980 Figure showing Present Values and Internal Rate of Return 63 Benefit Cost f w Analvsis Guide Alberta Transportation and Utilities nalysis 8 4 Life Cycle for Culverts Developed December 6 1988 Revised May 15 1989 PROJECT Compare three alternatives to the base case of installing an 8 0 2450 mm diameter x 36 m SPCSP with a plate thickness of 3 mm and replace every 25 years Alternatve 1 Alternative 2 Install design size and protect for the first 25 years and then allow to rust Alternative 3 Install an oversized pipe initially and add a liner after 25 years Alternative 4 Install a concrete pipe At 50 years the design life of all systems is ended ASSUMPTIONS he hydraulic conditions will remain unaltered for 50 years No improved technology will become available The in place cost of a culvert is the material cost x 2 5 Estimated
10. 7 500 for operation and 21 900 for time a net benefit of 14 400 for either alternative 2 Cost Differences for 111 km hr vs 103 km hr Autos and R Vs involved 255 675 autos business and 1 917 562 82 900 those now impeding traffic 2 1 834 662 Added operation cost at higher speed 255 675 1 834 662 x 6 9 1 000 14 423 year per kilometre For 7 kilometres 14 423 x 7 101 000 Time cost saving 255 675 x 0 700 hrs 1 000 x 1 5 x 13 3 490 plus 1 834 662 x 0 700 1 000 x 2 5 x 6 19 260 Total time savings 22 750 For 7 km 22 750 x 7 159 250 For the widening alternative operation costs increase 101 000 and time costs decrease 159 300 a net benefit of 58 300 for widening For a new route the cost differences are 70 of those figures 70 of the traffic would use new route Operation costs would increase by 70 700 and time costs would decrease by 1 111 500 for a net benefit of 40 800 1 There is insufficient information to be completely precise for this item see page 90 for a further analysis of this 86 Benefit COS wm Rnalysis Guide Alberta Transportation and Utilities Net cost saving for the widening alternative 1 Item 2 14 400 53 400 67 800 per year 3 Added time cost for truck accel 50 to 103 benefit for new alternative Volume x 70 x hours 1 000 veh x occupanc
11. lab jenter Project spedi values Diei Vialises Tim Paramel Defining Project Alternatives The Alternatives to be evaluated are defined in the Alt tab i e Alt 1 Alt 2 Alt 3 To conduct an analysis at least 2 Alternatives must be defined It is recommended that Alt 1 be the Do Minimum or Status Quo alternative against which other alternatives are evaluated Project Type Select an option from the list of project type categories The project type will define a number of default values used in the model such as running speed project life and rehabilitation and maintenance costs The project should also be given a locale either rural or urban Project Type Sear Pea Pes eee cma Fa click on cell select from list Rural Urban The project type categories can be modified in the Parameters tab The process for modifying the project type categories is described in Section 5 Project Type 12 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Alternative Name Enter a name that reflects an identifiable characteristic of the Alternative Alternative Name EEE ee Alternative 1 Minimum Alternative enter labels for Alternative Projects to be defined Construction Start End Define the years over which construction of the Alternative will take place The year following the end of the construction period is assumed to be the first year of operation Construction Start End Ye
12. 1 000 00 GENERAL FORMULA where F Future Amount A periodic amount annual interest rate per period n TABLES Factors for Compound Amounts for a Series SCA are available in the 3rd column of standard tables and for 8 5 the factor for 3 payments is 3 262225 Multiplying that factor by the amount of each payment 1000 00 gives the same figure as the TOTAL above B6 SINKING FUND Three years hence a sum of 3 262 225 is to be accumulated and it 15 desired to raise that amount by contributing three equal sums one a year from now another two years from now and the final one in three year s time Each sum will earn interest at the rate of 8 5 per annum and the interest will earn interest at the same rate In essence this is the same as the example given for the Compound Amount for a Uniform Series Ist 1000 00 will earn compound interest for 2 years 1 177 225 2nd 1000 00 will earn interest for 1 year 085 00 3rd 1000 00 will earn no interest 000 00 ACCUMULATED TOTAL 3 262 225 GENERAL FORMULA F Fi Irin 1 i n 1 where A Periodic payment annual Future amount i interest rate per period n TABLES Sinking Fund SF factors can be found in the Ath column of tables In the table for 8 5 the SF factor for 3 periodic sums is 0 306539 Multiplying 3262 225 x 0 306539 gives 1000 00 PRESENT WORTH OF A UNIFORM SERIES 1000 00 is to be recei
13. Po S B EE P iS R m ae 5 G ia TITI Perot S BIB E k SU S B X S 6 Z Z S S SEE W Y S UC ITL 2 G mus wm ms uma masis SERENAN lt lt TJ SP eee KNEE TI T TD wie mu m voccs 11 TARRE Tr CER 18 S SS ae eo 2000 eco 2030 2040 2050 YEAR INTERNAL RATE OF RETURN THE FOLLOWING POINTS ARE REFERENCED TO THE GRAPH 1 THE INTERNAL RATE OF RETURN IS ZERO WHEN UNDISCOUNTED BENEFITS MATCH EXPENDITURES NOT DISCOUNTING IS THE SAME AS USING 0 AS DISCOUNT RATE 2 CONSTANT DOLLARS ARE USED THIS 4 RATE OF RETURN IS SIGNIFICANT BEING WHAT IS ASSUMED TO BE THE REAL RATE OF RETURN YEAR 50 THE INTERNAL RATE OF RETURN IS 9 91 THAT COMPARES WITH 10 IN PERPETUITY ANY COMBINATION OF INTEREST RATE AND YEAR LY ING ABOVE THE INTERNAL RATE OF RETURN LINE WOULD YIELD BENEFIT COST RA
14. Altemative 2 P FO a en PO Oo e GE SE ISS BS BE EE SP BE EA BE EE SE BE SE E I T i n Yur c I PPEP PI TPE GD S i Incremental 7 cr W ew mae aan rt EA El s P gt P NA RC Pr IS EZ Oe g O V D 17 E PUP T E a Ti i EES 1 kr T EEPTZATZ TTTTT sa SS BE BE
15. 30 500 per year extra cost for the new facility Time costs SUs 153 405 x 0 7 x 3 2 50 x 1 2x 24 197 900 less time on new 153 405 x 0 7 x 4 0 103 x1 2 x 24 120 100 Difference 77 800 Busses 25 567 x 0 7 x 3 2 50 x 24 20 6 164 900 less time on new 25 567 x 0 7 x 4 0 103 x 24 20 x 6 100 100 Difference 64 800 per year Difference for SUs and Busses 77 800 64 800 142 600 per year less for new facility 87 Benefit Cost we Analysis Guide Autos and R Vs Volume all except those continuing to go slower 255 675 business 1 917 562 others 82 900 2 090 337 actually 255 675 business and 1 834 662 other Operating cost 50 2 090 337 x 0 7 x 95 6 1 000 x 32 111 2 090 337 x 0 7 x 111 4 1 000 x 4 0 Difference Time costs Business 255 675 x 0 7x3 2 50x1 5x13 223 400 less 299 675 x 0 7 x 4 0 111 x 1 5 x 13 125 800 Difference 97 600 Other 1 834 662 x 0 7 x 3 2 50 x 2 5 x6 1 232 900 less 1 834 662 x 0 7 x 4 0 111 x 2 5 x 6 694 200 Difference 538 700 Total auto amp R V Time cost saving for new route 97 600 538 700 Summary of Costs 50 km hr v s 103 and 111 km hr Additional Operation Savings in Time Costs for New Route Costs for New Route TRK 50 000 103 700 SUs amp Busses 30 500 142 600 Autos amp R Vs 204 400 636 300 Totals 284 900 882 600 Net Cost savings for new route 882 600 284 900 5
16. J pug oi d O d d UMO F UMO 4 y 1 WMO TA jeude mM 1125214 8014015 enb3 2ipouag 621225 82 8 3T18V L 5403084 3621931 punoduuo pi uels LIO A 1025214 junoui v 28 22 290 20 5201274 1532214 gt 1922324 0 951 C 41 INITIAL CAPITAL COST ANALYSIS STEPS amp PROCEDURES 1 DECIDE YEAR UPON WHICH ALL VALUES COSTS amp BENEFITS WILL BE BASED 2 DETERMINE THE MAGNITUDE ALL INPUTS COSTS amp BENEFITS AND YEARS IN WHICH THEY WILL FALL 3 DECIDE IF ALL OR MOST OF THE INPUTS WILL CHANGE IN VALUE OVER TIME INFLATE AT THE SAME RATE IF SO USE CONSTANT DOLLARS AND ADJUST ONLY THOSE WHICH DO NOT FOLLOW THE NORM IF MOST ITEMS WILL INFLATE AT DIFFERENT RATES CALCULATE CURRENT DOLLAR VALUES FOR ALL ITEMS FOR ALL YEARS 4 DO THE ABOVE FOR ALL ALTERNATIVES AND THE RESULTS FOR ONE ALTERNATIVE COULD PICTORIALLY TAKE THIS FORM COSTS ARE NEGATIVE AND PLOTTED DOWNWARD BENEFITS ARE POSITIVE AND PLOTTED UPWARDS ANNUAL BENEFITS TO THE USER 72 ANNUAL gt MAINTENANCE COSTS PERIODIC HEAVY MAINT a j OR REHABILITATION NOTE THAT CONSTANT DOLLARS ARE USED IN THIS EXAMPLE E G MAI
17. C007 d d d 3 000 x 105 5 839 5 839 5 839 5 839 5 839 12 000 22 906 If instead of accumulating 28 174 in cash to finance the cash flows for that alternative that amount is borrowed at an interest rate of 8 675 that loan could be repaid in 5 equal annual payments of 7 182 amortized over 5 years If for the Purchasing Alternative 22 906 is borrowed that debt could be amortized over 5 years with uniform annual payments of 5 839 each Obviously the saving each year for five years resulting from the purchase of equipment is 7 182 5 839 1 343 B 17 BENEFIT COST RATIO The general formula for calculating this ratio 1s PW Benefits R Ra POTENS 7 PW COSTS 7 WHERE Cost for basic conditions or lower capital and maintenance costs Ha cost for improvement or higher capital and maintenance costs R Ra benefit s resulting from making the greater investment of Ha H R would be operating costs relating to H and Ra would be such costs relating to Ha While Example 1 is simple in having few terms how to sort those items for the purpose of calculating a B C ratio is subject to question Assuming that maintenance costs should be included with the cost of the equipment the benefit cost ratio is simply the ratio of the two totals for Present Worth 28 174 0 1 23 22 906 0 e g B C Ratio If benefits are assumed to be the difference between the yearly cost of rentin
18. Table Comparison of Alt 3 to Alt 1 67 Benefit Cost nalysis Guide Alberta Transportation and Utilities Altemative 1 allows the culvert to rust thereby requiring replacement after 25 years culvert costs 38 500 installed culvert replacement requires 50 000 for roadway detour Alternative 4 provides a concrete pipe culvert with a 50 year design concrete culvert costs 61 000 installed ANNUAL COSTS NET ANNUAL UNDISCOUNTED VALUES PW IRA 4 DISCOUNT RATE Mo Your REPLACE CONCRETE P COST COST SAVINGS guess CAP BENEFIT CAP BENEFIT DIFF SAVINGS VALUES CAPITAL TOTAL 10 00 OQ CER LC A S E RE E sce dei id dw ds S eumd iu au IE C ERE Table Comparison of Alt 4 to Alt 1 68 Benetit Cost nalysis Guide Alberta Transportation and Utilities a ae ee ee ne Because there are no cash flows between 25 and 50 years in the futures the results at year 2014 remain constant to the end of the period 2039 Results of Year 2014 and Beyond Present Worth 4 Real Disc Rate I R R REAL Alt 2 Alt 1 21 408 9 24 Alt 3 Alt 1 18 026 10 92 Alt 4 Alt 1 10 698 9 63 The real rate of return which would be received on the additional 4 500 to install the larger pipe in Alternative 3 is grea
19. w bh 4 4 t e t ee ee amp oh a 9 b 2 55454 9 4444444 C 644 5 4444 eee t te t 445 4444 s a w ae p b 9 a t if pd fi t fi New Route 11 km long between common points New Route Alternative Provide a new route around the urban area 77 nalysis Guide Alberta Transportation and Utilities SA t M UH Mi Average running speed for all vehicles for most of the time is 103 km hr with these exceptions due to slower vehicles and lack of passing opportunities Volume Restricted Speed Highest 20 hrs 1 200 vph 70 km hr Next 100 hrs 950 vph 80 km hr Next 200 hrs 750 vph 88 km hr Next 400 hrs 600 vph 95 km hr Next 800 hrs 400 vph 100 km hr Remaining 7 246 hrs 350 vph 103 Km hr On average 10 of the vehicles mostly R Vs in each of these groupings are the numbers restricting the speed Assume that same number of vehicles now restricting the speed will continue to travel the same speed after the highway is divided and all classes of trucks and busses will continue to average 103 km hr but the balance will increase speed an average of 8 km hr to 111 km hr After multi
20. 22 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Cumulative Other Costs Alt Scen Cumulative Other Costs Alt1 Scen1 2 Cumulative Investment Costs Alt Scen n Cumulative Investment Costs 1 5 Where Cumulative Costs are discounted at the selected discount rate Summary An overview of the benefit cost analysis results is provided in the Summary tab This includes Internal Rate of Return Break Even Point Net Present Value Discounted Total Cumulative Costs Year 80 Investment Costs in NPV Net Benefits Non Investment Costs in NPV and Benefit Cost Ratio The results for the analysis can be viewed for any point in the 80 year analysis time frame by entering the selected period as shown below The results provided in the Results Summary will be updated and reflect the selected Period of Analysis Results Summary Enter the Period of Analysis Years Beginning after Construction is Completed on the Base Analysis i 80 M Internal Rate of Return The Internal Rate of Return IRR is summarized by project alternative and scenario Each of the results is compared to Alternative 1 Scenario 1 The IRR results presented here provide the maximum return over the 80 year forecast period These results may vary over the forecast period so the Results tab should be reviewed Internal Rate of Return Scenari
21. FUTURE AMOUNT CONSTANT DOLLARS SAME AS PRESENT AMOUNT d i ae s lt FORMULA WHEN CONSTANT DOLLARS USED _ FUTURE AMOUNT SAME AS PRESENT AMOUNT PRESENT WORTH PW _ 1 A WHERE REAL INTEREST RATE FORMULA WHEN CURRENT DOLLARS USED 1 WHERE X INVESTMENT INTEREST RATE C 39 SUMMARY OF FORMULAS SOURCE Robley Winfrey Arlington Virginia 22207 The cash flow diagrams represent the position of the person MCN the cash who deposits In or withdraws from an interest bearing fund Downward is Outgo deposit and upward is Income or withdrawal Solid arrows represent known cash flows and dashed arrows represent unknown cash flows or solutions of the equations F Compound smount at the end of n periods to which a single deposit will eccumulate 1 2 eee n F P Y il CA P Present worth of a single sum to be with drawn at the end of n periods in the future P F PW 1 1 3 4 Compcund amount at the end of n periods to which a seres of n uniform period end 1 2 deposits will accumulate 1 57 1 1 70 1 Uu de ME SCA 4 4 4 4 4 Sinking fund uniform period end deposit which will accumulate to given sum at the end of n periods f t A F 5 1 l 1 MEME 4 A4 A A Prese
22. Operations Br Traffic Eng Roadway DESCRIPTION VOLUME PRICE 1988 ADJ ADJ VALUES LENGTHS Gravel portion C S 88 04 29 78 km 29 78 km 88 06 26 09 km 26 09 km 88 08 29 67 km 29 67 km TOTAL 85 54 km 85 54 km CAPITAL COSTS ALL IN 1988 DOLLARS Grading 1 8 M Total Project Cost Assume Const in 1989 1 8 M Base 123 889 km Assume Const in 1990 123 889 km Paving 62 746 km Assume Const in 1993 62 746 km 1st Recap 65 692 km Assume 17 yrs after paving 2010 65 692 km end Recap 61 454 km Assume 15 yrs after 1st 2025 61 454 km Maintenance Costs All in 1988 Dollars Gravel 6 500 km yr 6 500 km yr 6 000 km Additional cost Total 12 500 each 3 yrs 12 500 km 3 yrs 10 000 km 12 yrs Additional cost Total 22 500 each 12 yrs 22 500 km 12 yrs Pavement 4 400 km yr for 5 years following paving or overlays 4 600 km yr after pavement or overlays 5 yrs old 1985 Volumes AADT Traffic Volumes 8 Classification C S 88 04 580 AADT PV 66 382 8 1 03 418 30 SU 18 1044 114 08 16 928 8 101 41 C S 88 06 500 PV 72 360 393 38 amp C S 88 08 SU 17 85 92 88 TRTL 1196 55 4 60 10 GRADES OF LENGTH 1 2 3 4 5 6 5 88 04 83 11 65 1 88 06 58 24 15 3 88 08 79 19 2 54 Benefit Cost lt Analysis Guide INPUTS AND ASSUMPTIONS continued
23. Component Construction Cost Categories Operating Cost Categories Vehicle Types Occupancy amp Unit Costs for Time Texas Curvature amp Gradient Variable Project Life Construction Cost Categories up to 8 Operating Cost Categories up to 5 Vehicle Type up to 10 different vehicle types can be defined Occupancy Work Bus S hr Other S hr Various Information Definition Source User defined for each Project Type Provided as a guide for entering the replacement cost in Rehabilitation Cost profile RehabCosts tab To separate the costs User defined based of the project into typical projects and logical categories for where necessary typical projects project specific categories e g environmental mitigation costs To separate the User defined based operating and on typical projects maintenance costs of and where necessary the project into project specific logical categories for categories can be typical projects defined e g on going environmental mitigation costs User defined up to 10 categories To separate the costs that are vehicle type specific Natural Resources Canada light vehicles Wagelnfo Alta and Transportation Cost and Benefit Analysis I Travel Time Costs Number of people per vehicle for Travel Time Costs Value of Time for Work and Business trips Wagelnfo Alta and Transportation Cost and Benefit Analysis I Travel Time
24. U Ll dd ipa 80 60 40 20 Present Value in Thousands o Dollars Internal Rate of Return GOR iL L L L I L L T A GE A A T A EA LL ra dcc LL L d LL EE L 1980 1990 2000 2010 2020 2030 2040 2050 Year Figure illustrating Net Present Values and Internal Rate of Return for guardrail compared with sideslope improvement 79 Benefit Cost nalysis Guide Alberta Transportation and Utilities 8 6 Speed Change Example This is a hypothetical example concentrating upon road user costs associated with speed change and time delays Other items will either be ignored or made more simple than they would be in an actual case This involves two aspects of impeded traffic flow one because of an urban setting with speed restrictions and the other involves forced lower speeds due to heavy traffic and the absence of passing opportunities When traffic flows directly from one of these circumstances into the other in some respects one affects the other Each of these situations may occur separately and when that is the case it will be obvious how the procedures used in this example must be adjusted to handle the independent situation All unit prices which will be used will be in Canadian collars for 1988 All other numbers used mostly traffic related are assumed
25. on the graphs Had the cash flows not been discounted zero rate the NPV would be zero when the IRR is zero points A Had a 10 discount rate been used the plot of the NPV would change from negative to positive be zero at the same point in time that IR R is 10 Points C 23 Benefit Cost Analysis Guide Appendix Alberta Transportation and Utilities List of Plates Used for Management Seminar Page amp Plate No Preliminaries What is it Benefit Cost Analysis C 25 WRBSLEIUIS BOE ood oe Bees eta ee C 26 Does a ehe d ans 27 WING S 1b dica i a C 28 Advantages of undertaking C 29 Application Recent developments in the Department C 30 Applications past C 31 Determination of values C 32 Principles The advantage of establishing C 33 A DUCK ISA DUCK er RO n Oo race te C 34 eite d 35 e suu upan dew e sui os 36 Results TO Include UR ERAN RW E C 37 Interest Rates and Formulae Relationship ofterms
26. 1 000 000 2 000 000 3 000 000 ycle Costs Current Capital Investment The second chart includes all the other costs associated with the selected Alternative Project Increasing Curve Radius Alt2 Flatter Curve Other Costs 5 000 000 4 500 000 4 000 000 3 500 000 3 000 000 Emission Costs Collision Costs 2 500 000 B Travel Time Costs 2 000 000 Op Costs California 1 500 000 Op Costs Texas 1 000 000 500 000 Only applicable Veh Op Costs will show on graph 20151 71 2043 2047 2019 2027 2031 2035 2039 2051 2055 2059 2063 2067 Results The detailed results of the benefit cost analysis are summarized in the Results tab This includes results for each Alternative up to three Alternatives and up to three Scenarios for each Alternative 20 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Results are provided for each year of the analysis for each of six benefit cost measures Internal Rate of Return IRR The IRR is the discount rate which would give an NPV of zero given expected cash flows The IRR compares the un discounted cash flows of two alternatives or scenarios The higher the IRR the greater the return on the proposed investment The standard time frame used for the IRR is 20 years The IRR calculation is as outlined below N C NPV gt 1 d pp n 0 Where N time
27. 2 2 4 84 7 2 5 17 22t V 2 2 4x2 0 x 2 2 22 484 176 _ 22tv 17 6 17342719 2 x 2 0 4 4 Positive answer 8 ELS 1 x T i V x 1 7342719 1 071247 i 0 071247 IRR 7 12 d Assuming an inflation rate of 696 what discount rates would correspond to the real rate of return calculated in both Questions 1 amp 2 Discount rate real rate of return 1 inflation rate inflation rate Question 1 Discount rate 1 2 1 06 6 12746 7 27 Question 2 Discount rate 7 12 1 06 6 7 56 6 13 56 4 The real interest rate has averaged 4 over the long term What Prime interest rate would approximately correspond to an inflation rate of 6 Prime real inf rate inflation rate Prime 4 6 10 a How does the real rate of return in Questions 1 and 2 compare with the real interest rate Question 1 Not so hot 1 2 less than 4 Question 2 Good 7 12 greater than 4 b How do the discount rates calculated in Question 3 compare to the Prime interest rate assuming inflation of 6 96 Question 1 Same as Question 5 7 27 less than 10 Question 2 Same as Question 5 13 56 greater than 10 15 this investment good if the works are not required after 8 years Is it good if it lasts at least 16 years Question 1 No Question 2 Yes Beneti Cost Analysis Guide Appendix Alberta Transportation and Utilities 6 Assuming your boss ha
28. Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx California Fuel Non Fuel Option Utilizes average fuel and non fuel vehicle operating costs by vehicle type similar to the CalTrans model This approach should be used where horizontal and vertical geometry is not a factor does not vary significantly between alternatives The vehicle operating costs for the California option are currently based on a value of 0 505 km passenger This is the current calibration to suit Alberta conditions The calibration may be changed if warranted based on changing conditions In the user guide and model this option will be referred to as California Fuel amp Non Fuel approach Texas Curvature amp Gradient Option This option utilizes curvature and gradient cost factors This approach uses road operating costs that were originally estimated by the Texas Research Development Foundation for the Federal Highway Administration 1982 US These costs were adjusted for inflation to reflect the Alberta context in 1989 9 This option should be used when the curvature and gradient of some or all of the alternatives vary significantly In the user guide and model this option will be referred to as Texas Curvature amp Gradient approach Vehicle Operating Cost and Collision default values can be redefined for specific projects where the default values are not appropriate Benefit Cost Analysis Results The model uses s
29. Benefit Cost nalysis Guide Alberta Transportation and Utilities The Solution For input into the three options outlined operation and time costs are required for 1 The existing route with all traffic on it as it now exists over the 10 2 km section 2 The existing route with 7 0 km of it divided with no change which would affect these user costs for the remaining 3 2 km Again this alternative would see all traffic on the existing route and An option in which 70 of the total traffic is diverted to a free flowing new facility 11 km in length with the assumption that the remaining 30 would then also operate unimpeded on the 7 0 km rural section 2 lanes with an average running speed of 103 km hr of the old highway but that its operation on the 3 2 km section would be the same as if all of the traffic was still there If a more automated procedure was being employed it may be best to separate the traffic into sufficiently small categories to handle all of the different situations for the entire trip and run total costs to agree with each of those three descriptions Here the procedure is being done manually and it is easier for some of the items to work in incremental costs where those that are common to two or all three alternatives can be omitted as cancelling each other when comparisons are made Rather than following each of the different classes of traffic completely through the different circumstances the project wil
30. Category 8 Bridge wt ch kl ia ELTE zn ARA ESE Eas ERE EGER REGE REA REG GE ROG LES RES REA EUG EGER RES mash E EEG LES ERRARE B E pF 1 F Lategory 9 L ategonry 10 enter labels for Project Type categorias Construction Cost Categories The analyst can define up to 8 different types of construction costs The Construction Cost Categories are linked to the Alt tabs In the Alt tabs the analyst may enter the construction costs for each construction cost category The Administrator should define Construction Cost categories that will be useful for each analysis Construction Cost Categories Category Engineering Category 2 Category3 iConstruction Category4 iEnvironment Mitigation Category 5 Category 6 Category 7 Category 8 BEELETISUJEEEETISUJEEEETFIJUAEEEETITAJEEEETITAJEEEETITAUEREETITITEREEETVITAUSEEEFITARAE enter labels for Construction categories Operating amp Maintenance Cost Categories Specified Maintenance The user may use these defined categories the fixed Scheduled Maintenance categories described below or a combination of the two Cost category usage is defined in the Alt tabs A description of how to define the categories can be found in Section 3 Operating and Maintenance Cost The analyst can define up to 5 different types of operating and maintenance costs The O
31. FAMILY COMMUNITY AND MARKET LOSSES TO BE INCLUDED IN COLLISION COSTS RESULTS TO INCLUDE PRESENT WORTHS BASED UPON 496 REAL DISCOUNT RATE INTERNAL RATE OF RETURN RESULTS TO BE DETERMINED OVER A 90 YEAR TIME PERIOD FOR LONG LIFE PROJECTS analysis THE DETERMINATION OF INPUT T VALUES IS RESOURCE RELATED AND THE SOURCE OF FUNDS IS IRRELEVANT THE COST USED IN A PROVINCIAL ANALYSIS SHOULD BE THE SAME WHETHER OR NOT THE FEDS MAY PARTICIPATE A MUNICIPALITY SHOULD NOT CONSIDER GRANTS FROM THE PROVINCE OR OTHERS AS FREE DOLLARS A DOLLAR SAVED BY MOTORIST IS THE SAME AS A DOLLAR SPENT ON THE ROAD SYSTEM generally speaking and in the final analysis those who pay for the improvement and maintenance of roads and those who use the roads and pay for the cost of travelling are one and the same whether or not to include each and all of these costs an analysis of roadway alternatives 15 not the question instead the challenge lies in how to best evaluate and equate all of these costs over time BENEFIT COST ANALYSIS Established principles for internal departmental BASIC PREMISE A BUCK IS A BUCK INPUT VALUES INCLUDE VALUES FOR UNIFORM VALUES FOR TIME REGARDLESS OF INTERVAL FAMILY COMMUNITY AND MARKET LOSSES TO BE INCLUDED IN COLLISION COSTS RESULTS TO INCLUDE PRESENT WORTHS B
32. Nbertos Government ATBenefitCostModelUserGuideV 1Z PDF Mbeste m Transportation Benefit Cost Model User Guide ATBenefitCostModelUserGuideV1Z PDF ORIGINAL PREPARED BY Darryl Howery Principal Applications Management Consulting Applications Management Consulting Ltd 2220 Sunlife Place 10123 99 Street Edmonton Alberta T5J 3H1 T 780 425 6741 www think applications com WITH REVISIONS BY Design Project Management and Training Section Technical Standards Branch Alberta Transportation DELIVERED APRIL 8 2015 ABSTRACT amp SUMMATION This User Guide is a companion document to the Alberta Transportation Project Benefit Cost Model ATBenefitCostModelV1Z xlsx Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Contents l T DT ETT V Section 1 i v ee eee ee ee ee eee ee eee en ee ee eee eer eer 1 Purpose of the Model NEED EE 1 Analysis E 142 e ULU II EEEE EEEE SEEE EAEE OE EE AERE 1 Modol FeO NR DEI ED T 2 iiy MNT 4 Model Components Fio HORE MM HIE PON Mar Nod EH 4 Valuation of Analysis COM POMGING Luce eodera eorr pnr Dac esa ud tos rion d rad oc rSn 6 Section 2 How to Work with the Model 8 vvli c
33. Present worth of benefits 1 06 1 166 0 9090909 41 06 21 166 0 8264462 1 06 1166 0 7513147 1 06 1 166 0 6830132 1 06 14665 0 6209213 1 069 21 1669 0 5644737 1 06 5141660 0 5131578 11x 1068 21 1668 254315792 Total 9 9999973 PW Expenditures PW Benefits when 7 16 6 Internal Rate of Return 16 6 6 Why was a discount rat e of 16 6 chosen to test a balance for the internal rate of return in question 5 Discount Rate 1 Inflation Rate Real Rate of Return Inflation Rate 1 06 x 10 6 16 6 C 21 Benefit Cost nalysis Guide Appendix Alberta Transportation and Utilities E CEN ERD aE USACE Sun NERA RSS wa M E gs Had the column of figures in the answer to question 5 not added up to 10 00 what interest rate table might have been inspected to check the accuracy of the discounted single amounts making up that column The 10 table 8 If the benefits in inflated dollars as used in question 5 were reinvested at 16 6 interest as they are received what total benefits in inflated dollars would accrue by the 8th year Would 10 00 x 1 166 10 00x 3 41655 34 1655 be close to the right answer Yes exactly In question 3 it was learned that the 10 interest payments if reinvested at 10 along with repayment of the loan would grow to 21 4359 by year eight Would multiplying that figure by 1 06 8 1 593847
34. Year n COST PW PW year n Factor 1 3150 X 0 81869 2 579 2 3307 X 0 67026 2 217 3 3473 X 0 54873 1 906 4 3647 X 0 44924 1 638 5 3829 X 0 36779 1 408 SUB TOTAL 9 748 PW of 4 000 income in year 5 4 000 x 0 36779 1 471 Initial capital expenditure 12 000 TOTAL 20 277 EXAMPLE 2 Maintenance costs for a provincially funded facility are currently averaging 10 000 00 per year and are expected to remain the same in the future except for inflationary increases The general public enjoys using this facility and it is anticipated that the amount of this use will increase at the rate of 2 per year The cost to the public for such use is currently 320 000 00 per year and the items of these costs are expected to increase with inflation just as the maintenance costs will increase The facility could be improved at a cost of 1 800 000 which would reduce the Province s maintenance costs to 8 000 00 per year and user costs to 250 000 per year both in present day dollars The new facility will last between 60 and 100 years providing major refurbishing is undertaken at approximately 20 year intervals at an estimated cost of 600 000 each again in present day dollars ANALYSIS Assuming an inflation rate of 5 per annum and an interest discount rate of 8 675 both the same as used in the last example the other rates which will be helpful in the analysis of this problem for which the interest formulas and tables may b
35. ditures The possible variations mentioned in the footnote on the previous page do not apply when the B C ratio is equal to one An advantage of calculating a rate of return is that the results are expressed in a term which is universally known The business world deals in the return received and the magnitude of the rate of return is meaningful and permits comparisons with other in vestments with their known rate of return with the caveats previously mentioned about the treatment of taxes and input values being resource related See Subsidies Grants and Taxes page 18 and the footnote on page 25 Results expressed in terms of Net Present Value or Benefit Cost Ratio do not provide a specific rate of return unless the NPV and the B C Ratio is equal to one the rate of return is then equal to the discount rate otherwise if the NPV is positive and the B C ratio greater than one it is known that the rate of return is greater than the discount rate used but how much higher is not apparent Lond The calculation of the rate of return involves a trial and error process and that is laborsome and tedious if a computer program is not available which will handle the iterations The literature dealing with these different analysis methods quite rightfully draws attention to the fact that two or more answers will sometimes satisfy the equations in the rate of return method however this should not be a deterrent to using this me
36. enter proportion of Collisions by Type Collision Costs All collision costs used in the model have been provided by the Alberta Transportation Traffic Safety Branch These estimates are based on work being done across Canada with Transport Canada which is yet to be finalized Based on the work to date the Collision Costs by Type of collision average for 2006 2011 have been inflated to reflect 2014 values using the CPI inflation index resulting in values as follows The social cost values reflect the total cost for each category of collision severity Collision Costs by Type Y a ME C ru 9 920307 1 9464015 5 59 919 8 520 enter the social cost for each Type of Collision per Collision Emission Costs by Type The vehicle emissions component was modelled after the California Life Cycle Benefit Cost Analysis Model which incorporates values for six different emission categories The values for each emissions component were taken from this model converted from gram mile to tonne km and were updated to 2014 using CPI All values are cost per tonne of emissions CO Carbon Monoxide 96 50 CO Carbon Dioxide 40 00 NO Nitrogen Oxides 30 000 00 Particular Matter 244 000 00 Y V Y Y SO Sulphur Oxides 102 000 00 VOC Volatile Organic Compounds 2 000 00 For example a collision involving a fatality will include the estimate for the fatality injury
37. the Compound Amount for 2 periods 2 years in the above sample is 1 177225 Multiplying that factor by 1000 00 gives 1177 225 PRESENT WORTH The Present Worth of a future sum can be calculated by reversing the procedure for determining the Compound Amount 1177 225 is to be received 2 years hence and discounting that amount at 8 5 per annum would result in an amount of 1177 225 1 085 1085 00 one year hence Discounting another year to bring it to Present Worth requires dividing by 1 i again and 1085 00 1 085 1000 00 GENERAL FORMULA TABLES Present Worth where P F Future amount i interest rate per period n Present Worth PW factors 1 1 7 are available in tables and for 8 5 the Present Worth factor for 2 periods is 0 849455 Multiplying that factor by 1177 225 gives a Present Worth of 1000 00 B 5 COMPOUND AMOUNT FOR A UNIFORM SERIES 1000 00 is received each year for 3 consecutive years and these sums as well as the interest earned on these all are invested at 8 5 interest per annum At the time of receiving the 3rd sum the first year s sum will have been invested for 2 years and will have a Compound Amount of 1 177 225 The 2nd sum will have earned interest for one year and have a value of 1 085 00 The 3rd sum just received will have earned INGOT
38. 12 308 2 3781 GRAPHS DISCUSSED EARLIER C 49
39. 3 242543 2 J T D EE P RU P PH 2254220 8 22222352252 SEER EERE EE EE EE EE EE EERE Eu E c TE SE Sa BE SS ER SP SR BB Bu SS a ae SE LE al EX i See DE TE Internal Rate of Return 1980 1990 2000 2010 2020 2030 2040 2050 Year Figure 5 4 Results With Conflicting Messages results indicate that Alternative 2 is best for periods beyond the year 2010 whereas the Internal Rate of Return indicates that Alternative 1 is best 41 Benefit Cost nalysis Guide on 4 5 million which is better than receiving 430 000 which Alternative 2 provides in fact if anything greater than 130 000 annually can be gained from that difference of 1 8 million in capital the combination of that and Alternative 1 would be better than putting the entire 4 5 million in Alternative 2 The third set of lines on the graphs illustrate that a 7 REAL return would be received by year 50 the incremental cost difference between these alternatives In the context of distributing budgets between competing projects this means from a resource management point of view that the more expensive Alternative here should be cho
40. ANNUAL COSTS Mo Year OVERSIZE CULVER CATHODIC PROTECTION ICAP COST SAVINGS Ru 2 692 2 877 3 055 3228 3 390 3 548 3 700 3 847 3 887 4 122 4252 4 377 4 497 4 813 6 349 6 498 6 509 6 698 6 793 6 884 6 972 7 058 7 137 7215 3 382 3 342 3382 3 382 3 382 3 382 3 382 3 382 3 382 3 342 3 382 3 382 3 382 3 382 3 382 3382 3 382 3 342 3 382 3 382 3382 NET ANNUAL UNDISCOUNTED VALUES 8r 838383838383338388883383833333333 3 382 3 382 3 382 3 382 209 209 28 250 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 PA er 6 5 5 Table showing results from a comparison of Alt 2 Alt 3 incremental values 70 Benefit Cost nalysis Guide Alberta Transportation and Utilities SSS SEE Si EP SS BES Te 1 ee l i l Li L J i l i L I IL T T3 n X Alternative 2 L II Id ld Altemative 3 H m un gt o a o un 0 E DEF Pi c T 68 un
41. DESIGN AND ANALYSIS OF VARIOUS COMPONENTS SEWER WATER amp OTHER UTILITY SERVICES Ideas for additional applications ADDITIONAL COMPONENTS amp CHOICE OF MATERIALS IN THE ABOVE CATEGORIES INPUT INTO CAPITAL WORKS PROGRAMMING VARIOUS MAINTENANCE ACTIVITIES GRAVEL MANAGEMENT AND INVENTORY ADVANCE LAND PURCHASES ASSESSING NEW INNOVATIONS amp TECHNOLOGIES PUBLICITY CAMPAIGNS STAFF DEVELOPMENT OPTIONS ENCOURAGE OTHERS TO DO THE SAME C 31 ungere 21 24 ES A 2m EL Ww 2007 gt ur 5 A E AGE Determination of values THE ALLOCATIVE COSTS AND BENEFITS USED IN THE ANALYSIS MUST GENERALLY BE BASED UPON PRICES AS ESTABLISHED IN THE MARKET PLACE THIS ASSUMES THAT SUCH PRICES PROPERLY REFLECT THE VALUE WHICH SOCIETY PLACES ON THE RESOURCES WHICH ARE I NVOLVED Exceptions and adjustments DIRECT AND EASILY IDENTIFIED TAXES ARE EXEMPTED WHEN IT IS EVIDENT THAT THE MARKET PRICE OF A GOOD OR SERVICE DOES NOT FAIRLY REPRESENT ITS RESOURCE VALUE AN IMPUTED OR SHADOW PRICE SHOULD BE SUBSTITUTED WHEN A NEW OR SUBSTANTIALLY IMPROVED PUBLIC WORK IS PROVIDED AND THE DECREASED COST OF ITS USE TO THE PUBLIC RESULTS IN MORE USERS THE CONSUMER SURPLUS ASSOCIATED WITH THAT ADDITIONAL USE SHOULD BE INCLUDED IN THE ANALYSIS C 32 qi BENEFIT COST ANALYSIS Established principles for internal departmental BASIC PREMI
42. M Cost Cost Cost I Discount Rate Adjustment Adjustment Adjustment Adjustment Category SSSI RARRNS a I M M a DE Calegory2 Hiph Capit 1 BON BOR Oe BO category 3 SEEN Stern MIS as deam anter labels for Scenarios other Analysis Definition Factors Discount Rate 4 Default The discount rate used to calculate the Net Present Value and Breakeven Point is set by the user for the Base Analysis as well as the other two scenarios There is no right discount rate However the rate should reflect the risk and time value of money from the perspective of the provincial government If there is an official discount rate that the GOA adopts this should be used for the analysis At the time of writing 2014 the default discount rate for all Alberta Transportation projects is 4 Generally the public sector uses a lower discount rate than the private sector because it is argued that generally the public sector can be more patient to receive a return on investment than the private sector In choosing a discount rate current economic conditions inflation and risk of the investment should be considered At the time of writing 2014 inflation is low reducing the time value of money costs As a result a relatively historically low discount rate of 4 could be used for the Base Analysis It has long been the practice of Alberta Transportation to use a 4 discount rate fo
43. Property Damage Only Social costs fatality injury and property damage costs of collisions Fatality Serious Injury Moderate Injury Information Definition Source Average number of _ Traffic Safety people involved in a collision involving a moderate injury Links Used to calculate fatality and injury related collision costs The collision rate and Categories cannot be Used to calculate distribution of changed by the collisions by type can Analyst be varied across 5 combinations of surface type and road type Number of collisions Traffic Safety per 100 million vehicle kms See Appendix 2 for collision rate information from 2006 2011 The proportion of total collisions involving a fatality Traffic Safety The proportion of Traffic Safety total collisions involving an injury The proportion of Traffic Safety total collisions involving only property damage fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs The average cost per Categories cannot be Used to calculate person by collision type changed by the analyst Social cost of each person involved in a fatal collision Traffic Safety Social cost of ea
44. The purpose of the Alberta Transportation Project Benefit Cost Model is to determine which road or bridge project given a number of project alternatives provides the best return on investment Analysis Components The Alberta Transportation Project Benefit Cost Model evaluates the impact of various project alternatives in each of the following areas gt Initial Construction Project Costs Investment Maintenance and Operating Costs pe gt Rehabilitation Costs capital costs required to maintain the asset at a specified condition gt Road User Costs Vehicle operating costs see model features for two different calculation approaches Important It is recommended the California Fuel amp Non Fuel approach be used for all projects unless the curvature or gradient varies significantly between alternatives in which case the Texas Curvature amp Gradient approach would be used Travel time costs Collision costs and Environmental costs associated with vehicle emissions Other Costs It is noted that other cost types may be relevant for some projects For example there may be costs associated with the protection of environmental assets or costs associated with the mitigation of potential negative environmental impacts of a project These costs can be defined in user defined categories as either a capital cost or an on going operating cost whichever is most appropriate Alberta Transportation Benefit Cost Model U
45. Vehicle 9 S TE Ri moe mc Vehicle 10 3 Default Values from Parameters tab enter Project specific values In this example each of the vehicle types e g Passenger RV etc have been entered by the user elsewhere in the model and are shown here in orange text Similarly the Default Values for Occupancy Work Bus hr and Other hr were entered elsewhere In many cases the default Scenario specified values may be modified when data is available at a Project level However the changes to default values should only be made in the user input cells This process is outlined in more detail below Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Cell Protection All cells that do not require an input from the user have been locked and protected This will ensure that these cells are not accidentally altered Altering cells that do not require information from the user may affect the integrity of the calculations in the model Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx oection 3 How to Complete an Analysis Preparing for an Analysis Before working with the model it may be valuable to review the required information so it can be collected and or generated prior to starting the analysis Every analysis will require the development of information for a status quo or do minimum Alternative 1 option and a
46. assuming no salvage value ues 0 0 1 2 3 4 5 with interest rate 0 2 0 0 275 yr x yrs T T 6 7 1 1 9 9 9 9 6 7 T 275 000 each year 8 O 20 _ 72727 0 275 IRR Obetween 7th 8 Bth years i e between 1997 and 1998 C 16 Benetit Cost wm Analysis Guide Appendix 9 10 11 12 Alberta Transportation and Utilities The present worth of a series can be calculated by multiplying the factors in the interest tables under the SPW column by the annual amounts From the calculations in Question 8 we know that that annual amount of 275 000 multiplied by 7 27 2 0 M the capital amount which is also the present worth of that side of the equation From tables the SPW for 9 years is 7 268790 very close to 7 27 What is the internal rate of return for this project after 9 years 4 1 2 96 What year would that be if benefits began in year 1991 1999 Plotting what we no know about internal rate of return values what is the approximate internal rate of return after 8 years when it is assumed that benefits accrue each year 2 1 2 Is your answer to Question 7 correct Yes Look in the interest tables for interest rates higher than 4 1 2 and find under the SPW columns other figures quite close to 7 27 and plot a couple of more points on the internal rate of return graph for years 11 and 18 From the graph now plotted what might be
47. might be classified as requiring imputed values or likely candidates for shadow prices all relate to roadway projects and include travel time fatalities resulting from vehicle collisions land and aggregates The conclusions reached about these items have been outlined in section 1 2 dealing with the committee process and the following provides background for these items Travel Time When discussed in committee views of different staff covered the complete range of how this item might be treated from giving no value for any road user s time to giving full value for everyone s time at the going wage rates Middle of the road views include the charging of truck driver s time commercial traveller s time and possibly include a rental rate for the vehicles being used but omit other allocations for time Home makers time might be included because they are continuously on business Others believe that the time for some categories of users should be valued if the saving is significant 5 minutes 10 minutes 30 minutes particularly if an employee gets paid for such time but smaller increments of time such as a minute or two should be forgotten The Federal Treasury Board s guide includes travel time in its list of items to be valued and is silent about any exemptions A recent 1987 Transport Canada report on the Yellowhead Highway Improvement Program includes values of 21 93 per hour for bus truck and transport dri
48. residual value and salvage value might be treated as being synonymous and depreciation is a closely related term Vehicles equipment and most physical assets generally depreciate in value with usage and the 20 Alberta Transportation and Utilities passage of time and this is relevant in at least two ways in the analysis covered by these guidelines Vehicle operation costs are an important item in the determination of roadway user costis and depreciation being one of the costs of owning and operating a vehicle is included in those costs However only the use related portion of depreciation is important in this case and in the unit operating costs which have been developed for the different classes of vehicles under different operating conditions the cost of depreciation related to the passage of time has been eliminated On the other hand analyses determining how frequently a vehicle or fleet of vehicles should be traded in would make no distinction between causes of depreciation with the relevant data simply being the purchase cost and the receipts when sold Short term analyses involving the acquisition and disposal of physical assets must include costs as negative cash flows and the net receipts upon disposal as a positive cash flows with the latter typically being significant and therefore important in the analyses For a long term open ended type of analysis where the period being used is stretching the confiden
49. the three results would provide a better picture about the influence of the discount rate lf the decision maker desires more information about the period of analysis or life given to the project three different values could also be used for this factor a short medium and a long period or life A picture which would provide a wealth of information about the effect of both of these variables would be a graph with a family of curves with either NPV s or B C ratios or both plotted continuously for each year for all possible periods with each plot in the family representing different discount rates in steps of 1 or 2 percentage points While that sounds like a lot of work and it would be if manually done with computer programs handling the calculations the production of the data would be no problem Both of these methods will be left for now but will be revisited repeatedly Present Values are used in the Department s procedures and the inherent relation ships between B C ratios and the other methods will be highlighted 4 2 3 Internal Rate of Return IRR This method also involves discounting but instead of choosing a discount rate the discount rate is calcu lated to make the discounted benefits equal to the discounted costs or in the same terms as used previously discounted incomes equal to the dis counted expenditures As in the other two methods the interest rate or discount rate so calculated will be based upon a speci
50. 071 8 571 53 195 500 8 132 8 832 152 870 500 8 193 6 693 52 557 500 6 253 8 753 52 257 500 6 314 6 814 51 968 500 6 375 6 875 51 891 6 435 8 935 5 424 500 6 496 6 996 51 187 8 557 19 557 144 750 6 617 7 117 44513 8 678 178 144 284 8 739 7 239 44 065 6 800 7 300 43 854 8 860 7 380 43 851 8 921 7 421 43 456 6 982 7 482 42 269 on O N N 7 042 7 542 43 0881 7 103 7 603 142 915 7 184 7 884 142 748 7 225 7 725 142 568 7 285 7 785 42 4341 7 348 7 B46 42 295 7 407 7 907 42 143 7487 7 987 42 006 7 528 8 028 41 874 7 589 B 089 41 747 7 850 20 850 38 580 7 710 8 210 38 463 7 771 8 27 38 350 7 832 8 222 38 242 7 892 8 392 128 127 7 953 8 453 38 037 8 014 514 27 941 8 075 575 027 848 8 135 8 635 37 759 196 37 874 B 257 8 757 37 5911 8 317 817 37 512 B 378 B 878 137 424 8 439 8 939 37 383 8 500 9 000 27 292 Table showing results for the comparison of guardrail and sideslope improvement 74 nalysis Guide Alberta Transportation and Utilities 120 popalo Id oec chu 3 I EG GSE SEE ESE SS Nis Ba 95 ESE SEE ESE u ESE SRE LI i I L i LI BES PER Lebe 100 TIT rl
51. 110 000 annually increasing at 1 5 year cost Figure 5 1 Cash Flow Diagram for a Typical Roadway Project ERI ER iss EN EBE HE SEE BES BES DE S SON EE ES SS BS Ca am pa EM Eu Si gaz LE IL SSE D Was BE Pat gn WE ESR SED FSI 4 T DW ESE UN NU ES SUS ESE E UE SESI UNIUS ES Eak NS lsi NE Wa LI SS SR gt a m t tx D GUT NE EU a v mm m PTT T Nc wa an ES WB ta ts TEL v1 Toni Sot fa sg ERE F I G eee Is P E DIE ESE SESI SEE BUR SEE SE S Present Value in Millions of LT LA LL T TL I TJ T T T TJ i T I LIL L MATES UMANE ER SSE Esa kaq sas Ban Ta SEK SE Gss ee 0 tt ES INA 00 000 SERS BE SSE Sa T ME Internal Rate of Return m Li T 1980 Year t 4
52. 141 for6 is 0 0542 and for 8 is 0 0213 With 4 real interest rate being or close to being the minimum attractive rate of return the significance of value 50 years in the future would be limited to about 14 of their present value assuming 100 salvage value and if the salvage value is 10 for example that significance would be reduced to 1 4 Considering the significance and other related principles which have been established salvage values should generally be neglected in the long term analysis and in special cases where they would be included the analyst should document the case for inclusion 2 4 Interest Discount and Inflation Rates The idea that time is money is deep rooted and one of the cornerstones in our monetary and credit system Interest is a reward or incentive for delaying consumption If one has money to invest payment is expected as compensating for foregoing the pleasure of spending it immediately and after interest is received payment is expected on the interest which is now also invested hence the concept of compound interest The use of an interest or discount rate has the effect of watering down the significance of the future in relation to the present The significance of future flows of money becomes less significant with increasing interest rates Using a 2 discount rate a dollar 50 years hence has a present value of 37 cents ata 4 rate 23 cents at a 7 rate 3 cents and
53. 1875 cost begins in 1991 yr 2 to use growth SPW tables must get 1989 value 1875 1 03 1767 3672 Present Value 1991 to 1995 B 1767 3672 EET A PvE 1767 3672 5 8014886 0 9903797 8 503 1 growth period i mE 2 970297 0 02970297 1989 value of 2131 1996 2131 1 01 1987 62 Present Value 1996 to 2039 1987 62 1 02970297 29 1 1 0297 1 0 02970297 x 1 02970297 29 0 24703 x 1 0297 1987 62 25 87548 5 42252 40 653 Accumulated Present Value Road User 49 156 From printout 12 594 36 570 49 164 checks Alt 2 Alt 1 Disc Net Discounted Valued 60 Benefit Cost nalysis Guide Alberta Transportation and Utilities CHECKS ON COMPUTER PRINTOUT continued INTERNAL RATE OF RETURN Two values for the IRR are relatively simple to check where itis 0 and 4 94 IRR 0 When undiscounted 0 interest rate costs undiscounted benefits IRR changes from negative 2 70 in 1997 to positive 1 03 in 1998 Net accumulative figures for 1997 1989 1997 Costs Alt 2 column gt 2497 399 22 801 1989 1997 Road User 1991 to 97 Costs Greater Benefits Alt 1 gt 589 1133 Column 1975 2153 21 171 by 1630 By 1998 Costs 22 801 399 23 200 Benefits Greater Benefits 21 171 589 2174 23 934 by 734 IRR 0 between years 1997 and 1998 checks IRR 4 Net Discounted Values change from negative 2 323 to positive
54. 1988 and May 1989 with these results and conclusions Principles Vehicular Traffic Volume Projections Traffic volumes used over long periods of time into the future should be increased each year for the entire period of the analysis at the rate of 1 per year for the period following that for which more specific projections can be made It was noted that the provincial tion levels were predicted to increase from 2 38 million in 1986 to 3 28 million in the year 2016 Source Alberta Treasury ABS NEWSTATS Vol XI No 3 That increase slightly exceeds a compound growth rate of 1 per annum Salvage Values Except for shorter term type of analysis where an item or works will have a recognized market value at the end of the analysis period salvage values will have a relatively small effect on the results and will be questionable and should not be included in the analysis Examples Developed Each of the examples briefly described here are included in complete detail in Section 8 Highway 88 Project A large and complex example determining the financial return which would result from the paving of a long section of Highway 88 between Slave Lake and Loon Lake 85 kilometres Life Cycle For Culverts An example comparing the economic merits of four alternative designs for an 8 diameter culvert B nefit Cost e w alysis Guide Guardrail vs Sideslope Improvement This example compares the benefits and
55. 20 146 12 000 3 000 x 3 18907 4 000 The imbalance is now in the opposite direction meaning that the 23 interest rate is too large Repeat calculations for 22 9 and ri 16 19 PW Renting 6 240 x 3 25983 20 341 PW Purchasing 12 000 3 000 x 3 25983 4 000 x 0 37000 20 299 Summary of 22 amp 23 22 for PW Purchasing PW Renting 20 299 20 341 23 for PW Purchasing PW Renting 20 146 19 900 42 246 B 20 Interpolating on a straight line basis 42 Percentage higher than 22 424246 7b 0 146 Internal rate of return should be very close to 22 146 As final check use i 22 146 and ri 16 330 PW for Renting 6 240 x 3 24924 20 275 PW for Purchasing 12 000 3 000 x 3 24924 4000 x 0 36779 20 277 checks within 2 Result should be expressed as Internal Rate of Return 22 1 To illustrate that the use of ri inflation free factor gives the same result as using i factors throughout the problems and solution may be restated as follows i 22 146 PW factors n 0 81869 2 0 67026 3 0 54873 4 0 44924 5 0 36779 Renting Alternative Year n COST PW PW year n Factor 6240 1 05 6552 X 0 81869 5364 2 6240x 1 05 6880 X 0 67026 4611 3 6240 1 053 7224 X 0 54873 3964 4 6240 x 1 05f 7585 X 0 44924 3407 5 6240x 1 05 7964 X 0 36779 2920 TOTAL 20 275 Purchasing Alternative
