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52 CHAPTER 4 Development of the Freight Evaluation Framework The Freight Evaluation Framework, described in detail in regional/state, and national). As described earlier, the scale this chapter, provides a consistent approach to evaluating of freight projects can vary enormously--from localized freight investments that is sensitive to the different spatial projects completed over several weeks, to regional or scales of freight improvement projects, the different benefits national mega-projects that are measured in terms of years between the public and private sectors, and the different plan- or decades. The Freight Evaluation Framework must be ning and investment decision-making process used by pri- sensitive to these different scales, and be capable of being vate- and public-sector entities, all of which were described applied to local, statewide/regional, and multistate/national earlier. This chapter describes the principles used to guide scales. Framework development, introduces the Framework concept 3. The Freight Evaluation Framework must use existing and methodology, and describes how risk was incorporated data and tools to the degree possible. Substantial public- within the Framework. and private-sector investment has gone into the develop- ment of various tools, methods, and approaches for assess- ing the benefits of freight investments. The Framework 4.1 Developing the Framework must complement and enhance these previous efforts Guiding Principles without reinventing the wheel. The Framework should be developed in a manner that builds upon existing tools and The literature review, interviews, and case studies described leverages investments made to date (by U.S.DOT, NCHRP, earlier led to the development of several principles that were AASHTO, various state DOTs, and universities) rather used to steer the development of the Freight Evaluation than appearing to compete against them. Framework. These guiding principles are described as follows: 4. The Freight Evaluation Framework must be consistent with existing decision-making processes used by freight 1. The Freight Evaluation Framework should be capable stakeholders. As described earlier, different stakeholders of evaluating freight investments competing with other clearly use different methods and processes to answer the freight investments across modal boundaries. Many question "Is this a good investment?" Similar to Guiding freight investment stakeholders have developed and imple- Principle No. 3, the Framework must not be developed in mented approaches to evaluate different freight investments such a way that it competes with, or usurps, these existing occurring on the same mode (i.e., deciding between com- processes. Rather, it should be developed so that it sup- peting rail investments or highway projects). Missing is an ports the investment decision-making processes already approach that will allow stakeholders to evaluate the poten- employed by different freight stakeholders. The Frame- tial benefits of highway, rail, seaport, and intermodal con- work should be a decision-support tool, not the ultimate nector projects on an apples-to-apples basis. This requires decisionmaker. the development of common metrics that are meaningful 5. The Freight Evaluation Framework should use a few across all of the modes and from the perspective of the good measures. Although the Framework should use affected stakeholders. quantitative performance measures, these measures 2. The Freight Evaluation Framework should be capable of should reflect the impact or benefit categories that are evaluating projects that span all of the different freight likely to be most important to different freight stake- modes, across all different levels of geography (local/site, holders in determining whether the project is beneficial
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53 from that group's perspective. Although it may be tempt- ious stakeholders. In addition, the measures should be com- ing to expand the number of overall indicators to more parable across modes and types of investments to allow for comprehensively understand the potential benefits and apples-to-apples comparisons of investment opportunities. impacts of a proposed freight investment, some prospec- The benefit types that are meaningful to the various stake- tive measures may be too peripheral to offer value and holders have been identified previously. Table 4.1 presents actually reduce the overall effectiveness of the assessment. potential metrics to capture the benefits that are of concern to 6. The Freight Evaluation Framework should allow for qual- different freight investment stakeholders. There are a few mea- itative assessment of investments. Although it is critically sures, such as transportation cost savings, crash reductions, important to allow quantitative assessments of project ben- emission reductions, and pavement/track conditions that will efits to drive the Framework, it also needs to be flexible be important across a wide array of stakeholders. Others, such enough to incorporate qualitative assessments. These qual- as maintenance savings and asset velocity, will be relevant to a itative assessments will be helpful in fatal flaw analyses-- small set of stakeholders but are likely to drive that stakeholder's reviews to ensure that the proposed project is practical and decision on whether to participate in the investment. fits within the goals of affected stakeholders (particularly those without a direct financial stake in the investment). Costs 7. The Freight Evaluation Framework should target freight investments that are on the left side of the benefit assess- The costs of a constructed facility or implemented technol- ment spectrum. This spectrum, described in Figure 3.6, ogy to the owner include both the initial capital cost and the describes the types of investment decisions made by freight subsequent operation and maintenance costs. Each of these stakeholders and their associated timeframes. Because the major cost categories consists of a number of cost components. types of tools and processes used by different freight stake- The magnitude of each of these cost components depends on holders within this spectrum varies considerably, the the nature, size, and location of the project as well as the own- Framework should be developed to meet the decisions that ing organization (i.e., public or private). are strategic or tactical in nature, with a timeframe mea- sured in years or decades. · Capital costs for a project include the expenses related to the initial establishment of the facility, such as Land acquisition, including assembly, holding, and Framework Concepts and Elements improvement; Using these principles as a guide, the Freight Evaluation Construction, including materials, equipment, and labor; Framework consists of four key elements: identify benefit cat- Field supervision of construction; egories and metrics, calculate project costs, calculate benefits Construction financing; and impacts, and assess risks. Figure 4.1 describes how these Insurance and taxes during construction; and individual elements link to the guiding principles described Inspection and testing. above; Figure 4.2 provides a more detailed description of the · Operation and maintenance costs in subsequent years entire framework. over the project lifecycle typically include A detailed overview of these four modules is provided in Land rent, if applicable; the following sections. Operating staff; Labor and material for maintenance and repairs; Periodic renovations; Benefit Categories and Metrics Insurance and taxes; The guiding principles underlying the development of the Financing costs; Framework call for the identification of a few good measures Utilities; and that represent the benefits that are most important to the var- Owner's other expenses. Identify Benefit Calculate Benefits Categories and Calculate Costs Assess Risks Categories Metrics and Impacts Guiding Principles Guiding Principles Guiding Principles 1, 3, 4 Guiding Principles 1, 4 3, 4 1, 2, 5, 6 Figure 4.1. Framework elements and guiding principles.
