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Suggested Citation:"Front Matter." National Academies of Sciences, Engineering, and Medicine. 2012. Engineering Economic Analysis Practices for Highway Investment. Washington, DC: The National Academies Press. doi: 10.17226/22795.
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NAT IONAL COOPERAT IVE H IGHWAY RESEARCH PROGRAM NCHRP SYNTHESIS 424 TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2012 www.TRB.org Research Sponsored by the American Association of State Highway and Transportation Officials in Cooperation with the Federal Highway Administration SubScriber categorieS Administration and Management • Economics • Highways Engineering Economic Analysis Practices for Highway Investment A Synthesis of Highway Practice conSultant MicHAEl J. MArkow Teaticket, Massachusetts

NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM Systematic, well-designed research provides the most effective approach to the solution of many problems facing highway administrators and engineers. Often, highway problems are of local interest and can best be studied by highway departments individually or in cooperation with their state universities and others. However, the accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. In recognition of these needs, the highway administrators of the American Association of State Highway and Transportation Officials initiated in 1962 an objective national highway research program employing modern scientific techniques. This program is supported on a continuing basis by funds from participating member states of the Association and it receives the full cooperation and support of the Federal Highway Administration, United States Department of Transportation. The Transportation Research Board of the National Academies was requested by the Association to administer the research program because of the Board’s recognized objectivity and understanding of modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which authorities on any highway transportation subject may be drawn; it possesses avenues of communications and cooperation with federal, state, and local governmental agencies, universities, and industry; its relationship to the National Research Council is an insurance of objectivity; it maintains a full-time research correlation staff of specialists in highway transportation matters to bring the findings of research directly to those who are in a position to use them. The program is developed on the basis of research needs identified by chief administrators of the highway and transportation departments and by committees of AASHTO. Each year, specific areas of research needs to be included in the program are proposed to the National Research Council and the Board by the American Association of State Highway and Transportation Officials. Research projects to fulfill these needs are defined by the Board, and qualified research agencies are selected from those that have submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Research Council and the Transportation Research Board. The needs for highway research are many, and the National Cooperative Highway Research Program can make significant contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America NCHRP SYNTHESIS 424 Project 20-05, Topic 41-03 ISSN 0547-5570 ISBN 978-0-309-22343-0 Library of Congress Control No. 2011943707 © 2012 National Academy of Sciences. All rights reserved. COPYRIGHT INFORMATION Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously published or copyrighted material used herein. Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission from CRP. NOTICE The project that is the subject of this report was a part of the National Cooperative Highway Research Program, conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved by the Governing Board of the National Research Council. The opinions and conclusions expressed or implied in this report are those of the researchers who performed the research and are not necessarily those of the Transportation Research Board, the National Research Council, or the program sponsors. The Transportation Research Board of the National Academies, the National Research Council, and the sponsors of the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of the report. NOTE: The Transportation Research Board of the National Academies, the National Research Council, the Federal Highway Administration, the American Association of State Highway and Transportation Officials, and the individual states participating in the National Cooperative Highway Research Program do not endorse products or manufacturers. Trade or manufacturers’ names appear herein solely because they are considered essential to the object of this report.

The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished schol- ars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and techni- cal matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Acad- emy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achieve- ments of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Acad- emy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transportation Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisci- plinary, and multimodal. The Board’s varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transporta- tion, and other organizations and individuals interested in the development of transportation. www.TRB.org www.national-academies.org