56. 35 2023 47 2 824 1614 795 1 925 9 480 24 3274 GRAPHS 38 2024 47 2 844 et t 829 141 818 802 t 928 9874 24 32 37 2024 49 2864 1 934 1 843 986 822 t841 12 591 9 837 24 3244 2028 49 2 686 60 t 658 628 817 12 1821 9 82 24 337 01 SCUSSED 39 2027 49 2 707 60 1872 tt 835 624 2 184 9 99 24 334 40 2028 49 2 728 60 t 668 841 830 2 1871 10 172 24 327 41 2029 49 2 749 eo t 901 848 837 2188 10 340 24 33 EARL E R Table 5 3 Sample Data and Summary for a typical roadway project 45 Benefit Cost nalysis Guide The flow of data and steps in the procedure are thus Information from the data blocks goes into the table That year by year data is used to calculate differences accumulations present worths and rate of return and The latter are used to plot yearly points on the graphs over the period of the analysis For a relatively simple analysis involving few alternatives it should be possible to include all of the data on one page and show all of the plots on one graph sheet Obviously if several alternatives are involved and comparisons between alternatives are necessary more pages will be required and more graphs may also be necessary to separate and distinguish comparisons With a process having many applications and each application having different parameters and some requiring extensive input data there will be circumstances for which the normal anal
57. 4 2 Analysis Option Having determined cash flow values for a project there are several methods for converting those flows into results which provide an indication of the eco nomic efficiency of the project As discussed in Section 2 1 2 it is best to deal in incremental values with each new alternative com pared to doing nothing or more usually compared to doing a minimum whatever would be done if the action being tested is not taken 30 Alberta Transportation and Utilities As far as the mechanics of these procedures are concerned it makes no difference whether an alter native is being compared to doing absolutely nothing no deductions made from any of the entries or if the cash flows being tested are incremental values wherein at least some of the entries are the differ ences between what values would be with the project less the values which would apply without the project These procedures deal with the cash flow entries and It matters not how the entries were calculated or obtained The descriptions of the results and the interpretation of the results are other matters and both will be influenced by the makeup of the entries 4 2 1 Net Present Value NPV This method involves the discounting of future cash flows and subtracting expenditures or outward flows from incomes or inward flows If the result is positive the activity being tested is good economically in the sense that the return on investment is greater
58. 900 2 090 337 111 to 50 2 090 337 x 0 7 x 0 85 x 34 8 1 000 43 300 111 to stop 2 090 337 x 0 7 x 0 15 x 49 2 1 000 10 800 Total Autos amp RVs 54 100 Summary of Excess Costs for Decel and Accel TRKs 53 900 SUs amp Busses 32 500 Autos amp R Vs 54 100 i Total 140 500 Project Summaries Annual User Cost Savings 1988 dollars Descriptions Vehicle Operation Time Total Twinning 7 km of Existing Route Increase speed to 103 km hr 7 500 21 900 14 400 Increase Autos to 111 km hr 101 000 159 300 58 300 Totals 108 500 181 200 72 700 New Route 7 km Section Increase speed to 103 km hr 7 500 21 900 14 400 Increase Autos to 111 km hr 70 of above figures 70 700 111 500 40 800 Truck Accel time savings 28 000 28 000 Totals 7 km Section 78 200 161 400 83 200 3 2 km Section 4 0 km on new route Running Costs and Time Costs 284 900 882 600 597 700 Time stopped by signal 41 800 41 800 Extra Time for Truck Accel 3 900 3 900 Excess Costs for Decel amp Accel 140 500 140 500 Totals 3 2 km Section 144 400 928 300 783 900 Totals both sections 222 600 1 089 700 867 100 Brackets indicate that costs are greater if travelling on the new route 89 Benefit Cost nalysis Guide Alberta Transportation and Utilities A Note About Traffic Data The footnote on page 86 makes reference to this page and this note relates to the calculation on that page and other subsequ
59. A Fi ee ET ad Ee A 9 x c al 1 i a a 1 i r i enter labels for Vehicle categones average Occupancy and Costs for Tima and other Vahicie Opera ling Coss GSTI 5 0 105 kminr Select from fis The Traffic Alt tabs Project Definition tab and Alt tabs use the Vehicle Type definitions to perform various calculations No updates are required in these tabs as a result of a change in the Vehicle Type definitions It is not expected that the Maintenance Cost categories will change 31 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Occupancy Average occupancy rate for light vehicles as reported by Natural Resources Canada 2009 15 1 68 This has been applied to each of the passenger vehicle RV single unit truck vehicles Occupancy information for other vehicle types including medium and heavy vehicles and buses are assumed values Work Business Cost hr The Work Business Cost per hour reflects the cost of traveller time for work related trips The average hourly wage rate in Alberta has been used for non commercial vehicles 24 84 adjusted for inflation to 2014 26 00 the truck driver rate 24 69 adjusted for inflation to 2014 26 00 has been used for commercial trucking and bus driver rate 20 11 adjusted to 2014 21 00 for buses All data has been drawn from Alberta Lea
60. Being done manually it was easiest to work with incremental values for some ot the items and consequently total road user costs for neither the Base Case retain the gravel standard nor the Alternative paving were produced It will be noted that the Road User Cost RUC columns in the summary data sheet are not needed in this case when done in this manner This project has now also been included in the User Manual as an example for the model developed by the Department to handle roadway projects The model works with total costs from which incremental values are determined and all columns in the summary data sheet are then used Variances in results for the road user costs between the two methods manual and model are discussed in the User Manual and the main points repeated here When done manually in 1989 the operation unit costs were read from graphs and the discrepancies in the results for these costs are contributed to inaccuracies in the reading of the graphs The calculations for time costs as included here contain a procedural error the occupants of trucks average of 1 2 per vehicle were all given a rate per hour corresponding to the hourly rate for drivers 23 00 per hour whereas it should be assumed that there is one driver per vehicle and the balance of the time should be calculated on the basis of the lower working rate 12 00 per hour Collision costs are essentially the same they should be by the manner
61. Comparing the two as options the incremental additional cost of 500 000 for new construction will earn an incremental return ol 50 000 and it is financially best if competing projects would yield a return less than 10 9 2 Special Cases In cases which involve no benefits or where undiscounted benefits or positive cash flows do not exceed undiscounted costs or negative cash flows there is no return and the internal rate of return method cannot be used Further some cases involve alternatives which have distinct and different life periods and for those it is common 1o express results in terms of Equivalent Uniform Annual Cost EUAC The examples included in Appendix B Interest Formulae and Examples include this method of expressing results and a further example with few entries will help illustrate the concept as well as highlight problems with this method 5 21 EU A C and Alternate Methods The initial cost of a vehicle is 15 000 00 and maintenance costs will be 1000 00 in the first year and increase 1000 00 each year thereafter Trade in value is based upon depreciation of 30 96 per year on the undepreciated value of the previous year The question is how frequently this class of vehicle should be traded in to minimize costs This example can be interpreted as one involving different lives and the EUAC method will be tested The end of year convention assuming year end concentration of annual and all costs will
62. Cost nalysis Guide Alberta Transportation and Utilities the alternative with the highest Internal Rate of Firstly an example where that is not a problem Input Return need not also be the one with the greatest Net data is based upon 1990 dollars and all calculations Present Value use CONSTANT dollars ALTERNATIVE CAPITAL COST 1990 ANNUAL BENEFITS THEREAFTER 1 2 7 Million 300 000 benefits will 2 5 8 Million 430 000 increase with 2 minus 1 3 1 Million 130 000 inflation s LULU LL ES ESE a ES BES IS SE EE TES ES CILgdg EER BES ES ESE SEE FEE ESE Gs ESE ES BES EE GARE ESE HER SS E BS Eb EE GBEP LO L L L LL T T TL T T L I LT LIL 202 LI LT L i TT O te ee TT Dollars J i L REB B L i L I Millions in Value Present Loeb qc LLELLLIILTILLLLLIILILEL lt m L L L PTT et a 0 E TO eal Li S DON TT TT FEE EER BES SE ESU ISR iB ES Es E Des TL EM A BBS ESE LIO SE SE GE ESE SN GIB ESE SE BE
63. Curvature amp Gradient Vehicle Running Cost California California Fuel amp Non Fuel Costs per km click on cell to select approach to calculate Road User costs Choose Texas for Curvature amp Gradient or California for Fuel amp Non Fuel approach Reminder It is recommended the California Fuel amp Non Fuel approach be used for all projects unless the curvature or gradient varies significantly between alternatives in which case the Texas Curvature amp Gradient approach would be used Project Name The project being evaluated should be labeled by entering a Project Name Project Name Increasing Curve Radius enter label for Project Project Definition This table provides an overview of the Alternatives names Up to three alternatives can be defined for each project being evaluated The names are defined in the Alt tab s Project Definition Name Alternative 1 No Change To Curve Alternative 2 Larger Curve Alternative 3 Largest Curve from Alternative Definition tabs Construction Start End Year This table provides an overview of the construction start and end dates and when the project would begin operations The timing of construction is defined in the Alt tab s Construction Start End Year Starf End Operation Alternative 1 No Change To Curve 2013 2013 2014 Alternative 2 Larger Curve 2013 2014 2015 Alternative 3 Largest Curve 2015 2018 2019 from Alternative Definition tabs 25 Para
64. Factors for Road User Costs 29 Figure 5 1 Cash Flow Diagram for a Typical Roadway Project 36 Figure 5 2 Graphs Showing NPV and IRR 36 Figure 5 3 Graphs Showing NPV IRR and Incrementa Values 39 Figure 5 4 Results With Conflicting Messages 41 Table 2 1 Societal Costs of Traffic Crashes 15 Table 5 1 EUAC for equipment purchase example 43 Table 5 2 Cash Flows and Present Values for equipment ex 44 Table 5 3 Sample Data and Summary for displaying resuls 45 NOTE Figures and Tables are also included with each of the examples included in Section 8 and in the Interest and Formulae and Material for Training sections of the Appendices Benefit Cost nalysis Guide Alberta Transportation and Utilities O TP n H 4 Cost a D O t nalysis This arrangement of the words Benefit Cost Analysis portrays benefits as outweighing costs when one is balanced against the other When it is not obvious as to which is the greatest is when an analysis is required to determine which outweighs the other Benefit Cost Analysis Guide 1 Introduction 1 1 Overview of Benefit Cost Analysis Alberta Transportation and Utilities has developed a set of guidelines and a model to conduct benefit cost analysis in order to provide a common basis for the assessment of Department projects in economic terms The analysis procedure
65. First Recap Lump Sum 5 956 2010 Second Recap Lump Sum 5 572 2025 Total 1 875 000 100 Maintenance Base Case Annually 6 890 Besides increasing with inflation these factors will Each 3 Years 13 250 First in 1991 also increase in direct proportion with increases in Each 12 Years 23 850 First in 2000 traffic volumes which are predicted to be at a rate of 3 per year up to and including 1995 and Alternative the rate of 1 95 per year thereafter First 5 years 4 664 following each surfacing Subsequently 4 876 Net Annual Undiscounted Value Sum pf P V 4 Disc Base Case Alternative Cap Cost RUC RUC Cost IRR No Year Cap RUC Cap RUC Diff Savings Values Capital Total Real 0 1989 589 2 497 1 908 1 908 1 908 1 908 1 1990 589 11 822 11 233 11 233 12 709 12 709 2 1991 1 133 399 734 1 875 2 609 12 030 10 296 3 1992 589 399 190 1 931 2 121 11 861 B 410 4 1993 589 6 088 5 499 1 989 3 510 16 562 11 410 5 1994 1 133 399 734 2 049 2 783 15 959 9 123 6 1995 589 399 190 2 110 2 300 15 809 7 306 18 78 7 1996 589 399 190 2 131 2 321 15 664 5 542 959 B 1997 1 133 399 734 2 153 2 387 15 128 3 433 2 70 9 1998 589 399 190 2 174 2 364 14 994 1772 1 03 10 1999 589 417 172 2 196 2 368 14 878 172 3 75 11 2000 2 040 417 1623 2 218 3 841 13 824 2 323 6 84 12 2001 589 417 172 2 240 2 412 13 716 3 830 8 24 13 2002 589
66. IMPACT UPON CHANGE TO OR RELATIONSHIP BETWEEN PRICES LABOR INTEREST RATES EXCHANGE RATES PRODUCTIVITY CONSUMPTION OR INVESTMENT IT IS NOT AN ECONOMIC IMPACT ANALYSIS DETERMINING THE INDIRECT AND INDUCED EFFECTS RESULTING FROM THE DIRECT COSTS AND SAVINGS WORKING THEIR WAY THROUGH THE SYSTEM IT IS NOT A SUBSTITUTE FOR GOOD JUDGEMENT NOR IS IT THE DECISION BENEFIT COST ANALYSIS BE BROADENED YES x Is there confidence in the process SHOULD IT BE DONE FOR THIS SPECIFIC CASE Is a Decision required ss Would it aid in making the decision Is it required as a reference ls it expected or wanted Is there confidence in this application CAN IT BE DONE Can at least some benefits be expressed in s eee Do costs and or benefits spread over time Are resources available to do analysis PROCEED DETERMINE DETERMINE AND INTERPRET INPUTS PRESENT RESULTS RESULTS D2ENEFIT COST ANALYSIS Who s doing it Who s promoting it WORLD BANK U S DEPARTMENT OF TRANSPORTATION FHA AASHTO RT AC TREASURY BOARD OF CANADA TRANSPORT CANADA SOME PROVINCES Who s not doing it SOME PROVINCES TREASURY DEPARTMENT ALBERT OTHER DEPARTMENTS IN ALBERTA C 28 NEFIT COST ANALYSIS Advantages of undertaking ASSISTS IN MAKING DECISIONS DECISION MAKER WILL HAVE MORE CONFIDENCE IN THE DECISIONS MADE PROVIDES INSIGHT INTO THE EFFICIENCY AND UTILITY OF
67. In the most general of terms a benefit cost analysis compares the opportunities for consumption and production with and without the program project or works being tested Ideally the analysis is a comparison of the resources which would be used with the benefits which would result and to make that comparison all items which are included in the equation must be given a dollar value Imputed Values Shadow Prices some items may not have an established market value and if a price is to be assigned that action is essentially the same as adjusting one which is either high or low The difference is in degree and not in kind The value so adjusted or assigned is an imputed value or a shadow price and the process of assigning or changing the value is known as shadow pricing Benefits or costs not having a directly established market value can sometimes be valued by using information from related markets For example the construction of a roadway may generate benefits in terms of improved access into a particular area These benefits could be imputed by establishing the rise in property values experienced in another area with similar economic characteristics which has benefitted from a comparable project In the context of the Department s benefit cost model imputed values are used for the evaluation of roadway projects to estimate user cost savings pertaining to travel time and collisions The items discussed within the Department which
68. The Present Worth factor for this item 5 years hence is l _ E 1 0 937128 1 0130719 1 06709 If this item presently has a value of 100 00 the present worth of its fifth year amount would be 93 71 PRESENT WORTH OF A GEOMETRIC SERIES The last example provided the Present Worth of the fifth year for an item costing 100 00 now and increasing quantity wise at the rate of 2 per year inflating at 5 and discounted at 8 5 The Present Worth of the first five years would be 1 EE 1 100 00 asss sss 28808 i I oom 1 0130719 101807197 100 00 0 987097 0 974360 Lt 0 937128 100 00 x 4 80973 480 97 Again that is a laboursome exercise particularly if many periods are involved and easier calculations are available BY FORMULA spw 0 1 1 i where i 1 30719 or 0 01307 19 5 SPW 1 0130719 1 4 80973 0 0130719 x 1 0130719 FROM TABLES No tables are available for a rate of 1 30719 and interpolation between figures for 11 4 and 1 1 2 must suffice SPW for 5 years for 1 1 4 is 4 817835 and for 1 1 2 is 4 782645 and a straight line interpolation for 1 30719 gives 4 809785 NOTE Small discrepancy in results due to using straight line interpolation for non linear relationships 1 Figure calculated in in previous example and while this is not an interest rate it can be used as an interest rate for the purpose of this
69. YEAR FUTURE PERIOD BASED UPON PRESENT PRICES 1 What is the internal rate of return after eight years assuming the entire 2 2 M benefit occurs at the end of the eighth year and the works have no value thereafter The question T 2 2 M user benefit Sp puna p lt u T Jj 0 1 2 3 4 5 6 7 8 1 2 0 M Cost YEARS Solution Present worth of capital outlay 2 0 1 2 2M x Tx 3e Equating the two to determine IRR Present worth of benefits 1 8 2 2 2 0 2 2 x 378 I 5 1 1 e e ete tT for calculators with Vx ZX 1 1 1 0488088 v 1 0438088 1 0241136 and 1 0241136 1 01198 1 7 1 011985 i 0011985 or 1 1985 1 RR 1 2 2 What is the internal rate of return after 16 years again assuming that the entire benefits for each 8 year period occur at the end of those periods and that the works have no value after 16 years The question T 2 2 user benefit T 2 2 M user benefit 0 2 4 6 8 10 12 14 16 1 2 0 M Cost YEARS Solution Present worth of capital outlay 2 0 1 1 Present worth of benefits 2 2 M x T 8 2 2 117 716 1 1 Equating the two 2 0 2 2 T B 2 2 t 716 Multiplying both sides by 1 19 2 0 14 116 22 1498 22 placing ina form ax bx 0 20 1 62 2 1 8 22 0 Benefit Cost w Analysis Guide Appendix Alberta Transportation and Utilities let x 1 p and solve for x with equ x cbr pol
70. alternatives are linked to the source data in the RUC tab 35 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Collisions Major Injury 2006 2010 average Alberta Transportation Traffic Safety Branch of Persons Injured divided by the number of Non Fatal Injury Collisions Table 1 1 page 2 2010 Traffic Collision Summary The proportion of injury collisions that are serious are estimated based on national data Canadian Motor Vehicle Traffic Collision Statistics 2009 where the number of seriously injured and total injured is available This rate has declined steadily from the early 90 s from about 10 of all injuries to 6 6 in 2009 Applying this rate to the Alberta non fatal injury rate the number of people in a collision with a non fatal injury is 0 09 Minor Injury Same average used for Major Injury as Serious Injury As above national data regarding the proportion of injuries that are serious has been used to estimate the number of moderate injuries estimated to be 93 4 in 2009 Applying this rate to the Alberta non fatal injury rate the 2012 base year number of people in a collision with a non fatal injury is 1 27 Collision Rates The collision rate information provided for 2010 was broken down into 6 categories as defined below The rates reported here are based on 2010 data In 2011 the Office of Traffic Safety is reporting collision rates for Property Damage Only PD
71. and for roadway projects the treatments offered for the value of time and the cost of traffic collisions are noteworthy Alberta Transportation and Utilities Factors given fair value in the benefit cost equation should not be given weight along with the other non economic factors when making decisions otherwise they are being double accounted On the other hand all decision makers will not individually agree with the values reached by consensus and it is not only fair but also a reality of life that some will wish to give further consideration to specific items which are already included in results of the analysis That is the decision maker s prerogative and is fair in the sense that it is a deliberate and conscious action to give more or less significance to one or more items and that is not double accounting as in a case where some item is inadvertently considered twice Benefit cost comparisons are helpful in making decisions and making choices between competing programs projects and alternatives however it is only one of several factors which will usually be facing the decision maker It is not a substitute for judgement but for many decisions it is a prerequisite to exercising good judgement and for making good recommendations for ultimate political decisions A benefit cost analysis is an explicit approach to assessing the financial merits of a program or project and the advantage of using this concept lies in the v
72. at a 10 rate less than 1 cent Using a 21 Alberta Transportation and Utilities sufficiently high discount rate approaches the same effect as cutting the project off at a relatively short analysis period 2 4 1 Definitions Interest has been given many different definitions by different authorities and might be most simply defined as the price paid for borrowing money Some different types of interest rates also require definition and their variations are even greater Real Interest rate the rate at which wealth grows over and above price changes inflation Nominal Interest rate the absolute rate at which invested wealth grows The distinction between these terms and their relationship to inflation is important and the type of rate used in an analysis depends upon how future expenditures and incomes are expressed Future sums expressed in constant dollars are the same as their present amounts and are sometimes referred to as inflation free dollars The effects of inflation are ignored If the future sums used in the analysis are increased to reflect the effects of anticipated inflation current dollars are being used If constant inflation free dollars are used real interest rates must also be used and if results are expressed in interest rate terms such as when calculating the internal rate of return the rate produced will be real If current dollars are used nominal interest rates must also b
73. aver age cost per collision is 66 120 if the above losses for fatalities are included and 49 320 if they are not included As with the value for time whether to include or exclude these losses for fatali ties is by and large a judgment matter and those who make the most important and final decisions on matters using these analyses should also determine the input for this item WHEN MAKING DECISIONS ABOUT INPUT FACTORS IT SHOULD NOT BE ASSUMED THAT THE USE NON USE OR VARIATIONS IN ANY FACTOR BECOME RELATIVELY INSIGNIFICANT WHEN COMPARING ONE PROJECT TO ANOTHER The proportions of influence of the various factors differ from project to project For example time or safety will have no bearing on some analysis but will be significant in others 7 Results Results can be presented in any manner and format which will be most useful and meaning ful to those who review the results of numerous analysis and make comparisons between the results for different programs projects and al ternatives For the purpose of assessing what factors should or should not be included in a roadway analysis the two examples which are included in the report to the Task Force include several combinations of input items In effect the various lines on each graph constitute a sen sitivity analysis which will not be necessary if it is decided that the same mix of items are to be included in each and every analysis Alberta Transportation and Ut
74. be used and traditionally the EUAC include an amortization the initial expenditure and current dollars will be used for all entries based upon an inflation rate 015 77 Based upon the results of calculations as shown in this table the minimum EUAC occurs when trading 1 This specific rate is used to mathematically agree with an investment rate of 10 and a real interest rate of 4 42 Benefit Cost ws Analysis Guide Alberta Transportation and Utilities TRADE CONSTANT CURRENT PRESENT TOTAL SUBTRACT AMORT EUAC FREQU DOLLARS DOLLARS VALUE PRESENT 15 000 FACTOR 5 77 INT 10 DISC VALUE COST FOR 10 Yearly Maint 1 000 1 058 962 Trade 10 500 11 106 10 096 9 134 5 866 1 100000 6 453 2 Years Maint 1 000 1 058 962 2 000 2 237 1 849 Trade 7 350 8 223 6 796 3 985 11 015 0 576190 6 347 3 Years Maint 1 000 1 058 962 2 000 2 237 1 849 3 000 3 550 2 667 Trade 5 145 6 088 4 574 904 15 904 0 402115 6 395 4 Years Maint 1 000 1 058 962 2 000 2 237 1 849 3 000 3 550 2 667 4 000 5 006 3 419 Trade 3 602 4 508 3 079 5 818 20 818 0 315471 6 567 Table 5 1 Equivalent Uniform Annual Costs for equipment purchase example each two years and while that may be the best choice for the immediate future it MAY NOT BE THE BEST CHOICE IN THE LONG RUN For the longer term what happens after the first term must be considered With in
75. be used in cases comparing alternate purchases or works which have different useful lives 5 1 Long Term Projects Virtually all of the activity and efforts of Alberta Transportation and Utilities lead to or are in support of capital work projects which will have a long life hence the majority of the analysis will fall in this category Transportation type of projects or components of those facilities will be used for all of the examples however the same principles and procedures can be applied to utility works and for either as far as the analysis is concerned it matters not whether the project is under the direct administration and control of the Department or whether the Department is simply supporting a municipality with one of its projects Works when completed must be operated and maintained and those capital and maintenance costs together with the benefits which the users of the facility will enjoy constitute the broad categories of input items Showing expenditures or costs as negative and benefits as positive a cash or resource flow diagram Cost Benefit wee Analysis Guide Alberta Transportation and Utilities could takethe following form Annual Road User Benefits ar Penodic heavy maintenance Annual maintenance Specific values 1990 dollars k costs or rehabilitation Initial Capital 1 5 M Initial Annual Maint 20 000 capital Rehabilitation 660 000 Benefits
76. can be used This is possible and mathematically correct if inflationary effects on all items will be the same The inflation rate may vary from year to year with no adverse consequence A problem arises when using constant dollars only if it is predicted that one or more items will change price s differently than the rest Usually that will not be predictable which will permit constant dollars to be used with future sums discounted using a real discount rate How one or a few items which are predicted to behave abnormally can be handled and still deal in constant dollars will be outlined in the next section The following diagrams and calculations taken from an example in the Summary illustrate how the formulae work together and produce the same results when using real rates and constant dollars as when using nominal rates and current dollars They illustrate the discounting of 3 000 for one year and the discounting of 20 000 for ten years those values being expressed in constant dollars A real Benefit Cost w Analysis Guide interest rate of 4 is used and it is assumed that the annual inflation rate is 5 Togther they dictate a nominal rate of 9 2 Present value 5 2 885 3 000 1 0 04 Real interest rate 4 3 000 in constant dollars Year 10 Year O Year 1 Present valua 5 13 511 10 20 000 1 0 04 Real interest rate 4 s 20 000 in constan
77. can have more of the same at a later date 100 apples are given to a neighbor this year on condition that the neighbor return 103 1 3 apples next season Assuming the apples are equally good the neighbor making the loan has received 3 1 3 apples in return for foregoing the enjoyment of 100 apples for one year The real rate of return is 3 1 3 Assume instead that the 100 apples are sold with payment in cash to be received one year hence Assume also that the price of apples is now 1 00 each and that price will increase inflate at the rate of 5 each apple will cost 1 05 a year from now To receive a real rate of return of 3 1 3 or to be able to purchase 103 1 3 apples one year hence an amount of 1 05 x 103 1 3 or 1 085 will be required Interest at the rate of 8 5 will have to be charged to receive a real rate of return of 3 1 3 when inflation is 5 The formulae in words which fits these figures are initial value 1 real rate of return 1 inflation rate initial value 1 interest rate II Value after one period and Value after one period interest rate 1 real rate of return 1 inflation rate interest rate real rate of return 1 inflation rate inflation rate interest rate inflation rate and real rate of reum 1 inflation rate USING THE REAL RATE OF RETURN An article now costing 100 00 which will increase in cost at the rate of 5 per year inflation will be pu
78. costs for installing guard rail on a hypo thetical 9 metre fill with 3 1 sideslopes compared to flattening the slopes to 4 1 on the assumption that guardrail would then not be required Other examples were discussed within the committee with some developed to a degree by the individual members but could not be finished due to the lack of time which could be devoted to this subject NOTE In conjunction with the prepara tion of this Guide in its present form in 1991 a hypothetical example involving road user costs associated with chang ing speeds was developed and that example is included along with the above three examples in Section 8 Obviously the Committee who s work is being described here has not re viewed this example Unit Costs For Roadway Projects Much time by several committee members was devoted to the development of unit prices for a typical roadway project with the following highlights which are most specifically appli cable to the Highway 88 project but may have some value for general guidance purposes as well All cost figures are in 1988 Canadian dollars with taxes excluded Capital Costs Capital costs will usually be available on a project and design specific basis The sensitivity of the timing for resurfacing was calculated with the finding that base course and surfacing costs increase by 7 if a ten year period between resurfacings is used compared to resurfacing each fifteen years and s
79. emission values Work is being done to estimate emission values for Alberta which can be used in the model for analysis when this work is complete The calculation of emission costs depends on data entered and estimated in the model for other variables and as a result there is no additional data required to complete these calculations A has been incorporated in the model that can be used to adjust all the emission calculations up or down so they may better reflect Alberta values This factor is located in cell BZ9 of each of the Traffic Alt tabs of the model A value of 1 uses the values provided in the Cal B C model The user does not have access to modify this factor The factor will be modified by the Department if warranted 3 California Life Cycle Benefit Cost Analysis Model Cal B C Version 4 0 February 2009 37 This factor will be modified at the discretion of the Department 18 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx oection 4 How to Interpret the Results of an Analysis Project Cost Summary The costs for each Alternative defined for the project are summarized in the Project Costs tabs The costs are provided over the 80 year forecast period for each of the major project cost categories Construction Costs This includes the following cost components Historical Project Cost Where there are no initial capital investment requirements associated with an e
80. for the Alternative considered and subtracting the Non Investment Costs estimated for Alternative 1 As a result the Benefits associated with Alternative 1 Scenario 1 are zero Net B nefits Non Investment Cost Savings NPV go CA C 406 High Const Costs amp Name Base Analysis High Cons Costs Discount Rate Alternative 1 Do Nothing Alternative Damm 2 ae 21 197 953 Alternative 2 Flatter Curve qud 4512038 gt 4 512 038 5 065 198 Cosi Savings Compared to Allemative 1 Scenario 1 Includes all Non Investment Costs As with Investment Costs the Net Benefits Non Investment Cost Savings are discounted using the Discount Rate for the selected Alternative to calculate the Net Present Value for use in the Benefit Cost Ratio calculation see below Benefit Cost Ratio Typically the results of a benefit cost analysis are summarized in a Benefit Cost Ratio This calculation compares the net present value of a stream of cost savings Net Benefits over time compared to the costs or initial investment in the project As described above the Benefits or Cost Savings Net Benefits of each alternative have been estimated by calculating the net present value of Non Investment costs for each alternative and comparing this against the Non Investment Costs for Alternative 1 These Net Benefits have been used as the numerator in the Benefit Cost Ratio calculation The denominator has been calculated using the same approach whe
81. for the first year of operation are totaled in the year 1 row Should the user wish to not use one or all of these categories a zero can be entered in the relevant cell s It is also necessary to select a Cost Increase Option i e linear exponential traffic growth If linear or exponential growth is selected a Cost Increase Rate is also required 2 It is recommended that the linear growth driver be used to project traffic growth as this is the common practice of the Department IMPORTANT Entering any Specified operating and maintenance costs will be added to Scheduled operating and maintenance costs identified by segment as discussed below you want to only use Scheduled operating costs enter a zero in each of the Specified operating and maintenance cost categories If you want to add to or adjust the Scheduled maintenance costs enter the adjusted amounts and associated growth driver information in the Specified operating and maintenance cost categories Operating amp Maintenance Costs Specified Maintenance Costs Alt 1 Do Minimum Alternative enter the O amp M cost and cost driver for each category these costs will be added to any Se amp of years Maint Maint Total O amp M since const InYear Weather tmm e m 0 Costs Operating costs begin after 1 2016 ir F construction Is complete 79 NS Qa Hp MM eem see emm Py allem atas 5 Cost Increase Option Linea
82. in the case of a growth factor should be directly traceable back to the information heading the page Other columns are required to provide the differences between alternatives the accumulated present worths and internal rate of return values these being arrays of figures calculated from data in the columns first described Present worth and rate of return figures are required to plot the graphs Benefit COS we Analysis Guide Alberta Transportation and Ultilities PROJECT HIGHWAY X BETWEEN A amp B BASE CASE AGAINST WHICH ALL ALTERNATIVES ARE COMPARED RESURFACE EXISTING HIGHWAY 10 68 KM BETWEEN COMMON POINTS ALT P 1 BETWEEN COMMON POINTS CONSTRUCT 7 70 KM OF NEW ALIGNMENT AND RETAIN 8 7 OF OLD HIGHWAY IN SYSTEM NOTE CONSTANT DOLLARS USED THROUGHOUT BASED UPON 1989 PRICES Capital amp Maintenance Costs Road User Costs DESCRIPTION PER KM PROJECT YEAR ILTERNATIVE P t a m LUMP SUM 1 850 000 Benefits of project would begin In 1991 with values E PAVE 218 000 1 680 000 OTHER COSTS 380 000 DESCRIPTION AMOUNT EH TAL 3 910 000 1990 Vehicle operation 338 000 58 MAINTAIN OLD HWY 3 000 26 000 i NEW IST YRS 400 vd Collision costs 5 41 000 7 SUBSEQUENTLY k 600 81 000 ANNUAL Time savings 199 000 35 FIRST RECAP 133 000 1 021 000 2010 578 000 100 SECOND RECAP 127 000 3
83. in which they were determined Collision cost data was supplied in 1989 as lump sum figures for each roadway section however to 52 Alberta Transportation and Utilities illustrate the working of the model collision rates were calculated to give the same lump sum figures using 1990 societal and property damage unit costs Numerous checks were made to test the accuracy of results being produced manually Similar kinds of manual checks could and should be made even when the calculations are done in a more automated manner The likely source of errors in an automated procedure may be different than when being done manually nonetheless the likelihood of error is still high and a few manual calculations and a thorough comparison of results from different areas will go a long way towards eliminating larger errors at least Moreover the analyst will have to work a bit with the data to be able to answer questions about where the result figures originate and why the values fall out as they do 8 2 2 Culvert Example This example is titled Life Cycle for Culverts and compares the economic merits ot different treatments for a relatively large culvert installation This example is interesting in an analysis sense because it involves very few entries over a long period of time and while the results in graphical form take on quite a different appearance than most long term projects the standardized analysis procedure and method of pro
84. investments but should not be necessary in the consideration of publically funded endeavors when efficiency is resource orientated Income tax would also be an important factor in the private sector but it may be completely ignored in analyses for publically tunded projects With inputs 33 Alberta Transportation and Utilities being a measure of resources used or saved the fact that road user costs entail a mixture of after tax and deductable dollars is not a complicaton which it may otherwise be 4 3 Sensitivity Tests The Significance of Deviations This subject has been introduced previously in this Guide most recently in the discussion of the different methods of manipulating streams of cash flows to produce results The practice of testing the influence which changing discount rates will have upon results is a common procedure when the Benefit Cost Ratio method is used and the need for sensitivity informa tion about interest rates would be just as great if expressing results in Present Values only To more completely paint the whole picture for either of those methods it is suggested that results for different project life periods might also be required Those examples really provide the long and the short of the typical way in which factors are tested for sensitivity a factor is given a different value and the results after the change are compared with the re Sults before the change and the influence of changing
85. laneing both sides of the 10 2 km section being tested traffic will have the opportunity to pass before and after this relatively short restriction and the numbers of vehicles affected on these short sections are assumed to be only 20 of those now impeded on the long section That 20 applies to the entire 7 km outside of the signed speed zone More than 20 of the numbers of vehicles will be impeded but most will be restricted for only a portion of the entire length e g 40 6 may be impeded an average of half of the distance Urban Section Good conformance with the 50 Km hr posted speed On average 15 of each class of vehicle on the highway are stopped by the signal The red signal phase for highway traffic is one minute No highway traffic waits through more than one signal For the purpose of calculating travel times assume deceleration occurs instantaneously for all classes of vehicles as does acceleration except for tractor trailer units TRK For those assume a uniform acceleration rate of 4 000 hr hr when going from a stop to 50 km hr a uniform rate of 2 000 km hr hr when going from 50 km hr to 103 km hr NOTE 4 000 km hr hr 0 309 m sec sec Origin Destination Data Thirty percent of all classes of vehicles are destined for or have some reason for entering the community e g 70 of each class would use a new route if provided The Future Again for simplicity purposes the calculati
86. m E e MER 21 54 590 D 40 Paved 16 Lanes 54 510 0 40 18 20 81 40 54 510 0404 Default Values from Parameters tab enter Project spec fu values Modified vanes Collision Costs by Type Default Value Change The default values for the cost of collisions by type of collision from the Parameters tab can be modified for the project by entering the desired value in Project Specific Values field This updated value is then reflected in the modified Values Used in the Model portion of the table Collision Costs by Type Project Specific Values A Fatality Injury ERE s talab uy e 5 9013151 5 65 959 5 5 82 10 000 000 Wa ooo 15 9352759 5 59215 5 8 420 5 1 J 4 enter the social cost for each Type Default Values from Parameters tab enter Project specific values Project Segment Definition The project segment definition is required to calculate various components of road user costs The inputs on this table support both the California Fuel amp Non Fuel and Texas Curvature amp Gradient approaches to estimating vehicle running costs as well as other road user cost components including generating a forecast of traffic volumes for an alternative Before entering data into this table depending on the complexity of the project being analyzed it may be necessary to plan how the inputs are best defined While there are 20 possible seg
87. mutu ally exclusive projects or activities and the question will be whether to study the program as a whole or to break it into any number of smaller more homogene ous parts wherein separate results for each part will provide better information about how the merits of the program vary within itself Programs like the supply of telephone service to all Albertans or the burying of all service lines in connec tion therewith the similar supply of natural gas or the paving of all of one class of roadways in the Province might all include options for the setting of study parameters Technically and analytically the case for separating programs such as that into smaller units for analysis purposes is strong and clear Even if such an all en compassing program is initiated with the intention of being completely undertaken the economic forces associated with diminishing returns are strong and the program will usually end up getting reviewed before it is actually completed The time when good information should be most helful and beneficial is before the program is started when decisions about it are being made and before significant costs are sunk When alternatives are involved setting parameters will not only apply to each of the alternatives but also to checking to ensure that all alternatives which have a chance of being viable are included A side benefits of undertaking an analysis is that a more thorough review of the subject
88. o ES BENE NONE EMEND m gt c un r Lid PL QD z 988 tile i I CUUIPTUTIUI TITI I I TI I ITKNFQdQdFJHHhusas F a gt FfTWI 2 T T T T TT ENS AOA TITI basa Sak Yaar NS 3 INE UNE EN 1 131 17 x wa Alt tive 31H 2 1 111 Tue um ums pem dis age ene ernativa 5 E LEE L Alternative 2 o GERI BENER EA CE Alternative 4 Internal Year Figure Showing Net Present Values and Internal Rate of Return for all Alternatives and and for incremental values comparing Ait 2 wi
89. of enforcement Rural Semi Urban Urban Taxes Local Competition increment of time Other uses for time Driver behavior Weather Hoad Conditions Roadway design Benefit Cost nalysis Guide 4 Analysis Methods 4 1 Overview When two or more alternatives are being compared the benefits and costs for each are identified quantified in money terms and then compared In most cases do nothing will be one of the possible Courses of action Costs are usually concentrated at the beginning of the project with benefits occurring over an extended period of time and it is necessary to convert all of these into a common measure for comparative purposes This is done by using an appropriate interest rate and discounting the future costs and benefits into present value or present worth The different alternatives may be compared economically by calculating the net present value for each by determining the benefit cost ratio of one compared to another or by determining the internal rate of return for each Finally any number of tests for sensitivity can be made by simply changing the value of an item and repeating the calculations This all sounds quite simple and each component is relatively simple however for roadway projects at least the number of items sub items and variables affecting each prohibits the changing of many items because of the numbers of combinations of results which would require comparison
90. of other projects should yield higher returns and the ones with higher returns would use all or more than the estab lished finite roadway budget the decision based upon economics would be to delay the Highway 88 project Good decisions should be based upon the considera tion of all relevant factors or items giving to each their proper weight or significance While that is easy to Say it is difficult to do and one of the difficulties lies in the determination of weights or significances and that leads to an advantage that benefit cost analysis can provide in the decision making process That is particularly so when a complex subject is being dealt with which involves numerous items and a number of those items can be given dollar values and grouped into one basket The benefit cost analysis deter mines the net result of all items in the basket and the decision then rests upon comparing that net result with the factors that could not be valued and put into the basket nalysis Guide That process not only leads to a fewer number of items which must be mentally juggled but also pro vides superior treatment for the items in the basket if one believes that such items can be assessed better on a consistent and systematic basis than handled mentally each time they or similar groups of factors are involved in a decision Obviously the more items which can be included in the economic basket the fewer the number remain ing to be consider
91. of return for this project in the long term when the internal rate of return is over 13 Assuming an inflation rate of 696 in the future at what interest rate would the internal rate of return level off at in the long term if inflated dollars were used in the calculating for all future values C 9 Benefit Cost T Analysis Guide Appendix Alberta Transportation and Utilities Questions Re Rate of Return 15 You loan me 10 00 and in return pay you 1 00 interest each year for 8 years beginning one year after the loan and repay the principal of 10 00 along with the last interest payment What is your rate of return assuming no taxes 2 What is your real rate of return assuming an inflation rate of 6 3 How can that be checked 4 Now assume there is a choice between constructing a public works now or 8 years hence In present day dollars the cost is 10 00 and if constructed now the users of that facility will receive a benefit of 1 00 each year based upon current prices Assume construction costs and user costs are inflating at the same rate and the works will not depreciate during the eight years if constructed now C 10 Benefit Cost nalysis Guide Appendix Alberta Transportation and Utilities What is the real rate of return on making that investment now 8 If dealing in inflated dollars in question 4 and the rate of inflation is 6 what is the internal rate of return at the end of the eight
92. of the work and reduction in delays in receiving the necessary information Benefit Cost ws Analysis Guide Alberta Transportation and Utilities 6 2 Establishing Parameters setting good limits or establishing the appropriate scope for an analysis can make the difference be tween good and useful results and results which are virtually meaningless and useless For example assume that the paving of a long access type of road is being considered and the benefits for different sections vary greatly To include all sections in one analysis will mean that one set of results must represent all sections and the good will be somewhat averaged with the not so good and the results will not be indicative of how good the good is or how economically inefficient the paving of some of the low benefit sections would be 6 21 Homogeneousness That example of paving the access road is an ex ample of the lack of homogeneousness and while the paving of the high benefit sections might yield good returns the paving of the low benefit sections may yield very poor returns An important consideration in establishing the limits or parameters of an analysis is the similarity of the factors which bear upon the results Again there will be all degrees of similarity and where to separate or whether to separate will not always be obvious nor will everyone agree upon the division of studies in cases where close choices are present The e
93. s TRK 8 66 32 SU 6 49 74 Busses 1 8 29 Autos Business 10 82 90 Vs impeding 10 82 90 Autos amp R Vs All others 65 538 85 Totals 100 829 00 84 Benefit COS nalysis Guide Alberta Transportation and Utilities Operating Cost and Time Differences Unit Total Restr Of Annual Cost Diff Annual Time Annual Volume Speed Total Volume per Cost Diff Time Restr km hr Volume 1 0005 1 000 veh Diff 1 000 veh Diff TRKs 66 320 70 2 895 1 920 28 0 54 4 577 8 79 80 11 460 7 600 20 4 155 2 791 21 21 88 18 094 12 000 14 8 178 1 655 19 86 95 28 951 19 200 9 1 175 0 818 15 71 100 38 600 25 600 4 8 123 0 291 7 45 Totals 66 320 685 73 02 hrs SUs 49 740 70 2 895 1 440 27 8 40 4 577 6 59 80 11 460 5 700 29 6 169 2 791 15 91 88 18 094 9 000 24 1 217 1 655 14 89 95 28 951 14 400 15 0 216 0 818 11 78 100 38 600 19 200 7 2 138 0 291 5 59 Totals 49 740 780 54 76 hrs Busses 8 290 70 2 895 0 240 27 8 7 4 577 1 10 80 11 460 0 950 29 6 28 2 791 2 65 88 18 094 1 500 24 1 36 1 655 2 48 95 28 951 2 400 15 0 36 0 818 1 96 100 38 600 3 200 7 2 23 0 291 0 93 Totals 8 290 130 9 12 hrs Autos bus 82 900 70 2 895 2 400 13 4 32 4 577 10 98 80 11 460 9 500 12 1 115 2 791 26 51 88 18 094 15 000 9 2 138 1 655 24 82 95 28 951 24 000 5 5 132 0 818 19 63 100 38 600 32 000 2 5 80 0 291 9 31 Totals 82 900 497 91 25 hrs Autos amp R Vs 538 850 70 2 895 15 600 13 4 209 4 577 71 40 80 11 460 61 750 12 1 747 2 791 172 34 88 18 094 97 5
94. text the amount that the satisfaction from consumption exceeds the cost Diminishing Return in terms of benefits and costs diminishing returns refers to the circumstance in which the benefit resulting from each additional unit of production is less than the benefit from the previous one assuming the unit cost of production does not change These terms might also apply to a program involving numerous individual projects wherein the benefit cost ratio or the rate of return for each additional project undertaken is less than what it was for the previous project Economic efficiency described in various terms when total benefits over the life of the project exceed total costs and production and consumption being greater with the project than without also see potential Pareto improvement Homogeneous homogeneous and homogeneousness are used in the context of describing the consistency of input factors and establishing project parameters The more that any specific factor varies within the project the greater the case for splitting the project into smaller units to gain homogeneousness Imputed value a value or price assigned to an item which does not have an established market value or the adjusted price of an item that does have a market value Synonymous with shadow price as used in this text Incremental value generally used in this document to refer to the difference in values between items involved in doing nothing
95. that asset or some components of it Still has value Terminal values are the subject of the next section also however there the discussion will be limited to terminal values associated with new work projects now being analysed for which initial costs are relevant Here terminal values or salvage values will apply to works which have been initiated in the past for which their past costs are sunk As an example assume an urban community has been using lagoons for sanitary sewerage disposal and more capacity must now be planned The alternatives might include 1 expanding the lagoon system 2 adding preliminary treatment facilities with con tinuing use of the existing lagoons as part of the whole system or 3 replacing the lagoon treatment entirely with a new mechanical and chemical plant The fact that millions may have been spent on the existing system in the capital cost of land earthmov ing pipes pumps fences etc and upgrading and maintenance over the years is all irrelevant and has no bearing on the economic merits of what should now be done That past effort may however influ ence what should be done in the future because the costs which would now go into a benefit cost equa tion would be the costs from now onward The lower future estimated costs for either of the first two alternatives will account for the benefits which the past work on the lagoon system provides The third alternative which abandons
96. that factor is thus determined If a question is raised or anticipated about the unit costs used for the value of time for example it is simply a matter of changing those costs and rerun ning the program to determine how the results are affected by the change in the time rates In the section dealing with the valuation of items this same process was suggested for determining whether or not a troublesome item deserves the attention which determining an acceptable value may entail The item may be given high and low values guessing limits which would undoubtedly include any value which would eventually be assigned and if the results are not significantly affected by the range tested the valuation for the item could be forgotten Benefit nalysis Guide Rerunning entire programs to determine how results may be affected as all of the above suggests should be no problem if data for the whole project is being handled automatically anyway If that is not the case or if for some other reason it is not possible or desirable to determine actual changes in final results one might revert to the age old means of calculating or estimating the effect or mathematical results which a change in individual entries in the mathematical equation will have References dealing with this subject often include it in a discussion about errors The possible percentage error in a product or quo tient is approximately equal to the sum of
97. the internal rate of return in the long term in say 40 to 50 years In 7 1 2 table SPW for 11 yrs 7 315 close to 7 27 B 7 13 In 12 table SPW for 18 yrs 7 249 close to 7 27 10 8 20 From the tables how do you know that this figure is below 15 In 15 table SPW for 50 yrs 6 66 40 yrs 6 64 30 yrs 6 56 levelling off fast in 50 yr period 2 6 66 never would reach 7 27 By calculation what is the IRR in perpetuity 275 000 Annual return 275 000 rate of return 9 2 y 100 9 13 75 2 000 000 C 17 Benefit Cost we Analysis Guide Appendix Alberta Transportation and Utilities M MMMMM M M C ABOVE THE INTERNAL RATE OF RETURN GRAPH IS ONE FOR PLOTTING PRESENT WORTHS OVER TIME USUALLY IN OUR ANALYSIS A PLOT OF THE ACCUMULATED EXPENDITURES BY THIS DEPARTMENT DISCOUNTED AT 496 WILL BE REQUIRED AS WELL AS A SEPARATE PLOT OF ACCUMULATED BENEFITS MINUS ACCUMULATED EXPENDITURES forgetting about the sign ALL ALSO DISCOUNTED 4 13 14 15 16 Assuming as before that the capital outlay of 2 M is made in 1990 plot the present worth of accumulated expenditures over a period of 40 years using a discount factor of 4 What is the present worth of that expenditure 20 years hence Would it matter if a factor of 7 were used 2 0 M No With yearly benefits of 275 000 beginning at the end
