BenefitCost Analysis Outline Introduction to BC ratio How
Benefit-Cost Analysis
Outline • Introduction to B/C ratio • How to find the benefits • How to find the costs • Discounting and annuity factor • Calculation example
What is it? • Project evaluation metric that compares the equivalent money value of the benefits of a project to the project costs • Used to determine if a proposed countermeasure should be implemented • Qualify for funding • Can be used to compare or prioritize different countermeasures • Individually or in combination with each other • BC ratio = Benefit / Cost • If > 1. 0, then benefits outweigh costs
What are the Benefits? • Fewer crashes • • Hospital costs Emergency response Property damage Lost wages • Reduced congestion/travel time • Environmental improvements
What are the Costs? • Project design and engineering • Materials • Labor • Construction traffic control • Cost contingencies
Discounting • Costs and benefits need to be compared using a common unit of measurement • Money needs to be compared in terms of dollars of a specific time • Money available now is worth more than the same amount available in the future – because it can be invested • Invested money grows at a rate of (1+r)t • r = interest rate, t = number of years • Discount rate specified by FDOT: 4%
Annuity Factor • Different time frames for each benefit or cost item • Benefits: estimated annually based on crash history • Costs: different lifetimes for different items • • Vegetation removal – 1 year Signs and markings – 6 years Guardrail – 25 years Pavement (shoulders/widening) – 25 years • Annuity factor – discounts each cost to an annualized item based on lifetime and interest rate • Annuity Factor = [1 – (1 + r)-n] / r • r = interest rate, t = lifespan of item • Item cost / annuity factor = annualized cost
Benefit Calculation • How many crashes are reduced? • How many crashes would there be without countermeasures? • Based on historical crash rate • Combined with SPF if possible • Use crash modification factors for each countermeasure • Combined CMF for each project/scenario • How much is it worth? • Crash cost by severity or per crash
CMF Calculation • Each individual CMF usually applies only to specific crash types and crash severities • For example: Guardrail: run-off-the-road crashes • Fatal: 0. 56 • Injury: 0. 53 • PDO: 1. 0 • Combined CMFs are multiplicative • CMFtotal = CMF 1 × CMF 2 × CMFn • Crashes Reduced = Crashes Expected – (Crashes Expected ) × CMF
Reduced Crashes Example – Set-up • Proposed Countermeasures • Audible edge markings & Centerline RPMs • Use CMFs from FDOT table • Crash History • 8 years • 60 total crashes (45 run-off-the-road, 10 head-on, 5 sideswipe) • How many total crashes reduced per year by the proposed countermeasures?
Reduced Crashes Example – Solution (1) • CMF Look-up • CMFAudible edgeline = 0. 89 • CMFRPMs = 0. 79 • Do they effect the same relevant crash types? -> No • CMFrun off the road = CMFAudible edgeline × CMFRPMs • CMFrun off the road = 0. 89 × 0. 79 = 0. 703 • CMFother= CMFRPMs • CMFother= 0. 79
Reduced Crashes Example – Solution (2) Run off the road crashes expected with no treatment Run off the road crashes expected with treatment • Crashes reducedrotr = 45 – (45 × 0. 703) = 13. 36 Non run off the road crashes expected with no treatment Non run off the road crashes expected with treatment • Crashes reducedother = (10+5) – [(10+5) × 0. 79] = 3. 15 • Crashes reducedtotal = 13. 36 + 3. 15 = 16. 51 • Crashes reducedtotal/year = 16. 51 / 8 = 2. 06
Monetary Equivalent of Crashes Reduced • In Florida, when crash history is available, use Historical Crash Method:
Benefit Calculation Example • Facility type: rural undivided two-lane road • 2. 06 total crashes reduced per year from the 2 countermeasures • Crash cost: $402, 003 • Annual benefit = 2. 06 × $402, 003 = $829, 659
How to Calculate Costs • What project items are needed? • How many units of each item? • How much does each item cost? • Lifespan of items? • FDOT Item Average Unit Cost • All construction and maintenance items purchased over given time period • Assume additional 25% for engineering and contingencies
Cost Calculation Example – Set-up • Calculate the cost for the improvement used in the previous example. • Site length: 30 miles • Audible edgelines and RPMs • RPMs spaced 40 feet (edge and centerline) • Assume a 6 year lifespan
Cost Calculation Example – Solution (1/3) • How much edgeline marking? • Length = (30 × 5280) × 2 = 316, 800 ft (total for both sides) • How many RPMs? • RPMs = (30 × 5280) × 3 / 40 = 11, 880 Center and each side 40 ft spacing
Cost Calculation Example – Solution (2/3) • Edgeline cost: $4, 647. 61 per NM • $4, 647. 61 / 5280 = $0. 88 per ft • Cost = 316, 800 × $0. 88 • Cost = $278, 857 • RPM cost: • Cost = 11, 880 × $3. 01 • Cost = $35, 759
Cost Calculation Example – Solution (3/3) • Annuity Factor = [1 – (1 + r)-n] / r • [1 – (1 + 0. 04)-6] / 0. 04 = 5. 242 • Annualized Costs • Edgeline: $278, 857 / 5. 242 = $53, 197 • RPMs: $35, 759 / 5. 242 = $6, 822 • Annualized Construction Cost = $53, 197 + $6, 822 • Annualized Construction Cost = $60, 019 25% for contingencies and engineering • Total Annualized Cost = 1. 25 × $60, 019 = $75, 024
B/C Calculation • B/C ratio = Annual Benefits / Annual Costs • B/C > 1. 0 when benefits are greater than costs • FDOT projects generally need to show a B/C > 2. 0 to be considered
B/C Calculation Example • Find the B/C ratio of the project from the previous examples. • Total Annual Benefits: $829, 659 • Total Annual Costs: $75, 024 • B/C = $829, 659 / $75, 024 • B/C = 11. 06
B/C Resources • CMF clearinghouse: http: //www. cmfclearinghouse. org/about. cfm • FHWA CRF reference: http: //safety. fhwa. dot. gov/tools/crf/resources/fhwasa 08011/ • FDOT CRFs: http: //www. dot. state. fl. us/rddesign/QA/Tools/CRF. pdf • RSAP: http: //www. rsap. roadsafellc. com/ • FDOT Item Average Unit Costs: http: //www. dot. state. fl. us/specificationsoffice/estimates/historicalco stinformation/historicalcost. shtm • Unit abbreviations: http: //www. dot. state. fl. us/programmanagement/Estimates/Basisof. Estimates /BOEManual/Files/Chapter 02. pdf
- Slides: 22