ECONOMIC EVALUATIONECONOMIC EVALUATION

Economic evaluation: what is it?

Economic evaluation is the traditional tool for prioritizing road investment

It provides a monetarised indicator which can be used as an absolute (good or bad) or relative (better or worse) for prioritising

It is unavoidable for road investments where benefits are largely direct, quantifiable and financial (user savings)

Very unreliable when benefits are difficult to quantify or measure and are more concerned with wellbeing

Techniques can be complex (HDM-4) or simple (see reference)

Economic evaluation tools

Economic evaluation tools are part of the family we will look at: the others are: Basic access planning Integrated rural accessibility planning

They are the most distant relative in that they are generally centred on user benefits and prefer to sweep wider social questions under the carpet

They are very useful when we want an efficient technocratic investment strategy

But they throw up their hands when confronted with the complicated mix of social and economic objectives of rural roads

Economic evaluation tools (2) Compare forecasts of user benefits with

costs to obtain a rate of return on investment

Good for prioritisation when direct user savings are large (lots of traffic) and social impacts can be ignored

Marginally applicable for low-volume rural roads if motor traffic 30+/day

Powerful tools available for use on main and secondary roads

Economic evaluation: how it is done (HDM-4 and RED) Collect data on road user

characteristics, traffic types and volumes

Collect data on existing road characteristics, geography, climate

Collect data on expected improvement and maintenance costs

Combine and mix well Use with moderation!

Economic evaluation: what comes out? Optimal maintenance strategy for

each road option (do nothing to complete rebuild)

Internal rate of return (IRR) for each optimized investment option for ranking

Investment plan (what to do? When?)

Economic evaluation tools: HDM

What it does: Uses sub-models to calculate road wear and

resulting costs to users as a function of traffic, climate, topography for different levels of improvement and maintenance

Determines the optimal investment and maintenance programme (road costs+user costs minimum)

Comments Essential when traffic is high (secondary and main

roads) and effectiveness can be measured in monetary terms

Economic evaluation tools: RED

Allows flexible treatment of the analyis and results (easier to play around with it)

Takes account of non-motorised traffic Quantifies periods of road closure Calculations not centred on road

roughness (IRI) Can be used when traffic over 30 per day

Economic evaluation: for and against For:

Provide standardised method to compare investments nationally or internationally

Generally obligatory for major projects because coherent and reasonably transparent

Against: Power of complex models to simulate real life often over-

estimated Reliance on user savings obscures land-use planning and

social issues Results can be easy to manipulate Favours short run benefits over long run sutainability Takes for granted that users pass on benefits (lower

fares, better service)

Economic evaluation tools: RONETS

Economic analysis tools: my own I developed this Excel application in Vietnam

about ten years ago Applied it in Uganda (twice) and other places It allows almost split-second comparison of

upgrading strategies using basic unit costs and an IRR criterion

Takes into account all types of users, even walkers

Use it to prioritize network links when traffic over about 20 vpd and/or some heavy vehicles

Practical considerations

Models need calibration as they often produce nonsense

Use them for comparing rather than absolute values

Very sensitive to IRI (road roughness) and not to others

VOC v. roughness equations not valid for very bad roads

References: economic evaluation

Economic evaluation notes User guide: road management tools Simple Cost-Benefit Analysis for low-v

olume roads