98. the lagoons involve terminal values that should be included in the inputs for that choice Any pumps fencing materials etc which have value in alternate uses should be treated as positive cash flows for this alternative The value of the land which will no longer be needed for the lagoons in its highest best and acceptable alternate use should be credited to the new treatment plant option The cost of leveling and any other work required to ready the land for such alternate future use should be a cost against that alternative The value of the land which becomes available for other uses poses some interesting prospects in a case such as this The council and administration of the municipality may decide to retain the land and use it for some municipal purpose which use and classi fication may give it a relatively low value in normal land assessment terms Benefit COS nalysis Guide Alternately a higher and better use for it may be quite acceptable from a community planning perspective and if that is the case the higher value should be used in the benefit cost equations Those circumstances may also involve other options for valuing the land Building upon portions of the background already established the best use for the land may presently be that which the municipality will be holding it for a higher use is presently premature The value presently assigned for the land should be based upon that use If it can be predi
99. to that option If one assumed a continuing power bill of 200 annually and that anodes would be replaced each 15 years that alternative when compared to Alternate 1 would yield an internal rate of return of 9 50 at year 50 and beyond That of course requires an analysis period beyond 50 years and into the range of 75 years which is contrary to the guidelines Nonetheless the flexibility of being able to make a further decision 25 years hence when 50 years from then is 75 years from now is an important consideration Assuming the concrete pipe option might also be good for 75 years without further expenditure it should also be considered however this alternative does not have the flexibility of making further decisions at a later date and in any event its 50 year and beyond I R R is only 6 44 which is not competitive with cathodic protection 69 Benefit Cost w Analysis Guide Alberta Transportation and Utilities Altemative 3 provides an oversized culvert initially wih a liner installed after 25 years oversized culvert costs 43 000 installed liner costs 20 800 and requires 87 650 worth of grout to seal Alternative 2 provides 25 years of cathodic protection such thal culvert installation lasts 50 years Culvert costs 35 500 installed cathodic protection has initial cost of 7 000 anodes require replacement after 15 years at a cost ol 3 000 electric power to anodes costs 200 per year
100. up to 30 years 2020 and greater than one for longer periods The plot of internal interest rates actually provides under one or over one results of an infinite number of B C ratio calculations using different combinations of periods and discount rates both of which must be specific for each B C ratio calculation 5 1 3 Testing Two or More Alternatives If one considers doing nothing as one alternative there would never be a one alternative situation involving this kind of an analysis This section will deal with cases where there are two or more options for doing something That also requires clarification because if some minimum work has to be done or will be done should that be one of the options tested along with the more extensive ones or should it be the one to which all others are compared An example a section of highway must be resurfaced and an alternative to doing that is to replace this section with a better alignment which will result in user benefits Should the analysis provide Alberta Transportation and Ultilities the merits of doing either or simply determine the merits of constructing a new highway compared to resurfacing the existing The results will be different depending upon what procedure is used Assume these costs Resurfacing existing highway 500 000 Construct new highway 1 000 000 Benefits from resurfacing virtually nil Benefits from a new highway 50 000 yr Difference in m
101. updated on a periodic basis In some cases the information will need to be updated on an annual basis to reflect values for the Base Year In other cases the values be updated as either more current or if better information is available The only exception to this is the Scenario amp Analysis Definition components Here it may be the case that the Administrator requires some specified scenarios to always be conducted Outside of these set ocenarios it may also be helpful to conduct other sensitivities Model Components The Parameters tab includes the definition of model variables that are applied across each project Model Parameters should be set to apply to a wide array of projects and should be updated periodically It is recommended that this tab be reviewed annually to determine what information may need to be updated In several cases an update to some information in the Parameters tab will require an update to information located elsewhere in the model The necessary changes are outlined below IMPORTANT Failing to update all the relevant inputs associated with the new or updated categories will lead to erroneous results If the information in this tab has been updated there is no need to review this tab for new analyses Any individual changes to default values can be made in the Project Definition tab of the model An itemized list of the variables found in the Parameters tab as well as a summary of how to updat
102. vehicles involved in the 7 246 hrs would be 2 557 000 829 000 1 728 000 and the benefit for that number would be 1728 1835 x 53 400 50 300 Ten percent of that would be about 5 000 which would be about a 7 overestimate of the total benefit of 67 800 attributed to the widening alternative That 5 000 variance would also apply to the new route alternative but determining the total effect on that alternative is more difficult For starters in greater detail than already calculated there are compensating variances in the calculations for the new route comparison It should be asssumed that 70 of the traffic which was deemed to be holding up traffic on the rural sections 82 900 vehicles in the 1 520 hour portion of the year would take the new route and benefit from the various speeds desired compared to 50 km hr operation the urban area Those following this example in detail will have wondered why these 58 000 vehicles were not accounted Their omission compensates maybe over 90 Benefit Cost wee Analysis Guide Alberia Transportation and Utilities compensates for the benefits for the other portion of the year being high by virtue of ignoring further slower moving traffic Without showing the calculations the extra cost for 70 96 of the 82 900 R V s travelling the speed desired four kilometres of the new route compared to travelling 3 2 kilometres at 50 km hr is 3 900 for 1988 and the saving
103. year period 6 Why was a discount rat e of 16 6 chosen to test a balance for the internal rate of return in question 5 Benefit Cost Analysis Guide Appendix 7 Alberia Transportation and Utilities Had the column of figures in the answer to question 5 not added up to 10 00 what interest rate table might have been inspected to check the accuracy of the discounted single amounts making up that column If the benefits in inflated dollars as used in question 5 were reinvested at 16 6 interest as they are received what total benefits in inflated dollars would accrue by the 8th year Would 10 00 x 1 166 10 00x 3 41655 34 1655 be close to the right answer In question 3 it was learned that the 1096 interest payments if reinvested at 10 along with repayment of the loan would grow to 21 4359 by year eight Would multiplying that figure by 1 06 8 1 5938479 be a check 10 00 x 1 166 8 Present Values in Millions of Dollars Internal Rate of Return enefit Cost w Analysis Guide Appendix Blank Graphs to Accompany Math Questions 1980 1990 2000 2010 2020 2030 2040 2050 Year Year Alberta Transportation and Utilities Benefit Cost nalysis Guide Appendix Alberta Transportation and Utilities Training Material developed in 1989 Using Mathematical Formulae and Tables Answer Version A PUBLIC WORKS WHICH COSTS 2 M HAS AN ESTIMATED USER BENEFIT OF 2 2 M IN EACH EIGHT
104. 0 0 100 segment 16 18 2 1 mu 100 Segment 17 78 3 1 5 10 2 1 0 0 0 100 Segment 18 78 _ 3 _ 1 5 1 296 9 0 0 100 segment 19 LLL 8 mL Me 0 1 0 Ue 100 Segment 20 78 3 1 5 10 2 1 0 0 100 Trip Purpose by Vehicle The share of traffic by trip purpose work business or other must be set for each Vehicle Type When the share of trips that are Work Business are entered for a Vehicle Type the share of Other trips is calculated by the model Trip Purpose by Vehicle Type 1 Do Minimum Alternative enter 96 of traffic for each Vehicle Type that is Work Business related Other will be calculated Single Unit Semi Trailer Hybrid Electric lripPurpose Passenger ess Truck _ Combo Passenger Passenger _ 0 Work Business 0 x x MN 0 Other s 36 ___38 389 _ 386 389 100 10 _ 100 Total 100 100 100 100 100 100 100 100 17 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Emission Costs Emission costs are estimated based on the fuel consumption as per the number of vehicle kilometres travelled by each vehicle type and running speed on each segment of the defined project These calculations are based on data from the California Life Cycle Benefit Cost Analysis Model including the
105. 00 9 2 897 1 655 161 36 95 28 951 156 000 5 9 858 0 818 127 61 100 38 600 208 000 2 5 520 0 291 60 53 Totals 538 850 3 231 593 24 hrs 85 nefit Cost wm Analysis Guide Alberia Transportation and Utilities summary of Operation Cost Differences negative and Extension of Hours into Dollars Operation Hrs for Occupancy Rate per Time Cost Costs Year per Vehicle Hour for Year TRK 685 73 02 1 2 24 2 103 SU 780 54 76 1 2 24 1 577 Busses 130 9 12 1 24 219 20 6 1 094 Auto Bus 497 91 25 1 5 13 1 779 Auto Other 3 231 593 24 2 5 6 8 899 Totals 5 323 15 671 Unit time costs of 24 00 13 00 and 6 00 per hour are approximate values in 1988 dollars originating from rates of 22 00 12 00 and 5 50 per hour in 1987 dollars as adopted by the Department Operation costs are greater at the higher speeds and the total of 5 323 per kilometre per year is a charge against improvements and might be subtracted from the 15 671 time cost saving for a net saving of 10 348 per kilometre per year Those figures would be relevant if long sections of the rural standard was being analyzed The factor to be applied for the short distance involved in this example is given as 20 of what would apply for long sections Cost saving for either improvement alternative is therefore a negative 5 323 per km x 20 1 065 km for operations and a saving of 15 671 x 20 3 134 km for time For 7 kilometres these costs
106. 1 2 x 2 000 x 0 0265 x 0 0265 1 325 0 702 2 027 km Time at 103 km hr 2 027 103 0 0197 hours Difference 0 0265 0 0197 0 0068 hours per unit 6 8 hours per 1 000 units or occurences Summary Extra time Stop to 50 km hr 6 25 hours 1 000 90 to 103 km hr 6 8 hours 1 000 Stop to 103 km hr 13 05 hours 1 000 This figure not used again ti ii 83 Benefit Cost nalysis Guide Alberta Transportation and Utilities Extra Time Required to Travel 1 Kilometre Hours 1 000 vehicles Compared with 90 70 80 88 95 100 103 111 km hr 10 99 5 28 3 49 2 35 1 52 0 991 0 700 103 km hr 10 29 4 577 2 791 1 655 0 818 0 291 Average time stopped for the 15 of traffic facing a red signal 1 2 minute 1 2 60 x 1 000 hrs 1 000 veh 8 33 hrs 1 000 vehicles Calculations For 7 km Section 1 Operation and Time Costs Existing compared with 103 km hr Volumes by hours in a year All Vehicles Annual of Volume Total 20 highest 20x 1 200 24 000 2 895 next 100 100 x 950 95 000 11 460 next 200 200 x 750 z 150 000 18 094 next 400 400 x 600 240 000 28 951 next 800 800 x 400 320 000 38 600 Totals 829 000 100 Number required 1 727 750 to add to Total Traffic 2 556 750 The 1 727 750 volume occurs in the remaining 7 246 hours in the year average of 240 vehicles per hr Volumes operating at lower speeds by classification Classification of Number 829 000 1 000
107. 1 92 4 95 3 99 0 102 0 104 5 111 4 111 costs others 15 8 20 3 19 0 16 1 12 4 9 4 6 9 103 costs others 8 9 13 4 12 1 9 2 5 9 2 5 82 Benefit Cost nalysis Guide Alberta Transportation and Utilities Excess Costs for Speed Change Formulae based upon 1988 data Produced by Systems Planning TRK units Excess Costs 1 000 units 0 327 S1 2 8 74 0 327 x S24 2 8 7 Where 51 Speed in km hr reduced from and returned to and 52 Speed in km hr reduced to SUs amp Busses Excess Costs 1 000 units 0 1936 x S1 1 8 0 1936 x S2 Le Autos amp R Vs Excess Costs 1 000 units 0 0588 x S1 1 4 0 0588 x S2 1 4 9 Table of Excess Costs 1 000 units occurences 111 km hr 103 km hr 50 km hr Both to 50 and to 50 and to stop and Ranges back to 111 back to 103 back to 50 Combined TRKs N A 352 164 516 SUs and Busses N A 244 100 344 Autos amp R Vs 34 8 N A 14 4 49 2 Extra Time Taken by Tractor Trailer Units for Acceleration 1 000 units Stop to 50 km hr Time taken t v a 50 km hr 4 000 km hr hr 0 0125 hours per unit Distance d 1 2 at 1 2 x 4 000 x 0 0125 x 0 0125 0 3125 km Time at 50 km hr d v 0 3125 50 0 00625 hours Difference 0 0125 0 00625 0 00625 hours per unit 6 25 hours per 1 000 units or occurences 50 km hr to 103 km hr Time t v a 53 2 000 0 0265 hours Distance d vt 1 2 t 50 x 0 0265
108. 13 440 29 840 14 42 40 2029 589 399 190 2 960 3 150 13 400 30 496 14 44 41 2030 1 133 399 734 2 989 3 723 13 253 31 242 14 45 42 2031 589 417 172 3 019 3 191 13 220 31 857 14 46 43 2032 589 417 172 3 050 3 222 13 188 32 453 14 47 44 2033 1 133 417 716 3 080 3 796 13 061 33 129 14 49 45 2034 589 417 172 3 111 3 283 13 031 33 691 14 49 46 2035 589 417 172 3 142 3 314 13 003 34 237 14 50 47 2036 2 040 417 1 623 3 173 4 796 12 746 34996 14 50 48 2037 589 417 172 3 205 3 377 12 720 35 510 14 51 49 2038 589 417 172 3 237 3 409 12 695 36 009 14 51 50 2039 1 133 417 716 3 270 3 986 12 594 36 570 14 52 Alberta Transportation and Utilities Guide nalysis Benefit Cost EP MH LLLLLLLLI SG SHIT rasha aoa aoa 111111 ELLELELEESLTITT E 1 EERERERESEREEARRRREERERREERE SN RARER R REBAR REL ELLELL Hnoulc guum LI WN ETAT n HEUTE EE 12E RE BHH EE RER LLLI IRE uu SENSSEHSEFSESESEESEESEFRREFEHEEEEREEEERSREERE HH BL LLLI HH T RM Ree BILL II uu i 7i 56s iiiii l LLLLLLLLIILILTEELLLEELELLEELTE BILD LLLI BH
109. 172 between years 1999 amp 2000 and IRR for 1999 is 3 75 and for 2000 is 6 84 looks good OTHER CHECKS difficult one accurate way is simply to pick an IRR value and equate costs amp benefits same calculations as done above for 4 Test for year 2039 IRR 14 52 Present Worth of Capital Outlays 1908 9809 3308 345 42 15 412 Present Worth of Averaged Maint SPW 14 52 50 yrs 1 yr x 434 2986 379 2 607 Road User 3 Portion SPW 11 184596 6 1 x 1767 367 7437 1590 5 847 Road User 1 Portion SPW 13 3861 50 6 x 1987 62 1487 62 14821 7861 i 6 960 TOTAL BENEFITS 15 414 15 414 very close to 15 412 especially considering that average maintenance costs were used 61 Benefit Cost nalysis Guide Alberta Transportation and Utilities Project Highway 88 Slave Lake to Loon Lake 85 54 km Base Case Continue to maintain a gravel standard highway Alternative Regrade base and surface the highway NOTE Constant dollars used throughout based upon 1989 prices Capital amp Maintenance Costs Road User Costs Description Per Km Project Year Alternative 22 1 0005 Benefits of project would begin in 1991 with values Grading Lump Sum 1 908 1989 Base Lump Sum 11 233 1990 Paving Lump Sum 5 689 1993 DESCRIPTION AMOUNT Vehicle operation 728 000 39 Collision costs 581 000 31 Time savings 566 000 30
110. 4 4 000 24 x 4 000 is just above 3 000 The accurate answer is 3 207 14 In both of the above approximations the largest cause of discrepancies is that the adding of percent age errors does not take into account the effects of compounding which are inherent in the exact calcu lations 5 Departmental Procedures Analytical methods should be relatively simple and results and variations in results for different projects should be explainable in terms that those with a general knowledge of finances and economics can understand Coupled with the standardization of values and 35 Alberta Transportation and Utilities procedures a more or less consistent manner of presenting results will go a long way towards an understanding of the economic reports prepared for different types of work For long term open ended type of analysis such as for a typical highway or utility project the Department has adopted a procedure involving the determination of present values and internal rate of return with input data and results summarized on one page if the project is not too complex and a graphical plot of present values and internal rate of return on a second page For short term analysis and particularly if different alternatives must have different evaluation periods expressing the results in terms of Equivalent Uniform Annual Cost EUAC may be best That method or a comparison of Payback Periods might either or both
111. 417 172 2 263 2 435 13 613 5 292 9 35 14 2003 1 133 417 716 2 285 3 001 13 200 7 025 10 42 15 2004 589 417 172 2 308 2 480 13 104 8 402 11 11 16 2005 589 417 172 2 331 2 503 13 012 9 738 11 68 17 2006 1 133 417 716 2 354 3 070 12 645 11 314 12 25 18 2007 589 417 172 2 378 2 550 12 560 12 573 12 63 19 2008 589 417 172 2 402 2574 12 478 13 705 12 94 20 2009 1 133 417 716 2 426 3 142 12 151 15 229 13 26 21 2010 589 6 373 5 784 2 450 3 334 14 690 13 766 12 96 22 2011 589 399 190 2 475 2 665 14 609 14 891 13 17 23 2012 2 040 399 1641 2 499 4 140 13 944 16 571 13 45 24 2013 589 399 190 2 524 2 714 13 870 17 630 13 60 25 2014 589 399 190 2 550 2 740 13 798 18 658 13 72 26 2015 1 133 399 734 2 575 3 309 13 534 19 851 13 85 27 2016 589 417 172 2 601 2773 13 474 20 813 13 94 28 2017 589 417 172 2 627 2 799 13 417 21 746 14 02 29 2018 1 133 417 716 2 653 3 369 18 187 22 826 14 10 30 2019 589 417 172 2 680 2 852 13 134 23 706 14 16 31 2020 589 417 172 2 706 2 878 13 083 24 558 14 21 32 2021 1 133 417 716 2 733 3 449 12 879 25 541 14 27 33 2022 589 417 172 2 761 2 933 12 832 26 345 14 30 34 2023 589 417 172 2 788 2 960 12 786 27 125 14 34 35 2024 2 040 417 1 623 2 816 4 439 12 375 28 250 14 38 36 2025 589 5 989 5 400 2 844 2 556 13 691 27 627 14 36 37 2026 589 399 190 2 873 3 063 18 646 28 345 14 38 38 2027 1 133 399 734 2 902 3 636 13 481 29 164 14 40 39 2028 589 399 190 2 931 3 121
112. 426 2227 19 7875 13 2001 49 2 185 gt 1 406 12 668 856 2 433 2621 20 74 DATA 14 2002 49 186 6 1 512 1 674 662 2 4401 3 004 21 48 15 2003 49 2 207 6 1 528 121 861 eae 2 447 3375 22 0044 16 2004 49 2 228 et 1641 687 675 2453 3735 22 427 17 2005 1 377 2 249 ei 1 555 1 316 694 2010 4 787 23 33 5 18 2008 47 2 270 81 1 570 ada 700 688 11 766 5 104 2j 58 4 18 2007 47 2 296 6 1 564 708 892 1 7911 6 434 23 74 20 2008 47 2 311 et 1 599 713 699 1 7981 6 753 23 867 NOT 21 2009 47 2 332 et 1613 719 705 11 8041 8 061 23 994 22 2010 40 2 353 1 080 t 627 1 031 728 3051 12 2391 5 934 27 95 23 208 49 2 374 eo 1842 un 732 721 2 243 6 22 24 03 24 2012 i 49 2 395 60 t 739 728 024n 8 510 24 00 24 2013 49 2 415 86 1 870 TIT 745 734 22521 7 6 24 1374 20 2014 49 2 438 60 1 685 ttt 751 40 12 2581 7 0553 24 17 5 27 701 49 2 457 1 609 758 748 2 200 7 311 24 204 2018 49 2 478 at 1 714 12 764 752 12 284 7 582 24 227 29 2017 49 2 499 at t 728 1121 771 759 12 2681 Bos 24 24 4 FOR 30 20 6 49 2 519 at f 742 121 777 785 2 2711 B 041 24 26 3 2016 40 2 540 et 1 757 un 785 771 2 275 B 270 24 27 32 2020 1 327 2561 et 1 771 1 208 790 2 058 1 9141 8856 24 207 33 2021 47 2 582 a 1 7668 tn 798 782 tt 914 9 070 24 217 34 2022 47 2 603 8 1 800 803 789 t 9211 9 278 24 31 amp
113. 717 000 7 901 100 say 7 90 M PW 50 yrs 235 000 11 273 000 11 508 000 say 11 51M B 24 E Improvement Alternative PW 30 yrs 1 800 000 8 000 x SPW 3 1 2 30 250 000 x SPW 1 47059 30 600 000 x PW 3 5 20 1 800 000 147 00 6 029 000 302 000 8 278 000 say 8 28 M PW 50 yrs 1 800 000 188 000 8 807 000 302 000 600 000 inf discounting for 20 years 152 000 600 000 inf discounting for 40 years 11 249 000 say 11 25 M SUMMARY OF PRESENT WORTHS Alternative 30 yr period O vr period Do Nothing 7 90 M 11 51 M Improvement 828M 11 25 M Over 30 yrs Do Nothing is better by 380 000 Over 50 yrs Improvement is better by 260 000 both in present day dollars EQUIVALENT UNIFORM ANNUAL COSTS The Capital Recovery factor for 30 yrs at 8 675 is 0 094544 and for 50 yrs is 0 088126 The figures in the Summary of Present Worths can be multiplied by these appropriate factors giving this table EUAC Alternative 30 yr period 50 yr period Do Nothing 747 000 1 014 000 Improvement _ 783 000 991 000 B 25 BENEFIT COST RATIO sorting the Present Worth figures into two categories Capital and Maintenance items and user costs give these results 30 yr Period Capital amp Maint User Costs Do Nothing 184 000 7 717 000 Improvement 1 800 000 6 029 000 147 000 302 000 2 249 000 7 717 000 6 029 000 _ 9 944 Benefit Cost Ra
114. 75 000 2015 BASE CASE EXISTING 131 000 1 400 000 19 Besides increasing with inflation these factors MAINT IST 4 YAS 4 400 87 000 ANNUAL also increase in direct proportion with increases SUBSEQUENTLY 8 500 49 000 ANNUAL in traffic volumes which are predicted to be at a rate FIRST RECAP 124 500 1 330 000 2005 of 2 per year up to and including 1998 and at SECOND RECAP 120 000 1 280 009 e 2020 rate of 1 per year therealter THIRD RECAP 115 000 1 230 000 2035 e DOES MOT INCLUDE YEAR S MAINTENANCE COST HET ANNUAL UNDISCOUNTED VALUE SUM OF PW 49 019 IRR REAL COST RUC COSTeRUC DIFF SAVINGS VALUES CAPITAL TOTAL 24 00 ANMUAL COSTS No Yeu ALTERNATIVE P 7 ALTERNATIVE P 1 J CAP RUC CAP Ruc 0 1988 t 196 ERR 2 1990 1447 3 970 2520 2 523 12 233 2 3 1 i 47 1 874 60 1 298 ith 578 565 12 3441 11 830 77 61 4 10992 47 909 60 1 220 sag 576 12 3551 1 338 29 74 5 1993 47 1 94 60 1 344 TRI 599 588 12 366 1656 16 71 8 1994 47 1 978 eo t 368 810 597 12 378 384 3 167 7 1995 49 2 013 at t 392 2 621 609 23851 78 g NOTE I 8 1996 49 2 048 at 1 416 121 832 820 2 394 53 10 58 4 Misco 9 1997 49 2 082 81 1 440 121 842 630 12 403 974 14 197 10 1998 49 2 103 61 1 454 121 849 637 o 124111 1 404 16 7075 THI S f 1999 49 2 124 et 1 466 112 855 643 2419 1 621 16 467 12 2060 49 2 145 6 1 483 ent 648 t 12
115. 9 be a check on 10 00 x 1 166 8 Yes C 22 Benefit Cost wee Analysis Guide Appendix Alberta Transportation and Utilities Graphs to Accompany Math Answers Uu e o PPY TI TPP T Tr l R m u c c un gt es ye A Se DBR GE NA E A orm mF DG ES PEI IE 00 080 00 0 28 503 MERI GNI SE SK LE LI L i Ip EST TEENS LI 1 IP 1p L 3 Pl ES S FOG SR ESE 02 Es er ET IET ess LIT prr EET FE EN SPS TOA KE EEN 020 SE BS TA B SE p ES LL TT LI Wd LS pL LI D DIT Ld i ii IL J 1980 1990 2000 2010 2020 2030 2040 2050 Year gt E a 5 EB EE W RI MSIE Hist EE 125 5 SE 3 IET IIIS BSI BF EZE E M BS BE 5 RM SD S E D Year The questions refer to the inherent ties between these graphs A discount rate of 4 was used and the NPV is therefore zero when the IRR is 4 points marked
116. 92 263 263 303 347 394 452 516 Difference in Costs Average Gravel Average Pavement 72 75 66 87 105 118 140 156 59 Benefit Cost wm Analysis Guide Alberta Transportation and Utilities CHECKS ON COMPUTER PRINTOUT HOAD USER COSTS 3 growth to 1995 1991 value x 1 03 2 1875 x 1 255 2110 3 O K 1 growth thereafter 1996 value 1995 value x 1 01 2110 3 x 1 01 2131 4 O K 2039 value 1995 value x 1 01 2110 3 1 5493 3269 5 O K PRESENT WORTHS CAPITAL amp MAINTENANCE Convert maintenance costs to averages per year Gravel 2040 3 1133 8 x 589 us 8 x 589 average 846 yr Pavement 5 399 12 x 417 17 average 412 yr DIFFERENCE average 434 yr Present Worth 1989 of Capital Expenditures Discounted 4 Accum 1989 1 908 1 908 1 908 1990 11 233 1 04 10 801 12 709 1993 5 689 1 04 or mult by 0 854804 from tables 4 863 17 572 2010 5 956 1 04 or mult by 0 438834 from tables 2 614 20 186 2025 5 572 1 04 2 or mult by 0 243669 from tables 1 358 21 544 Less savings in maint between years 1991 amp 2039 incl SPW 50 yrs 1 yr x 434 21 482185 0 961538 x 434 8 906 12 638 12 638 compares to actual 12 594 checks PRESENT WORTH ROAD USER COSTS 3 growth period use principle Discount Factor i 1 growth factor growth factor 4 1 0 for 4 discount 8 3 growth j 0 9 08737 0 009708737
117. 97 700 2 Time Costs for Stopping at Signal Incremental volumes 15 of 70 TRK 204 540 x 0 7 x 0 15 x 8 33 hrs 1 000 x 1 2 x 24 SUs 153 405 x 0 7 x 0 15 x 8 33 hrs 1 000 x 1 2 x 24 Busses 25 567 x 0 7 x 0 15 x 8 33 hrs 1 000 x 24 20 x 6 Autos Bus 255 675 x 0 7 x 0 15 x 8 33 1 000 x 1 5 x 13 Autos other amp R Vs 1 917 562 x 0 7 x 0 15 x 8 33 1 000 x 2 5 x 6 41 800 per year 3 Extra Time Costs for Tractor Trailer Units Accelerating from Stop to 50 km hr volume affected 204 540 x 70 96 x 15 21 477 Time involved 6 25 hrs 1 000 occurences Cost 21 477 x 6 25 1 000 x 12x24 3900 4 Excess Costs for Decel and Accel TRKs 103 to 50 and return 204 540 x 0 7 x 0 85 x 352 1 000 42 800 103 to stop and return 204 540 x 0 7 x 0 15 x 516 1 000 11 100 Total TRKs Total Costs for time while stopped at signal 88 447 600 652 000 204 400 per year more to operate on a new facility Alberia Transportation and Utilities 636 300 per year I i 9 152 3 864 3 220 4 361 25 158 23 900 Benefit Cost nalysis Guide Alberta Transportation and Utilities 4 Excess Costs for Decel and Accel continued oUs amp Busses 103 10 50 178 972 x 0 7 x 0 85 x 244 1 000 26 000 103 to stop 178 972 x 0 7 x 0 15 x 344 1 000 6 500 Total SUs amp Busses 32 500 Autos amp R Vs except slower ones Volume 255 675 1 917 562 82
118. ASED UPON 496 REAL DISCOUNT RATE INTERNAL RATE OF RETURN RESULTS TO BE DETERMINED OVER A 50 YEAR TIME PERIOD FOR LONG LIFE PROJECTS ALL USERS AND APPLY analysis OBSERVATIONS AND CONCLUSIONS REACHED WITHIN THE DEPARTMENT THE VALUE FOR TIME IS A JUDGMENT KIND OF FACTOR AND IT IS MOST IMPORTANT THAT THOSE WHO USE THE RESULTS ARE COMFORTABLE WITH THE INPUTS VEHICULAR OPERATING COSTS ARE gt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and THESE RATES ARE IN 1987 DOLLARS AND MUST BE ADJUSTED OVER TIME TO REFLECT GENERAL CHANGES IN WAGE RATES C 35 BENEFIT COST ANALYSIS Established principles for internal departmental BASIC PREMISE A BUCK IS A BUCK INPUT VALU ES INCLUDE VALUES FOR ALL USERS AND APPLY UNIF
119. ATBCmodelV 1z xlsx Technical Note The IRR in Excel requires a guess at the IRR The guess should be the expected internal rate of return If the guess is not close enough for the algorithm to estimate the IRR it will return a NUM error This may be remedied by trying a different IRR guess To change the IRR guess select the Results tab and go to the Alternative Scenario where the results are providing a ZNUM result and modify the Guess cell Depending upon the information specific to the Alternative Scenario being analyzed there may not be a solution or a unique solution to the IRR calculation in a particular year or for any years in the analysis timeframe Break Even Point The Break Even Point indicates when the net costs of the Alternatives are equal to the base alternative A shorter period to recover the investment in the project is better than a longer period In some cases the Scenario or Alternative never does as well as the base alternative and a break even point is not achieved in the timeframe e g High Construction Cost Scenario for Alternative 1 Scenario 2 Break Even Point Number of Years from Base Year Scenario 1 Scenario 2 Scenario 3 High Const Costs amp Name Base Analysis High Cons Costs Discount Rate Alternative 1 No Change To Curve y a NAL oorr 1 Alternative 2 Flatter Curve Tt oe RE Alternative 3 Flattest Curve 2 3 3 A shorter Break Even period is better If the Break Even Point can
120. COMPETING PROJECTS AND ALTERNATE COURSES OF ACTION REDUCES CHANCE OF OVERLOOKING A BETTER ALTERNATIVE OR COURSE OF ACTION INCREASES THE DESIGNER S AWARENESS OF THE EFFICIENCY AND COST EFFECTIVENESS OF DIFFERENT DESIGNS ADDS TO THE PERSONAL GROWTH AND CAREER DEVELOPMENT OF INDIVIDUALS INVOLVED IN THE ANALYSIS Disadvantages of undertaking TAKES TIME EFFORT AND RESOURCES TO DO RESULTS ARE SOMETIMES CLEARLY CONTRARY TO WHAT MUST BE DONE FOR OTHER SOCIAL OR POLITICAL REASONS BENEFIT COST ANALYSIS Recent developments within the department RENEWED INTEREST INITIATED THROUGH THE TASK TEAM HEADED BY MERRIENE DUNCAN INTERVIEWS HELD WITH POTENTIAL USERS THROUGHOUT THE DEPARTMENT IDEAS FOR APPLICATIONS AND METHODOLOGY INCORPORATED IN A REPORT FROM THE TASK TEAM TO THE EXECUTIVE IN DECEMBER 1987 THE EXECUTIVE ENDORSED THE RECOMMENDATIONS OF THE TASK TEAM INCLUDING THE ESTABLISHMENT OF A COMMITTEE TO DEVELOP USER GUIDELINES AND STAFF TRAINING PROGRAMS THE GUIDELINES COMMITTEE HAS DEVELOPED PROCEDURES WHICH THE ANALYST MAY USE FOR THE DETERMINATION OR PROCUREMENT OF INPUT DATA AND VALUES WORKING WITH THE DATA and SUMMARIZING AND DISPLAYING THE RESULTS THE DOCUMENTATION FOR THAT WORK IN THE FORM OF USER GUIDELINES IS UNDERWAY C 30 BENEFIT COST ANALYSIS Departmental applications in the past EQUIPMENT RENT PURCHASE REPLACEMENT SURFACING amp REHAB CHOICES STAGES AND SYSTEM ANALYSIS HIGHWAY LOCATION
121. Costs Value of Time for non work trips Benefit Cost Analysis Vehicle Running Costs Alberta Transportation amp Utilities The Texas Curvature amp Gradient Vehicle Operating Costs are based on work completed by AT in 1989 Links Rehabilitation Cost profile RehabCosts tab and Project cost summary Project Costs tab Project cost summary Project Costs tab All vehicle related costs and forecasts of traffic Travel time costs Travel time costs Vehicle Values by Road Type RUC Alt 1 AYA2 BA47 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Information Source Links California Fuel amp Non Fuel vehicle operating costs Component Variable Definition All user costs except Cal B C February fuel associated with 2009 advanced to operating a vehicle 2011 using CPI Non Fuel Vehicle Cost S hr Fuel Cost Litre Average price of fuel 2012 average Alta California Fuel amp typical for the vehicle fuel costs Non Fuel vehicle type e g gasoline AlbertaGasPrices co operating costs diesel m California Fuel amp Non Fuel vehicle operating costs Fuel Efficiency litre The number of litres Natural Resources 100 km of fuel consumed per Canada 100 km travelled at an average speed of 105 km hr highway driving The vehicle category User based onthe California Fuel amp will be either Auto or vehicle type specified Non Fu
122. Costs by Type Default Value 15 misi SI mD him M T ccc S 15 Project Segment Traffic D RNNRRRERHRREERNREERRIDNCNECKCU 17 TipFurbo Sbyvyeoriie 17 Fill U ERREUR 18 Section 4 How to Interpret the Results of an Analysis 19 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx xit edes LOS Wi a Suxsu S Tc 19 Project Cost Graphs a E x an MUS Raf 19 ree rc rrr E 20 wi SIRE T m 29 25 uu uama nus OD T 24 Net Present Value Discounted Total Cumulative 24 o c cp n PEERS 24 Net Benefits Non Investment Cost Savings in 25 Paolo C OS LIU Qu C C sasa 25 Section 5 How to Update the Model a a 28 Administrator and User Updates
123. Costs in 1989 Dollars Estimated Costs Initial Future Alternative 1 Normal SPCSP Installation Initial cost material cost of 429 mx 2 5 x 36 38 500 Replacement Cost 25 yrs hence Culvert same as initial cost 38 500 Detour 50 000 88 500 Alternative 2 Normal SPCSP with Cathodic Protection for 25 years Initial cost Culvert same as Alternate 1 38 000 Cathodic protection 7 000 45 500 Replace Anodes 15 years hence 3 000 Power Costs 200 00 yr for 25 years 200 00 yr Alternative 3 Install larger culvert initially 9 0 2750 mm Initial cost material cost of 478 m x 2 5 36 43 000 Cost of Liner 25 yrs hence Culvert 578 m x 36 20 800 Grout 1 416 x 86 x 150 m 7 650 28 450 Alternative 4 Install Concrete Pipe Initial cost Class 4 pipe 800 m freight 50 m Material 850 m x 36 30 600 Installation 30 000 61 000 64 Benefit Cost nalysis Guide Alberta Transportation and Utilities Present Worth One indicator of the relative merits of these four alternatives is the present worth of their costs which when discounted at a real rate of interest of 496 are Present Value Alternative 1 Normal SPCSP Installation 1989 1989 Cost 38 500 2014 Cost 88 500 104 33 198 71 698 Alternative 2 Normal SPCSP with Cathodic Protection 1989 Cost 45 500 2004 Cost 3 000 1 04 1 666 200 00 yr for 25 yrs 3 124 50 290 Alternative 3 In
124. E CURRENT DOLLARS CONSTANT DOLLARS INFLATED DOLLARS INFLATION FREE DOLLARS PAYMENTS IN COMMODITIES PAYMENTS IN CASH FLOW DIAGRAM UNIFORM COSTS AND BENEFITS APPLICATION UNIFORM ANNUAL AMOUNTS INCREASE OVER TIME DUE TO ARE ALL GIVEN EQUAL INFLATION DOLLAR VALUES EQUAL CAPITAL Nc EQUAL CAPITAL EFFORT SHOWN AS gt EFFORT HOWEVER 1 EQUAL EVEN THOUGH FUTURE ONE WILL FUTURE ONE WILL COST MORE DUE gt COST MORE IN INFLATION DOLLARS OF THE DAY INVESTMENT INTEREST RATE i REAL INTEREST RATE MIGHT MIGHT BE USED FOR DISCOUNTING BE USED FOR DISCOUNTING INTERNAL RATE OF RETURN INTERNAL RATE OF RETURN MIGHT BE COMPARED TO MIGHT BE COMPARED TO INVESTMENT INTEREST RATE REAL INTEREST RATE S MINIMUM ATTRACTIVE RATE MARR MIGHT BE IN THE ORDER OF RETURN MARR MIGHT OF THE REAL INTEREST RATE BE IN THE ORDER OF PRIME e g about 1 RATE e g inflation rate 1 C 38 II BENE INTE where PRESENT YEAR PRESENT _ AMOUNT PRESENT WORTH FUTURE AMOUNT IN CURRENT DOLLARS 1 4 FUTURE AMOUNT CONSTANT DOLLARS 1 A FIT COST ANALYSIS REST RATE RELATIONSHIPS GENERAL FORMULA l A OR l A 1 Interest rate earned on Investment real Interest rate rate of Inflation II 4 A FUTURE YEAR FUTURE AMOUNT CURRENT DOLLARS PRESENT AMOUNT x 14 ae
125. EN COMMON POINTS ALT F 1 BETWEEN COMMON POINTS CONSTRUCT 7 70 KM OF NEW ALIGNMENT AND RETAIN B 7 KM OF OLD HIGHWAY IN SYSTEM NOTE CONSTANT DOLLARS USED THROUGHOUT BASED UPON 1989 PRICES Capital amp Maintenance Costs Road User Costs DESCRIPTION PER KM PROJECT YEAR ALTERNATIVE Pe NOTE TRADING LUMP SUM 1 850 000 Benefits of project would begin in 1991 with values n BASE 4 PAVE 5218 000 1 680 000 OTHER COSTS 385 000 DESCRIPTION AMOUNT 5 THIS TOTAL 7 13 810 000 1990 Vehicle operation 338 000 58 MAINTAIN OLD 3 000 26 000 i WEW 157 amp YRS 4 800 60 000 ANNUAL Collision costs 41 000 7 SUBSEQUENTLY Time savings 193 000 35 DATA FIRST RECAP 3 578 000 100 SECOND RECAP 127 000 875 000 2025 BASE CASE 15 RECAP EXISTING 131 000 1 400 000 1990 Besides Waaa with inflation these factors WAIKT IST YRS 4 400 47 000 AHNUAL i will also Increase In direct proportion with increases SUBSEQUENTLY 8 500 88 000 ANNUAL In traffic volumes which ate predicted to be at a rate of 2 per year up to and including 1998 and at FIRST RECAP 124 500 1 330 000 2 2 NOT SECOND RECAP 120 i 252 arate of 1 pet year thereafter THIRD RECAP 115 000 1 230 000 2035 THE DOES WOT INCLUDE YEAR S MAINTENANCE COST ANNUAL COSTS NET ANNUAL UNDISCOUNTED VALUE BASIS ALTERNATIVE P 7 ALTERNATIVE P 1 i CAP RUC _ CAPITAL FOR 2 535 5 2 344 2355 THE
126. ESENT WORTH IN MILLIONS OF DOLLARS BENEFIT COST ANALYSIS INTERPRETATION OF THE PRESENT WORTH RESULTS THE EXAMPLE USED IN THESE PLATES ASSUMES A CAPITAL EXPENDITURE OF 1 5 M 1990 AND ACCUMULATING DISCOUNTED AT 4 MAINTENANCE AND REHAB COSTS FOR 50 YEARS RESULTS IN A PRESENT WORTH OF ALL EXPENDITURES OF APPROXIMATELY 2 3 M 62 Ne ALMA uL CE poe ae AUN e SSS SS ES SSS SS IEEE op 7 cans pL IER LIE ee SSS c LLLA SSS EI ee bo oe ae ee Ep SSS are ears eas re r ee eS a ee ee s iO E U ESE QU i I i i i RGO tC 2020 40 FOSO YEAR THAT PRESENT WORTH OF 2 3 M MEANS THAT IF THAT AMOUNT WERE SET ASIDE AND INVESTED IN 1990 EARNING INTEREST AT THE RATE OF APPROXIMATELY 496 INFLATION ACTUALLY 495 1 04 TIMES THE INFLATION RATE ON THE BALANCE REMAINING FROM YEAR TO YEAR THAT INVESTMENT WOULD JUST FINANCE THE EXPENDITURES OF THE PROJECT OVER THE 50 YEAR PERIOD THE DISCOUNTED BENEFITS IN THIS EXAMPLE ARE GREATER THAN THE COSTS AT LEAST AFTER YEAR 2018 AND THE NET PRESENT WORTH ENDS AFTER 50 YEARS AT A POSITIVE 1 0 M THE ACCUMULATED DISCOUNTED BENEFITS AT ANY YEAR IS THE AMOUNT BETWEEN THE LI
127. For a complex project it is a good bet that there will be errors likely in both procedures The manual part of that suggestion is a lot of work but the effort will pay dividends to most in the form of developing a more disciplined approach to handling the data and keeping it straight The Highway 88 and Speed Change examples are each rather complex projects and the analyst might work from the basic assumptions given for them and compare results with those included in this Guide Such an exercise may uncover errors in these original works For roadway projects a common source of error relates to the division of traffic and sorting and matching various conditions that apply to the different division or portions of the traffic divisions The hypothetical Speed Change example includes two block type of diagrams which illustrate the ways in which the traffic must be divided for that project and an example based upon real conditions could be more complicated than that The example assumes that grades are flat throughout for all alternatives 47 Alberta Transportation and Utilities with no excess costs for horizontal curvature and typically these features would be involved and would be different for the different alternatives The Highway 88 project involves the complication of dealing with different grades but the division of traffic for other reasons is relatively simple in that example A manual solution is presented for both of those
128. Home 9 USDOT 1997 Departmental Guidance on the Evaluation of Travel Time in Economic Analysis memo USDOT www fhwa dot gov used in STEAM software www ota fhwa dot gov steam Anming Zhang Anthony E Boardman David Gillen and W G Waters II Towards Estimating the Social and Environmental Costs of Transportation in Canada Transport Canada Aug 2004 page 20 56 32 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Non Fuel Vehicle Cost km California Fuel amp Non Fuel Vehicle Operating Cost Calculation The California Fuel amp Non Fuel Vehicle Operating Cost calculation is based on the approach used in the CalTrans Benefit Cost Model In this model vehicle operating costs are broken into fuel and non fuel operating costs Non fuel operating costs include all vehicle operating costs as measured by the average cost per distance Values are reported for two vehicle classes autos and trucks These values reported by the CalTrans model have been modified to reflect metric units and updated to 2012 values For example if the non fuel vehicle cost per mile is 0 239 mi for 2007 it is multiplied by 0 621 1km 0 621 mi to get 0 148 km This value is then updated to 2014 by multiplying 0 148 km by the inflation index CPI yielding a final value of 0 159 km gt The non fuel costs of heavy vehicles is reported by Barton amp Associates to be approximately 0 2154 per tonne k
129. IAS Tas PHELPS Jack LEIGH Bill SAWCHUK Dick BROUWER Peter SHEPPY Sheena McKAY Neil WALTERS Ralph WILLIAMS Albert ZACK Gordon MANAGEMENT SEMINAR April 21 1989 HETU Henri NICHOLS Loran HOLLY Christopher QUINTON Reg HURST John QUIRING Steve JURGENS Roy KONARZEWSKI Jan KORNELSEN Rudy KWAN Allan RAMOTAR Jay TAJCNAR Peter THYGESEN Coral WERNER Al BENEFIT COST ANALYSIS COURSE Participants ADAMKEWICZ Dennis ASHRAF Mohammad BABIAK Roman BASSI Paul BUCHANAN Alan EDINGA Kim EITZEN G W ERICK Kenneth FEDUK M D FELICE Joseph Guideline Committee members MAY 18 amp 19 1989 GALLIVAN Robert JEPSEN John GEE Terry KENNY Bill GEORGE Dianne KOZIOL Mike HAMILTON W J KROMAN Tomasz HASTINGS Rob MANN J J HAZUKA Tom MORJARIA Ash HENDERSON Robert D OLINYK Mike J HUMPHREYS Garry T RAMOTAR J G IP Eddie JENSEN Anita Lynn WAHEED Abdul Resource Staff for these Courses Ken Howery Allan Lo Darious Kanga Richard Orrell Frank Perich Bryan Petzold Terry Willis C 3 wee Analysis Guide Appendix 2 Benefit Cost Alberta Transportation and Utilities Training Material developed in 1989 Using Mathematical Formulae and Tables A PUBLIC WORKS WHICH COSTS 2 M HAS AN ESTIMATED USER BENEFIT OF 2 2 M IN EACH EIGHT YEAR FUTURE PERIOD BASED UPON PRESENT PRICES 1 What is the internal rate of return after eight years assu
130. NES PLOTTED ON THIS GRAPH AND IN 2040 TOTALS 3 3 M IF 3 3 M IS BORROWED AND INTEREST AT THE RATE OF 496 1 04 TIMES INFLATION IS PAID ON THE BALANCE REMAINING FROM YEAR TO YEAR THE BENEFITS FOR THIS PROJECT ALL APPLIED TO PAYING THAT INTEREST AND REDUCING THE PRINCIPAL WOULD JUST RETIRE THAT DEBT IN 50 YEARS TIME BRINGING THIS ALL TOGETHER THE 3 3 M IS SUPPORTED BY THE PROJECT S BENEFITS AND 2 3 M OF THIS 3 3 M IS REQUIRED TO FINANCE THE PROJECT S EXPENDITURE THAT LEAVES 1 0 M PROFIT EXPRESSED IN 1990 DOLLARS THEREIN LIES THE SIGNIFICANCE OF THE NET PRESENT WORTH IN THIS EXAMPLE IF ONE IS SATISFIED WITH THE INPUT VALUES AND HAS CONFIDENCE THAT THIS PROJECT WILL BE USEFUL BEYOND 2017 IT IS A WINNER FINANCIALLY O 45 INTERNAL RATE OF RETURN X BENEFIT COST ANALYSIS INTERPRETATION OF THE RATE OF RETURN RESULTS THE INTERNAL RATE OF RETURN PARTICULARLY WHEN CALCULATED FOR EACH YEAR OF THE ANALYSIS PERIOD COMPLEMENTS THE NET PRESENT WORTH INFORMATION AND PERMITS FURTHER ASSESSMENT OF A PROJECT S MERITS FOR EXPLANATION PURPOSES THE FOLLOWING GRAPH IS A PLOT OF A SIMPLE EXAMPLE WHERE 100 00 IS RETURNED ANNUALLY ON AN INVESTMENT OF 1000 00 IN 1990 WITH NO RETURN OF CAPITAL NO SALVAGE OR RESIDUAL VALUE IF IT IS A PROJECT PRR ee TITI IP DT DS U
131. NTENANCE COSTS ARE THE SAME EACH YEAR EVEN THOUGH THEY WILL ACTUALLY BE MORE EACH SUCCESSIVE YEAR DUE TO INFLATION BENEFITS ARE SHOWN AS INCREASING EACH YEAR BECAUSE IT IS ASSUMED THAT THE VOLUMES UPON WHICH THOSE VALUES ARE BASED ARE INCREASING THEY TOO ARE CONSTANT DOLLARS FREE OF INFLATION C 42 PRESENT WORTH IN MILLIONS OF DOLLARS BENEFIT COST ANALYSIS STEPS CONTINUED 9 DETERMINE THE PRESENT WORTH OF COSTS BY DISCOUNTING ALL FUTURE COSTS BY 4 YR AND SUCCESSIVELY ACCUMULATE THESE DISCOUNTED AMOUNTS FOR EACH YEAR 6 DO THE SAME FOR THE BENEFITS AND ARITHMETICALLY ADD THE ACCUMULATED DISCOUNTED BENEFITS POSITIVE AMOUNTS TO THE ACCUMULATED DISCOUNTED COSTS NEGATIVE AMOUNTS WITH THE RESULTS EXPRESSED AS THE NET PRESENT WORTH THE FLOW DIAGRAM SHOWN ON THE PREVIOUS PLATE IS AGAIN SHOWN HERE ALONG WITH GRAPHS FOR THE PRESENT WORTHS ANNUAL BENEFITS TO THE USER p b INITIAL _ ANNUAL MAIN 4 PERIODIC HEAVY MAINT 4 COST T OR REHABILITATION a Ero Dir pei Op 7 proe 57 2 Senne _ 1 0 j cw cp E Fo SSS E i ii SESE EE ELI FU s lt F C ES i l i i 172246 2050 5 3 YEAR NOTE THE RIPPLES IN THE PRESENT WORTH GRAPHS AT THE 20
132. Neil McKay Don McTavish Doug Malcolm Brian Marcotte Richard Orrell Frank Perich Bryan Petzold Dick Sawchuk Joe Schlaut Ralph Walters Albert Williams Gordon Zack Benefit Cost Analysis Guide Appendix Alberta Transportation and Utilities Appendix B Interest Formulae and Examples INTEREST FORMULAE amp EXAMPLES Ken Howery June 1987 Revised December 1988 and June 1991 LIST OF CONTENTS SUBJECTS PAGE TIME IS MONEY Interest Formulae B4 TERMS amp RELATIONSHIPS Real Rate of B 10 Using the Real Rate of Retum Bll INFLATION amp INTEREST RATES A Further Step A Further application B 13 Present Worth of a Geometric Series B 14 EXAMPLES zy RERO EET we ab Bato Re EE B 15 SENSITIVITY ANALYSIS B 29 B 3 TIME IS MONEY COMPOUND AMOUNT 1000 00 is invested at 8 5 interest per annum After one year principal plus interest 1085 00 1000 00 x 1 i where i interest rate After two years providing the first year s interest is also invested at 8 5 interest the original 1000 00 will grow to 1085 00 x I i 1085 00x 1 085 1177 225 GENERAL FORMULA F 1 i where F future amount P original principal i interest rate per period n TABLES Compound Amount CA factors 1 are available in tables and for 8 5
133. O when the value of the damage is 2 000 or more as compared to the previous data which used a threshold of 1 000 for reporting purposes The total number of collisions in Alberta in 2010 was 151 298 Alberta Transportation Traffic Safety The model utilizes collision rates per hundred million vehicle kilometres travelled for highway type and location urban rural where this information is available The model can accept differing collision rates for each of 5 combinations of surface type gravel paved and road type 2 lane 4 lane undivided 4 lane divided expressway 4 lane divided freeway If collision data is available for a specific road these rates can be input into the model Collision rates can be obtained from the graphs included in the collision rates tab if the rates are unavailable for the scenario in question then the default values may be used The average collision rates for Alberta in 2010 were as follows Alberta Traffic Collision Data is contained in Appendix 2 Transport Canada 3322 Cat T45 3 2009 2011 http www tc gc ca eng roadsafety tp tp3322 2009 1173 htm t6 82 Note that the threshold for reporting Property Damage Only PDO collisions increased from 1 000 to 2 000 January 1 2011 Alberta Traffic Collision Statistics 2010 Alberta Transportation Traffic Safety page 8 84 Note that the Urban Collision Rate and proportion of collisions by Type of Collision for 6 Lanes was not availabl
134. ORM VALUES FOR TIME REGARDLESS OF INTERVAL FAMILY COMMUNITY AND MARKET LOSSES TO BE INCLUDED IN COLLISION COSTS RESULTS TO INCLUDE PRESENT WORTHS BASED UPON 496 REAL DISCOUNT RATE INTERNAL RATE OF RETURN RESULTS TO BE DETERMINED OVER A 50 YEAR TIME PERIOD FOR LONG LIFE PROJECTS C 36 analysis COLLISIONS ARE IN VARYING DEGREES RANDOM EVENTS WITH THE ROADWAY S ROLE ALSO VARYING THE NUMBERS OF COLLISIONS ANTICIPATED FOR DIFFERENT OPTIONS BEING TESTED ARE MULTIPLIED BY THE COST PER EVENT TO PROVIDE THIS INPUT FACTOR WHETHER TO INCLUDE THE MORE INTANGIBLE MARKET AND COMMUNITY LOSSES IN THE CASES OF INJURY OR DEATH IS A JUDGEMENT CALL AND IT HAS BEEN AGREED TO INCLUDE THESE IN ANALYSES BASED UPON STUDY BY OTHERS SOCIETAL COSTS FOR DEATH IS 619 000 AND 374 000 FOR SERIOUS INJURY IN 1987 55 USING PROVINCIAL STATS FOR DEATHS AND INJURIES PER CRASH FATAL COSTS 1 105M AND ONE INVOLVING INJU RY COSTS 112 000 AND NON INJURY 3 550 WITH 2 FATAL AND 25 INJURY THE COST IS 53 000 PER CRASH WITHOUT SOCIETAL COSTS THAT WOULD BE 7 800 PER CRASH THE COLLISION COST PORTION OF USER COSTS IS USUALLY 10 TO 3096 HOWEVER SAFETY CAN BE A NON ISSUE OR IN OTHER CASES IT IS THE ONLY BENEFIT LONG LIFE Established principles for internal departmental BASIC PREMISE A BUCK IS A INPUT VALUES INCLUDE VALUES FO
135. Paved2nd these are fixed Vehicle Default Values The Administrator can define up to 10 different vehicle types For each vehicle type the following information is required average vehicle occupancy business and non business costs hr fuel and non fuel operating costs fuel efficiency and an assigned vehicle type auto truck The Administrator should define the vehicle types to reflect the mix of vehicles using Alberta roads Vehicle Types Occupancy amp Unit Costs for Time Vehicle Operating Costs Avg Vehicle Work Occupancy Business Cost Other Leisure ween Persons _ _ Non Fuel Vehicle Fuel Fuel Fuel Cosls Litre Effieciency Vehicle Velsicl Passenger 1715 220015 12502 9 04515 115 025 m lc nes o Honc fum cx Isic e AZ AN 17 2500 5 125015 0 237 5 _ _ 1451 5 091 Os _ 10 7 Truck _ _ BOE Z EE 100 5 3 20007 10 00 0237 115 029 1 0 851 s 330 Bingle Uni Truk 7 7 i7 73500 12501 02714 1198 025 095 2501 Truck Semi TrailerCombo 10 _ 250 125019 _ O23715 1155 025 gt 590 Hybrid Passenger 1715 2500 1250415 0 155 115 5 02515 045 50i Auto Electric Passenger 17 2500 1250154 0 155 1 15 15 0 25 E 0 85 221 esce B i i i i imeem n n MT TESTIS T Re n
136. R ALL USERS AND APPLY UNIFORM VALUES FOR TIME REGARDLESS OF INTERVAL FAMILY COMMUNITY AND MARKET LOSSES TO BE INCLUDED IN COLLISION COSTS RESULTS TO INCLUDE PRESENT WORTHS BASED UPON 496 REAL DISCOUNT RATE INTERNAL RATE OF RETURN RESULTS TO BE DETERMINED OVER 50 YEAR TIME PERIOD FOR PROJ ECTS analysis IT HAS BEEN AGREED THAT THE RESULTS SHALL INCLUDE A PLOT OF PRESENT WORTH OF COMBINED CAPITAL MAINTENANCE REHAB AND ANY OTHER COSTS BORNE DIRECTLY BY THE SPONSORING AGENCY THAT GRAPH PROVIDES INSIGHT INTO THE DIRECT CONSEQUENCES TO THE DEPARTMENT IN THE CASE OF PROJECTS UNDERTAKEN BY THE DEPARTMENT FURTHER ANOTHER PLOT SHALL INCLUDE THE USER BENEFITS ADDED TO THE FIRST PLOT THAT RESULTS IN NET PRESENT WORTH WHICH IS AN INDICATOR OF THE ECONOMIC MERITS OF THE PROJECT OR ALTERNATIVE ALL OF THOSE VALUES AND PLOTS SHALL BE BASED UPON A DISCOUNT RATE ACCUMULATED FROM YEAR TO YEAR AND EXTENDED 50 YEARS INTO THE FUTURE IN THE CASE OF LONG TERM CAPITAL WORK PROJECTS THE INTERNAL RATE OF RETURN SHALL BE CALCULATED FOR EACH OF THE 50 YEARS C 37 AND PLOTTED FOR ALL YEARS THAT IT IS POSITIVE BENEFIT COST ANALYSIS RELATIONSHIP OF TERMS TERMS ka ASSOCIATED WITH ASSOCIATED WITH PRESENT DOLLARS OF THE DAY PRICE LEVELS INVESTMENT INTEREST RATE REAL INTEREST RAT
137. S 288 an SG Fe EZE TIT S IWJ AE Wa A SET BEF SNG BHH SS SSS SER EP ES OS ENS IT ES Ri 96 BGE WE sa ES Sisa PEB Bi EER Ku ESE SS BES SISI BE ITI ES SEL SI SE Ha SSE ESP E WE SS ESE SSS ER SER Bu EE GES BEN SED ES 00 WS SED SEE PBP ER e ii LLL L L P DDE lk Bm Ga Sua d olet ELI t SEE EG SE SEE SEE SEE Wiqi SE PEP SER ee Li L I CIC LI LI Me Vf E Net 1980 1990 2000 2010 2020 2030 2040 2050 L ea labeled ln ee ee ee de oe 26 ITDITI1 11311 bP Pe SS SE eo boll EE Poche ot ire 026 0 tss eee ce LI I T f TOP T T TILL LT TIT TT LLL TT T TT T TTT Td T TT
138. SE A BUCK IS BUCK INPUT VALUES INCLUDE VALUES FOR ALE USERS AND APPLY UNIFORM VALUES FOR TIME REGARDLESS OF INTERVAL FAMILY COMMUNITY AND MARKET LOSSES TO BE INCLUDED IN COLLISION COSTS RESULTS TO INCLUDE PRESENT WORTHS BASED UPON 490 REAL DISCOUNT RATE INTERNAL RATE OF RETURN RESULTS TO BE DETERMINED OVER A 50 YEAR TIME PERIOD FOR LONG LIFE PROJECTS C 33 analysis THESE ARE THORNY FACTORS AND MOST ANALYSIS INVOLVES EACH WITHOUT AGREEMENT UPON HOW TO TREAT EACH THE ANALYST WOULD MAKE CHOICES AND INCLUDE SENSITIVITY TESTS FOR THOSE MOST LIKELY TO BE QUESTIONED WITH THAT PROCEDURE THE DECISION MAKER WOULD HAVE TO MAKE CHOICES EACH TIME AN ANALYSIS IS REVIEWED AND WOULD OR SHOULD STRIVE FOR CONSISTENCY BETWEEN REVIEWS WITH ONE DECISION MAKER PRINCIPLES WOULD QUICKLY BE ESTABLISHED BY PRECEDENT HOWEVER WITH SEVERAL PASSING JUDGEMENT ON THESE STUDIES THE PROCEDURE WOULD BE MORE PAINFUL AND ACHIEVING AND MAINTAINING UNIFORMITY WOULD BE DIFFICULT IF NOT IMPOSSIBLE AGREEING UPON PRINCIPLES INITIALLY IS BEST IF THE AUDIENCE FOR ANY WORK IS EXPANDED A NEW CONSENSUS WOULD BE REQUIRED OR SENSITIVITY TESTING SHOULD BE INCLUDED BENEFIT COST ANALYSIS Established principles for internal departmental BASIC PREMISE INPUT VALUES INCLUDE VALUES FOR ALL USERS AND APPLY UNIFORM VALUES FOR TIME REGARDLESS OF INTERVAL
139. SOURCE OF DESCRIPTION VOLUME PRICE INFORMATION ADJ ADJ TRIP PURPOSE 8 OCCUPANCY RATES K E H Passenger Vehicles 80 Pleasure Trips 1 8 people veh 20 Business Trips 1 2 All Trucks 1 2 drivers vehicle K E H 1 VALUES FOR TIME 1988 Dollars Truck Drivers 23 00 Person Hr Business People 12 00 Person Hr All Others 5 00 Person Hr COLLISION COSTS Reduction after paving 1987 Dollars 1985 Traffic Motor C S 88 04 272 000 yr Based upon 56 72 km Length 272 000 yr x 142 810 yr 1 03 1 07 C S 88 06 125 000 yr i C S 88 08 161 000 yr TOTAL NOTE 1 Approved Values for Time Include Truck Drivers 22 00 hr Business People 12 00 hr All Other 5 50 hr All in 1987 dollars ARRAYS OF COSTS amp FINAL ADJUSTMENTS Cost km x 1 06 x 85 54K Total Cost Description 1988 s 1989 s Project Cost For Year 1000 s 1000 s Least Cost Alt 1 Leave as Gravel Maintenance 6 500 6 890 589 6 500 6 890 589 12 500 13 250 1133 6 500 6890 589 6 500 6890 589 12 500 13 250 TAS 6 500 6890 589 6 500 6 890 589 12 500 13 250 1183 6 500 6890 589 6 500 6890 589 22 500 23 850 2040 CYCLE REPEATS EACH 12 YEARS 55 Alberta Transportation and Utilities 1988 VALUES 166 976 yr 146 152 yr 188 244 yr 501 372 yr Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Benefit Cost nalysis Guide Alberta Transpor
140. TICAL TO THE OTHER BY ASSUMING THAT 00 NOTHING IS AN OPTION WHICH WILL INCREASE USER COSTS BY 100 ANNUALLY IN EACH CASE THE INCREMENTAL ADDITIONAL COST OF 500 EARNS 50 PER YEAR A RETURN OF 10 AND WHETHER OR NOT THAT 15 GOOD DEPENDS UPON WHAT IS CONSIDERED A MINIMUM ATTRACTIVE RATE OF RETURN MARR OR HOW GREATLY SOMETHING ELSE THAT COSTS 500 IS DESIRED FROM AN INVESTMENT POINT OF VIEW IF GREATER THAN 10 OBTAINED ELSEWHERE THE LOWER COST ALTERNATIVE SHOULD BE CHOSEN CONVERSELY IF THE HIGHEST RATE OTHERWISE AVAILABLE 15 LESS THAN 102 THE MORE EXPENSIVE OPTION IS BEST C 48 FORMAT FOR SUMMARIZING INPUT DATA AND RESULTS OF CALCULATIONS CHECK LIST DESCRIPTION OF PROJECT INCLUDE LENGTHS DISTANCES BETWEEN COMMON POINTS FOR LINEAR PROJECTS HIGHWAYS OR UTILITIES amp ESTIMATED COSTS MAJOR COMPONENTS OF CAPITAL ANNUAL MAINTENANCE COSTS COMPOSITION BREAKDOWN OF BENEFITS DESCRIBE ANY CHANGES IN VOLUMES WHICH AFFECT COSTS Q YEAR IN WHICH COSTS OR PRICES APPLY CONSTANT OR CURRENT DOLLARS Q SPECIFY WHETHER INTERNAL RATE OF RETURN I R R IS REAL INVESTMENT SHOW ARRAYS OF INPUTS amp RESULTS FOR ENTIRE PERIOD OF ANALYSIS PROJECT HIGHWAY X BETWEEN A 5 B BASE CASE AGAINST WHICH ALL ALTERNATIVES ARE COMPARED EXAMPLE RESURFACE EXISTING HIGHWAY 10 68 KM BETWE
141. TIO LESS THAN ONE BENEFIT COST RATIO CALCULATED FOR ANY RATE AND YEAR BELOW THAT LINE WOULD BE GREATER THAN ONE C 46 RATE 5 INTEREST BENEFIT COST ANALYSIS INTERNAL RATE OF Mum amp BENEFIT COST RATIO ss LL LLL LLL LL LI Ti IILI SRERRESENE INTEFRMAL RATE Of RETURN HLLLDUELLEELDLLCLEDEEECELEEREET PETTITTE LEE eee eee LLLLLLLTLLLLLLLLLLITLLLLLTTI 10 o o 0 O O BENEFIT COST ANALYSIS COMPARING ALTERNATIVES ISSUES IF DO NOTHING CANNOT BE DONE OR WILL NOT BE DONE CAN THE MINIMUH CASE TREATED AS A DO NOTHING OPTION AND USED TO COMPARE ALL ALTERNATIVES GIVEN TWO ALTERNATE COURSES OF ACTION TO JUDGE IS IT SUFFICIENT TO ANALYSE EACH INDEPENDENTLY IN EFFECT COMPARING EACH TO DOING NOTHING OR MUST THE TWO ALSO BE COMPARED ONE TO THE OTHER EXAMPLE ASSUME A FACILITY DEEMED ESSENTIAL MUST AT LEAST BE REPAIRED AT A COST OF 500 AN OPTION 15 TO REPLACE FOR 1 000 EXAMPLE ALT 1 COSTS 5500 AND YIELDS 100 ANNUALLY A 20 RETURN ALT 2 COSTS 1 000 AND YIELDS 150 ANNUALLY A 15 RETURN DECISION DO NOTHING ALT 1 OR ALT 2 WHICH WOULD ALSO INCREASE IT S UTILITY BY 50 ANNUALLY DECISION REPAIR OR REPLACE IN EFFECT THESE ARE THE SAME ISSUE AND INDEED THE REPAIR REPLACE EXAMPLE CAN BE MADE IDEN
142. User Manual contains 1990 unit costs and new figures for all of the above statistics Giving zero values for Family Community and Market Losses for fatalities reduces the cost per fatality to Alberta Transportation and Utilities 17 671 in 1987 dollars and produces an average cost per Collision of 49 320 This figure is about three quarters of the average cost including all items For the usual roadway improvement project the reduction in collision costs will be only one of several resulting benefits and consequently the significance in the final results of including or excluding these items for fatalities is further reduced Nonetheless the variations in this factor or any other factor cannot be assumed to be compensating when comparing one project to another the reason being that the proportions of influence of the various factors are different for each project For example in a median widths study for Highway 2 the reduction in numbers and severity of collisions were the only quantifiable benefits and the difference in results would vary by 25 depending upon how these two ALBERTA SOCIETAL COSTS OF TRAFFIC CRASHES PER VICTIM OR CRASH 1985 with 1987 estimated values PROPERT DAMAGE SERIOUS MODERATE ONLY per FATAL INJURY INJURY crash basis Market Losses 449 331 268 629 138 Family Community 134 798 80 597 43 Medical 924 23 906 213 Rehabilitation 12 887 Funeral 1 962 Legal 4 920 3 488 297 16 I
143. YEAR INTERVALS WHICH ARE CAUSED BY THE RELATIVELY LARGE REHAB COSTS WHILE THESE REHAB COSTS ARE EQUAL CONSTANT DOLLARS USED THE ONE AT YEAR 2010 CAUSES A LARGER DROP IN THE PRESENT WORTH GRAPHS THAN THE ONE AT YEAR 2030 THE DISCOUNTING FACTOR FOR 496 FOR 20 YEARS IS 0 456 FOR 40 YEARS IS 0 208 BENEFIT COST ANALYSIS STEPS CONTINUED e 2 III 1 vs 41 E i p Xo T 2 lt li x M uU T HAD A THE NET PRESENT LINE BETWEEN THE ZERO E YEAR p Ji X BA B b uu i ini o SNOITIIW O WORF md DOSE OF RETURN GRAPHS THE NET PRESENT WORTH IS ZERO AT THE SAME POINT IN TIME THAT THE INTERNAL RATE OF RETURN IS FINALLY CALCULATE THE INTERNAL RATE OF RETURN 4 BETWEEN YEARS 2017 AND 2018 VALUES FOR EACH YEAR WHICH FOR ANY SPECIFIC A PLOT OF THE INTERNAL RATE OF RETURN FOR ALL YEARS THAT IT IS POSITIVE IS SHOWN BELOW THE PRESENT WORTH GRAPHS YEAR IS THE DISCOUNT RATE WHICH EQUATES THE NOTE THE FUNDAMENTAL RELATIONSHIP BETWEEN THESE ACCUMULATED COSTS AND BENEFITS DISCOUNTING RATE OF 5 BEEN USED WORTH LINE WOULD CROSS THE 7 X NHOOLl3H JVNHJ3 LNI NI 4 L1N3S3Hdg C 44 YEARS 2023 AND 2024 WHERE THE RATE OF RETURN IS 596 kos PR
