Performance Measurement Framework for Highway Capacity Decision Making (2009)

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60C H A P T E R 8 Cost FactorsBackground Literature The importance of high-quality, comprehensive project cost estimates cannot be overstated. Although cost is not typi- cally considered a performance factor to be used in comparing capacity projects, it is a critical tool in selecting and prioritiz- ing agency projects, especially given limits on available funding. Transportation agencies have developed a range of methods to estimate and compare the cost of project alternatives. Key Findings The literature on cost estimation makes the following points. It is important to examine project costs early and often. Project costs can escalate unexpectedly for a variety of rea- sons, some controllable and others unavoidable. Therefore, it is critical that project costs be monitored closely so that those that are avoidable can be controlled, and those that must be dealt with are identified early and then accounted for in budgeting. NCHRP 20-24, Task 37A: Comparing State DOTs’ Construction Project Cost and Schedule Performance – 28 Best Practices from 9 States (2007), compares cost and schedule performance at nine state DOTs and identifies tech- niques important to achieve success, including: tracking cost performance early and often to maintain accountability and pinpoint when and why problems occur; using a standardized coding system to track the causes of cost overruns; linking performance to pay and use value engineering; and holding contractors accountable (for example, by preventing contrac- tors from bidding if they frequently have cost overruns). Potential external influences on costs need to be consid- ered and monitored. Engineers typically do not consider potential community concerns or other exogenous influences on project cost, choosing to focus on the direct engineering and transportation considerations of a project. Higher-quality cost estimates should account for outreach and engagement with project stakeholders to help avoid potential increases in costsdue to challenges to the project or increased time for project development and construction. Community outreach at early stages of a project can help a transportation agency under- stand potentially sensitive issues and to build considerations for project delay into cost estimates. Consideration of public concerns, environmental con- flicts, and public outreach can improve cost estimates. Opposition to a project, regardless of its nature or merit, can significantly increase costs, including the cost of redesigning or abandoning a project after completing significant prelim- inary work. Consideration of public concerns and inclusion of such issues earlier in the process, before cost estimates are included in official documents (planning studies and state or regional transportation improvement programs), can offset costs later on. NCHRP Report 574: Guidance for Cost Estima- tion and Management for Highway Projects During Planning, Programming, and Construction (2006), recommends a set of strategies for cost estimation and management to better identify risks and conflicts, ensure consistency, and maintain integrity throughout the process. Each of the factors included in the performance measure- ment framework will impact project cost, both through increased initial screening and analysis and subsequent miti- gations or redesign as a result of project impacts. DOTs should incorporate these analytical costs in early project cost esti- mates or maintain a supply of project-independent funds to cover analysis costs. Early use of screening measures will help DOTs identify potential mitigation requirements or project alternations that will produce more reliable cost estimates and better informed investment decisions. Cost Performance Factors and Objectives Quality cost estimates that remain stable through the plan- ning and programming phases of project development, and that incorporate both direct and indirect costs of a project,

61SHRP 2 Framework Measure Specific Measure Applications Table 8.1. Cost Measures – Cost Factor Cost Stability – Change in cost estimates during the project development process. Construction Cost Escalation Factor – Change in price index or key construction material costs. • Percentage change in cost estimates at milestones (e.g., planning, preliminary 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). • Projected increase in cost based on recent and historic trends in cost escalation. 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).are crucial to making informed decisions. Two broad cost factors have been identified for this effort: • Cost and • Cost-Effectiveness. Because cost is not typically used as a separate performance measure, the information provided in this section is not as fully developed as other factors. Other SHRP 2 projects, such as C01, A Framework for Collaborative Decision Making on Additions to Highway Capacity, are developing additional information that will be incorporated into this discussion at a later date. Cost This factor addresses cost estimation management and prac- tice. Issues addressed include the reliability of cost estimates, incorporating unforeseen costs (resulting from external influ- ences), and improving accountability for early cost estimates. Sound cost estimation practices and successful execution of measures in this factor will support the evaluation of mea- sures in the Cost-Effectiveness factor. The objective defined for these measures is: reduce the incidence of cost variability. The framework includes two measures, supported by exam-ple measures, as shown in Table 8.1. The case study highlight illustrates how Washington State DOT’s Transportation Proj- ect Mitigation Cost Screen Matrix is used to capture the cost of mitigation efforts. Cost-Effectiveness This factor includes traditional aggregate measures of cost- effectiveness such as unit construction cost; productivity or cost indices; analyses of federal/local funding matches and public-private partnerships; as well as more analytical benefit/ cost analyses, including techniques for monetization of non- traditional measures. Three broad objectives are supported by the measures in the framework: 1. Select transportation projects with the greatest benefit relative to cost; 2. Develop projects efficiently; and 3. Encourage partnerships in funding transportation projects. The framework includes six different measures that capture aspects of cost-effectiveness, as shown in Table 8.2. The case study highlight illustrates how the Denver Regional Council of Government’s 2008-2013 Transportation Improvement Program measures the benefit/cost of proposed projects.

62SHRP 2 Framework Measure Specific Measure Applications Table 8.2. Cost Measures – Cost-Effectiveness Factor Benefit/Cost (B/C) Analysis – Monetized project bene- fits relative to total project costs. Project Unit Cost – Total project cost per unit of project delivered. Qualitative Cost-Effectiveness – Benefits achieved across measures per dollar of cost. Construction Productivity Index – Percentage of total project cost for administrative and change order costs. Local/Regional Match – Percent of project costs absorbed by local or regional agencies. Private Investment – Private investment in complemen- tary infrastructure. • Cost/benefit of existing facility versus new construction for travel-time savings, etc. • Cost of project per lane-mile, centerline mile, user of facility, etc. • Cost per hour of travel time saved; and • Cost per water quality benefits or impact. • The share of project expenses beyond requirements that are paid for by local or regional governments. • Ratio of private investment to public investment; and • 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.