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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
×
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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
×
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Suggested Citation:"Step 2 - Determine Scope of Analysis." National Academies of Sciences, Engineering, and Medicine. 2017. Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments. Washington, DC: The National Academies Press. doi: 10.17226/24680.
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19 S t e p 2 2.1 Goal This step helps to right-size the BCA. Right-sizing techniques are important for balancing study goals with time and budget constraints to establish the proper level of effort needed for a successful BCA. Right-sizing will help determine the level of effort, tools, and data use once the purpose is established for the BCA. The scope will be determined based on the identification of stakeholders, jurisdictions, impacted populations, modeling and information needs, the service life of the project(s), and the type/level of analysis that is most appropriate (conceptual, feasibil- ity, investment grade, etc.). These determinations will affect the amount and acceptable level of accuracy of subsequent steps. 2.2 Tasks Define Approach for Type of Analysis BCA is based on its status in the project development process. Match the resources spent on evaluation to the cost of the project and the degree of complexity of the issues involved. For small and routine projects, use a readily applicable methodology consistently. Base the level of effort on the complexity (the number of modal interactions), project scale (regional, state, or multistate), data availability concerns, the number of alternatives being compared, the number and type of benefits, and the magnitude of the budget. The BCA of complex projects involving expenditures of several hundred million or billions of dollars may take a number of months in contrast to smaller-scale projects, which can be analyzed in two months or less. There are a few basic reasons for preparing a BCA: • Prioritize concepts at an early stage (e.g., for a capital plan): This calls for a conceptual BCA or business case study. This effort leads to a recommendation on whether to carry out a more detailed analysis. BCA at this stage typically relies on existing data sets such as demand models for a corridor and makes assumptions as needed, making best use of available data regardless of the scale of the project (public or private domain). • Select among alternatives during the preliminary design stage: A more comprehensive BCA is required to understand the nuanced differences between a narrower set of project alterna- tives. A more comprehensive BCA (i.e., feasibility study) provides additional analysis and is used for project approval. • Secure bank funding: In this case, a very thorough BCA is required—an investment-grade study. Investment-grade studies are requested by investment banks (financial stakeholders) to oversee credibility of forecasts prior to providing funding. In international practice, this is sometimes called a procurement BCA. Investment-grade studies explore numerous scenario analyses to explore potential downside (and upside) risks. Three examples where such studies are used include (a) public private partnerships; (b) project benefits are driven by fares, tolls, Determine Scope of Analysis

20 Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments or access fees that depend on traffic usage forecasts (this is most similar to investment grade traffic and revenue studies required for toll roads); and (c) when private freight investments are undertaken with implications for freight and passengers or other modes. • Construction planning: Construction planning and post-project assessment are usually con- ducted for large-scale projects during the construction phase of a project. Many states routinely engage in construction planning BCA, relying on user costs for highway projects for optimizing lane closures so as to minimize delay impacts to users in congested regions. (Road user cost tools and work zone models are used in this process.) In the case of “state of good repair” proj- ects, an alternate procedure called life cycle cost analysis can be used. Construction disruption is different from construction planning and can lead to cost increases to users (carriers and shippers) when a more circuitous route has to be adopted for the duration of construction. One way to address construction disruption costs for rail and barges is by using route circuity factor to adjust operating costs for the construction period. The circuity factor is defined as the ratio of shortest distance to actual distance. One method uses construction disruption costs consistently across modes by including the construction period in the overall analysis period. Construction planning studies and life cycle cost analysis can also be conducted at the con- ceptual level, in a feasibility type study, or with several elements common to investment grade studies (with greater emphasis on risk and uncertainty). • Post project assessments (also known as before-after studies) are becoming popular. The Stra- tegic Highway Research Program has developed such a database for highway projects; TCRP has a similar database for transit projects, as does the Organization for Economic Cooperation and Development (OECD). Such repositories may be useful for refining BCA for planned projects. There are none for freight projects. Identify Public and Private Stakeholders Stakeholder assessment is not always needed. It is, however, the first step in a stakeholder- centric BCA for multijurisdictional projects.1 This is a part of the process of deciding which stakeholders or referent group may have standing in the BCA, and consequently which potential benefits should count in the consumer surplus. A stakeholder analysis can facilitate a distribu- tive analysis by posing key questions such as: Who will benefit from a project? Who pays? The answers to these questions are very project specific. An analysis conducted for the public sector typically emphasizes the value of benefits to the public, as opposed to analyses conducted for the private sector. A complete economic analysis for a project should include both the public sector perspective and the private sector perspective, including a business case analysis2 (which typically also includes a financial BCA) and full economic BCA of all referent groups or those who have standing. (See Appendix A Figure A3). Five factors (spanning five stakeholder groups) are important for deciding whose responses or benefits are modeled and for grouping benefits into private or public accounts in the same BCA: • Who owns the infrastructure (public or private entity)? (These are asset providers or produc- ers and may also be the lead entities involved in implementation.) • Who services the infrastructure? (These are service providers or facility operators.) • Who are the benefits accruing to? 1A full stakeholder-centric BCA can include one or more of the following five aspects as part of a participatory process: (a) examining and reflecting on benefit and cost distribution across stakeholders; (b) assessing a weight to stakeholder ben- efits and costs; (c) involving stakeholders in analyzing benefits and costs of specific actions, projects, or policies; (d) determining benefits, costs, and their distribution; and (e) attempting to ground truth benefits and findings with stakeholders by allowing them to compare with actual observations. A multijurisdictional project by definition involves many parties. 2A business case analysis is defined as the business rationale for doing a project (or group of projects). It lays out the context, identifies the issues, and presents the rationale. It typically includes financial analysis, BCA, and risk assessment among other factors, including stakeholder impact.