144. ach side by 1 i gives this rearrangement of terms E F bran Reducing the value of future sums to represent present value is called discounting and the value Nominal int rate Inflation rate 22 used for i in that formula is called the discount rate Discount rates are also given different names by some to indicate the principles upon which their magnitudes are more or less based however for the purpose of this Guide it will suffice to leave this term unaltered except to make the distinction between real discount rates and nominal discount rates Real discount rates corresponding to real interest rates and these are used in conjunction with constant dollars Nominal discount rates corresponding to nominal interest rates and are used with current dollars Financial math tables and computer programs used for discounting purposes are typically based upon period end payments with the n interval being one year In other words interest and discounting steps are on a yearly basis and if for example the base year the year of the first entry for an analysis is 1991 an expenditure taking place in the year 2000 would be discounted nine periods n would equal nine 2 4 4 Constant Dollars and Real Interest Rates While the analysis may be based upon either constant dollars and real interest and discount rates or current dollars and nominal interest and discount rates the procedure is simplified if constant dollars
145. aintenance costs negligible If considered as two options the results would be Resurfacing expenditure 500 000 return negligible New const expenditure 1 000 000 return 50 000 yr 5 REAL If incremental values are used new construction alternative compared with doing minimum Incremental costs Incremental benefits return 500 000 50 000 10 REAL Met If the existing highway will be resurfaced providing it is not replaced the analysis treating the resurfacing as an option provides poor information upon which to base decisions In this case the expenditure required to gain the 50 000 yr return is 500 000 and not 1 000 000 As a general rule if some work must be done or will be done providing a better alternative is not found that minimum work should nol be treated as an option Instead that should be used as the base case and all other alternatives tested against it Costs for the minimum work which will not be necessary if an alternative is chosen should be credited to the alternative being tested When two or more alternatives are being considered 1 The amount above or below one which a B C ratio calculation will yield depends upon how the input items are sorted However for most cases when the internal rate of return interest rate is used in the B C ratio calculation unity results regardless of which method of sorting the input items is used 38 Benefit
146. allment amount of 1 000 00 Balance remaining after 1st payment 921 659 In one year s time with interest that balance will become 921 659 x 1 085 1 000 00 Less 2nd installment 1 000 00 which retires the debt GENERAL FORMULA where A periodic sum installment payments TABLES P Present worth of debt interest rate per period n Capital Recovery CR factors are presented in the last column of the tables and for 8 5 the factor for two periods is 0 564616 and 0 564616 1 771 114 1 000 00 B 9 TERMS AND RELATIONSHIPS PRIME Interest Rate Real Interest Rate Inflation Rate The rate of inflation and the interest gained or charged on the most secure type of investment or loan move up and down however the spread between the two the Real Interest Rate historically has remained relatively constant The relationship between these three specifically defined factors in economic terms will not be used directly by the analyst nonetheless it is an important formula to remember because one almost the same will be used Both the analyst and decision maker will wish to weigh results and may find that comparisons with the Real Interest Rate or the Prime Interest Rate of the day is helpful in judging the economic merits of the project being worked upon Real Rate of Return Time is Money headed the interest formulae section and a good example of that is one who is prepared to give up something today providing he
147. als or agencies doing or reviewing many economic studies it is desirable to have guidelines for inputs and procedures to reduce the number of variables and to end up with results that are more comparable B 29 Benefit Cost w Analysis Guide Appendix Alberta Transportation and Utilities Pa o ge gt Training Material Benefit Cost we Analysis Guide Appendix Alberia Transportation and Utilities Contents Lists of Participants at Courses and Seminars C 3 Using Mathematical Formulae and Tables Questions C 4 Questions Re Rate of Return _ _ _ C 10 Using Mathematical Formulae and Tables Answer Version 14 Questions Re Rate of Return Answer Version C 20 Plates for Management C 24 2 Benefit Cost we Analysis Guide Appendix Alberia Transportation and Utilities BENEFIT COST ANALYSIS COURSE Participants BAIRD lan BRIDGEMAN Grant BROWN Andy CLARK Clive CLIFFORD Roberta DER Jim DIYALJEE Vishnu DMYTRYSHYN Ken FORSTER Ron SENIOR Participants BELKE Ted BERDAHL Gordon BOISCLAIR Donald J BOYD Neill BROWN Andrew COOK Ric FREEMAN MARSH John HEMPSEY Les January 6 1989 GAN Fai MAH Kim HO Peter MARRINIER George KHAN Camilla NICHOLS Loran KRAUSE Wayne OATWAY Lionel KOLL
148. amage Collisions 124985 898 137430 908 142678 90 7 141527 89 5 135642 881 123357 86 5 Total Reportable Collisions 139179 100 0 151289 100 0 157226 100 0 158055 100 0 153901 100 0 142592 100 0 Rural Highways 2011 2010 2009 2008 2007 2006 N N N N N N Fatal Collisions 170 0 9 181 0 9 173 0 9 212 1 0 211 1 0 220 1 0 Non Fatal Injury Collisions 2937 15 2 2591 19 0 2582 13 3 2834 13 7 3073 14 4 3245 15 3 Property Damage Collisions 16244 83 9 17096 86 0 16708 85 8 17655 85 3 17995 84 6 17766 83 7 Total Rural Highway Collisions 19351 100 0 19868 100 0 19463 100 0 20701 100 0 21279 100 0 21231 100 0 Urban 2011 2010 2009 2008 2007 2006 N Fatal Collisions 75 0 1 77 0 1 83 0 0 105 0 08242 130 0 1 119 0 1 Non Fatal Injury Collisions 9897 8 8 9902 8 1 10534 0 9 12074 9 47768 13638 11 1 14267 12 8 Property Damage Collisions 102064 91 1 112155 91 8 11 5579 99 1 115215 90 4399 109395 88 8 96825 87 1 Total Urban Collision 112036 100 0 122134 100 0 1186196 100 0 127394 100 0 123163 1000 111211 100 0 Alberta Transportation Office of Traffic Safety August 2013 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx 2 Lane Paved Undivided Highway Rural Collision Rates Varying by Width of Roadway LET ERR Jg IT10gT10 117 Bees mima IEEE Ht H f n to lt 7 5
149. an investment as Alternative 1 however that depends upon the decision makers view about interest rates Had future sums been discounted at the rate of 3 the NET PRESENT VALUE of Alternative 2 would overtake that for Alternative 1 in the early 30 s and at the end of the analysis period in 2040 the NET 40 Alberta Transportation and Utilities PRESENT VALUE of Alternative 2 would be greater than for Alternative 1 If the Minimum Attractive Rate of Return MARR is deemed to be 4 REAL rate Alternative 1 is best lf working with a MARR of 3 96 or less Alternative 2 would be best from a financial analysis point of view assuming that confidence in a 50 year analysis period exists This topic will be covered further after another example It will be noted that most of the figures for this second example illustated on the following page are the same as the first The capital cost for Alternative 2 has been reduced to 4 5 compared with a 5 8 which was used previously Correspondingly the difference between the cost for these alternatives is less in this example Alternative 2 now costing only 1 8 million more than Alternative 1 compared to a difference of 3 1 million in the previous example and with incremental benefits of Alternative 2 over 1 being the same at 130 000 annually obviously increases the attractiveness of Alternative 2 Discounting at 4 the NET PRESENT VALUE for Alternative 2 overtakes that for Al
150. an readily determine how the results differ for any period up to fifty years With computer programs being readily available to analysts little extra work is required to get results for a long period and for open ended analysis as long a period that anyone can conceive being needed should be used If a sufficiently long period is used the summary of results for example can be shortened easily On the other hand to extend the period may involve setting up the entire project again Equivalent Uniform Annual Cost EUAC For cases where different alternatives must have different time periods usually much shorter periods and may relate to studies in volving equipment or other assets having dif ferent useful lives the Equivalent Uniform Annual Cost EUAC method of analysis may be superior As the name of the procedure in dicates the results would be expressed in average costs per year for each alternative with the alternative having the lower average cost being best from a financial point of view Alternatively and if desired in order to com pare results with other works a rate of return could usually be calculated for these types of projects also Alberta Transportation and Utilities Those recommendations were approved by the Executive and a Guidelines Committee was es tablished to further refine the procedures and design training programs for users The Guidelines Committee met ten times in the period between February
151. and property damage costs 86 California Life Cycle Benefit Cost Analysis Model Cal B C Version 4 0 February 2009 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Emission costs vary by the average running speed of the vehicle The Emissions tab uses the emission factors for various vehicle types defined in the California Life Cycle Benefit Cost Analysis Model Cal B C The CalTrans model defines emissions by speed as measured by miles hr These units have been converted to km hr outside the model emissionsConvV1b xlsx 38 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Appendix 1 Summary of Model Variables Each of the variables in the Parameters tab are itemized in the table below Values highlighted red in this table indicate an external source should be consulted to determine the default value The source and process for updating these default values is provided for each variable in the section below the table Component Base Year Scenario amp Analysis Definition Factors Project Type Categories Variable Scenarios Discount Rate Capital Cost Adjustment O amp M Cost Adjustment Road User Cost Adjustment Emission Cost Adjustment Project Type Categories up to 10 Default Running Speed Definition Information Source Used by the Modelas Current year the Base Year for all calculations that are time sensiti
152. ar End Operation Alternative 1 Do Minimum Alternative 2014 2017 2018 enter Start End year for project construction period Historical Capital Investment Defining the original historical cost of the project is required only when no significant construction costs are needed for the alternative being 2 The first year of original project operation may be entered when the project is not entirely new for example the widening of an existing 2 The Base Year is assumed to be the project start date The Original Project Age is calculated as the difference between the Base Year and the First Year of Original Project Operation Original Historical Project Cost u x New Project styearof Original Age Beg of Alternative 1 enter in base year dollars Construction Costs The construction cost categories defined in the Parameters tab and construction period will define the cells that are available to enter the associated construction costs orange cells The total cost by category is provided in each column and total cost by year in each row 6 The use of Historic Costs is only for the calculation of Life Cycle Costs and Replacement Costs going forward In benefit cost analysis terms any costs incurred prior to the analysis are considered to be sunk costs and not relevant to the future investment decision making Where there are no Alternative construction costs the hist
153. ariance which there may be between the results of a detailed analysis and the conclusions which would be reached based solely upon common sense The need for such analysis and the advantage of having its results increases as they run counter to intuitive judgement That does not mean that the results of an analysis must be a surprise to be good quite the contrary it will be most comforting when the results of a detailed study match the expected When the degree of consistency in that regard cannot be predicted is when the benefit cost review is needed the most 1 Treasury Board Secretariat Benefit Cost Analysis Guide Planning Branch March 1976 Benefit Cost nalysis Guide 1 2 Committee Process Various Branches Sections in Alberta Transportation and Utilities have been undertaking these kinds of analysis for a long time Typically they have been done on a hit and miss basis sometimes an economic analysis is included in support of a recommended procedure or alternative but in most cases such an analysis has not been done In some instances an area or branch has initiated the procedure and has included an economic section in a report but failing to receive feedback on this Particular aspect of the study has assumed that it was not deemed to be very important and stopped doing it for further reports In May 1987 the Deputy Minister encouraged a broader and more consistent application of benefit cos
154. ate internal rate of return after 8 years when it is assumed that benefits accrue each year Is your answer to Question 7 correct Look in the interest tables for interest rates higher than 4 1 2 and find under the SPW columns other figures quite close to 7 27 and plot a couple of more points on the internal rate of return graph for years 11 and 18 From the graph now plotted what might be the internal rate of return in the long term in say 40 to 50 years From tables how do you know that this figure is below 15 95 By calculation what is the IRR in perpetuity C 7 Benefit Cost nalysis Guide Appendix Alberta Transportation and Utilities ABOVE THE INTERNAL RATE OF RETURN GRAPH IS ONE FOR PLOTTING PRESENT WORTHS OVER TIME USUALLY IN OUR ANALYSIS A PLOT OF THE ACCUMULATED EXPENDITURES BY THIS DEPARTMENT DISCOUNTED AT 4 WILL BE REQUIRED AS WELL AS A SEPARATE PLOT OF ACCUMULATED BENEFITS MINUS ACCUMULATED EXPENDITURES forgetting about the sign ALL ALSO DISCOUNTED AT 4 13 Assuming as before that the capital outlay of 2 M is made in 1990 plot the present worth of accumulated expenditures over a period of 40 years using a discount factor of 4 What is the present worth of that expenditure 20 years hence Would it matter if a factor of 7 were used 14 With yearly benefits of 275 000 beginning at the end of 1990 calculate by formula the accumulated present worth of those yearly benefits by the end o
155. ate or rates of inflation anticipated for all of the other items see Section 2 4 5 2 Simply adding the inflation rate and discount rate provides an approximate value Mathematically the interest rate which would have to be earned would be equal toi 1 i times the inflation rate see Section 2 4 4 37 Benefit Cost wm Analysis Guide The inherent calculations which produce that relationship between Net Present Value and the Internal Rate of Return make the latter a useful indicator In that example if costs and benefits were discounted at the rate of 5 the Net Present Value would change from negative to positive at year 2020 the same point in time when the Internal Rate of Return is 5 Using a 3 96 discount rate would result in the Net Present Value just crossing the zero value line in 2009 and would then be negative again until 2015 as the Net Present Value line shifts upward to reflect the effects of the lower discount rate The Benefit Cost Ratio was mentioned as another common method for displaying results and the Internal Rate of Return graph provides insight into what the results of Benefit Cost B C Ratio calculations would be If a discount rate of 4 is used a B C ratio of less than one will result for all periods up to 2016 and a ratio greater than one will result if 27 years or longer analysis periods are used Similarly if 5 is used as a discount rate B C ratios will be less than one for all periods
156. ation costs can be expected to decrease and time costs will increase with the difference for time being greater than the difference in operating costs Of all the factors related to speed change as used in this example the difference of the differences time costs minus operating costs as outline above is by far the most significant factor affecting these aspects of road user costs The other items of cost included in this example includes Excess operating costs for slowing down and returning to original speed Time costs for time stopped at a signal and Time costs for the difference in time involved in semi trailer trucks this classification only during acceleration compared to covering the same distance when moving at a uniform speed the speed they accelerate to While each of these other three items are significant to the extent that they should not be ignored collectively they contribute less than 1 3 to the final result in this particular example e While all proportions for each case will be different the cost for time stopped at signals could vary greatly from this example Only one signal is assumed with an average of 1 2 minute stop for 15 of the traffic With several signals and more traffic on the urban streets higher percentage of highway traffic would be affected the influence of this item could in crease several fold Various methods for specifying the influence of heavier traffic volumes upon ru
157. ative values should deviate from being proportional to the traffic volumes For example if the volume of single axle trucks is 3 4 of the volume of semi trailer units the operation costs for common sections of a roadway for the single axle units should be a shade over 3 4 of the corresponding costs for the semi trailer trucks The unit cost for operation of the singles is slightly greater than for the semi trailers Benefit COS Analysis Guide The areas in the study containing the most data are the most likely source of errors but that does not mean that the more simple inputs will be immune All aspects of the results should be scrutinized to spot quantities which do not appear correct This scrutiny should carry into the checking of discounted values to be satisfied that the present values are believable considering the discount rate and the number of discounting periods involved If the present values or the internal rate of return figures are obviously wrong and cannot be explained by finding a mistake in input figures the analytical process should be questioned Although rare some combinations of lumpy expenditures or benefits will produce two results for the internal rate of return Most references dealing with engineering economy will deal with this subject and specifically a book titled Principles of Engineering Economy by Eugene L Grant W Grant Ireson published by the Ronald Press Company of New Yo
158. calculation EXAMPLE 1 Rental fees in a specific area are currently 6 240 00 annually and will be same in future years except for inflationary increases Equipment costing 12 000 00 with operating costs of 3 000 00 in the first year and increasing each year with inflation is an alternate to renting This type of equipment should be replaced each five years and over this period will depreciate to one third of its original value ANALYSIS Graphically these alternatives might be displayed in this manner based upon the period end step convention which is compatible with the formulas and tables described earlier Expenditures or outlays are represented by lines pointing downward income or reductions in expenditures are shown by lines pointing upward Renting Alternative Actual Yearly Cash Flow Year n 0 I 2 3 4 5 EBENE Rent costs increasing with inflation Each year s amount 6 240 x 1 05 7 Purchasing Alternative 4 000 Terminal Value Actual Yearly Cash Flow plus inflation see note on the following page Year n 0 1 2 3 4 5 Y Y Y q 4 Maint costs increasing with inflation Each years amount 3 000 x 1 05 x 12 000 Assuming inflation of 5 per annum real rate of return of 3 5 96 and interest rate 5 0 3 5 x 1 05 8 675 the following calculations can be made PRESENT WORTH METHOD Renting Alternative PW 6 240 x SPW 3 1 2 5 6 240 x 4 515052 28 174 Purcha
159. ce that most may have in the asset continuing to be useful the asset at that point in time should be given no value unless it can be used in some other way The material in a water line may be good for 75 years however if the decision maker has no confidence in the line being required beyond 50 years it will be difficult to gain acceptance for a salvage value at year 50 unless there is agreement that a net benefit would result from digging it up and somehow otherwise using it For roadways it has been agreed that the analysis period will usually be 50 years with results shown for each year The 50 years is a compromise consensus resulting from some believing that a longer period could be used and others not having confidence in roadways being required by that time or at least not believing that any specific road or highway would be required in that location at that time If there is confidence in any component of the roadway being useful for some other purpose at that Benefit Cost nalysis Guide time and if the net benefit from that use would be Significant that value could be included but if included for the last year of the analysis it should also be included for all years The significance of value in the future depends upon the number of compounding periods involved as well as the discount rate with the significance decreasing with an increase in the value for either For 50 years the discount factor for 4 is 0
160. ch person involved in a collision involving a serious injury Traffic Safety Social cost of each person involved in a collision involving a moderate injury Traffic Safety fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Information Component Variable Definition Source Links Property Damage The property damage Traffic Safety Used to calculate Only costs of each collision fatality and injury severity related collision costs Emission Costs by Type of Emission Label for the type At Department s Used to calculate Type category of emission discretion vehicle emission costs Cost per Tonne The social cost of California Life Cycle Used to calculate each emission Benefit Cost Analysis vehicle emission category Model Cal B C costs Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Appendix 2 Alberta Traffic Collision Data Alberta Traffic Collisions 2006 2011 Alberta Total 2011 2010 2009 2008 2007 2006 N N N Fatal Collisions 285 0 2 307 0 2 302 0 2 375 0 2 402 0 3 404 0 3 Non Fatal Injury Collisions 13909 10 0 13552 9 0 14246 9 1 16153 10 2 17857 11 6 18831 13 2 Property D
161. ch year will by the end of period produce 1 00 x SCA 10 yrs 1 00 x 11 435888 11 4359 Plus Repayment of Principal 10 00 Total 21 4359 Checks Now assume there is a choice between constructing a public works now or 8 years hence In present day dollars the cost is 10 00 and if constructed now the users of that facility will receive a benefit of 1 00 each year based upon current prices Assume construction costs and user costs are inflating at the same rate and the works will not depreciate during the eight years if constructed now C 20 Benefit Cost Analysis Guide Appendix Alberta Transportation and Utilities What is the real rate of return on making that investment now The calculations for determining the rate of return or internal rate of return are the same as in Question 1 except in this case the 10 interest rate is the REAL rate of return 5 If dealing in inflated dollars in question 4 and the rate of inflation is 6 what is the internal rate of return at the end of the eight year period In diagram form this question takes on this appearance 1 00 1 00 1 00 1 00 1 00 1 00 1 00 X X X 3 X 4 X X X 7 1 06 1 06 1 06 1 06 1 06 1 06 1 06 1 10 00 x 1 06 6 T T T T T T 1 00 x 1 06 0 1 2 3 4 5 6 7 8 i 10 00 Loan The question is then at what discount rate does the PW of expenditures PW of benefits Test a discount rate of 16 6 Present worth of expenditure 10 00
162. company to borrow investment money over time at a specific interest rate The cash flows are the amounts and times of the various costs and investments and these are brought into a common term today s dollars so that the net benefit can be evaluated The NPV savings calculation consists of two financial concepts that evaluate a set of costs and benefits over time The net is the difference between all costs and all benefits savings and other gains The present value takes into account the time value of money this adjusts to expenditures and returns as they occur over time so they can be evaluated equally Payback Period Payback period refers to the period of time required to recoup the funds expended in an investment or to reach the break even point Pareto Efficiency Pareto efficiency or optimality is a state of the economy where resources are allocated in such a way that it is not possible to make any individual better off without making at least one individual worse off For example if a change in economic policy eliminates a monopoly and that market subsequently becomes competitive and more efficient the monopolist will be made worse off However the loss to the monopolist will be more than offset by the gain in efficiency This means the monopolist can be compensated for its loss while still leaving a net gain for others in the economy a Pareto improvement 1 Sunk Costs 3 ounk costs or expenditures that have occur
163. counting process using the same interest rate A Capitalized Equivalent amount can be calculated which assumes that a sequence of cash flows which has been developed will repeat forever Mathemat ically that amount can be determined by calculating the equivalent uniform annual amount for the period designed and then assume that that annual amount will continue in perpetuity to calculate the Capitalized Equivalent If comparing one alternative to another Capitalized Equivalents will provide the same rela tive answers as the EUAC method proportions will be identical Some agencies favor the Payout Period method when assessing items which may have a very short life items which may quickly become obsolete for example Typically no interest is used in this method with the Payout Period simply being the time it takes for undiscounted benefits to match undiscounted costs The method adopted by the Department for calculating all positive values for the Internal Rate of Return automatically provides the Payout Period as described here The time between the initial expen diture and the time when the IRR changes from negative to positive would meet that definition for a Payout Period More complicated procedures involving the use of different interest rates for different classes of cash flows e g the reinvestment rate may be different than the initial investment rate may be necessary in the consideration of business ventures or private
164. cted that there will be a demand for the higher use at some future date the added value for this land should be credited to the new plant alternative as occurring at the point in time when that event is predicted to happen Roadway projects will provide a variety of circum stances involving residual land values and the theme for valuation should be the same the value should be resource related as opposed to the actual price which might be received for the land Abandoned right of way may be involved with the road bed levelled and topsoil added to make it suitable for agricultural production The cost of doing that will be a charge against the alternatives which would create the abandonment however its agricultural value includ ing the enhancement of adjacent lands through the elimination of severance if that is the case should be credited to the same alternative The fact that the entire market for the purchase of that abandoned right of way is the owner of adjacent lands which may lead to a token payment for its transfer should not bear upon the credit value as Signed If the price which the Department would pay for the acquisition of right of way and compensation for severance in a similar case is deemed to be the resource value for that item that same value should be assigned when the procedure is reversed regard less of the cash amount that actually may change hands 2 3 2 Depreciation and Salvage Values Terminal value
165. ctor to grow to two For example if interest is received at the rate of 6 95 per annum an investment will double in 12 years 12 periods Not an exact mathematical relationship but very close over a wide range of interest rates 34 nalysis Guide For example the present value of a 1 000 item coming on stream in 20 year s time has been deter mined to be 456 39 if discounted using a rate of 4 If the approximate effect of changing the discount rate from 4 to 5 is desired one might reason that the difference between dividing a number by 1 05 twenty times and 1 04 twenty times will be about 20 x 1 20 the sum of the approximate centage deviation in each of the divisors Twenty percent of 456 00 is 91 and the answer using a 5 discount rate should be in the order of 365 The accurate answer is 376 89 Another example incorporating the Rule of 72 with compound interest of 6 per annum how much will an investment of 1 000 grow to in 20 years time The investment will double in about 12 years 72 6 which leaves eight years not accounted The error of omitting to multiply 2 000 by 1 06 eight times is about 48 6 x 8 and therefore in 20 year s time the investment should be worth about 2 000 x 1 48 which is close to 3 000 Working from the other direction the investment will quadruple in about 24 years which is high by four years of growth which will be equal to approximately 24 6 x
166. ctors 28 Benefit Cost nalysis Guide General Categories Operational Costs Travel Time Safety items Vehicle Classification Traffic Volumes Speed Data Roadway Features Operational Features Unit Costs Trip Purpose Vehicle Occupancy Unit Costs Collision History Classification Contributing Factors Predictions Unit Costs Figure 3 2 Input Factors for Road User Costs 29 Alberta Transportation and Utilities Sub Items Pass Vehs Rec Vehs Busses SU Truck Tractor Trailers Hourly variations Average Hourly variations Accel Decel Stops Terrain Surface Type Alignments Speed Restrictions Barrier Lines Environment Fuel Oil Tires Maintenance Use related depreciation Commercial Business Medical Educational Social Recreational Trucks Cars Busses Hec Vehs Other Truck Drivers Helpers Comm Travellers Bus Passengers Passenger Vehs Tourists Total numbers Hates Property damage Moderate injury Serious injury Fatalities Driver Roadway Other Same as above Market losses Family Community Medical Rehabilitation Funeral Legal insurance Public Liability Variables Load limits Ciearances Enforcement Local population Recreation opportunities Tourist route Commuter route Available alt routes Environment Level of Enforcement Passing Opportunities Shoulder width Sideslope treatment Posted speed Level
167. d If three new ways are being tested three results will be obtained each new compared to the old Comparing each new alternative to a common do nothing or do minimum choice is sometimes all that is required because one of the alternatives will fall out as clearly being the best or sometimes none may economically stack up to the base case sug gesting that the status quo should be maintained However sometimes two new alternates will be close contenders with both being better than maintaining the status quo With the methods developed by the Department two good alternatives may provide con flicting indications as to which is best The Net Pres ent Value of one being the highest indicates that is the best whereas the Internal Rate of Return for a 1 National Energy Board and Canadian Energy Research Institute Workshop on Benefit Cost Analysis and Export Impact Assessment Papers presented at a workshop on benefit cost analysis and export impact assessment Calgary November 1989 p 85 2 D Gillen M McMillan and W Phillips Environomics Ltd Role of Economics in Transportation Planning Volume 1l Prepared for Alberta Transportation March 1979 p 63 Benefit Cost nalysis Guide different alternative may be higher When that hap pens it is necessary to consider the incremental differences in costs and benefits between the two competing alternatives Hypothetical examples of needing to deal in
168. d SN a ERE Se Le M 080 L L 1 EE so DE a TPA wa wn d Za LL 1 EB SS ER 00 L ui Ilio Ec SR L WR SRE LL speci ee LESE Sa 54 aS SSE EER wis i TL hl Lees L L L l T TEA B SE ECC GE ECL OE B 23 O EE ERS ME E LED ESE SSE PEZ SER EE SS NE UN AN m in r Value Present Net LL Seir we mt En LOI LOE T OL IZg Bl lebhsdeLcLLELILITIELITIII i Rubber i 2 RSS 683 NER ES 95 ER ERE Es DE BSN EE MR DAS NO FS ME SEQ ANGE SER SE AM UNE SSS RA ES ICE ONE E RE NM CER MERE NER IEEE RET t SSS 1980 1990 2000 2010 2020 2030 2040 2050 Year i i LESE RT
169. d be applied on a much broader basis than done to date and the list on the following page includes the applications suggested at the committee meetings held in 1987 and 1988 For the most part these would be in addition to those items in the above list which are currently being done Further it is the intention that an analysis would be done on each new work in these categories and not on a hit and miss selective basis as now done in some of the areas This does not mean that an analysis would be done in all cases For example it may be decided that there is no point in undertaking this part of the work in cases where decisions have already been made and the results of such a study if done would have no influence or bearing on future actions Each suggestion made is included in this list and the items have been grouped into somewhat related types of activities It is recognized that it will not be possible to do an analysis for all of these items immediately the most common reason being that the necessary data is not readily available at this time Doubts which were discussed at the time the item was introduced about its suitability for this kind of analysis are included in brackets E Cost Benefi w Analysis Guide Alberta Transportation and Utilities Suggestions made at committee meetings in 1987 and 1988 Equipment lease buy or privatization Equipment replacement v s maintenance Equipment systems develop
170. d the idea that these are related to resources either saved or used generally it should be assumed that the dollar values of items as established in the market place accurately reflect their importance to society In other words the cost of things and the amount which consumers are prepared to pay are good inputs into a benefit cost analysis However market values and consumer prices can sometimes be adjusted to more accurately reflect the utilization of re sources and the value to society and thus far the Task Force recommends two ex ceptions to the general market pricing prin ciple i Federal and Provincial taxes on auto mobiles trucks parts oil and gasoline Alberia Transportation and Ultilities should be deducted from the con sumer prices when determining road user costs One reservation about so reducing the cost of vehicle operation by approximately 15 is that this De partment would be in an unfair com petitive position for budget support if similar analyses were undertaken by other Departments where taxes under similar conditions were not deducted ii Where aggregates are scarce and higher costs will be incurred in the future in the form of longer hauls a shadow price should be applied which will reflect the importance of this mate rial and tend to conserve it and delay the day when higher prices must be paid Good agricultural land has also been suggested as a candidate for shadow pricing however
171. ding of what goes into an analysis and how to interpret results and judge their significance The User Manual is directed to those involved in the actual preparation of a benefit cost report and concentrates upon the methods of collecting and processing of data and the prepara tion and presentation of results Those using the manual particularly are encouraged to read the Guide for a better understanding of the background to the Department s approach to conducting a benefit cost analysis and they may also find the Summary helpful in the different ways that things are explained Benefit Cost nalysis Guide Preface This guide is not intended to be the last word on benefit cost analysis nor is it a treatise on the sub ject Its contents and the procedures outlined have evolved from ideas and expressed views of many Staff members in Alberta Transportation and Utilities and the lists of possible applications include those items which came to mind by attendants at meetings held to discuss this subject A broad application of this subject is being encour aged and new applications may involve the develop ment of supplementary procedures particularly in the accumulation and handling of data on an auto mated basis The User Manual describes a procedure for the as sembling and handling of information pertaining to roadway projects and parts of that process may be applicable and adaptable to other subjects however enti
172. discounted at an annual rate of 4 is equal to 7 85 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Maintenance This tab provides the Maintenance costs for each of the three Scheduled Maintenance categories and calculates the associated costs for each segment of the project alternative RUC Alt 3 tabs This tab calculates the road user costs per day associated with vehicle running costs travel time costs and emission costs These costs are estimated by vehicle type for each segment of the project defined by the user in the Project Definition area A separate tab exists for each Alternative up to three alternatives can be defined by the analyst Collision Rates This tab provides the rate of collisions per 100 million vehicle kms by varying AADT for different road types NOTE The user has the option of using this information which must be input manually into Project Specific Values or using the default values if the applicable rates are not available Emissions This tab provides the rate of emissions gms km by the speed of vehicle for each vehicle type and for each emission type defined by the user in Parameters NOTE If new vehicle types are added the emissions tab gms km will need to be updated to reflect the new categories defined by the user Fuel Consumption The California Fuel amp Non Fuel approach to estimating running costs vehicle operating costs by fuel and non fu
173. dy being collected Alberta Transportation and Ultilities and used for different reasons within different parts of the Department makes it possible to produce good road user cost figures Nonetheless transforming the data into the form needed for these analyses takes time time which staff cannot always spare for this purpose 3 3 1 Roadway Project Factors The following lists include most of the items and sub items which are subject to being important in the makeup of costs and benefits for an economic re view Not all of the items will be relevant for any one project but some projects will involve items not in cluded in these lists These lists provide some indication of the number of inputs involved in a roadway study and they the lists may serve as a check against which the items actu ally used in any review may be compared General Categories Capital Costs Most Significant ltems Grading Base Course surfacing Structures Right of way Engineering Contingencies Maintenance Snow amp Ice Costs Control Patching Dust abatement Pavement markings Brush amp Weed Control signing Regravelling Crack filling Examples Examples of of Sub Items Variables Each item Location in Province has numerous Design standards different Availability components of materials of cost Some items Weather have a number of Location sub items Complaints Design Figure 3 1 Roadway Capital and Maintenance Cost Fa
174. e and the Rural data has been used as a proxy for this data 36 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Rural Collision Rates by Road Type and Type of Collision gt Property T Surface Type Road Type Collision Rate e Fatal Collision Injury Collision Damage Only Total 2 Lane gravel 136 630 06 14 9 8455 100 0 are Z Tane paved edm 333 imami a 100 0 or ue Eg NN 6 166 Paved idinDivgOnd OTT 91300 4849 83995 1000 4LnDivNot Grd 54 590 0 4 1175795 8199 100 0 Bede quar Duo Baa iais anter the Collision Rate per 100 milion vehicle km by Surface Road Type enter proportion of Collisions by Urban Collision Rates by Road Type and Type of Collision Property Surface Road Rate _ Fatal Colision mju Collision Damage Oniy aua Total Gravel i2lane gave 86 449 50 0 500 100 Bav 7 r Ey 6 E 30 100 Mic Ln Undiv t CU meena Worse NA i 00 094 Ce mmc 166 Paved 77 ALN Div Std 1500 8582 1004 er MinDvNotgOd ZERO SIL C NN 100 ioe lanes shag on cilia de e cee eet Bj Bg OR 5 ubi dp ERU anter the Collision Rate per 100 million vehicle km by Surface Road Type
175. e implemented if the public need was abandoned This concept of land valuation is market oriented and the price paid for land will usually be the proper value to use in a benefit cost analysis An example of an exception may be a case where land was assembled or purchased many years in advance of actual need and changes in development patterns and zoning over the years results in a market value quite different from its book value In such a case the market value based upon the highest and best use at the time that the analysis is done should be used This subject is again introduced in Section 2 3 1 when dealing with sunk costs and that section also includes an example where the value of a remnant piece of right of way which is no longer needed for roadway purposes may be assigned a value quite different than its disposal price Prices paid or amounts received in any unique or unusual circumstances should be treated as suspect as far as true value is concerned and may require an imputed value Land owned absolutely and not held in fee simple such as Indian Band lands may require an imputed value quite different than the price actually paid Aggregates Gravel in its natural and economical state is finite and its availability within the province can be scarce or abundant depending upon the geographic location That coupled with the fact that it is an essential ingredient in some of the projects and work which the Department ma
176. e these variables can be found in Appendix 1 Base Year some of the default values requiring periodic updates include values that were estimated for a particular year It is important that all these values be brought to current year values Base Year In each case discussed below the Consumer Price Index CPI has been used to bring historic values to their estimated 2014 value It should be noted that having flexibility to be able to define various categories in the model also creates a burden on the analyst to update relevant information to ensure that the model functions as it is intended 28 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Scenario amp Analysis Definition It is expected that the Administrator may require that some scenarios be completed for all benefit cost analyses conducted and the analyst may not be allowed to modify the Scenario and Analysis Definition Factors Up to two additional scenarios in addition to the Base Analysis can be conducted for each Alternative In these scenarios different assumptions can be used for the Discount Rate and costs in each of the following four categories capital costs operating amp maintenance costs road user costs and emissions costs The adjustment entered is applied to the total estimated costs in that category in each year of the analysis Scenario amp Analysis Definition Factors Road User Emissions Capital Cost O amp
177. e calculated comparing 50 km hr operation on this 3 2 km section to 4 0 km the new route is 0 8 km longer than the existing of free flow operation up to 111 km hr 2 The extra time costs associated with 15 of 70 of the total traffic being stopped by the signal will be added 81 Analysis enefit Cost Guide Alberta Transportation and Utilities 3 The extra time costs for acceleration from stop to 50 km hr of the tractor trailer TRK units stopped Dy the signal 15 of 70 of the total TRK traffic will be added 4 The excess costs for decel and accel from rural speeds 111 and 103 km hr to either 50 km hr 85 Of 70 or to zero 15 of 70 will be added No reduction for the numbers slowed by other traffic will be made because the excess costs should apply regardless of the reason for the change in speed Preliminary Calculations Procedural Notes 1 Some units of cost and time are expressed in amounts per 1 000 vehicles When that is the case the traffic volumes will be expressed in 1 000 s e g 25 567 might be shown as 25 57 Rounding except for final result figures will be kept to a minimum not because all of the figures may De significant some of the items are just not that accurate but rather to eliminate confusion as to where the figure may have originated The more numerals included in a number the less likely that another number will be the same Some of the final results w
178. e easiest for examples which have uniform annual costs or benefits or savings and the EUAC method would simply include such figures without adjustment In this example the annual figures are increasing with inflation and consequently each year s figures require adjustment to arrive at an equivalent equal annual figure The EUAC method is also useful in cases where different alternatives must have different time periods If in this example renting was an option for only two more years the EUAC method might be used to test the merits of renting for those two years compared to purchasing equipment immediately With this example as it stands the EUAC can be derived from the Present Worths calculated in the last section Renting Alternative PW 28 174 EUAC PW x CR 8 675 5 28 174 x 0 2549281 7 182 B 16 Purchasing Alternative PW 22 006 EUAC 22 906 x 0 2549281 5 839 Explanation and Interpretation of Results In diagram form the cash flows shown previously would equate to Present Worths and EUAC Ss like this Renting Alternative Present Actual Yearly Cash Flow Worth Equivalent Uniform Annual Cos DE d Tr n o sO 0 1 2 3 4 5 0 1 2 3 4 5 6240 x 1 05 7 182 7 182 7 182 7 182 7 182 28 174 Purchasing Alternative Present Actual Yearly Cash Flow Worth Equivalent Uniform Annual Co ee ECKEN MOIS aded rS UPC MU ee 1 2 3 4 5 1 2 3 4 5 x
179. e in the continuing need for most of our roadways Might one use technical projections for a 5 or 10 year period and assume zero change or more or less token increases or decreases thereafter For long term projects such as roads bridges pipelines structures etc it was decided that results shall be calculated over a 50 year period from the time of construction Factors requiring projections into the future shall be based upon relatively short term projections by staff experienced in the item being considered and assumed to be either constant or have minimal change thereafter The long term projection for the population of Alberta is an increase at the rate of approximately one percent per year and volume items related to population levels should be assumed to increase at that rate over the long term Traffic volumes for example should be projected for five to ten years based upon technical experience and increased at the rate of one 1 percent per annum thereafter 3 Applications in the Department 3 1 The Need Benefit cost analysis can be applied to any activity for which costs and benefits over time can be calculated and is particularly suited towards the evaluation and 4 COSI Benefit we Analysis Guide assessment of capital works or engineering archi tectural types of projects Alberta Transportation and Utilities is in the business of providing transportation services and assistance towards other utilities
180. e of a bridge is typically 100 years 9 However any benefits or costs expected beyond year 80 may be discounted back to 80 years and entered for that year year 80 For example for year 81 all benefits or costs would be multiplied by Fa Benefits or Costs year 81 Model Components The Alberta Transportation Project Benefit Cost Model has four main components as follows Model Parameters This section of the model consists of 9 tabs as follows Parameters This tab contains default information including Scenario amp Analysis Definitions Project Type Categories and various Cost Categories Some of these variables can be altered for specific analyses in the Project Definition tab where the default values are not appropriate This tab does not need to be updated for each analysis but should be reviewed periodically Rehab Costs This tab provides the Rehabilitation costs for each Project Type Category or transportation facility e g interchange overpass lane addition etc defined by the user in Parameters These costs should reflect the expected stream of capital costs required to uphold the facility over an 80 year timeframe NOTE these costs are not the expected on going operating costs of regular maintenance associated with the project 16 As the length of the analysis increases the discounted value of these future values becomes increasingly smaller For example the discounted value of a 100 investment 50 years in the future
181. e times as many figures must be included in the results and reviewed and considered compared to a procedure that uses only one rate The Department adopting a procedure which includes the calculation of internal rate of return as explained under the heading Presentation of Results Section 5 3 eliminates the need to test specific interest rates and for those calculations requiring Present Values future expenditures or income will be discounted at the rate of four 4 percent or any other rate which is from time to time deemed best within the Department At the present time the real discount rate is fixed at 4 and that rate should be used in all studies within the Department until a further review proves that another rate would be better The model included in the User Manual has been given a default value of four 4 percent for discounting purposes however the model has provision for conveniently changing that number 2 4 5 Handling Different Inflation Rates If numerous future cash flow items will be inflating at rates different than the rest it may be most expedient to work with current dollars and nominal discount rates and the rate of return values will then also be expressed in nominal rates If only one item or even a few items inflate differently it may be just as easy and desirable to continue to work with constant dollars and adjust the value of the item or items which 1 Corporate Planning Alberta Transportation a
182. e used and results will correspondingly be expressed in nominal rate values 2 4 2 Interest Rates and Inflation Real and nominal interest rates and inflation are interrelated and their approximate relationship can represented by this equation Real Interest rate Nominal Interest rate Inflation rate Benefit Cost w Analysis Guide Alberta Transportation and Utilities Within the bounds of the three documents constituting this Guide nominal interest rate prime interest rate and investment interest rate have been used interchangeably usually in the context of the above formula or a variation of it While that formula adequately expresses the principle of the relationships between these different types of interest rates to be mathematically correct it must be adjusted slightly resulting with this formula Real Int rate 1 Inflation rate 2 4 53 Compounding and Discounting The relationship between present and future values based upon compound interest can be expressed by this formula F P 1 where F future value P present value interest rate n the number of periods that interest is paid Those relationships also apply in reverse and the reverse order is more often needed and used in the analysis Expenditures and receipts are typically made or received at some time in the future and the present value of those future values must be calculated The same formula applies and dividing e
183. e used in the analysis The basic data may be on hand but the time it takes to convert it to a useful form may be prohibitive considering other demands upon the involved staff Alberta Transportation and Ultilities 2 2 2 Effect Upon Decisions The influence which the results of a benefit cost analysis should rightfully have upon a decision will vary with the degree to which the factors bearing upon the decision are represented in the results of the analysis section 8 includes an example analysing the use of different kinds of culverts If economics is the sole question in that subject the results of that analysis should be the decision Even so carefully following that example will show that judgement or some established criteria regarding the rate of return is finally needed On the other hand the Highway 88 example provides very positive economic results at least judged by the rate of return in comparison to the discount rate used however it should not be expected that the schedul ing of the paving of that highway would immediately be done based upon those results It is a big undertaking and must compete with other highway projects for budgeted dollars and may have social and political factors which are not represented by the items which went into its benefit cost review Even economically the results of the analysis for this project should not in isolation be the decision The return is good however if similar reviews
184. e used will include ri real rate of return inflation free interest rate rei rate equivalent to real rate of return for those items which are increasing quantity wise each year as well as increasing with inflation With inflation of 5 and growth of 295 the combined effect is an increase each year 1 05 x 1 02 1 1 071 1 0 071 or 7 1 For purposes of using in a formula this might be called a combined rate T i inflation rate 8 675 5 3 59 4 inflation rate dec 1 05 T i combined rate 8 675 7 _ ret combined rate dec 1 071 41992 B 23 CASH FLOW DIAGRAMS Do Nothing Alternative 0 5 10 15 20 40 User Costs 320 000 x 1 071 Improvement Alternative User Costs 250 000 x 1 071 Improvement 1 800 000 NOTE Maintenance costs of 10 000 x 1 05 per year for Do Nothing and 8 000 x 1 05 per year for the Improvement alternative are too small to be shown at this scale Refurbishing Costs 600 000 x 1 05 An important factor in the analysis of a long term open ended problem is the time frame To illustrate the difference results for different analysis periods both 30 years and 50 years will be calculated Choosing times midway between the relatively large expenditures each 20 years seems like fair choices PRESENT WORTHS Do Nothing Alternative PW 30 yrs 10 000 x SPW 3 1 2 30 320 000 x SPW 1 47059 30 184 000 7
