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60 C H A P T E R 8 Cost Factors Background Literature due to challenges to the project or increased time for project development and construction. Community outreach at early The importance of high-quality, comprehensive project cost stages of a project can help a transportation agency under- estimates cannot be overstated. Although cost is not typi- stand potentially sensitive issues and to build considerations cally considered a performance factor to be used in comparing for project delay into cost estimates. capacity projects, it is a critical tool in selecting and prioritiz- Consideration of public concerns, environmental con- ing agency projects, especially given limits on available funding. flicts, and public outreach can improve cost estimates. Transportation agencies have developed a range of methods to Opposition to a project, regardless of its nature or merit, can estimate and compare the cost of project alternatives. significantly increase costs, including the cost of redesigning or abandoning a project after completing significant prelim- Key Findings inary work. Consideration of public concerns and inclusion of such issues earlier in the process, before cost estimates are The literature on cost estimation makes the following points. included in official documents (planning studies and state or It is important to examine project costs early and often. regional transportation improvement programs), can offset Project costs can escalate unexpectedly for a variety of rea- costs later on. NCHRP Report 574: Guidance for Cost Estima- sons, some controllable and others unavoidable. Therefore, tion and Management for Highway Projects During Planning, it is critical that project costs be monitored closely so that Programming, and Construction (2006), recommends a set those that are avoidable can be controlled, and those that of strategies for cost estimation and management to better must be dealt with are identified early and then accounted for identify risks and conflicts, ensure consistency, and maintain in budgeting. NCHRP 20-24, Task 37A: Comparing State integrity throughout the process. DOTs' Construction Project Cost and Schedule Performance Each of the factors included in the performance measure- 28 Best Practices from 9 States (2007), compares cost and ment framework will impact project cost, both through schedule performance at nine state DOTs and identifies tech- increased initial screening and analysis and subsequent miti- niques important to achieve success, including: tracking cost gations or redesign as a result of project impacts. DOTs should performance early and often to maintain accountability and incorporate these analytical costs in early project cost esti- pinpoint when and why problems occur; using a standardized mates or maintain a supply of project-independent funds to coding system to track the causes of cost overruns; linking cover analysis costs. Early use of screening measures will help performance to pay and use value engineering; and holding DOTs identify potential mitigation requirements or project contractors accountable (for example, by preventing contrac- alternations that will produce more reliable cost estimates tors from bidding if they frequently have cost overruns). and better informed investment decisions. Potential external influences on costs need to be consid- ered and monitored. Engineers typically do not consider Cost Performance Factors potential community concerns or other exogenous influences and Objectives on project cost, choosing to focus on the direct engineering and transportation considerations of a project. Higher-quality cost Quality cost estimates that remain stable through the plan- estimates should account for outreach and engagement with ning and programming phases of project development, and project stakeholders to help avoid potential increases in costs that incorporate both direct and indirect costs of a project,
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61 SHRP 2 Framework Measure Specific Measure Applications Cost Stability Change in cost estimates during the · Percentage change in cost estimates at milestones (e.g., planning, preliminary project development process. engineering, partial design, final engineers estimate, project letting); and · Absolute change in cost estimates at milestones (e.g., planning, preliminary engineering, partial design, final engineers estimate, project letting). Construction Cost Escalation Factor Change in · Projected increase in cost based on recent and historic trends in cost escalation. price index or key construction material costs. Case Study Highlight: Washington DOT Transportation Project Mitigation Cost Screening Matrix Description: The Transportation Project Mitigation Cost Screening Matrix or "screening tool" is a tool that helps transportation planners identify proposed projects that may benefit from the application of watershed-based mitigation. The screening tool analyzes readily-available data on urbanization, floodplain areas, soil types, topography, wetlands, hazardous materials, parks, and other cultural resources. Projects that encounter these features commonly have the highest environmental mitigation costs, especially for stormwater treatment and wetlands replacement. The tool generates a "mitigation risk index" or "MRI" consisting of a