Return on Investment in Transportation Asset Management Systems and Practices (2018) / Chapter Skim
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From page 3... ...
3 Drawing from current literature and the case studies conducted for the project, the research team developed a framework for conducting an ROI analysis on a new or upgraded TAM system or process. The most information is available -- and systems most often are adopted -- for pavements and bridges, so the framework focuses on improvements to TAM systems for these assets.
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4 Return on Investment in Transportation Asset Management Systems and Practices The framework also incorporates the most common types of TAM system investments, such as: • Purchases of an initial asset management system, • Improvements to an existing asset management system, or • Enhancement of an agency's data collection and reporting methods. This framework presented in this chapter is broad enough to engage potential users at a variety of stages in adopting or adjusting TAM practices and systems, and with different levels of complexity.
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Framework for Estimating ROI 5 their likely costs. The underlying approach to estimating the ROI is the same for both retrospective and prospective evaluations; however, some differences exist: • In prospective evaluations using traditional BCA, only current conditions are observed.
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6 Return on Investment in Transportation Asset Management Systems and Practices Another complicating factor is that the scale of benefits from similar TAM investments in different situations will vary depending on the context and uses of each system (e.g., the system's complexity and coverage, the general level of TAM systems and practices already in place, and even the existing asset condition at each location)
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Framework for Estimating ROI 7 systems rather than on TAM practices that would be adopted independently of new or improved hardware or software solutions, because it is usually much harder to measure the impacts of changes in practices than the introduction of a new or upgraded data system. Nevertheless, the framework can support analysis of the benefits and costs associated with collecting additional asset inventory and condition data, or changing the methods for collecting or processing these data (e.g., through the use of automated data collection techniques, or the integration of GIS capabilities)
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8 Return on Investment in Transportation Asset Management Systems and Practices If the analyst believes the impact of the analysis will be affected by the scope or scale of the TAM system, by changes in the TAM system or practices, or by the degree to which the agency already uses TAM systems and recommendations, the analyst can scale the projections up or down during the analysis. Broader scope and/or complexity will likely be associated with greater impacts, whereas greater existing use of TAM systems or practices will likely reduce the impact of additional TAM investments.
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Framework for Estimating ROI 9 and social activity."4 Indirect economic effects can be measured in terms of changes in jobs, tax revenue, wages, or work output (productivity)
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10 Return on Investment in Transportation Asset Management Systems and Practices With a PMS, the type and magnitude of user benefits will depend in part on the impact of TAM on the likelihood of structural versus functional failure. A structural failure that renders a pavement section or bridge incapable of sustaining any traffic load imposes a higher impact on users than does a functional pavement failure that causes a degree of surface roughness and consequent discomfort to the road's users.
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Framework for Estimating ROI 11 In establishing the analysis period, it is important to keep in mind the distinction between the useful life of assets, such as pavement or bridges, compared to the useful life of TAM investments. Pavement improvements may last 10 to 30 years, depending on the treatment, and the life cycle of a bridge may be 75 years.
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12 Return on Investment in Transportation Asset Management Systems and Practices If the investment leads to an increase in productivity (more units produced per unit of time, or lower agency cost per unit) and an increase in total output such that total agency expenses remain more or less the same, both impacts will be highlighted and estimated separately.
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Framework for Estimating ROI 13 systems, software, or spreadsheet. Four broad categories of input values are needed to characterize the base case and investment case: 1.
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14 Return on Investment in Transportation Asset Management Systems and Practices Figure 2-5. Sample S&L diagram for vehicle operating costs.
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Framework for Estimating ROI 15 refined projections than many other methods. In most situations, the TAM system itself offers the means to simulate outcomes under varying asset conditions and treatment assumptions.
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16 Return on Investment in Transportation Asset Management Systems and Practices Controlled Field Experiments The literature review included several studies in which controlled field experiments were performed to quantify the benefits of TAM actions, although not all the results of these experiments may be applicable as direct inputs into an ROI evaluation. More often than not, data collected from controlled field experiments serve as input when developing an asset management system.7 Typically, controlled field experiments focus on a specific component of a TAM system (e.g., data collection for a certain type of asset or for barcode inventory systems)
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Framework for Estimating ROI 17 Distribution of Benefits and Costs over Time When conducting a BCA, it is important to consider the distribution of benefits and costs over time. Investments, such as new or improved TAM systems or revised TAM practices, incur upfront capital costs and ongoing operating costs associated with licensing, software updates, training, and data collection.
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18 Return on Investment in Transportation Asset Management Systems and Practices initial deployment period. Some agencies may find it useful to report average annual benefits in "steady state" after the initial ramp-up of benefits occurs.
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Framework for Estimating ROI 19 be used productively in the intervening time. A more intuitive way to think about discounting is that people place a greater value on having money (or benefits)
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20 Return on Investment in Transportation Asset Management Systems and Practices Net present value (NPV) : Perhaps the easiest measure to understand, NPV shows what the TAM investment is currently "worth." It is calculated as the present value of the benefits (i.e., all benefits discounted to the present)
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Framework for Estimating ROI 21 Techniques are available to account for uncertainty in ROI analysis, and to assess or represent its impacts on the estimates of return.16 These techniques include sensitivity analysis, quantitative risk analysis, and other methods. Sensitivity Analysis In a sensitivity analysis, project-specific input values or model parameters are varied one at a time, and the resulting changes in project outcomes (e.g., NPV and B/C ratio)
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22 Return on Investment in Transportation Asset Management Systems and Practices one assumption at a time does not provide an accurate view of the real world, where all factors affecting outcomes are likely to vary simultaneously. Nonetheless, this procedure can be useful for assessing the significance of individual assumptions in producing the overall ROI estimates.
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Framework for Estimating ROI 23 used in the context of transportation planning and decision making.18 Risk analysis elicitation is defined broadly as a family of estimation techniques and planning processes used to examine risk and uncertainty, and to achieve public consensus through expert and stakeholder engagement. As defined by Lewis, the process involves four major steps: Step 1: Identification of the S&L of the estimation problem; Step 2: Assignment of estimates and probability distributions to each variable and coefficient in the S&L; Step 3: Expert and stakeholder engagement in the assessment of model and assumption risks; and Step 4: Issuance of risk analysis results.
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24 Return on Investment in Transportation Asset Management Systems and Practices • Data quality is not substantially better than previously collected; and • Actual asset management investments reflect less than 100% of the recommendations by a TAM system. What-if Analysis This procedure, also called impact analysis, estimates the impact of a single event (such as an economic downturn or a rapid increase in fuel prices)
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From page 25... ...
Framework for Estimating ROI 25 of Pavement Research, 8th International Conference on Managing Pavement Assets, 2011; Schiffer, A., Automated Asset Inventory System, Arizona Department of Transportation, April 2006; and Yen, K
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