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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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
Interstate Bridges All Other Except Locals
Application of Economic Analysis: Network View
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
Application of Economic Analysis: Network View
The result of more aggressive preservation activities on specific elements of interstate bridges?
Interstate Bridges All Other Except Locals
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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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Life-Cycle Analysis Tools – NIST BLCC
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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
Boston Central Artery 1985-2007 $2.5 to $14+ Billion
The Poster Child Example
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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
•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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
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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Bridge Investment Analysis StrategiesNathaniel D. Coley Jr.
Thank You
Nathaniel D. Coley Jr. Evaluation and Economic
Investment Team FHWA Office of Asset
Management Washington, DC
http://www.fhwa.dot.gov/infrastructure/asstmgmt/economic.cfm
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