single score that estimates the percentage of land area within the project limits that will likely experience logistical difficulties or elevated costs for in right-of-way environmental mitigation. Sample Measure: · Mitigation cost of type of wetlands, relative to other project alternatives (e.g., forested wetlands are difficult to mitigate in a technically sound and cost-effective manner). Table 8.1. Cost Measures Cost Factor are crucial to making informed decisions. Two broad cost ple measures, as shown in Table 8.1. The case study highlight factors have been identified for this effort: illustrates how Washington State DOT's Transportation Proj- ect Mitigation Cost Screen Matrix is used to capture the cost · Cost and of mitigation efforts. · Cost-Effectiveness. Cost-Effectiveness Because cost is not typically used as a separate performance measure, the information provided in this section is not as This factor includes traditional aggregate measures of cost- fully developed as other factors. Other SHRP 2 projects, such effectiveness such as unit construction cost; productivity or as C01, A Framework for Collaborative Decision Making on cost indices; analyses of federal/local funding matches and Additions to Highway Capacity, are developing additional public-private partnerships; as well as more analytical benefit/ information that will be incorporated into this discussion at cost analyses, including techniques for monetization of non- a later date. traditional measures. Three broad objectives are supported by the measures in the framework: Cost 1. Select transportation projects with the greatest benefit This factor addresses cost estimation management and prac- relative to cost; tice. Issues addressed include the reliability of cost estimates, 2. Develop projects efficiently; and incorporating unforeseen costs (resulting from external influ- 3. Encourage partnerships in funding transportation projects. ences), and improving accountability for early cost estimates. Sound cost estimation practices and successful execution of The framework includes six different measures that capture measures in this factor will support the evaluation of mea- aspects of cost-effectiveness, as shown in Table 8.2. The case sures in the Cost-Effectiveness factor. The objective defined study highlight illustrates how the Denver Regional Council for these measures is: reduce the incidence of cost variability. of Government's 2008-2013 Transportation Improvement The framework includes two measures, supported by exam- Program measures the benefit/cost of proposed projects.
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62 SHRP 2 Framework Measure Specific Measure Applications Benefit/Cost (B/C) Analysis Monetized project bene- · Cost/benefit of existing facility versus new construction for travel-time fits relative to total project costs. savings, etc. Project Unit Cost Total project cost per unit of project · Cost of project per lane-mile, centerline mile, user of facility, etc. delivered. Qualitative Cost-Effectiveness Benefits achieved · Cost per hour of travel time saved; and across measures per dollar of cost. · Cost per water quality benefits or impact. Construction Productivity Index Percentage of total project cost for administrative and change order costs. Local/Regional Match Percent of project costs · The share of project expenses beyond requirements that are paid for by local or absorbed by local or regional agencies. regional governments. Private Investment Private investment in complemen- · Ratio of private investment to public investment; and tary infrastructure. · Change in benefit due to private investment. Case Study Highlight: Denver Regional Council of Governments FY 08-13 TIP Description: DRCOG's project evaluation process for its latest Transportation Improvement Program (FY 2008-2013) includes a unique scoring system for each type of project, including roadway capacity. The scoring system is categorized into 10 topics: current congestion, safety, cost- effectiveness, condition of major structures, long range plan score, transportation system management, multimodal connectivity, matching funds, project-related Metro Vision implementation and strategic corridor focus, and sponsor-related Metro Vision implementation. Each cate- gory has a unique scoring system, and receives up to 15 points depending upon how that category is weighted. Project sponsors submit their project online, complete this ranking process, and are given an instant score. This gives them a sense of how their project will compare to others, and what areas they need to improve in order to increase the chances for funding. Sample Measure Based on the project's current forecast cost per daily person-miles-of-travel (PMT), up to 10 points will be awarded as follows: · For bus/HOV/BRT, roadway widening, and new projects: 10 points will be awarded to projects with a cost per PMT of $50 or less; 0 points to projects with a cost per PMT of $550 or more; with straight line interpolation between. · For interchange reconstruction and new interchange projects: 10 points will be awarded to projects with a cost per PMT of $250 or less; 0 points to projects with a cost per PMT of $2,750 or more; with straight line interpolation between. · PMT for new road and interchange projects based on modeled usage estimates. Table 8.2. Cost Measures Cost-Effectiveness Factor