and Kumiko Izawa, Traffic and Collision Analysis Engineer, all with the Capital Program Development & Management Office, Washington State DOT for the Planning and Programming: Mobility and Safety Projects case; Michael B. Johnson, Chief, Office of Specialty Investiga- tions & Bridge Management, Structure Maintenance & Investigations, California DOT for the Bridge Project Programming and Permitting case; Louis H. Adams, Acting Director, System Performance & Asset Management Bureau, New York State DOT for the Economics-Based Tradeoff Analysis case; Robert R. Locander, Pavement Design Engi- neer, Materials and Geotechnical Branch, Colorado DOT for the Pave- ment Type Selection case; Thomas Van, FHWA; Kurt Lieblong, State Production Support Engineer, Florida DOT; and Troy Tusup, Value Analysis Program Manager, California DOT for the Value Engineering case; and John L. Wilson, Economic Policy Analyst, Office of Capital Programs and Performance Measures, Minnesota DOT for the Accel- eration of Project Delivery case; with earlier contributions provided by Abigail McKenzie, (formerly) Director, Office of Investment Manage- ment (now retired); and Ed Idzorek, Office of Capital Programs and Performance Measures, Minnesota DOT. Members of the Washington State DOT also provided signifi- cant information for chapter four on implementation. The author acknowledges with thanks and appreciation the contributions of the following WSDOT managers: Pat Morin, Manager, Systems Analy- sis & Programming, WSDOT Capital Program Development & Man- agement Office; and Jeff S. Uhlmeyer, State Pavement Engineer, and Mark Russell, State Pavement Design Engineer, State Materials Laboratory-Pavements Division, WSDOT Environmental and Engi- neering Programs. ACKNOWLEDGMENTS The development of the case examples in chapter three and the implementation guidelines in chapter four would not have been pos- sible without the cooperation of knowledgeable state transportation and FHWA personnel. Twenty-five responses to the synthesis screen- ing survey helped guide the selection of case examples. The author is indebted to those state DOTs and FHWA division offices listed in Appendix C that participated in the screening survey. Their responses to the questionnaire reflected a degree of time and thought that sig- naled their understanding of the importance of this synthesis topic. Valuable help in identifying case examples and in suggesting key agency contacts was also provided by members of the 41-03 Topic Panel, the TRB Transportation Economics Committee (ABE20), and the TRB Asset Management Committee (ABC40). The author thanks all of these individuals for their time, perspectives, and contributions to formulating this synthesis. The author further acknowledges with grati- tude the cooperation of Douglass B. Lee, Jr., Chair of TRB Committee ABE20, and Kathryn Zimmerman, Chair of TRB Committee ABC40, in willingly scheduling a presentation on this synthesis at their respec- tive committee meetings. Managers in the several case-example agencies took the additional time to define and describe their proposed case, send documentation of relevant information, participate in follow-up telephone interviews, and review drafts of their respective cases. A heartfelt nod of appre- ciation and gratitude goes to the following managers who contributed so positively to the case examples: Mark Seaman, Senior Economist, Port Authority of New York and New Jersey, for the Critical Interstate Transportation Facilities case; Pat Morin, Manager, Systems Analysis & Programming; Faris Al-Memar, Manager, System Analysis & Planning; NCHRP COMMITTEE FOR PROJECT 20-05 CHAIR CATHERINE NELSON, Oregon DOT MEMBERS KATHLEEN S. AMES, Michael Baker, Jr., Inc. STUART D. ANDERSON, Texas A&M University BRIAN A. BLANCHARD, Florida DOT CYNTHIA J. BURBANK, PB Americas, Inc. LISA FREESE, Scott County (MN) Community Services Division MALCOLM T. KERLEY, Virginia DOT RICHARD D. LAND, California DOT JOHN M. MASON, JR., Auburn University ROGER OLSON, Minnesota DOT ROBERT L. SACK, New York State DOT FRANCINE SHAW-WHITSON, Federal Highway Administration LARRY VELASQUEZ, JAVEL Engineering, Inc. FHWA LIAISON JACK JERNIGAN MARY LYNN TISCHER TRB LIAISON STEPHEN F. MAHER COOPERATIVE RESEARCH PROGRAMS STAFF CHRISTOPHER W. JENKS, Director, Cooperative Research Programs CRAWFORD F. JENCKS, Deputy Director, Cooperative Research Programs NANDA SRINIVASAN, Senior Program Officer EILEEN P. DELANEY, Director of Publications SYNTHESIS STUDIES STAFF STEPHEN R. GODWIN, Director for Studies and Special Programs JON M. WILLIAMS, Program Director, IDEA and Synthesis Studies JO ALLEN GAUSE, Senior Program Officer GAIL R. STABA, Senior Program Officer DONNA L. VLASAK, Senior Program Officer TANYA M. ZWAHLEN, Consultant DON TIPPMAN, Senior Editor CHERYL KEITH, Senior Program Assistant DEMISHA WILLIAMS, Senior Program Assistant DEBBIE IRVIN, Program Associate TOPIC PANEL LEIGH BOSKE, University of Texas–Austin NORMAN S. J. FOSTER, City of New Orleans MARTINE A. MICOZZI, Transportation Research Board DOUGLAS S. McLEOD, Florida Department of Transportation PEGGY TADEJ, Northern Virginia Regional Commission, Fairfax CHRIS WILLIGIS, System Metrics Group, San Francisco, CA RICHARD Y. WOO, Maryland State Highway Administration NATHANIEL D. COLEY, JR., Federal Highway Administration (Liaison) NADARAJAH “SIVA” SIVANESWARAN, Federal Highway Administration, McLean, VA