185. ect cost and benefit data for all four of these examples was handled manually and the step by step process followed is included in each The objective of the Speed Change example is to illustrate ways 51 Alberta Transportation and Utilities and means of calculating road user costs for operation and time when different speeds must be used for one reason or another and that example does not include sufficient information e g collision capital and maintenance costs are not included to produce economic indicators in the form of Net Present Values or Internal Rate of Return However the costs produced in that example could be used as input into the Benefit Cost Module as described in the User Manual and that automated process was used for determining the NPV and IRR for the Highway 88 Culvert and Guardrail examples Categorized in another way the Highway 88 Project and the Speed Change example are complex projects in the sense that large volumes of data are involved in each with numerous opportunities for going astray in the handling of the data or losing parts of it or using some of it twice While by comparison the Culvert and Guardrail examples have relatively few inputs they each have other important features to illustrate ways of handling mutually exclusive components of a roadway within the framework of a benefit cost analysis as adopted by the Department While these are all roadway related examples the methods used
186. ect the resource value Taxes on gasoline for example increase the cost at the pumps but do not change the resource value of the gasoline Hence for determining road user costs taxes for the various costs associated with the operation of a motor vehicle should be subtracted from prices paid by the consumer For roadway projects the elimination of certain taxes will reduce the cost of travel and since the benefits for such projects typically stem from the differences in travel costs it follows that the benefits will be lower because of the exclusion of those taxes When comparing the economic merits of one project to another it is important that input items be treated in a like manner and while this should present no problem when comparing projects within the Depart ment it is a matter that should receive attention if the Department s projects are being reviewed by others or are being compared in any way with those of others Benefit Cost we Analysis Guide Alberta Transportation and Utilities Subsidies and grants have the opposite effect to that of taxes Subsidies or grants result in the lowering of the price of goods in the hands of the consumer and again they have no effect on the actual amount of resource required to produce the item and such amounts should be added to the consumer s price 2 3 Excluded Inputs The problems of including some items or factors in a benefit cost analysis because of the difficult
187. ed costs Benefits must also be based upon constant dollars and the gradually increasing benefits shown in the flow diagram do not reflect inflationary increases but instead illustrate an increase in the volume of user benefits over time For roadway projects user costs will usually be in direct proportion to traffic volumes This upper present value plot is commonly referred to as NET PRESENT VALUE NPV being the accumulated discounted benefits less the accumulated discounted costs Projects which have a high NPV are attractive from an investment point of view those with low NPV are less attractive When input values are expressed in constant dollars and future cash flows discounted at 4 positive NET PRESENT VALUES mean that the project is yielding above a 4 REAL rate of return 4 above inflation If one is happy with a 4 REAL Alberta Transportation and Utilities return the project would be considered favourable from a financial point of view In this example the NPV changes from negative to positive between years 26 and 27 mid 2016 This project would be a go financially if the decision maker has confidence that this project will be useful to at least the year 2017 and is satisfied with a 496 REAL return 5 1 2 Internal Rate of Return By definition the internal rate of return is the interest rate at which the present worth of the net cash flow is zero Except for very simple cases this interest rate is labourso
188. ed separately Further each item added to the basket gives the basket of items collec tively more weight relative to the outside items A danger which arises with the grouping of some items by one person and consideration being given to the whole by another is double accounting of one or more of the items that have been grouped Items which are grouped or included in the basket and fairly represented by the results obtained for the group should not also be considered again along with the other non economic items Good documentation and display of the items which are included in a benefit cost analysis should reduce the likelihood of inadvertently considering items twice That should not and cannot prevent a decision maker from intentionally dipping into the basket and giving either more or less weight to an item that he believes has been wrongly valued Nor should that be consid ered as double accounting the decision maker is simply adjusting the significance of that item to his liking That should not happen when only one person is reviewing the analysis or using its results the item can either be valued in accordance with the decision maker s view when used in the analysis or if that can t be done it should be left out of the analysis entirely In a large organization the results of a benefit cost analysis will likely be used by several and even if the decision makers agree upon the values to be used for input items dissenti
189. efit Cost Analysis Benefit Cost Analysis is the exercise of evaluating a planned action by determining what new value it will have Benefit cost analysis finds quantifies and adds all the positive factors These are the benefits Then it identifies quantifies and subtracts all the negatives the costs The difference between the two indicates whether the planned action is advisable The key to doing a successful cost benefit analysis is making sure to include all the costs and all the benefits and properly quantify them Where the benefits of a project exceed costs it can be determined it would be beneficial to undertake the project Where more than one project is considered the alternative where benefits exceed costs the most would be the preferred project This is consistent with the principle of Pareto efficiency or optimality see below Benefit Cost Ratio The benefit cost ratio is the present value of benefits divided by the present value of costs Where the B C ratio is greater than 1 benefits exceed costs and the project provides positive net benefits This measure however does not consider the scale of expenditures For example a small project may produce a greater B C ratio but have a smaller overall benefit Discount Rate The purchasing power of money normally decreases over any given period of time due to inflation and uncertainty A discount rate adjusts the value of money for time expressing expected future monetary
190. el vehicle Truck and be used to by the user operating costs adjust fuel consumption by average vehicle speed Vehicle Category Three Growth Driver Categories defined in Cannot be changed Categories Linear the Model to project by the Analyst Exponential Traffic amp M Costs Growth Driver Type Traffic Direction Number of People by Collision Severity Growth Two Direction Categories 1 Way 2 the Model used to Way Three Collision Categories Fatality the Model Serious Injury Moderate Injury Fatality Serious Injury Categories defined in Cannot be changed by the Analyst allocate Gradient costs to traffic on each Road Segment Categories defined in Cannot be changed by the Analyst Average number of _ Traffic Safety people involved ina collision involving a fatality Average number of Traffic Safety people involved ina collision involving a serious injury Used to allocate Gradient costs to traffic on Road Segment Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Used to calculate fatality and injury related collision costs Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Component Collision Rates by Type of Collision Collision Costs by Type Variable Moderate Injury Surface Type Road Type Collision Rate Fatality Injury
191. el costs per km takes into account an estimate of fuel consumption by speed and vehicle type This tab provides a cost factor from the average cost defined in Parameters The fuel consumption per vehicle type is estimated based on current information published in the California model This is one of the items taken into account in the calibration of the model to an Alberta value Project Definition This section of the model consists of 7 tabs as follows Project Definition Defn This tab contains information specific to the project being analyzed This includes the labels that will be used for the model the definition of the project type and possible changes to default values that have been set in the Parameters tab Alt 3 tabs This tab contains information specific to the alternative being analyzed This tab requires inputs about each Alternative that will be considered in the analysis Usually Alt 1 will be the Status Quo or minimal option against which other Alternatives are evaluated Traffic Alt 3 tabs This tab calculates the traffic projected for each Alternative and applies this forecast to the unit costs for vehicle operations travel time emissions and collisions 17 Note that the Texas Curvature amp Gradient approach to estimating Road User Costs using definitions and values of gradient and curvature for different road surfaces pavement gravel and vehicle type have not been updated to reflect changes in fleet com
192. elpful in the checking of results pro duced by the models and in that regard the reader is referred to Section 5 2 in the Summary which deals with a perpetuity model Analytically producing results involves two basis tasks developing cash flow data and then transform ing that data into meaningful economic indications efficiency For complex projects such as for a roadway it is anticipated that the absence of adequate cash flow data will prevent an easy and quick approach to the analysis Some reading or skimming the Summary may read no further and for those the message left is clear for complex projects there is no simple and easy way to simulate the full blown version of an analysis All of the necessary input data will not be available and the sensitivity of the results to different input factors varies with different circumstances of different cases to the degree that it is hazardous to make assump tions about relevancy To make assumptions about the value of an item which may well dominate the outcome of an analysis may be no better nor worse than making assumptions about the results directly Those reading this Guide and the User Manual in Benefit Cost we Analysis Guide preparation for undertaking an economic analysis will have reached those same conclusions and will nave already covered the underlying reasons On the other hand if cash flow values are available for the subject at hand their nature and
193. enerally supports some value for the time of all travelers but suggests that each analyst must find his own answers in this matter Within the Department the following observations and conclusions were reached 1 Vehicular operating costs are the lowest in the speed range of 50 to 70 km hr and the fact that most drivers when given the freedom will choose to operate in the range of 90 to 110 km hr suggests that time has value 2 Roadway improvement projects will usually result in higher average vehicular running speeds with a corresponding decrease in travel times 3 This is a judgment kind of factor and it is most Alberta Transportation and Utilities important that those who use the results of these analyses are comfortable with the inputs for items such as the value of time 4 All intervals of time for all roadway users are important and rates of 22 00 per hour for bus truck and transport drivers 12 00 per hour for working occupants of all vehicles and 5 50 per hour for everyone else including the occu pants of buses and recreational vehicles be used in the analysis 9 above rates are in 1987 dollars and should be adjusted over time to reflect general changes in wage rate Collision Costs NOTE SOME OF THE PROVINCIAL AVERAGES INCLUDED IN THIS SECTION ARE DATED AND NEW DATA IS AVAILABLE WHICH SHOULD NOW BE USED IN ANALYSIS The table on the following page provides a cost breakdown between
194. ent Value is determined by alge braically adding the two in effect subtracting the discounted expenditures from the discounted in comes and the Benefit Cost ratio is calculated by dividing the total for discounted incomes by the total for discounted expenditures In formula form the close relationship between the two methods becomes even more obvious NPV Discounted Incomes Discounted Expenditures Discounted Incomes Pie AGN erated If the Net Present Value is positive indicating eco nomic efficiency again with qualification the B C ratio will be greater than 1 one with the same economic ramification and the same qualification If the Net Present Value is negative the B C ratio will be less than 1 one with both results indicating that the Project is not efficient economically considering the discount rate and period of analysis used To end with one figure a dollar value for NPV or with a B C ratio a specific period of analysis must be chosen and of course the results are based upon a Specific discount rate Therein lies a shortcoming of dealing with only one result as provided by either of these methods knowledge about how sensitive that result is to changes in either of those variables life of project or the discount rate is not available For that Alberta Transportation and Utilities reason many authorities recommend using three discount rates a low medium and high and collec tively
195. ent calculations Traffic and its analysis can be a very complicated matter and while the information given for this example is extensive there remain some unanswered questions One of the assumptions given is that 10 of the vehicles in slower moving hours of the year 1 520 hours wish to travel at that slower speed which would involve 82 900 vehicles in a year This raises a question about how many vehicles would travel at slower speeds in the 7 246 hours of the year over 1 7 million vehicles involved when no restriction is assumed e g passing opportunities provide operational freedom most of the time While a higher proportion of slower moving vehicles might be expected during the popular more heavily travelled portions of the year there is no doubt that the numbers during the other 83 of the time when two thirds of the year s volume occurs is significant The important question in an analysis is how significant the error might be in the results by simply ignoring the balance of the slower moving vehicles The subject gets even more involved if one interprets the given 10 96 which actually restricts the Speed as not being the total number of slower moving vehicles during those hours of the year neither There may for example be drivers who would travel 95 km hr if free to do so but are one of the vehicles being held to 88 km hr by other traffic An overstatement of the benefits resulting from driver freedom is made if it is ass
196. est position to explain why a different method is better in that case Benefit Cost w Analysis Guide Alberta Transportation and Utilities Contents Guide 1 introduction 1 1 Overview of Benefit Cost Analysis 1 1 2 Committee 5 2 1 3 Purpose of the Guide 7 2 Principles of Benefit Cost Analysis 2 1 Efficiency Criteria 2 1 1 Potential Pareto Improvement 8 2 1 2 Incrementality 8 2 1 3 Procedure to Measure Economic Efficiency 10 2 2 Determination of Value 2A A AIMPONMANCE roce UR REFS 11 2 2 2 Effect Upon Decisions 11 2123 ASCOUDIIDO SACS cei o exe a pede aces ae ee 12 2 2 4 Direct Benefits and Costs 12 2 2 0 end bx ok aden QSQA 13 2 3 Excl ded ues vague goce nea i dk bua La m oa 7 19 2 9 1 SUNK COSE coe rds obs oid ed iere oV del 19 2 3 2 Depreciation and Salvage Values 20 2 4 Interest Discount and Inflation Rates 21 adel CS eo cents ays ua a 21 2 4 2 Interest Rates amp Inflation 21 2 4 3 Compounding and Discounting 22 2 4 4 Constant Dollars and Real Interest 5 22 2 4 5 Handling Different Inflation Rates
197. examples and as stated in the Speed Change description it is easiest from a calculation point of view to work in incremental values because the traffic which is faced with the same conditions in two alternatives even for a portion of the route can be ignored although easier in that respect that procedure does not permit a ready check upon the total volume of traffic used Using a model and running all traffic through all sections provides an easy check on total traffic and if the total used does not match the annual volume some has either been missed or used more than once Manually working with the data provides more of an opportunity to gain a feel for what the magnitude of results in different areas should be and larger errors are likely to be caught but the number of calculations involved provide many opportunities for making mathematical mistakes A model will provide correct answers based upon the data it is fed but results are produced quickly and it is easy to keep plugging in new data and give little time to considering whether or not the results are within the realm of being correct For both procedures tabulating results with a relatively fine breakdown into different vehicle classes and different result areas will permit a good check on most figures by comparing one to another The relative traffic volumes can be the basis for the comparisons with knowledge about the influence of other factors used to judge how the rel
198. expressing finan cial values and results so expressed not only permits comparisons between similar projects within one program but also allows a project in one program to be compared with projects in a completely different program even across departmental lines or to those in other agencies or in the private sector with some qualification Although confidence levels may be higher when making comparisons between projects results giving an indication of return upon investment permits a project to be judged upon its own merits for its results can be viewed in the light of general market conditions A project with a real return well above the difference between the prime interest rate and the With input values being resource orientated care should be taken when comparing projects with those of others to ensure that ail items are being treated in a like manner For example the elimination of some taxes will generally lower the return being received and will place projects based upon that procedure in a less competitive position if compared with results of other projects or works wherein those taxes have not been excluded Benetit nalysis Guide rate of inflation might be viewed as being economi cally good regardiess of what the results of other projects might be What is not known is whether the return for that project is higher or lower than that for a project for which no analysis has been done 3 2 Application Var
199. f 2 000 net annual benefit 10 5 2 000 SPW 1 05 50 2 000 SPW 4 762 50 _ 1 04762 1 _ 000 004762 1 04762 384090 TOTAL PW OF BENEFITS 1 943 000 B 28 PW of Costs 1 800 000 600 000 PW 4 762 20 237 000 600 000 PW 4 762 40 93 000 2 130 000 Summary for Interpolation Purposes Interest Rate Benefits Costs Difference 8 675 260 000 10 1 943 000 2 130 000 187 000 260 In 8 Pp P terpolated rate 8 675 187 260 x 10 8 675 9 446 Internal Rate of Return approximately 9 4 95 for 50 yr period SENSITIVITY ANALYSIS If the analyst has doubts about the values of any items included in the study such values can be varied the calculations repeated and the different results tabulated against the different inputs In effect the procedure for determining the Internal Rate of Return by trial and error produces different Net Present Worths for the different interest or discount rates tested For open ended types of problems the results are sensitive to the period used as illustrated in Example 2 where both 30 and 50 year periods were analyzed Inputs will usually require predictions and the decision maker may desire results for a range of prediction rates Obviously if several inputs are varied the number of combinations will be large and besides the work involved in making the calculations those who use the results will have several additional decisions to make For individu
200. f 1998 after 8 years of benefits discounting at the rate of 4 96 15 What factor was used to multiply the annual amount by to obtain the answer in Question 14 16 Where would you expect to find that factor in the interest tables 17 With present worth of expenditures being 2 0 M and accumulated present worth of benefits being 1 852M after 8 years what is the net accumulated present worth after 8 years of benefits j e in 1998 C 8 18 19 20 21 22 23 24 Benefit nalysis Guide Appendix Alberta Transportation and Utilities Using the tables what are the net accumulated present worth figures after 12 years after 20 years after 40 years Plot the net accumulated present worth figures on the graph for the years 8 12 20 and 40 Between which years does the net accumulated present worth change from positive to negative Why does the year or time that the net accumulated present worth equals zero correspond to the year when the internal rate of return is 4 If a benefit cost ratio were calculated to include benefits to the year 1999 what would you expect that ratio to be When would the benefit cost ratio be 1 discounting all future values by 4 If all future values were discounted at the rate of 1096 at what year approximately would this ratio 1 With built in inflation future benefits are inflating each year in this example what is the real rate
201. ffic Growth Driver Select either Linear or Exponential Different gradient unit costs for the Texas Curvature amp Gradient approach to estimating vehicle running costs 4 Allows for differentiation of collision rates by Road Type 35 In determining gradient costs 1 Way assumes all traffic goes in the direction of the assigned gradient 2 Way assumes traffic is evenly split in both directions Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx gt Traffic Growth Rate Enter a growth rate for traffic on the selected segment Average Running Speed Enter the average vehicle speed on the selected segment Maintenance Cost Category Scheduled Maintenance Select the appropriate road maintenance cost category for the selected segment e g Gravel Paved Base Paved 2nd These maintenance cost categories were set up using information from Alberta Transportation s RODA model If it is more appropriate to define specific road maintenance costs for this project use the Operating amp Maintenance Cost definitions defined in the Parameters tab and specify the appropriate costs for the option in the Alt tab When using this option select Do Not Use for each road segment Maintenance Cost Category Age of Surface When using the road maintenance costs from the RODA model it is necessary to specify the age of the surface Enter the age of the surface for each segment of the Alternative P
202. fic period of analysis 1 The simple relationships shown here can become somewhat more complicated if the project contains items which can be handled in different ways when calculating the Benefit Cost ratio For example it makes no difference in the magnitude of the NPV whether maintenance costs are included with expenditures or whether their annual amounts are subtracted from benefits and in effect included with incomes Obviously the magnitude of the B C ratio would be different for those different treatments That is not the greatest example in the sense that maintenance costs might have only one rightful location and that would be on the expenditure side The treatment of land becoming free for other uses with an alternative but continuing to be used with the do nothing alternative might be more debatable Should it be a charge against doing nothing or should it be a benefit for the alternative When the B C ratio is equal to one rearranging input items as described here will not change that result Benefit COS nalysis Guide Said in another way if one somehow knew the internal rate of return and used that figure as the discount rate the Net Present Value would calculate to zero discounted incomes would add to the same amount as the sum of discounted expenditures Similarly if the B C ratio were calculated with that discount rate the ratio would be one regardless of how items might be sorted into incomes or expen
203. flation of 5 77 per year all costs will be 11 87 96 higher in two years time and if the above table were repeated for years three and four the two year EUAC would again turn out to the the lowest of the four however its amount would be 7100 00 The borrowing concept is consistent with the EUAC procedure with the two year 6347 00 annual payments coupled with the proceeds from the disposal of the vehicle being just sufficient to pay off a loan of 15 000 00 and meet the maintenance costs The question is whether it is best to pay 6347 00 in each of the next two years and pay 7100 00 in each of the following two years or would it be better to pay for example 6567 00 in each of the next four years Another possibility is to get on a three year cycle paying 6395 00 in each of the first three years and 7567 00 in the fourth year the first of the next three year cycle Perhaps the table stopped short of reaching the best longer range solution considering 43 all of the possible options This kind of a problem can be further tested by using a longer period as long a period for which there is confidence in the data and assumptions A 12 year analysis period would accommodate all options if it is assumed or if it is policy that vehicles will not be kept longer than four years All options having the same life would permit results to be expressed in terms of present worth Each option could then be simplified by neglec
204. flected in the change in the resulting user and social cost streams If an alternative reduces these costs that change can be considered the benefits of that alternative The Benefits are used to calculate the Benefit Cost Ratio The Net Benefits Non Investment Cost Savings in NPV calculation is as outlined below Net Benefits Non Investment Cost Savings in NPV Cumulative Other Costs Alt Scen Cumulative Other Costs Alt1 Scen1 Where Cumulative Costs are discounted at the selected discount rate gt Benefit Cost Ratio The Benefit Cost Ratio is equal to the Net Benefits Non Investment Cost Savings for an Alternative Scenario minus those for the base alternative defined as Alternative 1 Scenario 1 divided by the Investment Costs for the alternative minus those for the base alternative defined as Alternative 1 Scenario 1 The Benefit Cost Ratio calculation is as outlined below Net Benefits Non Investment Cost Savings in 12 Other Costs include all Non Investment Construction Rehabilitation Costs Operating amp Maintenance Costs Road User Costs and Emission Costs If the Cumulative Other Costs for an alternative are less than those for Alt1 Scen1 the benefits as measured by cost savings will be positive 44 Alternative 1 Scenario 1 the do minimum alternative does not have a Benefit Cost Ratio because the benefits defined for this model as cost savings cannot be calculated
205. ful way although determining mitigation costs may be possible Further non market elements related to the environment might be incorporated into the Department s benefit cost model in the future as analytical techniques evolve in the establishment of proxies for currently unmeasurable benefits and costs However the assignment of dollar values to environmental factors must be both reasonable and supportable to be acceptable to the Department In accordance with the GENERAL PROCEDURES ADOPTED WITHIN THE DEPARTMENT THE ASSIGNMENT OF DOLLAR VALUES SHALL BE RESTRICTED TO THOSE ITEMS IN WHICH THE VALUES SO ASSIGNED SHALL BE VIEWED WITH CONFIDENCE AS BEING REASONABLE AND SUPPORTABLE AND IN ACCORDANCE WITH ANOTHER ESTABLISHED PRINCIPLE THE ONUS OF PROOF LIES WITH THE ANALYST When considering inclusions in the future the principles of market value and the allocating of amounts based upon intrinsic worth should be the 17 Alberta Transportation and Utilities yardsticks of comparison and while the item may not have a market value with some imagination an equivalency might be established with another item which does have a value in the market place An example of enhanced land values resulting from improved access was cited and other projects may have the opposite effect which might also be valued indirectly Noise and its detrimental effects has no directly established market value however in the transportation industry the prob
206. g and the annual maintenance costs the B C ratio would become B C Ratio 25174 13 545 _ 14629 _ lt 9 361 0 9 361 This simple example illustrates one problem with benefit cost ratios the amount above or below the value of one may not be indicative of the degree of goodness or badness of competing alternatives A result higher than one simply indicates that the more expensive capital alternative is economic for the interest or discount rate used Conversely a result less than one means that the more expensive alternative is not economical at the interest rate used INTERNAL RATE OF RETURN Internal rate of return is defined as the interest or discount rate which equalizes discounted costs and benefits in other words the rate at which the present worth totals for different alternatives is equal One problem with this method is in the calculation Even for this simple example the mathematical equation is rather complex The equation in words is Present Worth of Renting Alternative PW of Purchasing Alternative 1 r 1 ri 1 rif 1 r l ideny t 799 q iy 6 240 12 000 3 000 where i interest or discount rate or internal rate of return ri real rate of return inflation free interest rate and i 5 1 05 i 5 Or ri m 1 0 trial and error solution may be easier than attempting to solve those equations To get a handle on an approximate in
207. ght Vehicles Medium Trucks and Heavy Trucks as follows nationally and regionally The Alberta rates are used in the model as follows Light Vehicles Gasoline 10 7 litres 100 km Alberta Rate 11 3 Light vehicles include cars station wagons vans SUVs pickup trucks and other vehicles straight trucks tractor trailers and buses Medium Trucks Gasoline 25 1 litres 100 km Medium trucks are defined as having a gross vehicle weight between 4 5 and 15 tonnes Light Vehicles Diesel 10 6 litres 100 km defined as above Medium Trucks Diesel 24 4 litres 100 km Alberta Rate 22 0 defined as above Heavy Trucks Diesel 33 4 litres 100 km Alberta Rate 33 1 Heavy trucks are defined as having a gross vehicle weight of 15 tonnes or more Fuel consumption for new passenger vehicles 2012 has been calculated for 83 vehicles using Natural Resources Canada s Fuel Consumption Ratings Of these 10 are hybrid vehicles and have a rated average fuel consumption of 4 93 litres 100 km The remaining new cars have a rated fuel consumption of 6 59 litres 100 km Taxes can be seen as a transfer from consumers to Government If they were to be included in the analysis the taxes would be doubly counted For this reason they must be subtracted from the total fuel cost http gasbuddy com Can Tax Info aspx 2009 Canadian Vehicle Survey Summary Report Natural Resources Canada Office of Energy Efficiency page 9 http oee r
208. h District Region and Branch who in turn would be available as a close contact for the analysts 9 The scope of these analyses should be restricted to including only first or direct costs and benefits Work requiring the considera tion of items such as secondary type of Benefit Cost Analysis Guide benefits distributional or regional effects the effects on labour or the redistribution of income are beyond the scope of benefit cost analysis as included in these recommenda tions 6 The Task Force considered several specific items which sometimes receive much debate and reached these conclusions A buck is a buck The objective of a benefit cost analysis is to compare the allocative benefits and costs which will result from an activity or the undertaking of a project Allocative benefits are favourable consequences resulting in opportunities to increase pro duction or consumption Allocative costs are production or consumption opportuni ties forgone because the resources used will not be available for some other activity or for some other project For the benefit cost analysis it matters not whether the Federal Government will contribute to a provincial project or whether the Province will contribute to a municipal project the resources to under take and maintain the work will be the same Market values and consumer prices should sometimes be adjusted On the theme of allocative benefits and costs an
209. he decisions about a subject have been made and will not be changed regardless of the results of an analysis The need for an analysis may be as simple as the boss wanting one Whether an analysis can be done or not will usually relate to input items and the ability to value them or the resources available to prepare the information required for valuation Most analysis will involve numerous input items and with some items at least available an analysis could be done it will simply not be as comprehensive as it would be if all items could be included The answer to the second question will therefore rarely be absolute instead it will be a matter of degree The results may be helpful even if there are large holes in the data that could be used if It were available Items which would normally be included but are not included in a particular study should be highlighted and clearly documented along with the results so the users of the results will know that those items are not represented in the results In Section 2 1 1 different levels of economic studies were mentioned and if the subject to be studied will materially affect other areas of the economy a benefit cost analysis will not be an appropriate type of review and a broader based econometric model should be used instead Giving thought initially to data needs and other re quirements for the study will pay dividends throughout the review in general scheduling and organization
210. hed against the other factors which cannot be expressed in dollars and cents Alberta Transportation and Utilities For capital works programming purposes an analy Sis will not have been done initially at least for all of the individual projects which are possible candidates for the program and in that case the application of this analytical process will be only partially helpful The individual projects which have been analyzed may be ranked one against another but that will not show how those projects stack up to all to all of the others which have not been studied The picture could be completed by undertaking an analysis for all of the individual projects however for a large pro gram the work involved will likely be prohibitive Over time with emphasis upon including an eco nomic analysis for each project as part of its develop ment package more and more projects will have been studied by the time that they are being consid ered for inclusion in an overall program The ranking of projects economically will then be more meaning ful and complete and with a large majority of the projects already done it may even be possible to do an analysis for the balance for the purpose of pro gram planning to make the economic picture com plete The Internal Rate of Return being included as one of the ways of expressing results makes these analysis well suited for programming purposes The return on investment is a common means of
211. herefore in effect also substitutes for a sensitivity analysis using dif ferent discount rates Furthermore many analyses must be taken over quite a long period of time because of the long life of the capital works and for projects involving a lump sum expenditure at the begin ning of the period followed by uniform annual benefits the long term rate of return will approach the rate of return received immedi ately For example if an expenditure of B enetit Cost Analysis Guide 1 000 00 yields a net benefit of 100 00 annually the return on the investment is 10 The internal rate of return calculated by the discounting method would be zero at year 10 5 at year 15 8 at year 21 9 at year 27 and 9 9 at year 50 When applicable this re lationship between immediate rate of return and longer term internal rate of return is good for estimating or checking purposes Benefit Cost ratios are really only meaningful for the years when the ratios change from being less than one to being greater than one and the calculation and inclusions of these ratios in the results should not be necessary because the internal rate of return data gives this information for a range of discount rates Long Analysis Periods The problems with long analysis periods be cause of an uncertain future are overcome if the methodology and presentation of results as recommended are acceptable Those re viewing and using this information c
212. hese components depends upon the perspective or point of view defined for the analysis For this benefit cost model the perspective is the social point of view for the Province of Alberta This social perspective should consider all relevant expenditures and costs for society s point of view limited to Alberta Inputted Values Shadow Prices In some instances the market does not provide values for some components that are relevant for this analysis In other cases the market value may not reflect the social value of these components from the perspective discussed above As a result where this is relevant there may need to be adjustments to the values used in the analysis In other instances where these values are not available from market information inputted values or shadow prices should be considered For example the travel time associated with passengers has no market value However studies have been conducted into the social value of travel time for passengers The most relevant of these estimates should be used in the analysis to quantify this component The most significant examples of factors that are currently used in the model include the costs for passenger travel time and emission costs The model provides default values that may be over written by the user where warranted Direct Expenditures and Costs The undertaking of new economic activities such as construction not only contribute to the growth in the economy thro
213. hey all refer to an item or portion of an item which will no longer be required for its original or past purpose but will have certain value in an alternate future use For analyses involving long periods 50 years salvage values can generally be ignored on the basis of being insignificant 93 Benefit Cost we Analysis Guide Alberta Transportation and Utilities Abbreviations and Acronyms General B C Benefit cost as used in Benefit Cost analyses B C Benefit cost as used in Benefit Cost ratio Cap Capital amount used on some figures Maint Maintenance used on some figures MARR Minimum Attractive Rate of Return Recap Resurfacing of a paved roadway Rehab Rehabilitation used on some figures Restr Restricted used in some tables RTAC Roads and Transport Association of Cananda RUC Road user costs SPCSP Large diameter culvert used in culvert example Benefic Cost Analysis Results B C ratio Benefit cost ratio EUAC Equivalent Uniform Annual Costs IRR Internal Rate of Return NPV Net Present Value or Net Present Worth Traffic Related Terms Average annual daily traffic PD Property damage PDO Property damage only Passenger vehicle Recreation vehicle SU Single axel truck TRTL Tractor trailer truck TRK also used in one example vehicle used in some examples lt lt lt t Interest Formulae A Annual amount as in a series of uniform annua
214. iations As outlined in Section 1 2 dealing with the committee process various areas within the Department have been undertaking these kinds of studies for a long time with specific applications to these subjects Equipment replacement analysis Computer and drafting needs studies Renting v s buying analysis High Load Corridor choices Increased Weights and Dimensions RTAC 1 5 5 yr plan Stage construction for pavements Rehab programming and system analysis Ferry replacement program Cattle passes Signalization of intersections Median width analysis Pavement v s Gravel needs Rehab of thin full depth pavements Sewer water and other utility studies Comparison of alternate road locations and designs 26 Alberta Transportation and Utilities It is common practice to prepare cost estimates and comparisons for virtually ail of the Department s activities ranging from administrative type of work to capital works projects and all of the various maintenance tasks The quantifying of benefits resulting from the activities is not done as a matter of routine and the analysis which have been done in the past have taken initiative on the part of the Branch or Section doing the work to collect and assemble the additional data which is required as inputs for a benefit cost anaysis For one reason or another it will not be possible nor necessary to apply this concept to all of the Department s activities however it coul
215. ient Road User Costs The Texas Curvature amp Gradient approach to calculating road user costs uses gradient and curvature costs assigned by vehicle type This approach uses factors that originated in part from data compiled by the Texas Research and Development Foundation in 1982 for the Federal Highway Administration For the Texas Curvature amp Gradient Alberta Transportation Benefit Cost Model these numbers were converted to 1988 Canadian dollars using Alberta consumer prices for items such as fuel oil tires depreciation etc From there further increases were applied to the numbers based on the Transportation Price Index from 1988 to 2012 These 2012 factors are used in the new version of the model The calculations associated with the Texas Curvature amp Gradient approach to estimating road user costs are completed in the tabs The data used to perform these calculations updated to 2012 is in the tab as follows 2 Gradient Costs RUC Alt1 beginning at A294 Curvature Costs RUC Alt1 beginning at AY Estimation of Costs of Heavy Vehicle Use per Vehicle Kilometre in Canada Transport Canada T80808 05 0326 by Barton amp Associates in association with Logistics Solution Builders Inc December 2006 page 27 Benefit Cost Analysis Vehicle Running Costs Alberta Transportation amp Utilities Traffic Engineering Branch January 1989 The calculations used for the other
216. igures would be a 500 loan assuming gold has a present value of 500 per oz and Ist year s payment 0 271175 x 500 x 105 142 37 2nd year s payment x x 1 05 149 49 3rd year s payment x x 1 05 156 96 4th year s payment S x x 1 05 16481 If the formula interest rate real rate of return 1 inf rate inf rate works one would expect the above four payments to have a present worth of 500 if discounted at the rate of 3 1 3 1 0 05 5 8 1 2 142 37 1 085 131 22 149 48 1 085 126 98 156 95 1 085 122 88 164 81 1 085 118 92 Total 500 00 A FURTHER STEP A FURTHER APPLICATION Assume that the quantity of an item is increasing at the rate of 2 per year and inflation is 5 per annum The cost or benefit of this item is increasing in two ways the unit price is inflating and the number of units is increasing Each year the value of this item increases by 1 02 x 1 05 or 1 071 or 7 1 Its future value may be discounted in one step by determining the REAL rate of increase and discounting at that rate That rate in this case is not the REAL Rate of Return because the future which will be used 7 1 is not the inflation rate however for the purpose of calculation it can be used a manner similar to the inflation rate in the last example Again using 8 5 as the discount rate the 85 71 2 130719 1 071 real rate of increase
217. ilities The Task Force concluded that decisions should be made about what factors will be included in all analysis and that separate fig ures and graphs for various combinations of inclusions should not be necessary Accumulated net present values discounted at 4 should be included in tabular form as well as shown graphically for all years of the analy sis period Further separate accumulated present values for capital and maintenance expenditures is useful information for officials in this Department because of the direct re sponsibility which this Department has for the management of funds for these purposes Internal rate of return data should be included for all years for which it is positive This information is useful in several ways because of these inherent relationships The year in which the internal rate of return IS zero corresponds to the year when the accumulated array of undiscounted cash flows totals zero or turns from negative to positive In other words the future amounts are dis counted at a zero rate of interest The year in which the internal rate of return is equal to the real rate of return 4 in these examples corresponds to the year when the accumulated discounted net present values equal zero and when the benefit cost ratio changes from being less than one to being greater than one The latter applies to any discount rate which might be assumed and the internal rate of return information t
218. ill be reached only after several intermediate steps with the figures obtained in one calulation being used again in a later step which may be taken several pages later In order to help track the steps and determine where figures originate all results which will be used again as input into another calculation will be enclosed in a box Some steps will produce more than one result and sometimes for illustrative purposes those results will be added or subtracted as a final part of that step Often the sum or difference will not be used again whereas the figures making up that total will be used later The boxes will be particularly helpful in keeping the data straight in those cases Most of the calculated figures in this section Preliminary Calculations will be used and no boxes will be used in this section Annual traffic 365 25 x 7 000 2 556 750 vehicles per year TRK units 8 By class 204 540 SUs 6 153 405 Busses 1 25 567 Autos business 10 255 675 Autos amp R Vs 75 1 917 562 Total 2 556 749 checks Unit Operating Costs taken and interpolated from tables produced by Systems Planning 1988 operating costs per 1 000 km Km hr gt 50 70 80 88 95 100 103 111 TRKs 243 9 254 4 262 0 267 6 273 3 277 6 282 4 N A 103 costs others 38 5 28 0 20 4 14 8 9 1 4 8 SUs amp Busses 311 4 282 1 280 3 285 8 294 9 302 7 309 9 N A 103 costs others 1 5 27 8 29 6 24 1 15 0 7 2 Autos amp R Vs 95 6 91
219. iming for future events would also have to be assumed Further road user costs would have to include the incremental costs for collisions However all of that will be neglected as the objective of this example is to concentrate upon operational and time costs associated with variations in running speeds Further flat grades and curves will be assumed requiring no adjusments in the operational costs for those items Traffic Rural Sections 7 000 AADT with this breakdown in classification and occupancy 8 Tractor Trailer trucks 1 2 persons unit 6 Single Axel trucks 1 2 persons unit 1 Busses 1 driver and twenty passengers unit 10 Autos business 1 5 persons unit 75 Autos and R Vs 2 5 persons unit 76 Benetii Cos we Analysis Guide Alberta Transportation and Utilities The Three Alternatives IH Hii mmn WOO M ux m sees gt Fa oe 14444544444 4 4 LA Do Nothing Alternative Leave 10 2 km section as a two lane highway when rural sections are divided dood on ae t d gt URBAN 2 4 gt Sort epret tetepe Widening Alternative Twin a further 7 km of highway to the urban limits gt ent TI amp 6 ee gt 27 gt ote 2 10 2 km Sup um Redi A
220. in society for the full period up to death For analyses in the Department it has been decided that Family Community and Market losses shall be included and for example using the above figures the average cost per collision of 66 120 would be used ln accordance with the caveat heading this section these costs must be updated periodically and new figures for 1990 are included in the User Manual Land Values Although agricultural land was singled out as an item which should be reviewed and considered for imputed values in the future the subject should be treated more liberally with land and any of its uses being subject to shadow pricing Market prices for land can fluctuate greatly depending upon the general state of the economy or expectations on a more localized basis and its true value as a resource cannot change in those degrees The price actually paid for right of way or the estimate of what may be a fair price to pay to an owner under a specific set of circumstances may require adjustment to better represent its value as a resource One test for the value of land follows a general principle for determining values and that is to Alberta Transportation and Ultilities consider alternate usage If the land were required for a public works what would its value be in the highest and best alternate use The highest and best use would of course be based upon a use which would meet all approvals and could actually b
221. incre mental values between two competing alternatives are included in both this guide and in the Summary and the example dealing with culverts section 8 considers the incremental differences be tween three competing alternatives 2 1 3 Procedure to Measure Economic Efficiency A project meets the criteria of economic efficiency when the total benefits over the life of the project exceed the total costs Given that the occurrence of costs and benefits follows different patterns over the life of a project the majority of costs are incurred initially during the construction phase of the project while benefits arise later as the project becomes operational and the fact that a dollar today has greater value than a dollar in the future the streams of costs and benefits must be discounted to a comparable basis in order to enable a meaningful comparison The present value of the future streams of costs and benefits is calculated by applying the appropriate social discount rate to the project costs and benefits recognizing the time value of money A project can be deemed efficient when the present value of the net benefits benefits minus costs is positive or the ratio of benefits to costs exceeds one or the rate of return is higher than the acceptable minimum This is usually referred to as the Minimum Attractive Rate of Return M A R R and is typically the rate which is used for discounting purposes By and large the entire conte
222. intenance Cost Categories by Surface Type Scheduled Maintenance section provided below Collision Rates by Collision Severity Default Value Change The default values for the collision rate and distribution of collisions by collision severity from the Parameters tab can be modified for the Alternative by entering the desired value in the Project Specific Values field This updated value is then reflected in the modified Values Used in the Model portion of the table Collision rates from 2012 are available for various road types at varying levels of AADT and can be obtained from the charts in Appendix 2 and may be entered as Project Specific Values If the charts do not contain data that applies to the situation the default values may be used Rural Collision Rates by Type of Collision Project Specific Values Values Used in the Model Collision Fatal Injury Property Collision Fatal Injury Collision Fata Ait Surface Type Road Type ese Rate Collisions Collisions Damage Only Rate Collisions Collisions Only Rate Collisions Gravel 2 Lane gravel i 136 630 0 56 14 80 84 50 f 136 630 0 56 Paved 2Lane paved SSS 17550 1 05 11 70 ea Te 117 330 05 Paved 14 Un Undiv 78 580 000 0 00 10 00 78 580 000 I ee Min vd agag j pea 47 dan 53 00 E a eee Se one t iPaved ma 4 i4 Ln Div Not Grd PE 4 54 590 0 40 197 70 81 8 hdi
223. iod of Analysis This factor presents a dilemma in that accurate projections for traffic volumes and the price of things over long periods of time are not possible On the other hand the benefits for some projects will be severely down played if all calculations are cut off at periods of 10 15 or 20 years in the future which some will say is even too long Introducing salvage values at the end of any given period will help however those who take the position that there may be no traffic in 20 years time should to be consistent insist that the salvage value be zero What is the going price for a roadway which has no users There is no right or wrong answer perhaps the important point is that the people who will use the results of such work to aid in making decisions have 24 confidence in the inputs and consequently the resuits Are the assumptions believable Will the need and demand for roadways diminish or is it more likely that there will be at least as much demand in 20 30 or 50 years time as there is today Might it be slightly higher than it is today Backing into this question if one believes that the population of Alberta will be at least as great 50 years hence as it is today and further believes that the human race will continue to like mobility and that the most efficient means of travel for individuals or small groups is a vehicle with at least one wheel travelling on a smooth surface one may have some confidenc
224. ion of Results While the graphs used for long term projects provide a pictorial summary of the results of the analysis the following types of information and data should also be included to provide the reviewer with knowledge about the major inputs and some insight into the significance of the various factors 1 Brief description of the project including in the case of highway work lengths between common points of each alternative tested 2 The year to which all costs and benefits apply in the case of using constant dollars through out If current dollars are used the base year should be specified and a description of how future dollars vary from that base year 3 Capital costs of major components and year of expenditures 44 4 Annual maintenance costs 5 Value percentage breakdown ol components included in the benefits 6 Notes describing any unusual input and expla nation of how any of the components change in volume over time In the example data sheet on the next page the above information is shown in the boxes at the top of the page and a test of the completeness of that data is whether it is sufficient to provide all of the input required for the arrays of figures included in the accompanying table The table should include for each alternative tested arrays of expenditures and benefits for each year over the entire analysis period and the figures or at least the base or beginning figure
225. is a systematic approach to evaluation and assessment and for projects or pro grams undertaken by governments it compares the benefits which will accrue to society from public funds being expended in the provision of a works or a service More specifically benefit cost analysis compares the stream of quantifiable benefits generated over the life of a project or program to the cost of initiation and subsequent maintenance A project is deemed to be economically feasible when the total benefits exceed the total costs or when a satisfactory return is received on the investment A benefit cost analysis deals in dollars and all resources consumed or saved which are used as inputs must be given a dollar value While ideally the purpose and objective of undertaking these analyses is to provide guidance about the efficient allocation of all resources the procedure has no provision for incorporating non dollar factors and the value for anything which cannot be described in dollars must be noted and considered separately along with all of the other non economic factors which will bear upon decisions The more items that the decision maker is comfort able in valuing in dollars the fewer the number of items left for consideration in some other way Through a committee process which will be described in the next section the Department of Transportation and Utilities has gone a long way towards including items which are difficult to value
