Office of Planning, Environment, & Realty (HEP)
Planning · Environment · Real Estate
Cost-benefit analysis is a framework for considering a range of benefits and costs in monetary terms. A variety of analytical tools are available to assist in quantifying and monetizing the various benefits and impacts of transportation and land development policies. Since some impacts are difficult to monetize, the results of cost-benefit analysis are rarely the sole factor in determining whether a project or policy is worthwhile. Cost-benefit analysis can nevertheless serve as a useful tool in alternatives evaluation. It can be used to assess overall benefits, to compare the relative magnitude of specific costs and benefits, and to assist in prioritizing among alternatives.
In benefit-cost analysis, a stream of benefits and costs over a period of time is typically discounted to place it in current year terms. In this way, the value of benefits and costs that occur continuously can be directly compared to one-time costs such as highway construction costs. Common benefit-cost measures include benefit-cost ratio, net present value (NPV), and internal rate of return (IRR).
Cost-effectiveness analysis is related to cost-benefit analysis. Instead of attempting to enumerate all benefits in monetary terms, however, cost-effectiveness analysis focuses on one or more specific impacts, such as total emissions. A comparison is then made of the cost per unit reduction in the impact, e.g., cost per ton of pollution reduced. Cost-effectiveness analysis is most useful when one or a few impacts that are not easily monetizable are of primary interest.
The regional economic benefits to improvements in a major freight corridor are investigated. User benefits and economic benefits are combined to compare total monetized benefits to costs.
A consumer welfare model is used to calculate the per-trip monetary value of user benefits for various regional transportation and land use alternatives. Benefits are calculated based on changes in travel patterns and transportation network characteristics.
Benefit-cost models calculate user benefits and external costs for alternative transportation networks or projects and compare them with capital, operating, and maintenance costs. User benefits, including time, operating costs, and safety costs, are based on differences in travel patterns and transportation network characteristics. Some models also include valuations for externalities such as emissions, energy, and noise.
The Surface Transportation Efficiency Model, STEAM, is a model developed by FHWA to estimate user benefits, costs, and externalities of transportation projects, based on trip tables and networks from four-step travel demand models. STEAM calculates user benefits based on changes in consumer surplus for travelers at the link level. STEAM also estimates and monetizes externalities including emissions, energy consumption, and noise based either on default or user-input values. The use of STEAM to analyze regional freight improvements is described in the Portland case study. STEAM has also been applied in New Jersey to estimate user benefits of Route 1 corridor improvements, and in the New York metropolitan area to analyze regional freight strategies.
The ITS Deployment and Analysis System (IDAS) is a sketch-planning network model to analyze the travel impacts, user benefits, infrastructure costs, and other social benefits and costs of over 60 intelligent transportation system (ITS) strategies. IDAS utilizes local travel model network and trip table data and allows the user to apply ITS strategies at the network, link, or zone level. IDAS has been applied in a number of metropolitan areas including Cincinnati, Detroit, Miami, and Tucson.
Net_BC is a benefit-cost model that computes benefit-cost measures based on travel demand model assignments. Benefits include time savings, operating cost savings, and accident reductions. Net_BC has been applied in Indiana and other areas.
StratBENCOST is a benefit-cost model that computes benefit-cost measures based on user-input traffic characteristics, project costs, and growth factors. Impacts considered include time, operating, and safety cost savings; construction, operation, and maintenance costs; and emissions and social/neighborhood benefits. StratBENCOST was developed for the National Cooperative Highway Research Program (NCHRP).
BCA.NET is the Federal Highway Administration's (FHWA) web-based benefit-cost analysis tool to support the highway project decision-making process. For a project evaluation, BCA.Net takes as inputs the capital costs, physical and performance characteristics, and forecast travel demand of the highway project in question. The user specifies strategies for improvements and maintenance and builds a Base Case and an Alternate Case for evaluation. BCA.Net calculates the traffic impacts and the present values of agency and user costs and benefits for each case and compares them to arrive at measures including the net present value, benefit-cost ratio, and internal rate of return for the Alternate Case relative to the Base Case.
These models are designed to compare alternative highway investment strategies by comparing user benefits with life-cycle capital, operating, and maintenance costs under different strategies. The models are commonly used to assess tradeoffs between system expansion and system preservation, as well as to evaluate the benefits of different overall levels of investment.
The Highway Economic Requirements System (HERS) is a benefit-cost analysis system developed by the Federal Highway Administration. It is used to compare improvements to highway segments including resurfacing, reconstruction, widening, etc. While it has primarily been applied at a national level, the states of Oregon and Indiana have adopted it to analyze statewide investment strategies. These features have been adopted into a new state-level version of the software known as HERS/ST.
The Highway Development and Management Tools (HDM-4) model was developed by the World Bank. It estimates road user benefits, infrastructure costs, and externalities including accidents, energy, and emissions for alternative investment strategies. It can be applied at either the project or program level. Previous versions of the model have commonly been used internationally to evaluate tradeoffs between highway expansion and preservation.
Other methods have been applied based in principles similar to those underlying the models in Method 1. However, these rely on some level of user programming of functions rather than coming as pre-packaged software.
A study was conducted in Seattle using a combination of the Puget Sound Regional Council's travel model and the STEP model to compare the social benefits and costs of highways, transit, and pricing at the regional level. The study included a sensitivity analysis of different assumptions, including assumptions regarding commercial vehicle travel (ECONorthwest, 1996).
Contingent valuation (CV) is an economic method to estimate changes in total user benefits from shifts in travel demand and network characteristics. CV is a way of measuring "consumer surplus," as is done in the STEAM model. The Sacramento case study illustrates how CV can be calculated directly from travel model output, and how it can be used to compare alternatives based on the per-trip equivalent cost savings for the average user.
Least-cost planning is an approach toward determining transportation alternatives that minimize total social costs. It includes the application of benefit-cost techniques, in conjunction with the consideration of demand reduction and supply expansion projects on equal footing. The least-cost planning approach is described in ECONorthwest and Parsons Brinckerhoff (1995). An application of least-cost planning to the Seattle area is documented in Nelson and Shakow (1996).
The AASHTO "Red Book" (AASHTO, 1977) provides guidance on user benefit analysis in transportation. This guidance is currently being updated. General guidance on cost-benefit analysis in transportation planning can also be found in Stopher (1976).
The Victoria Transport Policy Institute (VTPI) publishes a number of references on enumerating and valuing the various benefits and costs of transportation programs and policies.
Hagler Bailly (2000) contains a toolbox of models for conducting cost-benefit analysis as well as for forecasting economic development impacts. The toolbox also includes case studies of applications and a diagnostic tool to assist in choosing a model.
The January 22, 1999 issue of the Urban Transportation Monitor contains a review of 10 transportation evaluation software packages, including the cost-benefit models described above.