Highway administrators, engineers, and researchers often face problems for which infor- mation already exists, either in documented form or as undocumented experience and prac- tice. This information may be fragmented, scattered, and unevaluated. As a consequence, full knowledge of what has been learned about a problem may not be brought to bear on its solution. Costly research findings may go unused, valuable experience may be overlooked, and due consideration may not be given to recommended practices for solving or alleviat- ing the problem. There is information on nearly every subject of concern to highway administrators and engineers. Much of it derives from research or from the work of practitioners faced with problems in their day-to-day work. To provide a systematic means for assembling and evaluating such useful information and to make it available to the entire highway commu- nity, the American Association of State Highway and Transportation Officials—through the mechanism of the National Cooperative Highway Research Program—authorized the Transportation Research Board to undertake a continuing study. This study, NCHRP Project 20-5, “Synthesis of Information Related to Highway Problems,” searches out and synthesizes useful knowledge from all available sources and prepares concise, docu- mented reports on specific topics. Reports from this endeavor constitute an NCHRP report series, Synthesis of Highway Practice. This synthesis series reports on current knowledge and practice, in a compact format, without the detailed directions usually found in handbooks or design manuals. Each report in the series provides a compendium of the best knowledge available on those measures found to be the most successful in resolving specific problems. FOREWORD This study has looked at how U.S. transportation agencies have applied engineering eco- nomics (benefit–cost analyses and similar procedures) to decisions on highway investments. State departments of transportation (DOTs) are most likely to use economic methods when considering investments in pavement and bridge preservation, safety improvements, and major projects on trunk lines and in urban areas. This study, however, has found agencies that use economic information across their key business and decision processes. Information was gathered through literature review, presentations at conference com- mittee meetings, a screening survey of state DOTs, and interviews leading to case studies. Michael J. Markow, Teaticket, Massachusetts, collected and synthesized the information and wrote the report. The members of the topic panel are acknowledged on the preced- ing page. This synthesis is an immediately useful document that records the practices that were acceptable within the limitations of the knowledge available at the time of its preparation. As progress in research and practice continues, new knowledge will be added to that now at hand. PREFACE By Jon M. Williams Program Director Transportation Research Board

CONTENTS 1 SUMMARY 5 CHAPTER ONE INTRODUCTION Background, 5 Definitions, 6 Perspectives on Engineering Economic Analyses, 7 Study Approach, 10 Synthesis Organization, 11 12 CHAPTER TWO ENGINEERING ECONOMIC ANALYSIS Policy and Procedural Guidance, 12 Texts on Engineering Economic Analysis, 13 Methods, 13 Challenges to Wider U.S. Application of Economic Methods, 21 International Experience, 22 Screening Survey, 25 Preview of Case Examples, 29 32 CHAPTER THREE CASE EXAMPLES Impact of Critical Interstate Transportation Facilities, 32 Planning and Programming: Mobility and Safety Projects, 38 Bridge Project Programming and Permitting, 48 Economics-Based Tradeoff Analysis, 53 Pavement Type Selection, 57 Value Engineering, 60 Acceleration of Project Delivery, 64 Case Closure, 73 74 CHAPTER FOUR IMPLEMENTATION Value of Engineering Economic Analysis, 74 Strengthened Agency Decision Making, 75 Level of Effort, 77 Success Factors, 79 Useful Resources, 80 Economic Analysis and Performance Management, 81 Communication and Reporting, 86 Ongoing and Emerging Areas of Analysis, 87 90 CHAPTER FIVE CONCLUSIONS Study Objectives and Case Development, 90 Findings, 91 Impediments to Wider Application, 93 Research Suggestions, 94

97 ABBREVIATIONS AND ACRONYMS 99 REFERENCES 105 BIBLIOGRAPHY 106 APPENDIX A SURVEY QUESTIONNAIRE 112 APPENDIX B INTERVIEW GUIDE 113 APPENDIX C SCREENING SURVEY PARTICIPANTS 114 APPENDIX D SELECTED FEDERAL REQUIREMENTS FOR HIGHWAY ECONOMIC ANALYSES Note: Many of the photographs, figures, and tables in this report have been converted from color to grayscale for printing. The electronic version of the report (posted on the Web at www.trb.org) retains the color versions.

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 424: Engineering Economic Analysis Practices for Highway Investment explores how U.S. transportation agencies have applied engineering economics--benefit–cost analyses and similar procedures--to decisions on highway investments.

TR News 292: May-June 2014 includes an article about the report.

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