226. is equal to the Benefits non Construction cost and Rehabilitation cost or cost savings of the selected alternative as divided by the costs of Alternative 1 Scenario 1 Benefit Cost Analysis Vehicle Running Costs Alberta Transportation amp Utilities Traffic Engineering Branch January 1989 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Limitations of the Model The Project Benefit Cost Model has the following known limitations that should be understood by the analyst There are limited benefit cost analysis indicators for Alternative 1 the Status Quo or do minimum alternative as most indicators require the estimation of benefits Benefits are the savings in costs determined by comparing the net present value of costs for one alternative scenario against Alternative 1 Scenario 1 The benefit cost analysis indicators available for Alternative 1 Scenario 1 are Net Present Value and Investment Costs NPV For example a low volume road that meets the requirement for grade widening and Alternative 1 is no widening with zero cost and zero benefits As with all models the quality of the analysis and results will depend on the quality of the information used to conduct the analysis gt The model is limited to evaluating individual projects and not the infrastructure system For bridge projects the 80 year time frame for analysis is limiting considering the expected lif
227. km per year 1988 12 553 010 Assumed 80 Pleasure 10 042 408 x 1 8 veh 18 076 334 Assumed 20 Business 2 510 602 x 1 2 veh 3 012 722 PLEASURE 18 076 334 People time travelling 85 km hr 85 212 663 hrs 100 km hr E 180 763 hrs Time Saving 31 900 hrs 5 00 hr 159 500 yr 1988 BUSINESS People time travelling 85 km hr 2912022 35 444 hrs 100 km hr p m 30 127 hrs Time Saving 5 317 hrs 12 00 hr 63 804 yr TRUCKS ALL CLASSES Total Veh km 3 130 340 4 2 325 480 5 455 820 x 1 2 veh 6 546 984 driver kms NOTE Error in this procedure Drivers time 2 85 km hr 5 316 984 77 023 man hours yr is described in 100 km hr Ed 65 470 man hours yr the footnote TIME SAVING 11 553 hrs yr 23 00 hr 265 719 TOTAL ALL CATEGORIES 159 500 Passenger Pleasure 63 804 Passenger Business 265 719 Truck TOTAL 489 023 1988 Rough Check Time to travel 1 km 85 km hr 0 011765 hrs Cost PV 0 8 x 1 8 x 5 00 7 20 100 km hr 0 010000 hrs 0 2 x 1 2 x 12 00 2 88 Diff 0 001765 hrs TOTAL 10 08 P V 12 553 010 x 0 001765 x 10 08 223 333 Trucks 5 455 820 x 0 001765 x 23 00 x 1 2 265 775 TOTAL 489 108 checks 1 This figure should be broken into two categories driver kms yr 5 455 823 and helper kms yr 1 091 164 The helper s time should then be valued at 12 00 per hour and the final figure w
228. l amounts CA Compound amount factor CR Capital recovery factor F Future amount i interest rate n number of periods P Present amount PW Present worth factor SCA Compound amount factor for a series SF Sinking fund factor SPW Present worth factor for a series 94 Benefit Cos wm Analysis Guide Appendix Alberta Transportation and Utilities Appendix A Lists of Committee Members Benefit Cost Analysis Guide Appendix Alberta Transportation and Utilities G A Berdahl N Boyd D J Bussard L Charach Duncan J Glowach R R Hogg K E Howery R L James B W Kathol D R McTavish C Procuik H Wilson M Znak TASK FORCE MEMBERS TITLES AT TIME WHEN TASK FORCE WAS MEETING Executive Director Engineering Executive Director Bridge Engineering Regional Director Region 3 Director Planning amp Analysis Branch Executive Director Corporate Planning Services Executive Director Regional Transportation Director Safety Branch Executive Director Operational Planning Executive Director Financial Services Regional Director Region 2 Director Information Services Executive Director Motor Transport Branch Executive Director Equipment Branch Director Municipal Utilities Branch BENEFIT COST GUIDELINES GROUP Grant Bridgeman Ken Dmytryshyn Ken Holmes Ken Howery Darius Kanga Peter Kilburn Allan Lo w CHAIRPERSONS
229. l be analyzed by different sections with results obtained for the 7 0 km section and the 3 2 km section separately before adding the two This procedure has the added advantage of illustrating more clearly how each could be handled independently if one did not flow into the other More specifically these steps and procedures will be followed The 7 0 km Rural Section 1 The operation and time costs will be calculated for increasing the speed for traffic slowed on this section 20 of the traffic which is held up on the long two lane sections to 103 km hr That difference in user costs will apply to either widening the existing highway or constructing a new route 2 The difference in user costs for operating at 111 km hr rather than at 103 km hr for all auto and R V traffic except that which is now impeding traffic will be determined 100 of such costs will apply to the widening alternative and 70 will apply to the new route alternative 3 The costs for added time for tractor trailer TRK units due to their slower acceleration from 50 km hr to 103 km hr will be included as an advantage for the new route alternative 70 96 of number applies 4 Excess cost for decel and accel will not be included with these steps but will instead all be included in the calculations for the 3 2 km urban section The 3 2 km Urban Section Used for the new route alternative only 1 The difference in costs for 70 of the total traffic will b
230. lar terms 3 3 Roadway Projects This application to general roadway type of projects is included as only one item in the list of present applications however a large part of the Depart ment s total application of this concept has related to the comparison of highway and roadway alternatives and the comparison of different designs for a specific section of roadway These applications date back to the sixties and early seventies when Robley Winfrey a Consulting High way Engineer from Arlington Virginia was commis sioned to lead a seminar on the subject which a number of Department staff attended While these kinds of applications are judged to have monopolized the Department s total efforts this application has been spotty with only a small percentage of the total number of projects including an economic section in their covering report Including an economic analysis as part of a project s review package has been limited to those in which the economics of the case seemed particularly important The application to general roadway types of projects continued to take a dominant position in the commit tee meetings in the late eighties possibly partly because of the historical significance but likely also because it is by and large the most complex and interesting of all the suggested applications Further roadway projects require numerous inputs and a lot of effort at that time was devoted to developing a better system of collecti
231. le rir u a tte rr T Toe 8 Ent raq Ini no u u u ue lai dean Mato PETRI FPIPDU NC MatuberpI a dM Metu MAE auia UDINE 8 tS oc IEEE PURA MEMINI 9 Section 3 How to Complete an Analysis 10 FProparnng 10r an ANANS IE PEPTIDE UTE 10 BS 206 gro TO EL E I E E 10 Vehicle Running Costs Choosing 10 Po u MT TM cM R 11 mile c E Li l luu 11 I HO yids 11 Vehicle Occupancy amp Unit Costs for Time Default Value 12 Vehicle Operating Costs Default Value 12 UL EE E 12 issus ce meT X 12 Si IE uu u uuu lu uuu asas PULO TAKE Ju Ou PODER UE a eaan 13 L IG T U u 13 uu uu mere uuu yu z mw CREE 13 eir NENNT Umm 13 Operating amp Maintenance u L U s 14 Collision Rates by Collision Severity Default Value 15 Collision
232. ledge which the analyst or others supplying input data must sometimes have about the subject at hand in order to determine values which will produce meaningful results Further as indicated at the end of this example more work on this subject remains to be done and such a conclusion is common in the real world where things are complicated and rarely will the analyst feel that the best possible results have been produced There will usually be room for improvement and refinement in the determination of values or the processing of them 8 2 4 Speed Change Example Like the Highway 88 Project this example involves working with numerous factors and divisions of traffic and again being done manually incremental values are used for most of the items Being a hypothetical example little significance should be given to the relative values of results from the different areas except in a very general way the Same might be said about results produced from actual data Nonetheless the assumptions should be sufficiently close to reality to permit these general observations to be made and to be expected from an analysis of this nature Results running counter to these themes or deviating greatly from the proportions given may not be wrong but should be treated as Suspect and specifically checked 53 Alberta Transportation and Utilities e As operating speeds are held down or forced down within the range of 50 to 110 km hr oper
233. lems associated with noise from a highway or an airport might be established on the basis of the market value of affected properties compared with the market value of equivalent properties equivalent in all ways other than having a noise problem A value so assigned to noise would be an allocative cost to the roadway or airport Consumer Surplus Another circumstance which requires special treatment is when the project or works will change the price or cost of a product or a service and that change results in an increase or decrease in the demand for that product or service Although stated to cover all circumstances in both the negative and the positive the normal situation will involve an expenditure to make an improvement and as a result of the improvement more people will take advantage of whatever has been improved If a new or improved highway or street reduces the cost of travel between two points and more trips are made between the points as a result of the lower cost the benefits attributed to the additional trips should be treated differently than the benefits calculated for those simply continuing to make the same number of trips Assume initially that the reduced travel cost does not change the total travel picture the benefit to the users would then be the cost saving per trip multiplied by the number of trips That situation needs no further explanation however to set the stage for considering the additional trips the t
234. ll not be as great as it would be if the volume was spread uniformly over the 70 to 100 range In fact the average running speed for the 82 900 vehicles is calculated to be 93 km hour and 2 The assumed speeds for these R Vs are in a more efficient speed range and the negative part of the results are proportionately smaller for these ranges than for the 111 km hr speed For the 1 834 662 volume group negative costs are 197 000 more than 1 3 of the 538 700 benefits For the 82 900 volume the increase in operational costs are only 3 900 for comparable benefits of 18 100 a ratio between 1 in 4 and 1 in 5 The heavier traffic volumes concentrated near the higher speed end of the 70 to 100 km hr range for the slower moving traffic also lends credibility to the average running speed given as 103 km hr This part of the traffic with an average speed of 93 km hr and being an assumed 10 of all traffic would mean that the balance of the traffic would have to average only slightly more than 103 km hr approximately 104 km hr to give that overall average That comment raises another analytical point ifthe 70 to 100 volume portion of the traffic for the 7 246 hour portion of the year is to be treated separately should one then use an average speed of 104 km hr e g a 7 km hr difference from 111 km hr when dealing with the balance of the traffic These comments and observations are getting progressively more picky a
235. m Kad ass BU ESE SEL Si GE Su SSK WE E A BES E ESE d rpg WB TER DES GSE ESE SSE ESE BS I TT Li TT IEEE EER EER SR SAL PSS Lan SSE SSS LL EER ESE EE SSS SEA ESE IEE Figure 5 3 Graphs Showing NPV IRR and Incremental Values 39 Benefit Cost nalysis Guide In that example an annual benefit of 300 000 increasing with inflation and resulting from an investment of 2 7 million yields a REAL return of 11 1 in perpetuity If benefits stop after 50 years and there is no return of capital no salvage value in the case of a capital works the REAL return is ap
236. m 5 to 8 5 m 8 5 to 9 5 9 5 to 10 5 10 5 to 11 5 m 1 5 m E lt gt c 9 E e im cc c E 4 Lane Divided at Grade Rural Collision Rates PET TTT TTT TTT TT TE TE EET EE TE EBEN DENE EBEN Collision Rate per 100 million vehicle kms 5000 10000 15000 20000 25000 30000 35000 40000 45000 AADT Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Divided Highway Not at Grade Freeway Rural Collision Rates Collision Rate per 100 million vehicle kms HLLEEEEEEEEEEEEEEEETEEEEEEEEEEE ELT T SELLE EEE EEE EEE EEE LELELEEEEEEEEEEEEEEEEIBEEEEEEEELL T ii I 10000 15000 20000 25000 30000 35000 40000 45000 AADT L E s E s E s ES s E s E E ES qs _ E ma s ER s au s s Collision Rate per 100 million vehicle kms 10000 20000 30000 40000 50000 60000 70000 80000 90000 AADT Alberta Transportatio
237. m or passenger km 9 While the cost per tonne km or passenger km is similar to the converted CalTrans estimate for trucks it is noted that the units are not an exact match The Barton amp Associates figure has been updated to 2014 using the CPI inflation index yielding a final value of 0 0244 km Fuel Cost litre California Fuel amp Non Fuel Vehicle Operating Cost Calculation gt Gasoline Fuel costs have been sourced from AlbertaGasPrices com which provides a compendium of gas prices across Alberta The current average cost of gasoline is 1 15 per litre and it has average approximately 1 15 per litre in 2014 January to April gt Diesel Using the same source current diesel prices have been tracking above gasoline prices by about 10 per litre As a result fuel costs for vehicles types that primarily use diesel have been updated to 1 25 per litre Calibration to Department Rate The vehicle operating costs for the California Fuel and Non Fuel approach have been calibrated to the Department s vehicle operating cost pay rate of 0 505 km Alberta Transportation s Finance Director has advised that the rate is established by the Treasury Board and Finance and that the factors that went into obtaining the rate include fuel maintenance insurance and amortization cost 52 California Life Cycle Benefit Cost Analysis Model Cal B C Version 4 0 February 2009 93 Estimation of Costs of Heavy Vehicle Use per Vehicle Kilomet
238. me to determine manually involving a trial and error process Examples of manual calculations are included in the Math section of the Appendix Fortunately Lotus has an interest package which will calculate internal rate of return and being easy to obtain in this manner rates for each year over the entire analysis period should be calculated A graphical plot for the years in which this rate is positive is a very useful and descriptive tool Viewing the graph on Page 36 reveals that the internal rate of return becomes positive at year 2005 increases rapidly until the rehabilitation expenditure is entered at year 2010 then recovers rapidly for a few years and gradually flattens to become almost static between 2035 and 2040 With relatively uniform or uniformly changing costs and benefits over the life of the project the plot of internal rates of interest takes on a shape somewhat like a parabola with a horizontal axis In this case the typical shape is interupted with the large rehabilitation entries nonetheless the basic form is obvious Two points on that graph can be readily calculated determined or checked The zero rate of return will occur at the year when the arithmetic sum of undiscounted costs and benefits equal zero and The internal rate of return will be 4 at the time when the NET PRESENT VALUE is zero 1 Anyitem not following general inflationary trends must be brought back to the base year by discounting at the r
239. ment Equipment and supplies inventory Width of subgrades Pavement v s dust abatement v s gravel Paved shoulders v s gravel shoulders Twinning v s passing lanes higher volume roads Passing lanes on low volume roads Channelization of intersections Interchanges priority New facilities priority By passes selection of materials for bridges steel v s concrete Alternate types of structures Bridge deck type comparisons Bridge repair v s replacement Rehab staging 8 to 10 yrs v s 16 to 20 yrs Illumination benefits Pipeline installation and subsequent crossing alternatives Guard Rail and Guide Posts v s alternate designs Quality of signs 3 yrs v s 10 yrs Rate of regravelling quantity v s time until next cycle Mowing benefits difficult to quantify Gravel inventory Gravel stockpiling v s crushing and hauling directly from pit Advanced land purchases New innovations in surveying total station concept and electronic field book Public information campaigns Staff courses benefits difficult to quantify Encourage local taxing authorities to do equivalent studies on equivalent works The theme within the Department is to apply this concept of analysis on as broad and as consistent basis as possible and future applications should not be restricted to these lists but should instead Cover all work and projects for which good information is 27 available to express both benefits and costs in dol
240. ments that can be defined for the project for very complex projects it may be necessary to combine components that have common features such as gradient and curvature 32 Note that the threshold for reporting Property Damage Only PDO collisions increased from 1 000 to 2 000 on January 1 2011 15 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Where components of a project are combined it will be important to also combine other relevant information such as length and traffic volume Another important consideration is to combine only components of a project into segments that share common features such as surface type or traffic direction mer far cat Bing Segrvery Chio Curvature Base Yea Traffic Average Scheduled Surface Traffic Curvature Super Traffic Growth Traffic Running Maintenance Age of Segment Name _ Length km Type Road Type Gradient Direction Radius m Elevation AADT Type Growth Rate Design Speed Speed Cost Category Surface Seg 1 5 Paved 2 tane 3 2 Way 0 1 000 7 Linear 3 0 100 110 Paved Base 1 a UNE Fed Tum pese _ 0 1960 30 10 1 Seg 3 0 5 Paved 2 Lane paves 3 2 Way 0 1 000 Lingar 3 0 100 110 Pavec Base 1 Paved 2 _ wS Linear E HOT Linear v Do Not Use L do Not use Linger
241. meters by vehicle type and road surface type be edited AY42 BA47 11 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Vehicle Occupancy amp Unit Costs for Time Default Value Change The default values for vehicle occupancy and the unit values from the Parameters tab can be modified for the project by entering the desired value in the Project Specific Values field This updated value is then reflected the Values Used in the Model portion of the table Vehicle Occupancy amp Unit Costs for Time Default Values Project Specific Values Values Used in the Model Work Bus Work Bus Work Bus Occupancy hr Other hr Occupancy Shr Other hr hr S hr Vehicle 4 Passenger I 32500 ee eee eee MIS 1250 Vehicle 2 RV i7 232500 5 1250 3000 e 1250 Vahicia 3 Bus 35600 1000 T ti 4559 Vehicle 4 Single Unit Truck 17 5 25 00 5 12 50 F gt m E 17 s 2500 2 50 Vehicle 5 Semi Traller Combo 10 2600 went 72 See 107 2600 8 1250 Vehicle 6 Hybrid Passenger 2800 5 i250 3 17748 25 00 4 12 50 Elan Pxssenge 73 sos nak p pen 187 ADAE amp rg Fie z cem imm EIN i ow shi Lu UNE NER romae es 208 ehicle 1 FS 44 zr DELL F E Values Irem Parameters tab enter Project specific values
242. mine the possible deviation in the total sum or the resulting difference 12 2 10 1 22 3 Percentages cannot be used in calculating the devia tion in sums or differences however in the case of additions one assumption can be made the per centage error in the total cannot be greater than the largest percentage error of the individual items making up the total That cannot be said about differences which is obvi ous when the above example of an addition is changed to one of differences 12 2 10 1 In the case of differences small deviations in the individual items can produce deviations larger than the result as that example illustrates These methods of determining the influence which a deviation or possible error in input items may have on results will have limited application to the analyst partly because better methods are available to those doing the analysis In complicated studies particu larly it will usually be easier to simply change values and run the whole program and get accurate results compared to tracing the approximate influence of an item through the system However with some practice and coupled with other tricks of the trade such as the Rule of 72 many things that appear rather complicated can be calcu lated or checked mentally 1 In compound interest calculations the interest rate divided into 72 gives the number of periods years in these analyses it takes for the fa
243. ming the entire 2 2 M benefit occurs at the end of the eighth year and the works have no value thereafter What is the internal rate of return after 16 years again assuming that the entire benefits for each 8 year period occur at the end of those periods and that the works have no value after 16 years C 4 Benefit Cost we Analysis Guide Appendix Alberta Transportation and Utilities 3 Assuming an inflation rate of 696 what discount rates would correspond to the real rate of return calculated in both Questions 1 amp 2 4 The real interest rate has averaged 4 96 over the long term What Prime interest rate would approximately correspond to an inflation rate of 6 5 does the real rate of return in Questions 1 and 2 compare with the real interest rate b How do the discount rates calculated in Question 3 compare to the Prime interest rate assuming inflation of 6 15 this investment good if the works are not required after 8 years Is it good if it lasts at least 16 years C 5 Benefit Cost w Analysis Guide Appendix Alberta Transportation and Utilities 6 Assuming your boss has little confidence in this project being useful beyond 8 years and in an attempt to make it more attractive you obtain an iron clad offer in the market place to purchase the works for 1 M 8 years hence providing it is no longer required for public purposes It therefore has a Salvage or residual value
244. n 1998 amp 1999 Just before 1999 Why does the year or time that the net accumulated present worth equals zero correspond to the year when the internal rate of return is 4 96 The NET accumulated present worth is equal to zero when the benefits discounted at 4 equal the expenditure s discounted at 4 which is the same procedure as used or calculating the internal rate of return If a benefit cost ratio were calculated to include benefits to the year 1999 what would you expect that ratio to be Slightly more than one When would the benefit cost ratio be 1 discounting all future values by 4 When the internal rate of return 4 between 1998 amp 1999 If all future values were discounted at the rate of 1096 at what year approximately would this ratio be 1 2003 where 1 RR from graph 10 90 With built in inflation future benefits are inflating each year in this example what is the real rate of return for this project in the long term when the internal rate of return is over 13 Over 13 real rate of return same as internal rate of return with built in inflation Assuming an inflation rate of 696 in the future at what interest rate would the internal rate of retum level off at in the long term if inflated dollars were used in the calculating for all future values Over 19 over 13 96 6 C 19 Benefit Cost w Analysis Guide Appendix Alberta Transportation and Utilities Questions Re Rate
245. n Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Undivided Highway Urban Collision Rates Collision Rate per 100 million vehicle kms 10000 12000 N e O e e Un E 9 lt gt c 9 E e im cc c 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 AADT Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Appendix 3 Benefit Cost Analysis Guide ATU 1991 Alberta Transportation Project Benefit Cost Model User Guide ATBCmodelV1y xlsx Appendix 3 Benefit Cost Analysis Guide ATU 1991 Benefit COS T wem Analysis Guide Alberta Transportation and Utilities Benefit Cost Analysis Guide Prepared by K E Howery P Eng Consulting Engineer and Applications Management Consulting Ltd Benefit Cost wm Analysis Guide Alberta Transportation and Utilities In 1991 Alberta Transportation and Utilities commissioned the documentation of its Benefit Cost analysis and it was produced in three parts The Summary The Guide and The User Manual This is the Guide which is the central part of the package that includes the most extensive coverage of the principles and general procedures to be followed when undertaking these kinds of analysis The Summary briefly describes the main points made in the Guide and its purpose is to provide a general understan
246. nages as well as for a host of other societal needs means that its value as a resource depends upon the location of its use or anticipated need A higher value in an area where it is still available but will soon be depleted will encourage even economically the use of alternate products for those activities in which a choice is possible and preserve the aggregates for those in which substitute products cannot be used Benefit Cost wee Analysis Guide The determination of an appropriate shadow price may be as simple as calculating the cost of imported gravel gravel hauled from a location where an equivalent quality of the product is plentiful different qualities are involved an adjustment in that regard would be in addition to the cost of loading and transporting Other items While those were the only items which were discussed in any degree of detail in the committee process in the late eighties there may be other items and circumstances for which and in which shadow prices might be considered A project may give rise to benefits and costs which cannot be quantified in any way and can only be reported in a qualitative manner In particular there is very little information provided indirectly by the market to establish credible proxy values for some environmental factors For example the benefits of modifying the design of a project to preserve a scenic site with aesthetic attributes cannot be quantified in a meaning
247. ncan gc ca publications statistics cvsO9 index cfm Ibid page 23 70 Ibid page 19 Ibid page 31 72 Ibid page 20 7 Ibid page 31 Ibid page 21 Natural Resources Canada Fuel Consumption Ratings http oee nrcan gc ca cars light trucks buying fuel comsumption guide fuel consumption ratings 1 77 7 1 68 34 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Because the current fleet of light vehicles as defined by Natural Resources Canada is about half cars and station wagons and half vans SUVs and pickup trucks and about only 2096 of these vehicles are less than 3 years old the average fuel consumption for passenger vehicles can be expected to lie between 6 6 as calculated for new non hybrid vehicles and 10 7 as reported by NRCan Without access to the raw data to be able to estimate the actual value the mid point of these two estimates is currently reported for non hybrid passenger vehicles 8 5 litres 100 km Other alternative sources of fuel efficiency were also reviewed Examples of these include the following Using Natural Resources Canada s Fuel Consumption Ratings for new pickup trucks 2012 yielded an average of 9 61 litres 100 km This is very close to the average report for light vehicles 2009 Fuel consumption for intercity buses is reported by Barton amp Associates to be 37 5 litres 100 km Road User Gradient Factor Categories Texas Curvature amp Grad
248. nd Utilities Eight page document dealing with interest rates September 1986 Cost Benefit Analysis Guide Alberta Transportation and Utilities will not change values as will all of the rest The reason that an item will change value differently does not matter it may be an inflationary aberration or it may be for an entirely different reason the analytical treatment will be the same The present value of the item or items must be adjusted such that if it they will change values at the same rate as all of the rest it will end with the value that is known or assumed For example assume that an item with a present value of 100 000 will when it comes onstream in 20 years time have a value of 200 000 in dollars of that day current dollars Further assume that all other involved items will be inflating at the rate of 6 per annum meaning that this 100 000 item would have a future value of 320 714 if it was to behave normally To be entered as a constant dollar item its present value must be adjusted such that if it did increase in value at the rate of 6 per annum its value 20 years hence would be 200 000 The adjusted present value can be calculated by proportioning and using figures already developed 100 000 x 200 000 320 714 or 200 000 can simply be discounted at the inflation rate of 6 per year for 20 years Either way the present value which would be used would be 62 361 2 5 Per
249. nd might likely be forgotten on the basis that one is thinking in more precise terms than the accuracy of the original assumptions warrant Perhaps the new speed will be 112 instead of 111 for example It is however an interesting point from a theoretical perspective Also considered along the same theme is a question which may be raised about the assumption that the impeding trafic and slower moving traffic in the balance of the year also will travel at the same speed after twinning as driven on the two lane two way highway It might be just as reasonable to assume that it will on average increase speed also not as much as the balance perhaps but some How sophisticated the analysis dealing with traffic can become will be limited by the information available for the specific case at hand or upon the assumptions which those experienced in traffic analysis dare to make 91 Benefit Cost m wee Analysis Guide Alberia Transportation and Utilities Glossary of Selected Terms Abbreviations and Acronyms General Terms Allocative costs values assigned and used in a benefit cost analysis Allocated costs or benefits may not be the same as market values See imputed values Benefit Cost Analysis a systematic approach to evaluation and assessment comparing the stream of quantifiable benefits generated over the life of a project or program to the cost of initiation and subsequent maintenance Consumer Surplus as used in this
250. nflation for user costs and the Present Worth of these future costs for any year n must be multiplied by a factor 1 05 x 1 02 1 068 1 0028 The PW for each future year is 0 28 higher than for the preceding year This is an increasing series situation and the SCA tables may be used with one complication the first factor is one when it should be 1 0028 This difficulty can be overcome by entering the tables one year higher and subtracting one from the factor for that higher year in other words we use the tables in the normal manner with this notation SCA 0 28 n 1 1 In this example a 30 year factor is required B 27 SCA 0 25 31 1 32 191 1 31 191 SCA 0 50 31 1 33441 1 32 441 Interpolating for 0 28 interest gives a factor 31 191 3 25 32 441 31 191 31 341 User benefit 70 000 x 31 341 2 194 000 Maintenance benefit 2 000 SPW 1 714 30 46 000 TOTAL BENEFITS 2 240 000 Present Worth of Costs 1800 000 600 000 x PW 1 1714 20 427 000 TOTAL COSTS 2 227 000 Benefits now 13 000 more than costs 13 13 59 x 0 3 6 9 Interpolated new value 6 8 Internal Rate of Retum approximately 6 9 for 30 year period For 50 year period test an interest rate of 10 PW pf 70 000 net annual benefit 10 7 1 70 000 SPW L071 50 70 000 SPW 2 708 50 50 000 1 02708 1 a 000 o 0 02708 1 02708 1 905 000 PW p
251. ng and handling costs asso ciated with the road user For the same reason a good part of the User Manual of this set of guides concentrates upon the proce dures and documentation of the process of handling input items for general roadway projects The typical roadway project involves heavy capital cost at the beginning of the period of analysis routine annual maintenance thereafter and significant peri odic rehabilitation work Benefit Cost w Analysis Guide For provincial highways or roadways all of those items are the responsibility of the province as repre sented by Alberta Transportation and Utilities The benefit side of the equation stems from the use of the road and to have economic efficiency the reduction in costs of the road user must match or exceed those costs incurred by the Department For any projects under consideration it is routine procedure to have estimates of initial costs to the Department For a benefit cost analysis mainte nance costs as well as future rehabilitation costs must also be obtained and gathering that additional information to complete the expenditure side is rela tively easy The majority of the work involved in determining the complete cash flow picture is associated with road user costs Lists of items sub items and variables are included in the next section and the list of road user items is substantial The fact that the majority of the basic data for these items is alrea
252. ng views will be held Alberta Transportation and Ultilities 2 2 3 Accounting Stance The accounting stance selected by the Department for benefit cost analysis is broad since it has been decided that the value of all benefits and costs should be considered for a project regardless of to whom they accrue This concept of a buck is a buck implies that the costs of a project should reflect all expenditures that will be incurred even if a portion of a provincial project is defrayed by a federal grant as an example Similarly if a municipality s program includes funds from the province or any other source those contributions should be disregarded as far as this kind of an analysis is concerned The benefits of a project should encompass all beneficiaries regardless of their origin and not be confined to residents of the province More specifically in the application of the Department s benefit cost model to roadway projects a dollar saved in travel costs in Alberta by any motorist has the same value as a dollar allocated and spent by Alberta Transportation and Utilities on improving and maintaining the road system 2 2 4 Direct Benefits and Costs The Department has confined the measurement categories for benefit cost analysis to direct benefits e g gains accruing to the users of goods and services produced by a project and direct costs e g capital and maintenance expenditures It is possible to estimate indirect or seconda
253. nning speeds might be used and the basis used in this example has its problems and omissions and that subject receives some discussion at the end of the coverage for that example Traffic and the interplay between all of the factors which affect its operation is an extremely complex subject and when the Department settles upon a procedure that can be applied in the majority of cases with which it deals additions can be made to the model to incorporate the kinds of factors used in this example Benefit Cost nalysis Guide Alberta Transportation and Utilities 8 3 Highway 88 Project ROADWAY PROJECT DEVELOPED BY THE GUIDELINES COMMITTEE 1988 PROJECT Test the economic merits of paving the remaining gravel portion of Hwy 88 between Slave Lake and Loon Lake Peerless Lake Turn off Adjustments Traffic volumes and other directly related items will be increased at the rate of 3 per year to 1995 and 1 per year thereafter Prices and costs will be adjusted upwards from 1987 to 1988 by a factor of 1 07 7 and from 1988 to 1989 by 1 06 6 These adjustments may be made in any order and all at once or in increments With operating cost graphs being based upon 1988 dollars all inputs will initially be adjusted to 1988 volumes and dollars and in later steps adjusted to 1989 dollars and where necessary to 1991 volumes INPUTS AND ASSUMPTIONS SOURCE OF INFORMATION Const Prog Const Prog Materials tt 46
254. not be calculated it will return a N A result Technical Note In some cases it will not be possible to calculate a Break Even Point In this case an N A error will occur in the relevant cell Net Present Value Discounted Total Cumulative Costs The Net Present Value calculation evaluates the total cumulative costs discounted to the base year For this measure the Alternative with the lowest net present value discounted cumulative costs is the preferred alternative In the example below the Flattest Curve Alternative has the lowest NPV in each scenario indicating it would be the preferred alternative This is consistent with the IRR results from above that indicate it is generating a positive IRR in each scenario and the highest IRR for the Low Cost Scenario scenario 1 scenario 2 Scenario 3 Net Present Value Discounted Total Cumulative Costs 4 0 4 0 6 0 High Const Costs amp Name Base Analysis High Consi Costs Discount Rale Alternative 1 No Change To Curve E s 109582973 5 109 669 277 68 100 041 Alternative 2 Flatter Curve Saat 93 153 165 93 865190 99 078 093 Alternative 3 Flattest Curve 64 672 695 65 343 759 41 488 147 Lower NPV Reflects Belter Option Lower Total Disc Cost Investment Costs NPV Because the Project Benefit Cost Model estimates costs associated with each alternative benefits are reflected only by a reduction in costs or cost savings from one alternative compared to anothe
255. ns tab in the model Value Updates Table This spreadsheet uses historical cost indexes to update various values used in the model Valuation of Analysis Components At the core of any benefit cost analysis is the valuation of incremental changes in expenditures or revenues that may be associated with a project or its alternatives How these expenditures or revenues are evaluated and incorporated in the analysis is a critical consideration Real Dollars This benefit cost model deals with all values expressed in real base year dollars As a result all base values and expenditure data used in the model will need to be expressed in these terms Where expenditures include inflation or are expressed in real values for another year other than the base year these values will need to be converted to the base year dollars using an appropriate inflation factor Real Discount Hate As this benefit cost model does not include inflation the discount rate used to account for the time value of money and bring all future dollar values back to the base year must be real discount rate The default value used the model is 4 per annum 19 California Life Cycle Benefit Cost Analysis Model Cal B C February 2009 a Appendix C Benefit Cost Analysis Guide ATU 1991 page 22 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Perspective The components of a benefit cost analysis and the valuation of t
256. nsurance 626 626 142 142 Law Enforcement 170 170 59 14 Public Liability 7 985 8 995 406 233 TOTALS 600 716 399 298 1 298 405 1987 est values 639 988 425 402 1 383 431 CPI of 132 0 123 9 Property Damage 6 941 6 249 6 249 3 138 per crash all injury crashes Based on data supplied by B C Department of the Attorney General Based on Alberta primary highway collisions in 1983 dollars factored by 132 0 116 6 to obtain 1987 Table 2 1 Societal Costs of Traffic Crashes Benefit Cost w Analysis Guide items are treated In a recent study comparing right angle corners with an angling alignment the reduction in collisions made up about 40 of the benefits meaning the overall results could be affected by about 10 because of different treatment for fatalities Of course there is no percentage difference for projects where the collision picture will not change Hans A Adler and Robley Winfrey again both express views on this subject and again are on opposite sides of the issue with Adler favoring the consideration of fatalities in non monetary terms and Winfrey maintaining that most authorities include all costs for fatalities but in so doing also include the benefits or costs saved because of death the present worth to society of a living person is the present worth of his future gross earnings as a measure of his productivity less the present worth of the cost of maintaining the person
257. nt worth of a series of n uniform period end withdrawals BARANE l i 1 14 SFY d usip il i 4 Capital recovery with interest annuity which 5 will return in n period end uniform receipts i 8 given present deposit plus interest on the 1 n unreturped portion leg A t 7 P Ae qu 5x lt s ss s s s c 012i 7 1 497 1 Cash flow diagrams and the six standard compound interest equations based on the period end step convention C 40 lt lt O B I P OOOCooo0 oeoooqg l 511 2Oort 0 5 206 9 2 9 1179 9 jo on 75 9 os Si I 2ob o o aia 1 MOEITE 60611519 s EISLCO ENSE e f D d ore nuc 2 O Mds Mo AR OT Str1c9l1 0 19 9 9510900 156 GI 0 01 6 TOELT 0 ZO6SL 5 1 9 10 0 LL BLS EI BOOS 0 6 B 0 0 0 1059950 L S0t502 0 O jTZ128 6 BSIEIS O L 9 1090066 0 19p2SSt 109021 O 0199144 FLYFOS 0 9 26159270 28206276 26179170 00160179 12602970 5 4 f CIT X cinrgo 0 1 1240 0 SIIcOE D SIEISZ 0 061925 0 LESCEL YT 0619 F 0 90rr928 0 I 00000171 160006 0 000000 I 160606 0 I UT I J pug oi p puy d pui o1 y
258. nts of this guide are devoted to outlining a procedure for measuring eco nomic efficiency and each of the factors which are mentioned here will be described more thoroughly in later sections Determining appropriate values is the first basic step in undertaking an analysis and that will be the subject of the next section Having determined streams of benefits and costs 10 Alberta Transportation and Utilities over the life of the project the next step is to convert those streams into meaningful results The three most common means of expressing results of a benefit cost analysis are in terms of Net Pesent Value NPV Benefit Cost B C ratio and Internal Rate of Return IRR Each of those methods will be men tioned from time to time and will be specifically addressed in Section 4 Time is an important resource and that shows and is illustrated in many ways in our society Most people have many things they would like to do if time would permit They must set priorities and choose between competing activities because there is insufficient time to do all of them Time is production and time is money if one had more time one could make more widgets produc tion and receive more money for that greater produc tion Having more money one could buy more and Consume more A benefit cost analysis is really a study in production and consumption If production and consumption is greater with the project than without the projec
259. numbers chosen simply to illustrate methods and procedures It should not be assumed that any are provincial averages or default values Systems Planning should be consulted for data for specific cases Assumptions General A two lane highway passes through an urban community which presently has a 3 2 km 50 km per hour speed zone with one traffic actuated signal Options The rural sections of this highway are being converted to four lane divided standards and the options being considered include 1 Do nothing to a 10 2 km section of the highway which includes this urban zone and about three and one half kms of rural section on each end Doing nothing now or at most resurfacing the existing highway within a few years is an option assuming that a new route around the community will be constructed sometime 2 Divide the existing highway up to the 3 2 km restricted zone as well as make certain improvements to the urban section which are reasonable considering the restricted right of way This option may not rule out a new route someday but will delay it beyond the timing associated with the first option and 3 Construct a new route around the community now which would be 11 km in length as measured between the same points which are 10 2 km apart via the existing route Obviously if conclusions economically were to be reached capital maintenance and rehabilitation costs would have to be obtained for each of those options and the t
260. o 1 Scenario 2 Scenario 3 High Const Costs amp Name Base Analysis High Cans Costs Discount Rate Alternative 1 Change Curve ee 54 4 Alternative 2 Flatter Curve NENNEN NE BERE 200 Alternative 3 Flattest Curve i 58 2 47 8 47 8 Higher IRR Reflects Option If the IRR cannot be calculated it will return a amp NUM result Try changing the guess in the Results tab The Internal Rate of Return represents the break even interest rate of return on the investment The higher the Internal Rate of Return result the better the option In some instances the IRR cannot be calculated This may be due to analysis results or the IRR guess is not close enough to the solution to allow Excel to arrive at a result through the iterative calculation process required to determine the IRR To fix the latter problem the IRR guess can be modified in Results tab cell AJ10 when a NUM result is presented to see if a different guess will yield an IRR result Other Costs include all Non Investment Construction Rehabilitation Costs Operating amp Maintenance Costs Road User Costs and Emission Costs If the Cumulative Other Costs for an alternative are less than those for Alt1 Scen1 the benefits as measured by cost savings will be positive lt 7 The denominator is the incremental investment required for the alternative as compared to Alt1 Scen1 23 Alberta Transportation Project Benefit Cost Model User Guide to
261. of 1M eight years hence What analysis can you now present to support your contention that it is financially attractive Assume inflation 6 ALL OF THE PREVIOUS SIX QUESTIONS WERE BASED UPON THE BENEFITS OF 2 2 M OCCURRING AT THE END OF EIGHT YEAR PERIODS NOW ASSUME INSTEAD THAT THE SAME TOTAL BENEFITS OCCUR OVER EACH 8 YEAR PERIOD BUT ACCRUE AT THE END OF EACH YEAR i e 275 000 EACH YEAR ra How would interest rates calculated on the basis of benefits being received each year compare with those calculated in the previous questions B If the capital works were undertaken in 1990 with the yearly benefits beginning in 1991 between which years in the future would the real rate of return be zero assuming no salvage value Benefit Cost Analysis Guide Appendix Alberta Transportation and Utilities 9 The present worth of a series can be calculated by multiplying the factors in the interest tables under 10 11 12 the SPW column by the annual amounts From the calculations in Question 8 we know that that annual amount of 275 000 multiplied by 7 27 2 0 M the capital amount which is also the present worth of that side of the equation From tables the SPW for 9 years is 7 268790 very close to 7 27 What is the internal rate of return for this project after 9 years What year would that be if benefits began in year 1991 Plotting what we no know about internal rate of return values what is the approxim
262. of 1990 calculate by formula the accumulated present worth of those yearly benefits by the end of 1998 after 8 years of benefits discounting at the rate of 4 95 n Present Worth of a series annual amount x m 8 1240 04 1 1 3685688 1 27 0 1 0 04 1 27 9 000 x 0 04 1 0 04 8 Mri 0 04 x 1 3685688 275 000 x 6 73274 1 851 503 What factor was used to multiply the annual amount by to obtain the answer in Question 14 6 73274 Where would you expect to find that factor in the interest tables In 4 table under SPW for 8 yrs by table 6 732745 With present worth of expenditures being 2 0 M and accumulated present worth of benefits being 1 852M after 8 years what is the net accumulated present worth after 8 years of benefits i e in 1998 2 0 4 1 852 0 148 M Benefit Cost w Analysis Guide Appendix Alberta Transportation and Utilities 18 19 20 21 22 23 24 Using the tables what are the net accumulated present worth figures after 12 years after 20 years after 40 years CAPITAL AMOUNT BENEFITS YEARS PW ANNUAL FACTOR PW NET PW 12 2 0 0 275 X 9 385074 2 5809 0 5809 20 2 0 0 275 13 590326 3 7373 1 7373 40 2 0 0 275 19 792774 5 4430 3 443 Plot the net accumulated present worth figures on the graph for the years 8 12 20 and 40 Between which years does the net accumulated present worth change from positive to negative Betwee
263. of Return Answer Version You loan me 10 00 and in return pay you 1 00 interest each year for 8 years beginning one year after the loan and repay the principal of 10 00 along with the last interest payment What is your rate of return assuming no taxes 1 T 10 00 loan repayment T T 1 00 interest each year T T T T T r tt O Oq 7 8 1 10 00 Loan Interest rate shouldbe 22 x 100 10 10 00 PW Loan PW payments repayment of principal Test equation 10 00 with 1096 PWLoan 10 00 1 1 0 PW Payments SPW 10 1 to 8 yrs x 10 00 5 335 PW Repayment of Principal 10 00 1 1 9 4 665 Total 10 00 Rate of Return 10 2 What is your real rate of return assuming an inflation rate of 6 Interest Rate 1 inflation rate Real rate of return Inflation rate 1 0 06 Real rate of return 6 li 10 6 4 Real Rate of Return 06 1 06 06 3 773585 96 3 How can that be checked With a real rate of return of 3 773585 your purchasing power after eight years shouid be 1 03773585 2 1 3449132 times greater than at beginning of period With inflation of 6 per year the cost of things will increase 1 06 8 1 5938479 times during this period Therefore require 10 00 x 1 5938479 x 1 3449132 21 4359 At end of period to increase purchasing power by 1 3449132 reinvesting the 1 00 interest payments received ea
264. olume would have made the trip had the improvement been very slight in other words they were just on the verge of making the trip under the old 18 expensive circumstance they benefit from the improvement virtually the same as the ones originally making the trip They are represented by the longer vertical lines in the triangle close to those continuing to make the trip At the other end of the spectrum some making the trip and contributing to the new volume barely do so now and had the improvement been slightly less they would have chosen to do something else instead The benefit they receive from the improved facility is virtually nil and they are represented by the short vertical lines near the tip of the triangle In between are all of the others making the additional trips and if their desires and choices are uniformly distributed over the entire spectrum the shape of the graphical representation will be a triangle as shown and the area within the triangle will be the collective benefit to the users making the additional trips and it is called consumer surplus economic jargon Subsidies Grants and Taxes In detail this subject can become complex but the Department has adopted a procedure which is simple and straight forward The value for items used in these analyses should reflect the economic resource of the items and in the absence of subsidies grants and taxes the market value should usually be assumed to refl
265. one managers attended the one day seminar held on April 21 1989 samples of some of the material used in these courses and lists of participants and resource staff are included in the appendix 1 3 Purpose Of The Guide The Benefit Cost Analysis Guide has been developed to provide a consistent and uniform approach to conducting benefit cost analysis for the various areas of the Department The following report includes information pertaining to the underlying principles of benefit cost analy sis and the benefit cost model developed by the Department Benefit Cost w Analysis Guide Alberta Transportation and Utilities e the application of benefit cost analysis to Department projects the appropriate methodology to conduct bene fit cost analysis including the general struc ture of the benefit cost model developed by the Department and e the presentation and interpretation of results from a benefit cost analysis The key elements of this guide are summarized in the report Benefit Cost Analysis Summary A detailed description of the procedure to follow and the input values required to undertake a benefit cost analysis and the documentation of the Department s benefit cost model are contained in the report Benefit Cost Analysis User Manual 2 Principles of Benefit Cost Analysis 2 1 Efficiency Criteria 2 1 1 Potential Pareto Improvement Benefit Cost analysis is used to assess the merits of a
266. ons included here will be for the base year only 1988 corresponding to the dollars used In an actual case besides recognizing volume adjustments changes in many other items might be predicted e g the length of speed zone number o signals and red time for each and changing traffic characteristics with changing volume 78 Benefit Cost we Analysis Guide Alberta Transportation and Utilities The Rural Trafflc Picture All Traffic Year __ Unrestricted Slower Movinc 2 557 000 1 728 000 829 000 Tractor Trailer SUs Busses i i E The 9 Autos d duda Business i i x R vs and other i Autos The Impeding 83 000 i iie 100 95 88 80 70 All km hr 3 9 96 29 18 11 3 impeded Speed amp Percentage 79 Benefit Cost Analysis Guide Alberta Transportation and Utilities The Urban Traffic Picture All Traffic on Existing Route 15 Stopped 384 000 x 85 50 km hr 2 173 000 MOD EE ORT Seat oso D e RR REI AQ S YO CURSO QAQ A YW All Traffic Year 2 557 000 30 Existing Route 767 000 70 of Traffic on a New Route 70 New Route u 1 790 000 Traffic stopped by signal on existing route Traffic which would have been stopped 80
267. oose from To get the drop down menu click in the cell and the selection options will become visible Vehicle Running Cost California click on cell to select approach to calculate Road User costs The model has pre selected Vehicle Running Costs to be calculated by the California Fuel amp Non Fuel method When selection of the Texas model is warranted the user may select it from the drop down menu If changed the selected method will be shown after the user hits return Reminder It is recommended the California Fuel amp Non Fuel approach be used for all projects unless the curvature or gradient varies significantly between alternatives in which case the Texas Curvature amp Gradient approach would be used Entered Information Information that has been entered in the model and used elsewhere in the model is displayed as orange text in either a white or grey background as follows Vehicle Occupancy amp Unit Costs for Time Default Values Project Specific Values Work Bus Work Bus Occupancy hr Other hr Occupancy hr Other hr ens TORRE Ye 12 50 yy s Enj um 259 UT poem od s 56 MEI L Vehicle 4 Single Unit Truck 17 25 00 1250 u 1 Z IBS m E 95 o i COWON Vehicle Hybrid Passenger 74 2800 Vehicle 7 Electric Passenger 17 2500 12 50 D ehicle re 75 4 3