Determine Scope of Analysis 21 • Who are the users (system or facility users or consumers)? – If it is cargo, who are the shippers? – Who are the other users (e.g., auto drivers or truckers)? • Who are the other affected communities? – What are the adjacent communities? – Are there any other impacted parties and, if so, how (e.g., funding agencies or jurisdictions directly impacted)? It may sometimes be difficult to clearly define users. Identify users by the origin and destination of freight flows, commodity type, weight and value, and mode (trucks, rail, or waterways). This helps identify other stakeholders, such as shippers and other end users, and associated assump- tions in the use of existing statewide or regional freight or truck models and other custom models. Identify the Jurisdictions Involved The geographic scope and the jurisdictions included in that scope need to be defined in order to determine whose benefits and costs should be included in the BCA. Identify the jurisdictions involved along the path of the project as well as jurisdictions that are finan- cially involved in the project or have oversight of the planned infrastructure. These are the public-sector stakeholders. For projects that traverse different regions or jurisdictions, identify the state, counties, and cities that lie in the project’s path. Identify the project limits and all the connecting facilities, along with their jurisdictional involvement. Entities such as port authorities and terminal owners/operators could be asset providers or impacted parties, depending on their role in the project. The definition of the scope is essentially a political decision and is often influenced by the need to gain the support of specific parties or entities. For example, a port authority could limit the scope of a project strictly to the area covered by its district boundaries. However, for politi- cal reasons, it may need to include adjacent areas or counties, or even include an entire state or multistate area. Identify Populations That Will Be Impacted Identify populations that will be impacted by the proposed alternative(s). This typically includes nearby communities and the users of the infrastructure. The stakeholder analysis con- ducted earlier can be a starting point. The purpose of this step is to determine affected communi- ties in the consideration of negative externalities and distributional concerns, if applicable. Air pollution and noise, for instance, have a local influence. Safety has a regional significance, while carbon emissions are associated with national significance. Define the Scope for Modeling and Informational Needs The objective of this definition is to establish the base area for developing forecasts, which will allow unbiased determination of current, diverted, and induced users. Make the impact area large enough to incorporate applicable parts of the transportation network that are likely to experience change in flows or costs as a result of the projects and to obtain reliable results. A forecast model will need to consider the largest area where there could be significant impacts; otherwise, the results may not be comprehensive and credible. The base area can be a subset of the demand model area carved out by selecting the O-D regions and functional classifications suited for freight movement. For freight corridors, include diversion networks if competing

22 Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments modes and routes are considered. When user charges or tolls are involved, include the pertinent alternate route links. All individual elements of the links and nodes impacted should be identified by mode to ensure that the impact area is well defined (e.g., intermodal terminals or gateway connections such as seaports). The key origins and destinations for line-haul modes may be identified by select link analysis. A typical approach is to identify the impact area by identifying the associated jurisdictions where the project is located and use the area’s network models, demand models, or commodity flow models, while identifying the travel shed by separating external trips (with at least one trip end outside), through trips, and internal movements. The network approach is best used for regional, statewide, and multistate corridors. The manner in which the impact area is defined depends heavily on the modes involved in the alternatives being compared. Airside and portside investments by themselves are hard to depict as corridors unless they accompany landside access improvements. Use the following guidance for defining the impact area for the following project types: • Airside projects: FAA guidelines suggest impact areas based on approach infrastructure (landside access) and usage characteristics (geography of flows) as reflected in delay measures (5). • Highway capacity improvement projects: The scale of the project (regional, statewide, or multi- state) is often used to define the geographic impact area mapped to the associated jurisdictional oversight and planning bodies such as metropolitan planning organizations and state DOTs that provide the key data inputs for use. • Intermodal freight facilities: Intermodal freight facilities are typically examined using impact areas associated with truck drayage distances of between 100 and 300 miles, and may also consider competing facilities in that vicinity or just beyond. In such cases, the catchment area can be defined by counties with geographic centroids3 within the 100–300 mile radius of the facility.4 Consider competing facilities that lie within the impact area and use meth- ods that allow for allocating market shares across facilities. If such intermodal facilities are bundled with other improvements in the corridor, the larger impact area will likely span facility impact areas. • Marine projects: USACE defines its impact area nationally based on usage characteristics for projects under its jurisdiction. Non-USACE port infrastructure projects are somewhat similar to airport projects except that there is no guidance on considering landside access (analogous to airport approach infrastructure). Refine the impact area by matching it to the available data and tools (see the recommended tools and data sources) and the specific elements of the project. For instance, if the project is a line-haul improvement on a highway and is accompanied by a marine port improvement, the impact area covers the entire region spanned by both the highway corridor and port so that interaction of highway and port traffic can be considered in projections. Determine Service Life of Project(s) Multimodal projects may have very different service lives. In such cases, determining recur- ring costs of a project, different project components, or sub-projects requires a common ser- vice life to be determined for BCA. The common service life provides another consideration in 3A geographic centroid is the simplest to use. Other centroids such as activity centroids may also be used. 4Sometimes even distance ranges of 500 miles can be considered.