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Freight Transportation Investment ID Stakeholders and Modes Benefit Categories and Metrics Change Change Change in Travel in Travel in Travel Distance Time Quality Change in delay, Change in VMT average speeds, and for existing traffic reliability (trucks, (truck, auto, rail) autos, and rail) Change in User Change Change in Change in Time Change in Time Change Operating Costs in Crash/ Environment Costs of Delay/ Costs of in Loss/ (by truck, auto, Incident Costs Costs (by truck, Unreliability Transportation Damage rail, aircraft, (by truck, auto, auto, rail, aircraft, (by truck, (by truck, of Cargo and vessel) and rail) and vessel) auto, rail) auto, rail) Costs Capital Costs O&M Costs Other Costs Benefits and Impacts Total Efficiency Benefits (public Total Costs Assess Risks and private) Risks Benefit Cost Direct Economic Metrics Impacts (value of (NPV, out-of-pocket benefits) BC ratio, ROI) Total Economic Impact Metrics Economic (jobs, income, output, tax base) Figure 4.2. Freight Evaluation Framework.
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55 Table 4.1. Benefit metrics by benefit and stakeholder type. Other Public Service Shipper/ Impacted Private-Sector Benefit Type Benefit Metric Sector Provider End User Party Asset Provider Capacity Transportation Cost Savings Safety Crash Reductions Environmental Emission Quality Reductions Scheduling/ Reliability Reliability Improvements Facility Pavement/Track Maintenance Costs Maintenance Savings Loss and Pavement/Track Damage Conditions Productivity Asset Velocity Economic Jobs, Income, Development Industry Output Tax Revenue Tax Base Impact Facility Capital Facility Costs Costs The Freight Evaluation Framework recognizes that although tial features of the facility are identifiable. The engineer's esti- construction cost may be the single largest component of capi- mate is based on the completed plans and specifications when tal cost, other cost components are not insignificant. For exam- they are ready for the owner to solicit bids from construction ple, land acquisition costs are a major expenditure for building contractors.(9) Design-level cost estimates can be calculated new or expanding existing facilities in high-density urban areas, using unit costing (e.g., cost per mile), historical cost data, or and construction financing costs can be significant. From the computer-aided costing. owner's perspective, it is equally important to estimate the cor- To account for risks involved in cost estimating, most con- responding operation and maintenance cost of each alternative struction cost estimates include an allowance for contingen- for a proposed facility in order to analyze the lifecycle costs. cies or unexpected costs occurring during construction. This The large expenditures needed for facility maintenance, espe- contingency amount may be included within each cost item cially for publicly owned infrastructure, necessitate the need to or may be included in a single category of construction con- include operation and maintenance cost in the design stage. tingency. The amount of contingency is based on historical Cost information changes depending on the stage of the plan- experience and the expected difficulty of a particular project. ning process. There are three categories of cost estimates-- Examples of various risk factors in cost estimating include the design, bid, and control. Design estimates will be the most following: common source of cost data for use in the Framework. · Design development changes, · Schedule adjustments, Design Estimates · Cost of materials, In the planning and design stages of a project, various design · Site conditions that differ from those expected, and estimates reflect the progress of the design. At the very early · Third-party requirements imposed during construction stage, the screening estimate or order-of-magnitude estimate (such as new permits). is usually made before the facility is designed, and must, there- fore, rely on the cost data of similar facilities built in the past. Calculating Benefits and Impacts A preliminary estimate or conceptual estimate is based on the conceptual design of the facility at the stage when the basic Freight transportation investments are designed to bring technologies for the design are known. The detailed estimate about changes in travel patterns, and these changes can yield or definitive estimate is made when the scope of work is clearly benefits and economic impacts locally, regionally, and nation- defined and the detailed design is in progress so that the essen- ally. To properly account for these effects and to account for