268. or mation Roadway related studies depend heavily upon traffic and collision analysis and projections and Traffic Engineering now Systems Planning Systems Planning and Transportation Safety now Motor Transport services will not immediately be capable of supplying the information required on a whole sale basis Studies relating to equipment supply or serv ice automation computerization compari Sons of methods procedures or the choice of materials may involve information essentially available in the initiating area and in such cases decisions about the availability of infor mation and other resources necessary to undertake an analysis can be made by the initiating Section or Branch The benefit cost analysis should be an integral part of work done in the overall development of any project and the person unit or section responsible for the project should also under take the economic analysis Guidelines covering procedures methodol ogy and format for expressing results should be available to each analyst to provide as much uniformity as possible between studies done in various areas of the Department A committee including representation from all divisions should oversee the drafting of such guidelines and that committee might remain in existence to design training programs and give advice to users of the systems Eventu ally the training or briefing of some forty staff members would place one trained person in eac
269. or doing a minimum base cases and the value of items in some alternate project or course of action Also applies to the difference in values of items of two different alternatives when it is desirable to compare those alternatives one to the other Market value the value or price of an item as established in the market place Opportunity cost the cost of an item based upon the resources used or needed and valued in accordance with their the resources best alternate use Potential Pareto improvement a social welfare criteria relating to efficiency A potential Pareto improvement means that the total value of gains resulting from a project or activity potentially exceed the related losses See economic efficiency Shadow price see imputed value 92 Benefit Cost Analysis Guide Alberta Transportation and Utilities Related Terms Grouped Under Specific Headings Dollars Constant dollars dollar values remaining the same even though price levels may change typically increase or inflate Often referred to as inflation free dollars Current dollars dollar values changing in accordance with changes in price levels If using current dollars future values will be higher than present values by the amount of inflation over the time interval involved interest and Discount Rates Nominal interest rate the absolute rate at which invested wealth grows Prime interest rate and investment interest rate ha
270. orical capital cost is required for the model to estimate Life Cycle Costs and Replacement costs 13 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Construction Costs AR 1 Do Minimum Alternative enter the construction cost for this ororect alternative t ateoory by vea Total Environment Construction Year Engineering Land Construction Mitigation 0 0 0 0 Costs struction costs should nry tu 1 2014 250 000 2 000 000 e aer mic i _ 2 250 000 in years that are 2 2015 LM 1 000 000 2 x ae m 1 000 000 highlighted in ORANGE 3 2016 1 1 000 000 l 4 d 1 000 000 The construchon pe 4 2017 1 I 1 000 000 a 4 1 000000 be changed above at 5 L S e Ts istruction Yea 6 r 4 iw T3 7 f i 8 24 41 s w aS lt 9 gt 2 10 _ Total 250 000 2 000 000 3 000 000 5 250 000 Operating amp Maintenance Costs There are two approaches to determining the operating and maintenance costs Specified Operating and Maintenance costs that are defined by the user and Scheduled Maintenance Costs that are from the Alberta Transportation s RODA model It is possible to use either of these options or a combination of the two The user Specified operating and maintenance cost categories are used to enter the associated costs orange cells The total operating and maintenance costs
271. osts used for passenger vehicles and light trucks on gravel should be about 18 higher than the cost of operating on a smooth pave ment and that costs for large trucks operating on gravel should be about 30 higher than the costs used for operating on a smooth pavement Benefit Cost Analysis Guide Collision Costs No changes in the data or procedures used in the presentations to the Task Force and the Executive are recommended The costs used for personal injuries and death are based upon a 1980 study done for the British Columbia Ministry of the Attorney General and the costs for property damage are based upon Alberta s Primary Highway Collision Inventory figures Costs for Time The value for time is to be based upon the time for the people involved again the same as presented to the Task Force and the Execu tive including these specific figures 23 00 per hour for truck and bus drivers 12 00 per hour for anyone else on business including truck driver helpers and 5 00 per hour for everyone else sources of Information for Roadway Projects Capital Costs right of way grading and related works Program Planning base course and surfacing Materials Engineering Maintenance Costs Operations Branch Collision Costs Motor Transport Services Vehicle Operating Costs Systems Planning formerly Traffic Engineering Computer Application A start on handling the large amount of data for a typical
272. otal travel cost Cost Benefit wm Analysis Guide Alberta Transportation and Utilities saving with no additional trips could be represented by the area of the shaded rectangle in this diagram g gt Old lacility D 2 E Improved facility Number of Trips Figure 2 1 Reduction in Travel Costs Now assume that the reduced travel cost causes more people to make the trip or encourages those that were already travelling between the points to make more trips and the above diagram would change to the following one Cost par Trip Additional trips at lower cost i Number of Trips Figure 2 2 Reduction in Travel Costs and Consumer Surplus The benefit resulting from the original trips remains the same the product of the benefit per trip times the number of trips or the area of the rectangle The benefit resulting from the additional trips is the area of the triangle one half of the cost saving per trip multiplied by the number of new trips The benefits attributed to the new trips being only one half of what they would have been had those same trips been made when the trip was more costly can be traced back to market pricing and the assumption that the benefits of consumption is equal to the satisfaction derived by the user accepting the fact that the satisfaction of the same thing to different users may vary In this case of the additional trips some contributing to the extra v
273. ould be 244 538 yr instead of 265 719 yr 97 Benefit Cost nalysis Guide OPERATING COSTS amp SAVINGS Alberta Transportation and Utilities PASSENGER VEHICLES Breakdown For Grades 1000 s Diff in i d ACH C S Length AADT Veh km Unit km Year 1000 1 2 3 96 4 6 Costs Savings 8394 11 5 1 04 2978 418 30 4546 80 3773 84 500 15 227 34 45 47 98 24 15 3 06 26 09 393 38 3746 09 2172 74 899 06 561 91 112 38 CQ 19 2 08 29 67 393 38 4260 12 3365 50 809 42 85 20 1 9312 08 I 20 186 242 un 2208 63 I 21 46 381 3 gt 874 45 21 18 263 4 112 38 19 2 135 995 NI 4547 32 1 455 2 5 4 576 SU VEHICLES USE PV PERCENTAGES above in brackets 04 29 78 114 08 1240 01 1029 21 136 40 62 00 12 40 06 26 09 92 88 884 48 513 00 212 28 132 67 26 53 08 29 67 92 88 1005 85 794 62 191 11 20 12 15 3130 34 1 2336 83 64 149 557 Des 2 539 79 57 30 768 3 214 79 76 16 324 4 gt 26 53 88 2 335 6 12 40 109 1 352 Total 200 336 IRTL VEHICLES Use PV Percentages 04 29 78 161 41 1102 29 914 91 121 25 55 11 11 02 06 26 09 60 10 57233 331 95 137 36 85 85 17 17 08 29 67 60 10 650 86 514 18 123 66 13 02 TOTALS 2325 48 1 1761 04 75 132 078 2 382 27 66 25 230 3 153 98 87 13 396 4 17 17 105 1 803 6 gt 11 02 140 1 543 Total 174 050 TOTALS all classes 18 008 83 Veh km x 1000 628 962 CHECKS To
274. ould become positive and its approximate value in 40 to 50 years apply to incremental values as well Therefore in many cases there are readily available and easy ways of determining these points on the rate of return graph and knowing its typical shape a good check on all yearly points on this graph is possible Other than that the checking of results will usually Benefit Cost nalysis Guide involve working with data which only the analyst may have accumulated If a model is used to convert raw data into cash flows the analyst has two reasons for running some manual checks on the figures being produced 1 Working with the data will provide insight into the meaning of the results and will assist in providing comments to accompany the report and in preparing to answer questions and 2 The verification of the correctness of some of the results coupled with making comparisons between the various values produced will uncover larger errors at least On the theme of the first point one basic objective the Department holds for this whole procedure is that it should be as simple and understandable as possible and while the nature or some problems prevent a simple approach the analyst at least should understand what is going on in the analysis For analysts unfamiliar with the procedure it is not a bad idea to initially produce results both manually and with a model and then track down the discrepancies between the two
275. ounted for 40 years compared to 20 years for the first The flow diagram shows equal annual maintenance costs over the entire analysis period which illustrates Benefit Cost nalysis Guide the concept that all costs and benefits can be expressed in constant or inflation free dollars providing all or most of the items will be inflating at the same rate If for example the project is being estimated in 1990 dollars the yearly maintenance costs should be estimated based upon 1990 dollars also and providing the level of maintenance activity is not expected to change that same annual cost can be used for the entire period All constant dollar values 1990 values which will not be expended or credited until some time in the future are to be discounted at the rate of 4 the general average historical difference between the prime interest rate and the rate of inflation The present worth of capital maintenance and rehabilitation costs as shown in that graph therefore represent the amount of money required in the year 1990 to meet all future expenditures up to the year being considered For example 2 4 million dollars invested in 1990 and receiving interest on the balance remaining from year to year at the rate of inflation plus 4 would just cover the expenses for this project for 50 years The upper line on the present worth graph represented the accumulated discounted benefits being added to the discount
276. perating amp Maintenance Cost Categories are linked to the Alt tabs The analyst will enter the operating and maintenance costs for each category The Administrator should define Operating and Maintenance Cost categories that will be useful for each analysis In the RehabCosts tab 514 293 the annual cost of rehabilitation of each facility is defined If the Project Type categories are changed or the Project Life is changed the annual cost of rehabilitation as a percent of project cost will also need to be updated 30 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Operating amp Maintenance Cost Categories UCC CC ETETETT Category Maintenance e Category 2 Snow sss Category3 iCrackSealing Category4 Category 5 i enter labels for O amp M categories Maintenance Cost Categories by Surface Type Scheduled Maintenance There are three fixed Scheduled Maintenance Cost Categories These cost categories are used to calculate maintenance costs given the surface type The Maintenance Cost Categories are linked to the Alt tabs The Administrator should check to ensure that the most current values for these Maintenance Cost categories is in the model These values are contained in the Maintenance tab G15 1134 Maintenance Cost Categories by Surface Type aliyas mer as Calegory 2 Paved Base Category i
277. period selected in years n the number of years passed to reach the year for which IRR is being analyzed IRR and Cn is Cumulative Costs of Cumulative Costs of Where Cumulative Costs are not discounted Break Even Point The break even point is the period of time where the investment breaks even or has paid for itself At this point in the forecast period the net present value of the costs of a project alternative or scenario are equal to the base analysis If the project alternative or scenario always has a higher net cost there is no break even point in the analysis timeframe The Break Even Point formula is shown below Min where Cumulative Costs Alt1 Scen1 gt Cumulative Costs Alt Scen Net Present Value Discounted Cumulative Costs The NPV is the sum of discounted net costs over the period of analysis A positive NPV means discounted benefits exceed the discounted value of costs For this model NPV of Alternative 1 is compared to those of each of the other Alternatives Alt 1 Alt 2 The Net Present Value Discounted Cumulative Costs calculation is as outlined below NPV Cumulative Costs Alt Scen gt Cumulative Costs Alt1 Scen1 Where Cumulative Costs are discounted at the selected discount rate m Twenty years is a reasonable timeframe over which a public investment can be expected to provide a positive payback Cumulative Costs include all costs Investment and Other from
278. position in this version of the model The figures from the Texas Curvature amp Gradient analysis have been adjusted to reflect the change in inflation over the period from when the original figures were produced 1989 to 2013 18 This factor is built into the model and is set by the Department Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Analysis Results This section of the model provides a summary of the costs calculated for the analysis and the benefit cost analysis results Project Costs 3 tabs This tab summarizes the costs associated with each Alternative defined by the user over the 80 year analysis timeframe Results This tab calculates the detailed benefit cost analysis results for each year and each of the Alternatives and Scenarios defined by the user Summary This tab provides a summary of the benefit cost analysis results for each of the Alternatives and Scenarios defined by the user Analysis Support Data A number of worksheets located in a separate file have been used to calculate data input to the model The user does not have access to these worksheets These worksheets will be modified by the Department if warranted These include Emissions Conversion Table This table takes the CalTrans Benefit Cost model s vehicle emissions estimates as input by the user and converts the imperial measures for speed and volume to metric This data is imported into the Emissio
279. project in terms of economic efficiency Within the context of economic theory a project is deemed efficient if the change it brings about leads to a potential Pareto improvement a social welfare criteria fulfilled when the total value of the gains produced by a project potentially exceeds the total value of the accompanying losses This criteria does not take into account distributional considerations such as who benefits and who bears the costs of a given project In addition pecuniary benefits and costs or the effects of changes in relative prices brought about by a project on other parts of the economy are ignored in the evaluation of economic efficiency The level of economic analysis which should be undertaken is dictated by the maintenance of efficiency the efficient use of resources as measured in all areas of the economy The procedures outlined here for conducting a benefit cost analysis limit its scope to considering only the most direct of benefits and costs and this is a common practice for this type of economic study To be an appropriate type of assessment it follows therefore that the programs projects or alternatives to which benefit cost analysis is applied should not be of the nature or size to materially affect other areas of the economy or general prices or general employment or unemployment levels An activity which will have far reaching effects throughout the economy requires a broader base invol
280. provides another opportunity to uncover omissions omissions which may even be quite unrelated to the mechanics of the analysis A final thought about possible additional alternatives might be an example of that In the example used initially in this section the benefit Side of the equation was chosen as the variable That general subject of benefits contains numerous items each of which may have a bearing upon decisions about homogeneousness The cost side must al o be considered for all other things may be relatively equal but the costs for one part of the whole may be quite different than the balance 90 Alberta Transportation and Utilities Using a roadway example again capital costs for one section may be quite different than another due to foundation difficulties or a major river crossing being involved as examples and if the benefits for that section are about the same as for another which does not have those costly construction features the economic merits of the two will vary significantly 7 Short Cut Methods This subject is given greater coverage in the oummary than it will be in this Guide Those reading this Guide will usually be familiar with the computer models described in the User Manual and will find little use for a manual method accurate results can be generated easier with the computer programs than approximate results can be produced manually Nonetheless some of the manual proce dures might be h
281. proximately 11 05 virtually the same as the perpetuity figure Discounting future sums at 4 for this Alternative 1 results in benefits balancing costs after 11 years and the NET PRESENT VALUE is a positive 3 7 million at year 50 Alternative 2 yields a REAL return of 7 4 in perpetuity and 7 18 at year 50 Again discounting future sums at 4 results in a NET PRESENT VALUE of 3 4 million in 50 years time In this example Alternative 1 yields the greatest return and continuously has a higher NET PRESENT VALUE over time and from these indicators it would be a better investment than Alternative 2 The information given about these alternatives may be complete in the sense that they may be stand alone choices or they may both be compared to a do nothing or a do little scenario in which cases the costs and the benefits would be incremental values In any event they both have a common base A further test would be to compare one to the other with Alternative 2 requiring an additional initial investment of 3 1 million and for that incremental additional capital an incremental annual benefit of 130 000 would be received The third set of lines on the graphs illustrates the results of that comparison with the NET PRESENT VALUE remaining negative and a REAL internal rate of return of 3 40 96 at 50 years which compares with a 4 2 REAL return in perpetuity Those results also indicate that Alternative 2 is not as good
282. quantities in terms of their worth today Internal Rate of Return The internal rate of return is the rate of discount that makes the net present value of the benefits minus the costs over time equal to zero Where the IRR is greater than the discount rate the benefits of the project are greater than the expected or required return on the investment i Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 1 http www inc com encyclopedia cost benefit analysis html Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 31 Appendix 3 Benefit Cost Analysis Guide Treasury Board of Canada Secretariat 2007 page 27 Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 21 i Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 31 Appendix 3 Benefit Cost Analysis Guide Treasury Board of Canada Secretariat 2007 page 27 5 The Principles of Practical Cost Benefit Analysis Sugden R amp Williams A Oxford University Press 1978 page 20 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Net Present Value NPV The Net Present Value NPV measures the net benefit of a project in today s dollar terms Money has a time value known as an opportunity cost which means that money invested today could earn interest elsewhere To compensate future payments need to be higher so that they equal today s dollars Additionally time value accounts for the cost of capital the cost for a
283. r Linear Linear Linear Linear Cost Increase Rate 2 2 0 0 0 select the O amp M Cost Driver Type and Rate for each category 28 Linear growth adds the same amount to operating and maintenance costs each year e g simple interest calculation Exponential growth compounds the growth year over year e g compound interest calculation 0 Traffic growth is the accumulation of all growth defined for the project by project segment see Project Segment Definition 3 The analyst should select the most appropriate growth driver that would reflect how operating and maintenance costs would be expected to grow for this project alternative 14 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx The Scheduled operating and maintenance costs are defined by segment in the Project Segment Definition table The Scheduled maintenance costs be turned off by selecting the Do Not Use option in the Maintenance Cost Category column of the Project Segment Definition table The Scheduled operating and maintenance costs are unique to each segment in the project and must be specified for each segment to be used in the analysis See Maintenance Cost Categories by Surface Type Scheduled Maintenance below IMPORTANT If you wish to only use Specified operating and maintenance costs specify these costs as described above and select Do Not Use for each Project segment as described in the Ma
284. r To calculate a Benefit Cost Ratio these benefits or cost savings from one alternative to another need to be compared to an investment Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx In this model Investment Costs are defined as Construction Costs plus any Rehabilitation costs that are invested in the project over the forecast period As well the salvage value of the project is estimated at the end of the forecast period 80 years from the Base Year and deducted from the Investment Costs scenario 1 Scenario 2 Scenario 3 Investment Costs NPV 4 0 4 096 6 0 High Const Costs 5 Name Base Analysis High Const Costs Discount Rate Alternative 1 No Change Curve 5875360 1 561 664 1 361 911 Alterative2 Flatter Curve 4 746 837 54588621 __ 9 065 198 Alternative 3 Flattest Curve _ 4 473 760 5 144 824 4 711 518 Includes Construction Costs and Rehabilitation Costs over the Period of Analysis The net present value of the stream of Investment Costs is used for the calculation of the Benefit Cost Ratio where Investment Costs are the denominator of Benefit Cost calculation Net Benefits Non Investment Cost Savings in NPV The Net Benefits associated with each Alternative are equal to the cost savings for that Alternative as compared to the base alternative which in this model is defined as Alternative 1 The Net Benefits are calculated by taking all the Non Investment Costs
285. r projects This is in contrast to the Canadian Federal Treasury Board Benefit Cost Guidelines that recommend 10 Project Type Categories The analyst can define up to 10 different project types For each project type the default running or design speed and asset life should be entered The Treasury Board s 1976 Benefit Cost Analysis Guide states that the discount rate for federal government projects is 10 in real terms i e when using constant dollars The Guide also calls for sensitivity analysis discussed in Section 9 4 1 using real discount rates of 5 and 15 GUIDE TO BENEFIT COST ANALYSIS IN TRANSPORT CANADA Transport Canada TP11875E September 1994 29 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Rehabilitation Costs tab Changes to the Project Type definition will require an update to the rehabilitation cost profile data Rehabilitation costs are calculated as percent of the historical original project investment per year The Administrator should review the Project Type Categories and update as required Project Type Categories Default A Running Project Life Speed yrs Category 1 ilnterchange HUI 5 C f nory 2 iced eet conem ugs Eder ee uro omoes Gaeta FO Ru VER mme i cem C LU Cas 1 ely Wai NEL Satagary 8 pue aaa amani er pre u UE Pave Gravel Roa A 1 E
286. r until sometime in the future uses that same process in reverse and reduces the future values to appropriate present values Interest and discount rates coupled with an added featue inflation will be dealt with in greater detail in Section 2 4 2 2 Determination Of Value 2 2 1 Importance The results of a benefit cost analysis are a direct reflection of the values given to the input items and therein lies the importance for using good values The influence which each of numerous input items will have on one result will of course vary and their pure numbers tend to dilute the influence of each however even from a confidence view it is important that all values be credible for one being proved to be shaky casts doubts upon the accuracy of all The importance of including as many relevant items as possible in an analysis was mentioned in the introduction and whether or not to include an item depends upon the ability to give it a value in dollars and the confidence which users of the results will have in the assigned value The determination of values for complex projects particularly is not only an important task but is also the most difficult and can also constitute the bulk of the work for the analysis not only involving the analyst s time but the time of others who must be relied upon to supply input data Whether or not to include an item can therefore also depend upon the availability of data in a form which can b
287. rchased 5 years from now What is the present worth of that future expenditure assuming an interest rate of 8 5 The Hard Way Cost of article 5 years hence 100 00 x 1 05 100 00 x 1 27628 127 63 Present Worth of 127 63 discounted at 8 5 for 5 years 127 63 1 0855 127 63 1 50366 84 88 The Easy Way Present Worth of 100 00 discounted at 3 1 3 for 5 years 100 00 1 03333 100 00 1 17814 84 88 Using the REAL RATE OF RETURN eliminates the effects of inflation For the purpose of discounting future values can be assumed to be the Sameas present values just as if there was no inflation If inflation is built into the equation and present day dollars are used for discounting the results will be expressed in terms of the real rate of return Example Using Both Interest Rates Assume that gold will increase in value in line with general inflation at the rate of 590 and a loan of 1 oz of gold is made with repayment to be in four equal annual payments of 0 271175 oz of gold commencing one year after the date of the loan That particular repayment amount was chosen because it is the reciprocal of 3 687658 which is the present worth factor of a series for four years discounting at the rate of 3 1 3 By design the real rate of return 3 1 3 for this loan This corresponds to an interest rate 8 1 2 if dealing in inflated dollars If dealing in dollars the equivalent f
288. re in Canada Transport Canada T80808 05 0326 by Barton amp Associates in association with Logistics Solution Builders Inc December 2006 page 61 This cost estimate is for tractor trailer operations in uncongested conditions The calculations in Barton include fuel costs which have been taken out of the figures reported here http www albertagasprices com Retail Price Chart aspx Given that fuel costs can fluctuate dramatically from month to month and season to season it is recommended that a reasonable estimate be included in the model by the Administrator and this be used for all analysis until the next update Where the current trend in fuel prices is dramatically different that the base values used in the model this may be run as a sensitivity to determine what the impact would be on the Benefit Cost Analysis results 65 33 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Fuel Taxes litre California Fuel amp Non Fuel Vehicle Operating Cost Calculation As taxes are transfer they cannot be included in the benefit cost analysis Using retail fuel prices thus requires that taxes be deducted The current tax rates for fuel in Alberta are 24 554 cents per litre plus GST 9 Fuel Efficiency litre 100 km California Fuel amp Non Fuel Vehicle Operating Cost Calculation Average fuel consumption is reported by Natural Resources Canada NRCan 2009 9 for three vehicle classes Li
289. re the net present values of the Investment Costs of each alternative have been compared to the Investment Costs for Alternative 1 5 This differs from Net Present Value in that NPV includes all costs 43 The salvage value is estimated based on the remaining life of the asset beyond the 80 year forecast timeframe Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx 26 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Scenario 1 Scenario 2 Scenario 3 Benefit Cost Ratio 40 4 095 6 0 High Const Costs amp Base Analysis High Const Costs Discount Rale Alternative 1 No Change To Curve PE AMA E 2 Alternative 3 Flattest Curve 125 10 7 1 1 If the Benefit Cost Ratio cannot be calculated it will return a N A result A Benefit Cost Ratio greater than 1 indicates that the benefits of the alternative are greater than the costs at the specified time period and that the investment will produce positive results The greater the Benefit Cost Ratio the better the return on the investment for the specified time period Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx oection 5 How to Update the Model Administrator and User Updates The updates described in this section are intended to be performed by the Administrator of the model It is expected that all of the variables discussed below will be reviewed and
290. red in the past and are therefore not recoverable are not relevant for consideration in benefit cost analysis Benefit cost analysis is forward looking with the aim of providing information about future investment decisions Appendix 3 Benefit Cost Analysis Guide 1991 page 30 10 Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 20 11 Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 8 http en wikipedia org wiki Pareto efficiency 13 Appendix 3 Benefit Cost Analysis Guide ATU 1991 page 20 VI Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Section 1 Overview Purpose of the Model Benefit cost analysis is an analytical tool that provides information about the economic merits of a proposed investment or alternative investment options With regards to transportation project evaluation benefit cost analysis measures the changes in benefits and costs over time arising from an investment in one of several alternatives as compared to a status quo option or do minimum option if the status quo is not an option A benefit cost analysis determines whether a proposed project is economically desirable when benefits exceed costs Benefit cost analysis can also be used with other information to select which project among competing project alternatives should be funded given a budget constraint and to compare the effects of projects that may accomplish different objectives
291. rely different applications will require different formats and will introduce variations unique unto themselves Although the allocation of costs and assembling of input data may involve new challenges once arrays of benefits and costs over time are produced the established methodology for the calculation and presentation of results should apply regardless of the subject matter Even in established applications the most appropri ale approach to all aspects of an analysis will not always follow the recommended procedures and treatment and the analyst is encouraged to question Alberta Transportation and Utilities the applicability to the specifics of his project or program and to recommend adjustments when such are necessary to better represent the unique circum stances of his or her case That may involve procedures the analytical process or specific inputs and what to include and what not to include and the imputing of values While such adjustment may be important in the specific case and is also important in the continuing evolvement and improvement of the process uni formity and consistency of application are also impor tant and the onus rests with the analyst to provide persuasive proof that deviation from the norm is desirable The analyst will know more about the specific work than anyone else and will be in the best position to know when procedures should be ad justed and will for the same reason also be in the b
292. rk provides some good solutions In fact this book may be helpful in solving most analytical problems encountered which are beyond the coverage of these guidelines and the related mathematical material in Appendix B 6 Study Design The User Manual contains a more complete check list of activities which may be involved in an analysis as it progresses through different stages The topics which will be discussed here will be con fined essentially to those which deal with the viability of a study and its parameters 6 1 To Study or Not to Study Prior to embarking upon a Benefit Cost Analysis these two questions should be raised and answered Is an analysis necessary Is an analysis possible 48 Alberta Transportation and Utilities The logical order in which these questions might be addressed will usually be as presented however if determining the answer to one may be difficult and the other easy the easy one might be answered first For one reason or another an analysis may not be possible and if that is the case there is little point of initiating effort to gain an answer to the first The usual need for an analysis is that its results will assist with making a decision about the merits of a program the ranking of projects within a program the viability of a project or activity or the choice between alternatives equipment materials or activities Conversely an analysis will usually not be needed if all of t
293. rning Information Service ALIS Wagelnfo website Other Leisure Cost hr The travel time costs for non business travel associated with leisure or other trips is typically lower than for business or work trips It has been estimated by the US Department of Transport that non business travel time values range between 50 and 70 of wages or the business work value of travel time 9 The lower end of this range is supported by a more recent study prepared for Transport Canada where the overall or base Valuation of Travel Time Savings would be 50 of the average wage rate 9 As a result it has been assumed that other leisure travel time costs would be 50 of the rate used for business work travel time 54 2009 Canadian Vehicle Survey Summary Report Natural Resources Canada Office of Energy Efficiency page 54 http oee rncan gc ca publications statistics cvsO9 index cfm gt http alis alberta ca pdf wageinfo 2011 AWSS Wages By Industry and Region pdf http alis alberta ca wageinfo Content RequestAction asp SearchContent truck driver amp aspAction GetWageKeyWordSearchResult amp format html amp Page SearchKeyword amp Region ID 20 ad http alis alberta ca wageinfo Content RequestAction asp aspAction GetWageDetail amp format html amp RegionID 20 amp NOC 7412 All values have been rounded to the nearest dollar http alis alberta ca wageinfo Content RequestAction asp format html amp aspAction GetWageHomePage amp Page
294. roadway project was made with for mulae developed to fit the vehicular running Cost curves and converting that and other data into annual road user costs The problems with the program for generating the internal rate of return were solved Training Programs Programs geared to both users and managers were developed and two courses for users and Alberta Transportation and Utilities one for managers was held in the first half of 1989 The first course for users was held on January 6 1989 and was advanced to meet an immediate demand by those who were work ing on these kinds of analysis and required training to reduce the time being taken by one on one instruction One day was too short to properly cover the material and the next user course which was held on May 18th and 19th 1989 was designed around two days which worked out well particularly for those pants who came to the course with very little previous exposure to this subject One day was taken for a seminar for more senior managers and that proved to be suffi cient time to cover the material in a more general way which seemed to meet the needs of the participants seven of the committee members were re source people for these training sessions and a total of sixteen of the committee members participated in the sessions either as a re source person or as a student A total of forty nine other staff members at tended the two user courses and twenty
295. roject Segment Traffic Mix The mix of traffic by Vehicle Type must be allocated for each segment The Traffic Mix must add up to 100 for each segment Project Segment Traffic Mix 1 De Minimum amp itematve pur lool alte by Vu uche for d a Base Trollie AALT ports t pa iore Lo d cun Single Unit Semi Trailer Hybnd Segment Mane Passenger RV Bus Truck Combo Passenger Passenger 0 u Total Segment 1 Sen 1 78 3 1 5 10 2 1 0 0 0 100 Segment 2 Seay 2 _ 78 1 5 10 _ 2 1 0 0 100 Segment 3 seg 1 L Lx E a 5 10 1 08 08 27 100 Segment 4 78 3 1 5 10 2 1 0 0 0 100 Segment 5 H 38 35 1 5 10 2 15 0 0 100 Segment 6 1841 7 3w 1 O 2X 1 DA Ow 0 100 Segment 7 B 3 1 5 10 2 1 0 0 0 100 Segment B B 18 15 2 1 De ots 0 100 Segment 9 78 3 1 5 10 2 1 0 0 0 100 Segment 10 78 ES 1 E 10 2 1 0 0 0 100 Segment 11 18 9 1 5 0 5 50 10 Segment 12 78 3 1 5 10 2 1 0 0 0 100 Segment 13 5 TM OM 00 Segment 14 78 3 1 5 10 2 1 0 0 0 100 Segment 15 7896 3 19 ELI 10 2 1 0
296. rvature or gradient varies significantly between alternatives The factors used in the Texas Curvature amp Gradient approach originated in part from data compiled by the Texas Research and Development Foundation in 1982 for the Federal Highway Administration For the original Alberta Transportation Benefit Cost Model these numbers were converted to 1988 Canadian dollars using Alberta consumer prices for items such as fuel oil tires depreciation etc These were then updated from 1988 to 2012 based on the Transportation Price Index These 2012 factors are used in the new version of the model 24 Benefit Cost Analysis Vehicle Running Costs Alberta Transportation amp Utilities Traffic Engineering Branch January 1989 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Either approach can be used to estimate vehicle running costs When gradient and or curvature improvements are an important feature of an alternative being evaluated it is recommended that the Texas Curvature amp Gradient approach be used Sensitivity analysis can be conducted using either the Texas Curvature amp Gradient or California Fuel amp Non Fuel approaches to see how the benefit cost results vary with each approach The desired approach to estimating road user costs can be implemented by clicking on the cell to the right of Road User Cost and selecting either California Fuel amp Non Fuel the default or Texas
297. ry benefits which stem from or are induced by a project by applying appropriate economic multipliers derived from input output tables However given the broad accounting stance adopted by the Department these spin off effects are not calculated by the benefit cost model since it is likely that they would represent merely a transfer of economic activity from one area to another Typically secondary benefits are estimated in a benefit cost analysis when a project is being analyzed from a local or regional perspective 1 W R D Sewell J Davis A D Scott D W Ross Guide to Benefit Cost Analysis Resources for Tomorrow p 5 2 lbid p 18 12 Benefit nalysis Guide Alberta Transportation and Utilities MEER C nt F 2 2 5 Valuation Where possible the direct benefits and costs measured in a benefit cost analysis are estimated on the basis of market prices The use of market values presupposes that the prices which producers receive and consumers are prepared to pay for goods and services reflect the intrinsic value of those goods and services to society In cases where the market values diverge from efficient prices as a result of distortions brought about by taxes subsidies regulation trade barriers or any other reason shadow prices must be estimated This involves the adjustment of market prices to reflect more closely the true value of the resources to society
298. s in time is 18 100 The time saving for 15 of that traffic not having to stop for the signal was included in the original calculations and hence needs no change here The net saving is thus 14 200 for that year for this item As calculated originally the 1 834 662 autos and R Vs not including business gave a net benefit for the new route of 538 700 for time less 1 834 662 2 090 337 x 204 400 for operating 359 300 Removing 172 800 vehicles from that calculation would reduce that benefit by 33 800 however they those vehicles should then be considered separately just as the 82 900 vehicles were in the previous paragraph which would result in a benefit of 172 800 82 900 x 14 200 29 600 The net overstatement of benefits due to this factor is therefore a small 4 200 and when added to the 5 000 calculated for both alternatives gives a total over statement of benefits of 9 200 The omission of 14 200 of benefits did therefore overcompensate and the benefits for the new route were slightly undervalued 5 000 in 867 100 The difference in cost benefit of 4 200 for 172 800 vehicles seems small when considering the difference for increasing their speed from 50 km hr 111 km hr v s increasing speed to between 70 and 100 km hr Two points at least are relevant to this comparison 1 Over one third of the traffic in the 70 to 100 calculation is assumed to be travelling at 100 km hr and the difference wi
299. s little confidence in this project being useful beyond 8 years and in an attempt to make it more attractive you obtain an iron clad offer in the market place to purchase the works for 1 M 8 years hence providing it is no longer required for public purposes It therefore has a salvage or residual value of 1M eight years hence What analysis can you now present to support your contention that it is financially attractive Assume inflation 6 95 Present worth of 1 M eight years hence discounted at inflation rate 1 1M x 627 412 1 06 8 Question in diagram form now becomes 0 1 2 3 4 5 6 7 8 L 2 0 M Solution 2 0 2 2 0 627412 x 1 1 18 1 if 2 827412 IRR 4 42 slightly more than real interest rate 1 413706 T 627 000 salvage value T 2 2 user benefit Br 1 1 1 413706 1 0442268 ALL OF THE PREVIOUS SIX QUESTIONS WERE BASED UPON THE BENEFITS OF 2 2 M OCCURRING AT THE END OF EIGHT YEAR PERIODS NOW ASSUME INSTEAD THAT THE SAME TOTAL BENEFITS OCCUR OVER EACH 8 YEAR PERIOD BUT ACCRUE AT THE END OF EACH YEAR i e 275 000 EACH YEAR 7 How would interest rates calculated on the basis of benefits being received each year compare with those calculated in the previous questions They would be higher B If the capital works were undertaken in 1990 with the yearly benefits beginning in 1991 between which years in the future would the real rate of return be zero
300. sen over projects which would yield under 7 On the other hand if all projects which are chosen on the basis of finances are returning over 7 then the cheaper alternative here should be chosen permitting the difference to yield a higher return through some other work To complete the circle of discussion on this subject one could return to the minimum work example where resurfacing a highway would cost 500 000 and constructing a more efficient replacement would cost 1 000 000 and add one dimension Assume that added maintenance and user costs would total 100 000 annually if it were neither resurfaced nor replaced That indeed could be the reason why this highway would at least be surfaced Now there are benefits to resurfacing being 100 000 annually and the return on the 500 000 cost would be 20 New construction would still provide 50 000 of benefits annually over resurfacing due to being shorter better alignment etc and would also save 100 000 annually just as resurfacing would Total annual benefits of 150 000 resulting from an expenditure of 1 000 000 would yield a return of 15 95 If resurfacing and new construction are treated as options is it better to receive 20 return on 500 000 or a 15 96 return on 1 000 000 As in the case of the other examples the answer lies in what would be done with the difference of 500 000 if this Alberta Transportation and Utilities highway is resurfaced
301. ser Guide to ATBenefitCostModelV1z xlsx Model Features The Alberta Transportation Project Benefit Cost Model includes a number of features that allow for flexibility in evaluating different types of projects under different circumstances The key features of the model include the following gt gt Analysis of up to three Alternatives including a Status Quo or do minimum Alternative These Alternatives refer to different or alternative projects that could be undertaken which are usually compared to a Status Quo or do minimum alternative The Status Quo Alternative or do minimum alternative would typically be Alternative 1 in the model Other alternatives should represent reasonable options to the Status Quo Alternative that are technically feasible but likely to have different costs and potential cost savings While three alternatives will likely suffice for most instances if additional alternatives need to be considered it is recommended to duplicate the model file with the Alternative 1 data contained in the file Two additional alternatives to the do minimum Alternative 1 can be specified in the new duplicate model file Analysis of each Alternative for up to three Scenarios Scenarios are variations on the Alternatives with some parameter or parameters of the alternative that are varied Scenarios are normally used to evaluate external factors such as the discount rate capital costs operating and maintenance cos
302. sing Alternative PW 12 000 3000 x SPW 3 1 2 5 4 000 x PW 8 675 5 12 000 3000 x 4 51502 4 000 x 0 659708 12 000 13 545 2 639 22 906 II Explanation and Interpretation of Results For the Renting Alternative investing 28 174 now at 8 675 interest per year would pay the rental charges for 5 years which are increasing each year at the rate of 5 compounded each year present 6 240 00 For the Purchasing Alternative 12 000 of the 22 906 would be spent immediately for the purchase of equipment leaving 10 906 to be invested at 8 675 interest which principal plus interest on the remaining balance from year to year coupled with the terminal value realizable at the end of the 5 years would pay for the operating costs over the five year period The Purchasing Alternative has a 28 174 22 906 5 268 advantage over the Renting Alternative all expressed in present day dollars NOTE The depreciated terminal or salvage value of the equipment as described in the example is subject to interpretation and in the above calculations that value is assumed to be 4 000 in dollars of that day 5 years hence If interpreted that its depreciated value would be 1 3 of its new purchase price five years hence the 4 000 would be discounted at 3 1 2 the same as all of the other items which are inflating EQUIVALENT UNIFORM ANNUAL COST EUAC This method and way of presenting results ar
303. slope has a severity index of 2 6 Hesulting in 61 P D O Collisions 39 Injury Collisions A W Beam Guardrail has a severity index of 3 7 RTAC Table F 2 2b Resulting 44 5 P D O Collisions 54 8 Injury Collisions 0 7 Fatal Collisions 72 Benefit Cost me Analysis Guide Alberta Transportation and Utilities Collision Costs continued Using provincial average collision cost data of 1 105 000 Fatal Collision 112 000 Injury Collision 3 500 P D O Collision 4 1 sideslopes yield an average collision cost of 0 61 x 3550 0 39 x 112 000 45 850 Guardrail yields an average collision cost of 0 445 x 3550 0 548 x 112 000 0 007 x 1 105 000 70 690 RESULTS With 1 000 AADT and 500 m of guardrail embankment the expected collision costs are Length x Events x Cost Guardrail 0 5 x 0 414 x 70 690 14 635 yr 4 1 sideslopes 05 x 0 414 x 45 850 9 490 yr CONCLUSIONS With a 9 m embankment height 500 m in length the internal rate of return is 11 51 with 1 000 AADT Lower embankment heights or increased traffic volumes would result in greater returns Narrower shoulders would increase the probability of encroachment into the hazard guardrail or sideslope and should therefore increase the cost effectiveness of sideslope improve ments vs guardrail placement Higher embankment heights would result in lower returns due to increased earthwork quantities and right of way req
304. space office equipment or the like may involve specific relatively short analysis periods and particularly when different options have different life periods the EUAC method will be best This method may also be applied in cases which involve no benefits or where undiscounted benefits or positive cash flows do not exceed undiscounted costs or negative cash flows and where there is therefore no return and the internal rate of return method cannot be used Although the name given to this method includes only costs as just indicated the activities being reviewed can have benefits and the benefits or incremental benefits can exceed the costs or incremental costs and the Net Present Worths whether positive or negative would simply be converted to equivalent equal annual amounts This is one of the applications adopted by the ment and in the section describing the Department s methods an example using the EUAC method will be given which will also highlight a problem of dealing with short term projects which have different analysis periods Benefit COS w Analysis Guide 4 2 5 Other Methods There are a number of other ways in which results can be expressed and compared and most are some variation of the four basic procedures just described Results can for example be expressed in Net Future Values in contrast to Net Present Values a matter of transforming the present values to future values by reversing the dis
305. stall Larger Culvert Initially 1989 Cost 43 000 2014 Cost 28 450 1 04 10 672 53 672 Alternative 4 Install Concrete Pipe 1989 Cost 61 000 61 000 While that information gives the picture for one discount rate it does not tell the whole story It does not give the return which is being received on the incremental additional costs of the more expensive alternatives The following three data sheets compare Alternatives 2 3 amp 4 to Alternative 1 the least initial cost alternative In effect the flow of costs for Alternative 1 is algebraically subtracted from the flow of costs for the alternative being tested as illustrated for Alternatives 1 and 2 as an example CASH FLOW DIAGRAMS Alternative 1 Now 25 Years Normal Instal 1 38 500 1 88 500 Alternative 2 15 Years Cathodic Protection de oe as ae Ge ee i ae ols ed Ba ed a aie 200 00 yr 1 3 000 1 45 500 T 88 500 Alternative 2 minus Alternative 1 1111111111111111111111111 200 00 yr 1 3 000 1 7 000 65 Benefit Cost nalysis Guide Alberta Transportation and Utilities Altemative 1 allows the culvert to rust thereby requiring replacement after 25 years culvert costs 38 500 installed culvert replacement requires 50 000 for roadway detour Altemative 2 provides 25 years of cathodic protection such that culvert installation lasts 50 years culvert costs 35 500 installed cathodic protec
306. t SSE SS See L SS eS ee eee L 4 2 A58 4 4 4 9 9 248 9 4HBWJ44 H 4 4 4 4 9 9 4 99 III m II E RR M FA DE RE a BUDE NM E RE mE L k L UP PL Z L L l L i Dl I s L 1 L LI IL Mara KS Wa EE BR Sa Sw 8 HE SOE S Cl EG DE as pea hH ieee eee aeaa H e Ie H H H DA LJ Lopp Pa L LL Wt d E 1 L L Lu 1 L L Y ar Figure 5 2 Graphs Showing Plots of Present Value and Internal Rate of Return Results correspond with the cash flow diagrram 5 1 1 Present Values The lower present value line is a running accumulated sum of discounted capital maintenance and rehabilitation costs The graph starts in 1990 with a capital expenditure of 1 5 million and adding actually subtracting because expenditures are treated as negative yearly discounted maintenance costs accumulate to approximately 1 75 million by the year 2008 The 36 major rehabilitation in year 2010 results in a jump in the accumulated figures The flow diagram shows an equal rehabilitation effort in year 2030 however on the N P V graph this second major expenditure shows as being relatively small compared to the first being disc
307. t analysis within the Department and over the three months which followed meetings on this subject were held with over one hundred staff members representing virtually all Branches in Head Office and each of the six Regions The findings and results of those meetings were reported to a Task Force made up of Executive Directors which was in existence at that time In October 1987 the Task Force presented the following observations and recommendations to the Executive Committee 1 Benefit cost analysis provides information re lated to the efficient allocation of resources which decision makers should have when assessing and making recommendations about investments or choices between pro grams projects or alternatives While the result of such an analysis is not the decision nor is it a Substitute for good judgment it is an item which should be weighed and considered along with ali other factors which cannot be ex pressed in dollars and cents 2 The use and application of economic type of analysis should be expanded within the Department Future applications should not be restricted to the items listed to date but should instead cover all work and projects for which good Alberta Transportation and Utilities information is available to express both benefits and costs in dollar terms How quickly the Department can move in this direction will be limited in most cases by the capability of the major suppliers of input inf
308. t dollars Figure 2 3 Discounting Constant Dollars with a Real Discount Hate of 4 95 Present value 2 885 3 150 1 0 092 Interest rate 9 2 3 150 in current dollars pens 3 000 x 1 05 10 Year 0 Year 1 Present value 5 13 511 10 32 578 1 0 092 Interest rate 9 2 ee lt lt 32 578 in current s 20 000 x 1 0 05 10 Inflation rate 5 N 32 578 in cumant dollars Figure 2 4 Discounting Current Dollars Current dollars have been calculated using an inflation rate of 5 A nominal discount rate of 9 2 has been used for discounting which is equivalent to a real rate of 4 90 Besides simplifying the procedure there is further Alberta Transportation and Utilities advantage in using constant dollars and a real discount rate in that this rate is more predictable than a nominal rate Historically the real interest rate has been positive and for the most part has varied between 2 and 4 In the eighties the spread between the prime or nominal interest rate and the rate of inflation was abnormally high for a number of consecutive years however that difference is now again down to being below 490 The idea of testing the results with three interest rates usually described as low medium and high is recommended by most authorities An obvious shortcoming of this procedure is that thre
309. t is economically efficient To be used in the analysis production and consump tion must be expressed in dollars and because time is valuable future expenditures or incomes are not valued as highly as present ones Future values are discounted and all three of the mentioned means of converting streams of cash flows into results employ the same principles of discounting which principles are identical to those used in the business world for valuing money over time If someone is prepared to forego the pleasure of spending consuming for a year he might make a loan to another who wants to consume immediately and who is prepared to pay interest for that privilege If after a year both parties are in respectively the same mood regarding the desire to consume the loan might be extended and if the interest for the first year is not paid that in effect adds to the amount of the loan and during the second year interest will be accruing not only on the principal but also on the first year s interest This results in paying interest upon interest and is called compounding or using com pound interest At the time that the loan is made its amount constitutes the Present Value of the loan and when it is eventually repaid along with compound interest the total amount repaid will be the loan s Benefit Cost nalysis Guide value in the future Determining the efficiency of a stream of cash flows which include some that will not occu