Determine Scope of Analysis 23 setting the BCA analysis period along with data forecast horizon. Appendix B provides meth- ods to determine service life of a project when several different types of projects are combined together. Appendix C provides some resources for individual service lives of a project for both infrastructure as well as infrastructure components. Analysts may need to compare across modal alternatives (as in initial alternatives screening) or a combination of assets of very different lives (as can occur in cross-modal comparisons or bundled options, as well as in comparisons of build and no-build cases). Projects focused on resilience (or projects aimed at addressing critical needs in existing freight, transport, and transit systems) may require comparisons of alternatives that may have significantly different service lives. The two ways of dealing with assets of different service lives for examining the distribution of costs and benefits and for facilitating meaningful comparisons are: • Use a common service life: The first approach is the use of the same service life for all compo- nents. In most cases, the common asset life to use is the least common multiple of all pertinent asset lives. The net present values (NPVs) for the different alternatives have to be adjusted, using common multiples of project duration (CMPD), which requires rolling over the shorter period(s). This rollover is simply an analytical device and is not intended to forecast actual agency behavior. This approach is recommended when different project aspects and lives are well identified and it occurs with the process of establishing costs over the common duration. Note that this influences the analysis period established for the BCA and leads to a choice of a uniform or common analysis period. This approach is more suited when different options are bundled as one project. • Adjust the NPV: The second approach is to retain NPVs from different project modes or types with different lives, but to adjust the NPV using a formal method called the equivalent annual net benefit (EANB) method (Appendix B). This approach suggests using individual service lives of different component projects for both costs and benefits. This approach is suited for coordinated multimodal projects within corridors that are not mutually exclusive. This is also suited for comparing different modal strategies in an early stage analysis. 2.3 Inputs: Recommended Tools and Data Sources A number of tools and resources can assist the analyst to determine the appropriate scope and level of analysis. • Aerial photographs (for smaller areas). • Esri’s ArcVIEW, TransCAD, or similar tools. • Census files demonstrate population density, and rural and urban status to facilitate corridor diagnostics. • TRB’s BCA website (http://bca.transportationeconomics.org). • Appendix B and Appendix C (service lives of assets). • Unimodal project BCA guidance documents: – FAA (https://www.faa.gov/regulations_policies/policy_guidance/benefit_cost/) (7). – USACE (economic guidance documents) (http://planning.usace.army.mil/toolbox/index. cfm) and National Economic Development Procedures Manual (2009) (8). – USDOT and FHWA Economic Analysis Primer (2003) (9) (http://www.webpages.uidaho. edu/~mlowry/Teaching/EngineeringEconomy/Supplemental/USDOT_Economic_Analysis_ Primer.pdf) and other sources such as USDOT American Recovery and Reinvestment Act of 2009 BCA guidance. • Project documentation, if available. • Discussion with stakeholders.

24 Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments 2.4 Best Practices and Examples Best practices for Step 2: • Discuss the project in the planning context. • Examine a project from the point of view of facility users as well as owners and operators. Example 1 (Stakeholder Identification): The Washington State DOT developed multijuris- dictional projects SR 509 to Port of Tacoma and SR 167 (local- and regional-scale projects). The jurisdictional project stakeholders included: • The Washington State DOT. • The Port of Tacoma. • The City of Fife and City of Tacoma. Beneficiary-related stakeholders included port-related freight shippers such as automotive companies, businesses located on the port property, and truckers moving into and out of the port. Example 2 (Stakeholder Identification): NCFRP Report 12 provides several examples of stake- holders and beneficiaries for projects of local, regional, state, and multistate geographies (18). 2.5 Common Mistakes Common mistakes occur when the project team: • Presents socio-economic context and statistics without explaining their relevance to the project. • Does not define the scope of the analysis and the specific purpose of BCA results in reference to a project life cycle. Is it to select projects from a plan? Evaluate project alternatives? • Compares projects without recognizing the differences in service lives and their effect on BCA analysis periods and net present value. Examples: comparing the NPV of road only with a road-rail option, comparing NPV of a project with service life of 10 years with a project option with service life 30 years.

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TRB's National Cooperative Freight Research Program (NCFRP) Research Report 38: Guide for Conducting Benefit-Cost Analyses of Multimodal, Multijurisdictional Freight Corridor Investments explores how to conduct benefit-cost analyses (BCAs). A BCA is an analytical framework used to evaluate public investment decisions including transportation investments. BCA is defined as a collection of methods and rules for assessing the social costs and benefits of alternative public policies. It promotes efficiency by identifying the set of feasible projects that would yield the largest positive net benefits to society.

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