Bridge Investment Analysis Strategies

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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.

Bridge Investment Analysis Strategies

Nathaniel D. Coley Jr.

Economic Analysis Program Federal Highway Administration

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Topics

•Economic Concepts/Examples•Strategies for Applying Economic Analysis

to assets with Limited Funding•Life-Cycle Evaluation Framework

•Benefit-Cost Analysis•Life-Cycle Cost Analysis•Items to Consider

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Goals

By the end of this Discussion you should:

• Recognize how the economic analysis of bridge life-cycles supports the development of bridge maintenance strategies

• Understand Economic Analysis Methods and available resources

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A Question After 60 Years

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Life-Cycle of Highway Projects

16 17 18 19 20

Initial Capital

Cost

Year

Dollars

Benefits

Costs

1514131211109876543210

Typical Life-Cycle Profile

Example Direct Benefits•Life-Cycle Cost Savings•Reduced Accident Costs•Reductions in Delay Costs•Reduced noise or emissions

Example Indirect Benefits•Land use impacts•Employment•Non-user benefits

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Application of Economic Analysis: Network View

What are our Bridge Replacement needs over the next 20years given our budget expectations? And when?

Interstate Bridges All Other Except Locals

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How much will we need for our Bridge Replacement needs over the next 20years given our budget? And when?

How can maintenance/preservation change the numbers?

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The result of more aggressive preservation activities on specific elements of interstate bridges?


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Timing is Everything

Should we act now or wait?Acting now has a benefit cost ratio of 2.2Waiting 7 years has a benefit cost ratio of 3.7Waiting 12 years has a benefit cost ratio of 1.6

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Application of Economic Analysis: Project View

What is the best alternative for this project from a life-cycle cost perspective?

Total CostAlternative 1:

Preservation PlanAlternative 2: Replace w/Prestressed Concrete

Bridge Design

Agency Cost ($1000)

User Cost ($1000)

Agency Cost ($1000)

User Cost ($1000)

Present Value 2,961.57 1,759.94 3,098.19 1,608.60

EUAC 123.84 73.59 129.55 67.26Lowest Present Value Agency Cost

Alternative 1: Preservation Plan

Lowest Present Value User Cost

Alternative 2: Prestressed Concrete Bridge Design

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Leveraging BCA to Support Policies

BridgeManagement

System

MaintenanceManagement

System

Pavement Management

System

TransportationInvestmentCandidate

File

TradeoffAnalysis

Priority settingResource allocationBudgetingProgramming

Maximizesystemwide

benefits

Equity anddistributional

goals

Policy andpoliticalgoals

Transportation Asset Management Guide:Vol.2 A Focus on Implementation (Chapter 5)

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Performance Goals in FHWA 2012 Budget Proposal

• Safety: Reduction in transportation-related fatalities and injuries. (Fatalities and Fatality Rate)

• Environmental Sustainability: Increased use of environmentally sustainable practices in the transportation sector. (No. of Projects with sustainable design and/or tools).

• State of Good Repair: Increased proportion of highways and bridges in good condition. (Pavement and Bridge Condition)

• Livable Communities: Improved networks that accommodate pedestrians and bicycles. (No. of State & MPO Plans that address)

• Economic Competitiveness: Maximum economic returns on transportation policies and investments. (Travel Time Reliability)

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Life-Cycle of Highway Projects

16 17 18 19 20

Initial Capital

Cost

Year

Dollars

Benefits

Costs

1514131211109876543210

Typical Life-Cycle Profile

Example Direct Benefits•Life-Cycle Cost Savings•Reduced Accident Costs•Reductions in Delay Costs•Reduced noise or emissions

Example Indirect Benefits•Land use impacts•Employment•Non-user benefits

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The Role of Economic Analysis

Mechanism for monetizing, evaluating and comparing long-term costs and benefits of alternatives Economic analysis results

• Help structure project and program level tradeoffs• Quantify & Qualify costs and benefits to the agency and to roadway users• Support repeatable and transparent project justification and prioritization

Does not provide THE decision. It provides a logical framework to support decisions

Adam Smith

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Terminal Serviceability or Health Index

Perf

orm

an

ce

Measu

re

InitialActivity

Activity One Activity Two

Time

How do we expect Maintenance/Preservation to impact performance?

Service Life

Asset Performance

Analysis Period

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Definition of Benefit Cost Analysis

For public agencies benefit-cost analysis is essentially ROI. Traditional benefit cost analysis and ROI analysis for transportation includes user benefits (time, cost, safety) for travelers and select environmental effects (air, quality, noise) along with capital, operations, and maintenance(O&M) costs.

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Benefit Cost Analysis

•Benefit Cost Analysis - the comparison of benefits over time and of costs over time for proposed projects. BCA is a tool used to aid in public investment decision making by measuring the return on investment(ROI) of spending from the viewpoint of net benefit to society.

•BCA is different from financial analysis, which focuses on how to fund a project

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Analyze Risks

Benefit Cost Analysis Establish Objectives

Specify Assumptions

Define Alternatives

Analyze Traffic Impacts

Estimate Benefits and Costs

Compare Net Benefits and Rank Alternatives

Make Recommendations

The Process

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Comparing Benefits and Costs

Different BCA Measures

• Net Present Value (NPV)• Benefit-Cost Ratio (BCR)• Other measures include:

Equivalent Uniform Annual Value (EUAV)Internal Rate of Return (IRR)

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Life-Cycle Analysis Tools

Software Tools to assist in identifying “good” bridge preservation strategies:BCA.NET: web-based project-level benefit-cost analysis tool NBIAs: network level bridge needs assessment toolNCHRP BLCCA: Project Level Life-Cycle Cost Analysis ToolNIST BLCC: Project Level Life-Cycle Cost Analysis ToolRealCost LCCA Tool: Project Level Life-Cycle Cost Analysis Tool

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Life-Cycle Analysis Tools – NIST BLCC

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Life-Cycle Analysis Tools – BCA.net

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Uncertainty and Risk

Measured uncertainty is known as risk

Basic risk analysis questions are:What can happen?How likely is it to happen?What are the consequences?

Once understood, risk can be capitalized on or mitigated

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Boston Central Artery 1985-2007 $2.5 to $14+ Billion

The Poster Child Example

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•Inputs are defined by their range of values and probability of occurrence (probability distribution)

•Through simulation, outputs are expressed as ranges of values with probabilities of occurrence

Inputs Output

Probabilistic Analysis

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Simulation Results: HistogramF

req

uen

cy

2.8 2.9 3.0 3.1 3.2 3.3 3.4Range = 0.4

BestCase

WorstCase

MostLikely

Net Present Value (NPV), $Millions

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Economic Analysis Tools - Risk

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Economic Analysis Tools - Risk

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More Information

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Thank You

Nathaniel D. Coley Jr. Evaluation and Economic

Investment Team FHWA Office of Asset

Management Washington, DC

[email protected]

http://www.fhwa.dot.gov/infrastructure/asstmgmt/economic.cfm

Bridge Investment Analysis Strategies

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