310. t least one up to two Alternative options The same information will be required for each of these Alternatives NOTE It is important that Alternative 1 be defined as the status quo or do minimum alternative for the calculation of the Benefit Cost Ratio The determination of Benefits or Cost Savings are based on a comparison of the Non Investment cost savings of each alternative against Alternative 1 Project Definition The Project Definition tab includes the definition of variables that will affect the evaluation of the project as a whole The Alternatives to be analyzed are defined in the Alt tabs Vehicle Running Costs Choosing an Approach The model contains two approaches to estimate vehicle running costs The California Fuel amp Non Fuel approach which is the default approach is centered on that used in the CalTrans model and is based on distance related fuel and non fuel costs The California Fuel amp Non Fuel vehicle running costs are estimated using fuel and non fuel vehicle operating costs for each vehicle type based on the segment length and running speed not considering the effect of gradient or curvature specified in the model The Texas Curvature amp Gradient approach relies on the definition of segment curvature and gradient for each segment of the project and the unit costs by vehicle type associated with the gradients and curvature It is recommended that the Texas approach only be used if the cu
311. tal Traffic Volumes 980 x 29 78 x 365 x 1 03 500 x 26 09 x 365 x 500 x 29 67 x 365 x Rough check on Annual Costs 12 553 x 21 263 613 3 130 x 64 200 320 6 889 02 11 119 81 2 325 x 75 174 375 Totals 18 008 83 638 compares with 628 962 checks Close 58 Benefit Cost nalysis Guide Alberta Transportation and Utilities DIFFERENCES IN UNIT COSTS Gravel minus Pavement 1988 s per 1000 veh km Note Input data in these tables has been interpreted from graphs of running costs Grades 0 1 2 96 3 96 4 5 6 96 7 T 4 Tod T 4 TO d T 4 T d 15 4 PASSENGER VEHICLES Gravel 85 km hr 128 135 143 152 163 174 191 118 114 110 102 102 110 118 Ave 122 123 125 127 127 132 142 155 Pavement 100 km hr 106 111 118 126 135 145 157 99 96 93 89 80 76 79 Ave 102 103 104 106 108 108 110 118 Difference in Costs Average Gravel Average Pavement 20 20 21 21 19 24 32 37 SU VEHICLES Gravel 85 km hr 456 530 596 650 708 764 822 290 218 212 238 264 300 340 Ave 362 373 374 404 444 486 532 581 Pavement 100 km hr 388 442 490 530 576 622 664 230 192 166 182 202 225 252 Ave 304 309 317 328 356 389 423 458 Difference in Costs Average Gravel Average Pavement 58 64 57 76 88 97 109 123 TRTL VEHICLES Gravel 85 km hr 446 560 650 730 810 900 990 230 98 130 174 224 284 354 Ave 364 338 329 390 452 512 592 672 Pavement 100 km hr 350 450 522 582 644 718 800 176 76 84 112 145 186 232 Ave 2
312. tandard Benefit Cost Analysis results to measure the relative desirability of each alternative Internal Rate of Return IRR The discount rate that makes the net present value of all cash flows from a particular project equal to zero The internal rate of return on the investment in one alternative or scenario is compared to the Base Scenario of Alternative 1 Scenario 1 Payback Period The number of years that it takes to recover the costs in one alternative or scenario compared to the Base Scenario of Alternative 1 Scenario 1 Net Present Value NPV Net present value in this analysis compares the net cost savings of one alternative and scenario against the first Alternative Scenario 1 This is necessary because all the analysis information represents costs e g there are no revenues as is typically the case in benefit cost analysis of business alternatives As a result it is the net cost savings of one alternative against another that is relevant Investment Costs in net present values Investment costs include Construction costs plus any associated Rehabilitation costs Investment costs for a given alternative are compared to Alternative 1 Scenario 1 so they can be used as the denominator for the Benefit Cost Ratio Benefits in net present values Benefits of an alternative are the cost savings if any as compared to Alternative 1 Scenario 1 This is the numerator for the Benefit Cost Ratio Benefit Cost Ratio This
313. tation and Utilities ARRAYS OF COSTS amp FINAL ADJUSTMENTS continued Cost km x 1 06 x 85 54K Total Cost Description 1988 s 1989 s Project Cost For Year Year 1000 s 1000 s PAVING Alternative 2 Grading 1 800 000 1 908 000 1 908 Maintenance same as above 589 2 497 1989 Base 123 889 131 322 11 273 Maint 589 11 822 1990 Maint 4 400 4 664 399 399 1991 Maint 4 400 4 664 399 399 1992 Paving 62 746 66 510 5 689 Maint 399 6 088 1993 Maint 399 1994 Maint 399 1998 Maint 4 600 4 876 417 417 1999 Maint 417 2009 1st Overlay 65 692 69 634 5 956 Maint 417 6 373 2010 Maint 399 2011 1 Maint 399 2015 Maint 417 2016 Maint 417 2024 2nd Overlay 61 454 65 141 5 572 Maint 417 5 989 2025 Maint 399 2026 1 Maint 399 2030 Maint 417 2031 Maint 417 2038 ROAD USER COSTS Benefit from Paving Alt 1 Alt 2 All 10005 DESCRIPTION 1988 x 1 06 x 1 03 Values 1989 s 1991 Volumes Vehicle Operation 628 962 666 700 728 in 1991 Collision Costs 501 372 531 454 581 in 1991 Time Costs 489 023 518 364 566 in 1991 Totals 1 619 357 1 716 518 1 875 in 1991 All of these costs benefits for paving increase in direct proportion with traffic increases e g 3 growth per year to 1995 and 1 yr thereafter e g 2 110 in 1995 2 131 in 1996 and 3 237 in 2038 56 Benefit Cost Analysis Guide Alberta Transportation and Utilities TIME SAVINGS PASSENGER VEHICLES Total Veh
314. ter than the internal rate of return for Alternative 2 which indicates that Alt 3 is better than Alt 2 the opposite to that indicated by the present worths based upon a 4 5 real discount rate In principle this is a similar situation to the results illustrated in Figure 5 4 on page 40 with an explanation on page 41 Comparing ALT 2 to ALT 3 the internal rate of return is 6 29 meaning that if a rate higher than that is desired Alt 3 is best If generally a lower rate of return is being received on other investment choices it would be best to spend the additional money required initially and over the first 25 year period for Alt 2 The graphs of Present Worths and I R R s and the following Summary of Present Worths for all of the different interest rates mentioned may further aid in the explanation Present Worths for Costs for Various Real Discount Rates 0 96 4 5 63 6 29 9 235 10 92 ALT 1 127 000 71 698 61 000 57 759 48 225 45 133 ALT 2 53 500 50 290 49 468 49 189 48 225 47 828 ALT 3 71 450 53 672 50 234 49 191 46 126 45 132 ALT 4 61 000 61 000 61 000 61 000 61 000 61 000 If better than 10 92 real rate of return can be obtained elsewhere Alternative 1 is best If that high a rate is not available but 6 29 or greater is Alternative 3 is best and below 6 29 Alternative 2 is best Although beyond the alternatives mentioned the cathodic protection could be extended beyond 25 years thereby giving more flexibility
315. ternal rate of return to use for a first trial the problem might be simplified into as few items as possible combined cash flow diagram would be Combined Cash Flows 4 000 Terminal value 3 240 Inflated n 3 939 by 1 05 3 402 3 572 53 50 4 135 Annual retum 0 1 2 3 4 5 12 000 In words a 12 000 investment returns between 3 402 and 4 135 per year for 5 years and a lump sum return of 4 000 at the end of the five year period For testing purposes assume two expenditures are being made one to earn the lump sum 5 years hence and the balance to earn an annual retum of 3 750 00 Median of the 5 annual returns for 5 years Test 15 PW of 4 000 discounted at 15 0 497 x 4 000 say 2 000 10 000 remains to earn 3 750 per year which converts to a Capital Recovery factor of 0 375 The CR 15 5 is 0 298 Obviously 15 is too low an interest rate 20 5 0 334 and Cr 25 5 0 371 Test 25 PW 2595 5 4 000 0 327 x 4 000 Say 1 300 10 700 remains and 3 750 10 700 0 35 0 35 is somewhat between the 5 year CR factor for 20 and 25 Calculate a trial balance using an interest rate of 23 23 nz 2 32 18 15149 1 05 1 05 PW Renting 6 240 SPW 17 14 5 6 240 x X 0 85368 0 72877 0 62213 0 53110 0 45339 3 18907 19 900 PW Purchasing 12 000 3 000 SPW 17 14 5 4 000 PW 23 5 l 1 0 23 5 12 000 9 567 1 421
316. ternative 1 by the year 2011 and at the end of 50 years has a positive value of 4 7 million a million dollars greater than Alternative 1 Does that mean that Alternative 2 is better than 1 if there is confidence that this investment is good to at least the year 2011 Not necessarily The internal rate of return is higher for Alternative 1 throughout the entire analysis period leveling off at 11 after 40 or 50 years That compares to a REAL rate of return for Alternative 2 of 9 45 at year 50 which would only rise an additional 0 1 to 9 55 in perpetuity Does that mean that Alternative 1 is better It does providing the difference in cost of 1 8 million can also be invested in something equivalent that will yield a REAL return of about 11 96 within 40 or 50 years Alternative 1 gains a return of 300 000 on 2 7 million and an equivalent investment of 1 8 million would yield 200 000 for a total of 500 000 Benefit COS Analysis Guide Alberta Transportation and Utilities ALTERNATIVE CAPITAL COST IN 1990 SUBSEQUENT ANNUAL BENEFITS 1 2 7 Million 300 000 2 4 5 Million 430 000 2 Minus 1 1 8 Million 130 000 5 EE EE II ESL asr p D d 131 Es Wes pas 1 KES ae ESE KEE Ba sa unu Dollars 3 SEE HH m GER a Ed Millions ER a Ce To SO A E S EE EN SR ee a ere ee Pot r
317. th Alt 3 71 Benefit Cost nalysis Guide Alberta Transportation and Utilities 8 5 Guardrail vs Sideslope Improvement PROJECT To test the economic feasibility of flattening sideslopes as an alternative to the installation of guardrail ASSUSMPTIONS Standard RAU 211 110 Embankment Height 9m Length of Embankment 500 m Cost of Guardrail 26 m initial installation 13 m reinstallation every 18 years Guardrail Maintenance 500 km yr Additional Fill Material 2 cu m Right of way 2500 ha 1000 ac Traffic Volume 1000 AADT COSTS Capital and Maintenance 3 1 Sideslope Guardrail 2 x 500 x 26 26 000 18 yrs Maintenance 2 x 0 5 x 500 500 yr 4 1 Sideslope Earthwork 2 x 500 x 1 2 36 x 8 27 x 8 x 2 81 000 2 500 _ Right of way 2 x 500 x 36 27 x 10 000 2 250 Operating Collision costs Encroachment Rate From RTAC table F 2 2C the expected encroachment rate for a rural arterial is 00045 events km yr x AADT Probability of Encroachment From RTAC Figure F 2 3b the probability of an errant vehicle travelling 2 metres shoulder width is 92 Number of Encroachments Per Year With 1 000 AADT the expected number of collisions with a guardrail or number of run off roads 15 Encroachments x probability of encroachment x AADT 00045 x 0 92 x 1000 0 414 events per km per year severity Index And Collision Severity From RTAC Tables F 2 4a and F 2 4b a 4 1 side
318. than the interest rate used for discounting If more than one alternative is being tested the one with the highest positive result the highest NPV is usually the best The results of this method are qualified as being judged in terms of the discount rate and that is exactly how the results obtained from this method must be viewed For example if testing two alternatives A amp B Alternate A may provide the higher Net Present Value when future cash flows are discounted at 4 whereas Alternative B may yield the higher positive NPV if a discount rate of 5 is used The reasons for this and a method of getting a better understanding of the significance of results will be covered when dealing with the methods adopted by the Department that also includes the calculation of the Internal Rate of Return The similarity between this method and the Benefit Cost Ratio method will be illustrated next with further limitations of each discussed Benefit 951 nalysis Guide 4 2 2 Benefit Cost Ratio B C Ratio This is a popular method of illustrating the results of a benefit cost analysis and its procedure is closely related to that used in determining Net Present Val ues in fact up to the last mathematical step the procedures are identical A period of analysis and a discount rate are selected and incomes or positive cash flows are added as are expenditures or outward cash flows Having those positive and negative totals the Net Pres
319. that the INTERNAL RATE OF RETURN is equal to the discount rate used in determining the present worth is easy to check Similarly it is easy to calculate the year or years for which the internal rate of return is zero With relatively uniform future costs and benefits immediately following a lumpy capital outlay the internal rate of return in 40 or 50 years will approach the rate of return calculated in perpetuity The higher the return the closer the figures will be As outlined in Section 5 Short Cut Methods of the Summary an internal rate of return in the order of 10 Or higher for a project life of forty or more years will be very close to the return in perpetuity The rate of return in perpetuity would be approximately one percent higher than the internal rate of return if that rate is approximately 5 for a forty or fifty year period When comparing alternatives the plots of the net present values crossing as in Figure 5 4 page 41 the NPV lines cross near the year 2010 means that the NPV are equal for that period of analysis and consequently a plot of the incremental values cross the zero line at that same point in time The relationship between net present values and the internal rate of return described earlier apply to incremental values also and the IRR for the incremental value for this example should therefore be 4 in the year 2010 Further the same checks also described earlier for determining when the IRR sh
320. the first year of operation to the selected year 41 mE This includes the Scenarios for each of the Alternatives 21 Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx Investment Costs in Net Present Value Investment costs are defined as the net present value of Construction Costs plus any Rehabilitation or Life Cycle Costs invested in the project over the forecast period minus the salvage value of the project at the end of the forecast period Investment Costs are used to calculate the Benefit Cost Ratio The Investment Costs in NPV calculation is as outlined below Investment Costs in NPV Construction Costs Alt Scen Rehabilitation Life Cycle Costs Alt Scen Salvage Costs Alt Scen n Where Cumulative Costs are discounted at the selected discount rate Net Benefits Non Investment Cost Savings in Net Present Value The net present value of the Benefits of a project Alternative are compared to the base alternative defined as Alternative 1 Scenario 1 in the model These Benefits or Cost Savings consider all the non investment costs defined above associated with each Alternative Scenario In evaluating the benefits and costs of road and bridge projects there is not a stream of revenues generated by the investment but a stream of user and social costs that will be different from alternative to alternative As a result the benefits of any particular alternative are re
321. the possible percentage errors in the entries being multiplied or divided In the equation A B x C if B is subject to a variation of 10 and C to 15 95 A may vary as much as or slightly more than 25 The slightly more qualifier draws attention to the fact that this is an approximate relationship but quite adequate if the possible deviations in the individual items are not too large If the deviations are large the whole process becomes questionable the degree to which the approximation might be misleading will be only part of the problem In that example A might actually vary between the limits of 23 5 to 26 5 96 compared to the approximation of 25 94 When the powers of numbers are involved the rules for multiplication can be used because in effect they entail the same mechanics of calculation Roots are powers in reverse and the procedure of summing deviation percentages must also be re versed If a number is subject to a deviation of 10 96 the square root of that number may have a deviation of approximately 5 the cube root approximately Alberta Transportation and Utilities 3 1 3 If the process is reversed and a number is multiplied by itself three times and the accuracy of the number is within 3 1 3 96 the product would be subject to a variation of approximately 10 When adding or subtracting the numerical deviation in the individual items being added or subtracted is added to deter
322. the various cost factors for collisions The Market Losses and Family Community allocation make up the majority of the charges for fatalities and these items have received the majority of any debate about the cost of crashes These items in the Serious Injury class are not as contentious because a long lasting injury or disability is an obvious cost to society While the market type of losses for fatalities are by far the most significant items in this table some studies have included much higher figures and further the overall significance of including these items is reduced somewhat when the low frequency of fatal type of collisions is considered For each crash involving a fatality on average 1 35 people die 0 57 are seriously injured and 0 69 are 1 Hans A Adler Economic Appraisal of Transport Projects 2 Robley Winfrey Economic Analysis For Highways Library of Congress Catalogue Case Number 69 16620 Benefit Cost w Analysis Guide moderately injured Including property damage the average cost for a fatal collision using the above figures is 1 114 000 Similarly for each non fatal crash involving an injury 0 26 victims are seriously injured and 1 43 receive moderate injury for an average cost per crash of 118 831 Using provincial average of 2 involving fatalities 35 involving injuries but no deaths and 63 property damage only the average cost per collision is calculated to be 66 120 The
323. thod for dominant lumpy cash flows in the future are required to set up the multi solution circumstance which does not often occur and if it does it may be in a range which is not critical anyway With continuous plots as used by the Department irregularities such as this will be easily recognized and can then be dealt with See Section 5 4 for a suggested reference for dealing with analytical problems such as this 32 Alberta Transportation and Utilities 4 2 4 Equivalent Uniform Annual Costs EUAC This method also requires the summation of dis counted values for each alternative but instead of comparing totals in some way the total present values are then converted to equivalent annual amounts using the same discount rate and using the number of annual amounts which correspond to the life of that alternative Obviously if the life of different alternatives is the same the EUAC of each will be in direct proportion to their total present values and a comparison of totals would be just as revealing as a comparison of other figures which are directly related to the totals This method becomes useful sometimes manda tory when different analysis periods must be used for the different alternatives and spreading total dis counted amounts over the different length of periods will permit comparison of the annual amounts for different alternatives Analysis involving the purchase or lease of vehicles heavy equipment office
324. timing will uSually permit approximate results to be calculated manually in the form of a rate of return on a perpetuity basis which will be close to results based upon a relatively long analysis period such as 40 or 50 years 8 Examples 8 1 General Descriptions This section includes the documentation for the three examples developed or reviewed by the Guidelines Committee in 1988 and 1989 to illustrate concepts and procedures adopted by the Department and described in this Guide All three examples are based upon actual data with the Highway 88 Project involving input from many areas within the Department and extensive attention by several members of the Committee The Culvert and Guardrail examples were developed within specific Branches with the Committee members providing guidance to ensure consistency with methods adopted by the Department In addition to those three examples the speed Change example was developed in conjunction with the documentation for the Guide and User Manual and preparation of the Summary in 1991 While the Highway 88 Project illustrates many procedural features involved in a benefit cost analysis for a roadway project the nature of that project required only one running speed for each class of vehicle for each alternative and the Speed Change example illustrates the use of many different running speeds which will be necessary in some of the analysis which will be undertaken by the Department Proj
325. ting inflation and combining for each sequence the last year s maintenance trade in value and purchase of the new replacement That has been done in the table on the following page and those results show that a three year cycle is best in the long run and the four year cycle is a close second more competitive than the two year cycle which the short period EUAC results favoured Different circumstances will require different solutions and the best general guidance which can be given is to use as long an analysis period as possible regardless of the method being used The procedures and assumptions made in Benefit Cost nalysis Guide Alberta Transportation and Utilities YEAR EACH YEAR TWO YEAR THREE YEAR FOUR YEAR 0 15 000 15 000 15 000 15 000 1 5 500 1 000 1 000 1 000 2 5 500 9 650 2 000 2 000 3 5 500 1 000 12 855 3 000 4 5 500 9 650 1 000 15 398 5 5 550 1 000 2 000 1 000 6 5 500 9 650 12 855 2 000 7 5 500 1 000 1 000 3 000 8 5 500 9 650 2 000 15 398 9 5 500 1 000 12 855 1 000 10 5 500 9 650 1 000 2 000 11 5 500 1 000 2 000 3 000 12 9 500 5 350 2 145 398 Present Worth Discounted 4 57 249 54 811 53 785 53 824 Table 5 2 Cash Flows and Present Values for 12 year period reconciling the results obtained from short period EUAC analysis with the longer term are matters for agreement between analysts and decision makers and good solutions may vary with the circumstances of the case 5 3 Presentat
326. tion 2 249 000 184 000 50 yr Period Do Nothing 235 000 11 273 000 Improvement 1 800 000 8 807 000 188 000 302 000 152 000 2 442 000 _ 11 273 000 8 807 000 _ Benefit Cost Ratio 2 442 000 2235000 1 18 INTERNAL RATE OF RETURN An initial investment of 1 800 000 followed by 600 000 each 20 years produces a 320 000 250 000 benefit which is increasing each year at the rate of 7 1 and a benefit of 10 000 8 000 which is increasing at the rate of 5 per year For 30 year period test an interest rate of 7 1 discount rate equals combined growth and inflation rate and larger benefit of 70 000 annually will have a present worth over 30 yrs of 70 000 x 30 2 100 000 B 26 7 1 5 1 05 Maintenance benefit 2 000 x SPW 30 2 000 x SPW 2 30 2 000 x 22 396 45 000 Add road user benefits previous page 2 100 000 TOTAL BENEFITS 2 145 000 Present Worth of Costs 1 800 000 600 000 x PW 2 20 404 000 TOTAL COSTS 2 204 000 Summary for Interpolation Purposes Interest Rate Benefits Costs Difference 8 675 380 000 7 1 2 145 000 2 204 000 59 000 Reducing interest rate by 1 575 reduced the difference in costs by 380 000 59 000 321 000 To reduce difference by a further 59 000 reduce interest rate by a further 59 321 x 1 575 0 289 or 0 3 Testi 7 1 0 3 6 8 rn 995 5 1714 1 05 Discount rate now less than the combination of growth plus i
327. tion has initial cost of 7 000 anodes require replacement after 15 years at a cost of 3 000 electric power to anodes costs 200 per year ANNUAL COSTS NET ANNUAL UNDISCOUNTED VALUES No Year OVERSIZE CULVERT CAP CAP BENEFIT DIFF 34 500 SUM OF P W 4 DISCOUNT RATE 5 83833838338383383833858 S Su iB D q5 Subse O O O O O O O O O O O O O O O O O O O O G O O Table Comparison of Alt 2 to Alt 1 66 Benefit COS Analysis Guide Alberta Transportation and Utilities Altemative 1 allows the culvert to rust thereby requiring replacement after 25 years culvert cosis 38 500 installed culvert replacement requires 50 000 for roadway detour Altemative 3 provides an oversized culvert initially with a liner installed after 25 years oversized culvert costs 43 000 installed liner costs 20 800 and requires 7 650 worth of grout to seal ANNUAL COSTS Mo Year REPLACE CULVER OVERSIZED CULVERT P COST COST SAVINGS guees CAP BENEFIT CAP BENEFIT DIFF SAVINGS VALUES CAPITAL TOTAL 10 00 NET ANNUAL UNDISCOUNTED VALUES SUM OF 4 DISCOUNT RATE oan u gt ERU EENE gt SQ d una A E Q Bg sas 050 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
328. ts road user costs vehicle operating costs travel time costs and collision costs and emission costs Up to eighty 80 year timeframe for the analysis Flexible project definition categories The user can define up to 10 different types of projects for analysis Flexible construction cost categories The user can define up to 8 different types of project construction costs This will allow for the definition and separation of costs that might be specific or unique to a project such as environmental impact mitigation costs Flexible construction period The construction period is defined for each Alternative Flexible operating and maintenance cost categories The user can define up to 5 operating and maintenance cost categories Flexible vehicle definition categories The user can define up to 10 different types of vehicles for the analysis Vehicle Operating Costs can be calculated in one of two ways Important It is recommended the California Fuel amp Non Fuel approach be used for all projects unless the curvature or gradient varies significantly between alternatives 14 The analysis results can be viewed for any time period up to 80 years including the construction period For example if the construction period is 5 years the operation of the project would be projected for a total of 75 years The results for any individual year in the forecast period can be viewed in the Results tab of the model
329. ts can be imagined when writing or reading about the subject the full extent of the complications will not be appreciated until in the midst of an analysis The complications with undertaking a short cut ap proach to gaining results will also be complications in predetermining good limits for a project or program How relevant some factors are will not be known until the data is collected and assessed and conse quently what were thought to be homogeneous sections at the outset of the study may turn out to have large variations in an influential item Therefore for complex projects the process of estab lishing good limits and parameters may extend be yond the initial planning and organization stage and those set initially may have to be adjusted as the study progresses While that may be necessary and unavoidable in some cases giving thought to the subject initially will in the majority of cases go a long way towards avoiding the need to make adjustments later 6 2 2 Applicability and Diminishing Returns While the coverage in the last section revolved around a single project where geographic cut off points would be the parameters involved and benefits the variable the principles involved have a broad Benefit Cost nalysis Guide application and different subjects will have different kinds of parameters and different variables A program to be assessed may have equivalent fea tures The program may involve a number of
330. uch costs would decrease by 4 if the period was extended by five years to twenty years Those relative costs are expressed in terms of real value over a period of fifty years Alberta Transportation and Utilities Maintenance Costs For paved two lane standard 4 400 per km per year for five years follow ing new construction or resurfacing and 4 600 per km per year thereafter For gravelled roadways 6 500 per km per year plus 6 000 per km each three years for regravelling plus 10 000 per km each twelve years for regrading Those figures are added For example in years 3 6 and 9 the cost would be 12 500 and in year 12 the cost would be 22 500 Vehicle Operating Costs The cost for fuel is the largest single cost for operating all classes of vehicles The costs for depreciation maintenance and repairs are also significant The cost for oil and tires is on average about 4 of the total cost for passenger vehicle operation and about 11 ofthe total cost for truck operation The cost for tires for large trucks increases significantly on steeper grades up to one third of the total cost on an 8 upgrade The greatest efficiency for passenger car op eration is on a downgrade of 5 to 6 and for trucks a downgrade of 2 to 3 is most efficient Cost data for operating on gravel varies greatly and the conclusion by members of this com mittee is that generally speaking the operat ing c
331. ugh the funds spent on the project but also create the potential for additional expenditures on indirect and induced economic activities These additional indirect and induced expenditures are associated with upstream purchases of goods and supplies required to support the project and the subsequent income effects generated by the project In this benefit cost model only the direct expenditures and costs have been included in the analysis Transfers oome types of revenues and expenditures from a social perspective do not represent real change but are rather transfers from one group of economic agents in the economy to others This typically includes subsidies grants and taxes all which are transfers from taxpayers to other groups in the economy From a Pareto efficiency point of view transferring benefits or costs from one economic agent to another has no effect on economic efficiency 21 Appendix C Benefit Cost Analysis Guide ATU 1991 page 13 22 Appendix C Benefit Cost Analysis Guide ATU 1991 page 12 23 Appendix C Benefit Cost Analysis Guide ATU 1991 page 18 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV1z xlsx Section 2 How to Work with the Model Where to Enter Information The model has been designed so that all user inputs are entered in cells with the following formatting In some instances a drop down menu has been built into the model with pre defined selections for the user to ch
332. uirements but could still be cost effective depending on the traffic volumes FURTHER WORK REQUIRED Determination of collision severity indices for 5 1 and 6 1 sideslope Determination of other maintenance costs associated with guardrails increased snow removal costs increased grass cutting costs etc Determination of sideslope maintenance costs for 3 1 4 1 5 1 and 6 1 sideslopes 73 Benefit Cost nalysis Guide Alberta Transportation and Utilities 211 110 design standard 1000 AADT 9 m embankment height Installation of guardrail assumes a 3 1 sideslope Guardrail costs 26 000 km installed and has an 18 yr life Guardrail replacement cost is 13 000 km every 18 years Annual guardrail maintenance is approx 500 km Improving sideslopes requires additional fill O 2 cu m and additional right of way 2500 ha Benefits accrued are reduction in collision costs and increase annually at the same rate as traffic 290 for first 10 years and 1 thereafter ANNUAL COSTS NET ANNUAL UNDISCOUNTED VALUE SUM OF 4 DISCOUNT RATE No Year GUARDRAIL 4 SIDESLOPE COST RUC COST RUC questi 26 000 j 157 250 87 250 57 250 500 500 5 145 5 845 56 769 500 u 500 5 248 5 748 156 307 500 500 5 351 5 851 55 8621 500 500 5 454 5 954 55 435 500 500 5 557 6 057 155 024 500 500 5 860 6 160 54629 500 5 782 8 262 54 249 5 865 8 385 153 884 500 5 068 6 469 53 532 500 6
333. umed that the 95 km hr driver desires to travel at 103 or 111 km hr That consideration will continue to be ignored and might be placed in the Same category as other refinements discussed near the end of this section Those issues and questions highlight the need for dialogue between analyst and the people supplying the traffic data In complicated traffic situations the traffic people will have to be given the details of the problem being analyzed to provide good information for the analysis They may not have all of the answers however one working with traffic on a continual basis will be able to make better assumptions about how to handle items for which the available data is not the best In an attempt to reach some conclusion about the significance of likely errors in the results calculated for this example without taking another fifteen pages for calculations it would be simple to approximately test the variance which would result if 10 96 of the traffic in the 7 246 hours of the year operate like the restricting traffic and are also travelling at the same speed as they would if the highway were improved The assumption is that R Vs are involved and the adjustment would therefore be made in the auto and R V category The net benefit for increasing the speed from 103 to 111 km hr for that category of vehicles 1 834 662 in number was calculated to be 7 627 per year per kilometre 53 400 for 7 kilometres Page 11 The total number of
334. unity cost principle whereby the value of the required resources foregone in the best alternative use is estimated The incremental benefits generally represent the total willingness to pay by all beneficiaries for the goods or services produced by the project As applied to specific projects the principle of dealing in incremental values takes on a number of different appearances At one extreme an entirely new project or program may have no history of similar activity against which to compare the new and in such a case the new activity is compared to doing nothing The costs of the new are used without deduction as are the benefits and the merits of the project will be presented and judged upon those totals Those circumstances stretch the concept of incrementality nonetheless it is well to keep the concept in mind for the majority of the subjects being tested will have deductions to make from both the benefits and the costs before the two are compared The Highway 88 example which was developed by the Guidelines Committee involved an existing gravel highway and the cost of providing pavement and its maintenance was compared to the cost of maintaining regravelling and reshaping the existing facility if it were to remain in a gravelled state similarly the benefits which would result from paving the route would be in the form of travel cost savings the difference between the cost of travelling on gravel and the cost of tra
335. until proven other wise it is recommended that the price paid for right of way be used as the al locative cost for this item C Time for all roadway users is important Roadway improvement projects will usu ally result in higher average vehicular running speeds with a corresponding decrease in travel times It is recom mended that average wage rates of 22 00 per hour for bus truck and trans port drivers 12 00 per hour for working occupants of all vehicles and 5 50 per hour for everyone else including the occu pants of buses and recreational vehicles be used for all travel time differentials This is a judgment kind of factor and it is most important that those who use the results of these analyses are comfortable with the inputs for items such as the value of time Vehicular operating costs are the lowest in the speed range of 50 to 70 km hr and the fact that most drivers when given the freedom will choose to operate in the range of 90 to 110 km hr suggests that time has value Benefit nalysis Guide d Family community and market losses These costs should be included in the analysis On average in 1987 dollars the societal cost of a fatality including family commu nity and market losses is 640 000 and excluding these losses is 17 700 Com paratively the cost for a serious injury is 425 000 and for a moderate injury is 1 400 Including property damage and using overall provincial numbers the
336. ve Used to define 3 Scenarios for each Project Alternative Used to determine Present Value and Break Even Point Used to determine the change in Capital Costs from the Base Analysis for each of the 2 Scenarios Used to determine the change in O amp M costs from the Base Analysis for each of the 2 Scenarios Used to determine the change in Road User Costs from the Base Analysis for each of the 2 Scenarios Used to determine the change in Emission Costs from the Base Analysis for each of the 2 Scenarios Default data for Running Speed and Project Life Provided as a guide when defining the Alternative in Alti Base Analysis fixed and 2 Alternate Scenarios are user defined User 496 is Alberta Transportation s default value User User User User User defined Project Type Categories up to 10 Links All components with a timeline These scenarios will be applied to each Alternative Calculation of Net Present Value and Break Even Period Applied to both capital costs and rehabilitation costs Applied to operating and maintenance costs Applied to vehicle operating costs and travel time costs Applied to vehicle emissions costs RehabCosts tab and Alt Design Speed info only User defined for each Provided as Project Type information in Project Definition Alberta Transportation Project Benefit Cost Model User Guide to ATBCmodelV 1z xlsx
337. ve also been used in this document to mean the same thing Real interest rate the rate at which wealth grows over and above price changes inflation Four percent 4 is being used as the average long term real interest rate Note Nominal interest rates are associated with Current dollars and Real interest rates are associated with Constant dollars Discountrate the rate of interest used to adjust future values to present values Social discount rate as used in these documents the social discount rate refers to the interest rate which is appropriate to use in the analysis for a public works and will be the same value as the minimum attractive rate of return see MARR The absolute value depends upon the kind of dollars used e g constant v s current Depreciation Salvage Values and Sunk Costs ounk Costs expenditures made prior to a benefit cost analysis being done that cannot be recovered and are therefore not relevant in the analysis Depreciation the loss in value of an item over time generally including physical wear and tear and obsolescence in the case of the operation portion of road user costs in these analyses the most relevant costs are those associated with actual use of vehicles and the portion of depreciation related to the passage of time and obsolescence is excluded Salvage values salvage values terminal values and residual values are treated as being synonymous terms in this text and t
338. ved one year from now and 2 year s hence another 1000 00 is to be received Using a discount rateof 8 5 per annum the first 1000 00 has a present worthequal to 1000 00 1000 00 _ 1 1 p 1 085 The 2 1000 00 has present worth equal 1000 00 _ 1090 00 849 455 14i 1 085 Present Worth of the Series 1 771 114 GENERAL FORMULA where P Present Worth A periodic sum annual I interest rate per period n TABLES Calculating the Present Worth of a Uniform Series can be done as above by treating each sum individually and discounting it by the appropriate number of years using the factors under the column PW of tables This is obviously laborsome if the series extend over a number of years and the Present Worth for a Series SPW factors can be used instead column 5 in the Tables For 8 5 the factor from this column for two sums is 1 771114 This factor multiplied by 1000 00 gives the same amount as above 8 CAPITAL RECOVERY A debt of 1 771 114 which is accumulating interest at the rate of 8 5 per annum is to be paid in two equal installments the first in one year s time and the 2nd two year s hence After one year and at the time of the first payment the debt will have grown to 1 771 114 x 1 085 1 921 659 The initial debt in this example 1771 114 is the present worth of two periodic payments of 1000 00 each as calculated in the last example Therefore test an inst
339. velling upon pavement incremental values In a different and new example assume a number of residents in a rural country residence type of subdi vision are tired of paying the high price of trucking in water and would like their local government to test the idea of installing a public water system in the area In detail this would be a rather complex study how ever some simple assumptions will add to the de scription of incrementality The net capital cost or incremental capital cost would be the cost of install ing the public system less the value of all of the privately owned pumps and pressure systems on the second hand market which would not be required if there was a public water supply system Annual benefits may take the form of subtracting the cost to the municipality for operating the public system from the collective cost to all of the residents for their purchase of water and the maintenance costs they incur in running their own systems With this simplistic description the economic test would involve comparing the streams of incremental annual benefits and maintenance costs and the in cremental capital costs Dealing with incremental values has a further dimen sion and that relates to the comparison of alterna tives one to another It is normal when considering more than one way to build a better mouse trap to compare each new way to the old way and this produces two results when two new ways are being considere
340. vers 12 00 per hour average in Alberta for occupants of passenger vehicles 1 A Randall Resource Economics An Economic Approach to Natural Resource and Environmental Policy p 255 13 4 Cost Benefit nalysis Guide involved in work and 5 54 per hour for everyone else including the occupants of buses and recreational vehicles RV s and the drivers of RV s Whether a value for passengers time should be in cluded depends upon how the increase in available time will be used If used for increased production or voluntary leisure time has value On the other hand time saving should not be given a value if people already have time on their hands and more time will increase involuntary idleness as in many developing countries with extensive under employment Mr Adler in the same reference relates the value of time savings to the proportion of the time saved compared to the time it takes to make the trip The Saving of twenty minutes in a trip which would other wise take an hour may be more valuable than that Same Saving in a trip usually taking four hours The actual traveling time for the longer trip will vary more three and one half to four and one half hours and that uncertainty will mean that most passengers will not plan for the use of a twenty minute time Saving That relationship would apply to freight shipment as well as to passenger travel Robley Winfrey develops a somewhat different view and g
341. viding and displaying results can be applied With the absence of entries after 25 years the NPV and IRR values remain constant for the period 25 years to 50 years and both of these indicators are positive for that period whereas both are negative for the period up to 25 years Further three alternatives are involved four including the Base Case and the NPV and IRR indicators for two of the alternatives are at odds with each other and the incremental values between those two alternatives is assessed 8 2 3 Guardrail Example As the more descriptive title given to this example Guardrail vs Sideslope Improvement indicates this project compares the economic advantage of Benefit Cost Analysis Guide flatening sideslopes instead of installing guardrail This as the culvert example is an analysis of one specific feature of a highway or roadway design which can be treated quite independently of the balance of the components which make up the whole With cost differences benefits continuing throughout the period of analysis the results for this project follow the more typical form for long range projects with Net Present Values increasing over time and Internal Rate of Return values leveling off towards the latter part of the project s assumed life While the number of input values are relatively few those that are required for this analysis are not easy to determine and this example illustrates the resourcefulness and know
342. ving econometric models which can trace the effects which a change in one variable will have on all others in the economy and measure the net resulting change A limited study may indicate positive results however if another area in the economy is adversely affected the test of efficiency may not have been met and the scope of the study is not appropriate The adverse effects on the other area of the economy may be greater than the positive effects on the portion reviewed A project may be undertaken in an area which has many unemployed and that situation might change and as well the local stores may raise their prices during the higher level of local activity but neither of these events will rule out a benefit cost type of analysis The changes are on a localized basis and of short duration 2 1 2 Incrementality Within the benefit cost framework of analysis only 1 E J Mishan Economics for Social Decisions Elements of Cost Benefit Analysis New York Praeger Publishers p 14 2 Treasury Board Secretariat Benefit Cost Analysis Guide Planning Branch March 1976 p 11 UC Cost Benefi wee Analysis Guide Alberta Transportation and Utilities the incremental benefits and costs associated with a project are considered The analysis excludes benefits and costs that have already occurred or will occur whether not the project is implemented The incremental costs are calculated on the basis of the opport
343. within the province and is a large Department within the Alberta Provincial Gov ernment with annual budgets approaching one billion dollars Being large and in the business of building or helping others principally municipalities to build provides a wealth of opportunity for the application of this con cept and the use of its results in the decision making process While the mandate of this Department is limited to the general fields as described in its title the possible activities in those fields are diverse requiring choices to be made and priorities established There are in sufficient resources to do everything that is re quested and required There are choices to be made between competing programs and projects There are choices to be made between alternate designs and selection of materials Many capital works projects offer staging opportunities and all require maintenance after con structed Benefit Cost comparisons will assist in making good decisions in all of those matters as well as in choices which must be made in maintaining an efficient organization and infrastructure to administer the Department s activities The results of a benefit cost analysis are most com prehensive when all competing alternatives have been included in the study such as when alternate designs or alternate choices for one particular endeavor are being assessed The differences in the economic merits for all of the alternatives can be weig
344. would be appropriate for other types of work with which the Department is associated 8 2 Example Features Many of the features of each of these examples will be appreciated as they are reviewed and what will be outlined here are highlights as well as aspects of each which may not be obvious when wading through the details Guarding against errors should be kept in the forefront particularly in complex projects where the opportunity to make mistakes are so numerous The Highway 88 example includes quite extensive checks on the calculations and the Speed Change example includes some discussion about how results may vary with different treatment of input data Using the Highway 88 project as an example in the User Manual uncovered a procedural error in the manual version which illustrates that such errors will not be caught in the checking of details if the same faulty procedure is followed in the checking process Benetit Cost nalysis Guide 8 2 1 Highway 88 Example While not included in the project description the Guidelines Committee originally considered review ing the entire section of this highway which was then a gravel standard Slave Lake to Ft Vermilion but decided that variations in traffic volume for that entire length was too great to include all of it in one project Deciding to shorten the length to include in one analysis is an example of establishing appropriate parameters as outlined in Section 6 2
345. xample used where there is a varying degree of benefits is particularly difficult to deal with for it may seem unreasonable to undertake a separate study for each change in benefits and yet one study for all is not adequate either In such cases the needs of the decision maker should be paramount in determining the division of projects A first step may be to take a high sample and a low sample and the results of those two separate analyses may help in deciding what more might be done The high and the low samples will at least establish outside limits and will indicate if all are viable none are viable or viability ends somewhere in between 49 The needs and views of the decision maker should also be determined regarding divisions based upon factors outside of the framework of the analysis Just as the result of an analysis is not the decision the decision about parameters may not depend solely upon the technicalities related to the project For example the decision may be that only 10 km of a long route will not be paved either at least half of it will be paved or none of it will be paved If that is the way it is going to be there is little point of breaking the project into 10 km sections Divide it in two and study the half containing the greatest benefits The results of that half if positive may lead to further questions about paving part or all of the remaining half While some of the problems in determining good limi
346. xisting asset the historical project cost should be entered in the Alt tab This value is reported in the Project Costs tab but NOT included in the Total Construction Costs Construction Costs by category as defined by the user as well as Rehab Costs calculated in the model Operating and Maintenance Costs by category including user Specified Maintenance costs as well as Scheduled Maintenance costs gt Road User Costs including Vehicle Running Costs Travel Time Costs and Collision Costs Emission Costs include all cost estimates related to vehicle emissions associated with the Alternative Total Costs include each of the costs as defined above Total Construction Costs excluding Historical Project Cost Roadway Operating and Maintenance Costs Road User Costs Emission Costs Project Cost Graphs For each Alternative two graphs of costs are provided These charts are in the six tabs to the right of the summary tab and are labeled Alt1Invest Alt1Other Alt2Invest etc The first includes Infrastructure costs and related Life Cycle and Reinvestment costs over the forecast period separate tab is provided for each Alternative e g Project Costs Alt 1 Project Costs Alt 2 Project Costs Alt 3 19 Alberta Transportation Benefit Cost Model User Guide to ATBenefitCostModelV 1z xlsx Project Increasing Curve Radius Alt2 Flatter Curve Investment Costs 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000
347. y in giv ing them a value have been covered and items which cannot be given a dollar value cannot be included Further some apparent economic effects in a local area of the economy should not be included because they do not change the economy as a whole and they do not really reflect any change in resources pro duced or consumed and they too have previously been discussed A local change in prices was one example given for this category of items The excluded items referred to here do not relate to either of the above they are another category of costs or benefits which should be omitted on the grounds that they too have no effect on resources produced or consumed or their effect is so small that they can be forgotten 2 3 1 Sunk Costs In economic terms or in engineering evaluations sunk costs refer to what has been invested or paid in the past and cannot now be recovered Such costs are said to be sunk A benefit cost analysis deals with the future and what has been spent in the past is irrelevant except and unless the works which are now being considered can make good use of what was previously done Even in such a Situation what was spent on the facility in the past is not used directly in the analysis but any advantage of adding to the old is reflected in lower costs future costs for that alternative Sunk costs and the subject of terminal values are related in the situation where a physical asset is being abandoned and
348. y x cost per hr 204 540 x 0 7 x 6 8 1 000 x 1 2 x 24 28 040 per year Use 28 000 as an advantage for a new route in the summary figures for this item These figures will be summarized again however the total benefits for constructing a new route steming from operation and time costs on the 7 km section are ltem 1 plus the 70 figure for Item 2 plus ltem 3 14 400 37 400 28 000 79 800 Calculations for the 3 2 km Urban Section To the 79 900 per year benefits calculated above for the new route alternative these additional user costs savings must be added 1 Difference in costs for 70 of the traffic 50 km hr for 3 2 km v s 111 and 103 km hr for 4 0 km Tractor Trailer Units Annual volume 204 540 x 7096 143 200 Operating cost 50 143 200 x 243 9 1 000 x 3 2 111 800 103 143 200 x 282 4 1 000 x 4 0 161 800 Difference s 50 000 per year extra cost for new facility Note Total costs are easier to deal with than incremental costs in these calcullations because the distances are different I Time cost 50 143 200 x 3 2 50x 1 2 x 24 263 900 103 143 200 x 4 0 103 x 1 2 x 24 160 200 Difference 103 700 per year less for new facility SUs and Busses same operating costs Volume 153 405 25 567 x 0 7 125 280 vehicles per year Operating costs 50 125 280 x 311 4 1 000 x 3 2 124 800 103 125 280 x 309 9 1 000 x 4 0 155 300 Difference
349. ysis procedure and ways of presenting results will have to be modified to provide information which will be meaningtul and helpful Identical results can obviously be presented in a variety of ways and the purpose for outlining a format is to strive for uniformity in this phase of the study also Those who must review reports prepared in different areas of the Department will appreciate the similarity and familiarity which a common method of illustrating results will provide While the analyst should either follow this format or obtain agreement about changes the number of Pages needed to present the results will vary For even a relatively simple project the print must be rather small to include input data and the arrays of costs and benefits for each of 50 years on one page With changes in results being relatively small and uniform in the 30 to 50 year range the trade offs between using more pages and showing data and results in 5 year intervals for the last twenty years as done in an example in the Summary might b a subject for discussion between the analyst and the decision maker 46 Alberta Transportation and Utilities 5 4 Checks and Balances There are many opportunities for errors in procedure methodology and calculations and the analyst as well as those reviewing the work should at least check those things which are easy The inherent relationship between the NET PRESENT WORTH being zero at the same point in time

User Guide - Alberta Ministry of Transportation

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