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81 The FAA has developed guidance materials for airports conducting BCAs for capacity projects to be considered for FAA funding. In particular, the FAA has outlined a BCA process for airport projects. The analysis is divided into 11 steps, from defining the project objectives to making recommendations. These steps are identified in FAA Airport BenefitâCost Analysis Guidance (FAA, 1999a) and are summarized in this appendix. In addition, the FAA Airport Improvement Program Handbook (FAA, 2014a) provides information in Chapter 3, Paragraphs 3-14, 3-15, and 3-16, on the projects for which a BCA would be required. FAA guidance may change over time, and this summary is not intended to provide instruction on how to meet FAA requirements. Airports should refer directly to FAA requirements and guidance when conducting BCAs for projects funded by the FAA. The 11 steps defined in FAA guidance are: 1. Define project objectives: Projects without clearly defined objectives may be inefficient, which is why it is important to state objectives at the outset. Objectives should be stated such that they address a problem or need at the airport. Examples of objectives for airport infrastructure projects include improving efficiency of airport operations and reducing the airportâs environmental impacts on the surrounding community. 2. Specify assumptions about future airport conditions: These assumptions are usually developed to be used in an airport master plan. They include projected changes in demand, changes to facilities or anticipated expansions (independent of the project in question), con- straints on airport capacity, and improvements in air traffic management protocol. More guidance on developing these projections is included in Chapter 7 of Advisory Circular (AC) 150/5070-6B: Airport Master Plans (FAA, 2015). 3. Identify the base case (scenario of no investment): The base case represents a realistic sce- nario in which the potential project does not take place. The base case must not represent airport activity as stagnant. All current and expected improvements as well as projected airport conditions must be taken into consideration. 4. Identify and screen all reasonable alternatives to meet objectives: Alternatives should be reasonable and independent of other infrastructure investments. In addition, a wide range of alternatives should be considered: investment in new facilities, improvement of existing facilities, demand management strategies, and redistribution of responsibility. It is important to identify as many logical alternatives as possible, but some alternatives may be screened out for various reasons (e.g., are too costly; may not be a good fit with existing facilities; and may be constrained by legal, political, or environmental challenges). 5. Determine appropriate evaluation period: The evaluation period is the period to be considered for evaluating the benefits and costs of an investment. There are three types of evaluation period that may be chosen: requirement life, physical life, and economic life. The requirement life is the amount of time for the benefits of a good or service to A P P E N D I X B FAA BCA Requirements
82 BenefitâCost Analyses Guidebook for Airport Stormwater outweigh the costs. The requirement life should not exceed 30 years. The physical life is the amount of time an asset is expected to last. The economic life is the amount of time it takes for an asset to meet its initial objectives. The economic life is usually less than or equal to the requirement life. It cannot exceed and is often less than the physical life. Investment projects are usually evaluated over their economic life; the FAA uses an economic life of 20 years. 6. Establish reasonable level of effort for analysis: The following should be considered when estimating the level of effort: the magnitude of the project, the complexity of the project, the number of practical alternatives, the dominance of an alternative, how much benefits and costs may vary among alternatives, the sensitivity of benefits and costs to assumptions, the availability of data, and controversy. These criteria should be used to justify the level of effort. 7. Identify, quantify, and evaluate benefits and costs of alternatives relative to base case: Benefits and costs that can be quantified should be estimated for each year of the projectâs life. Benefit type, amount, and value should be identified. Benefit types may include reduced delay, increased aircraft efficiency, and reduced environmental impact. Costs should include estimates for planning, construction, and operation and maintenance. Some benefits and costs may be hard to quantify. Hard-to-quantify benefits and costs should be clearly listed and described to be considered during evaluation. 8. Measure impact of alternatives on airport usage: An analysis of induced demand aims to estimate changes in airport usage due to investment in an improvement. However, the FAA does not require this element due to uncertainty of data; some airport sponsors may want to include this analysis. 9. Compare benefits and costs of alternatives: This step will determine whether the benefits exceed the costs for any of the alternatives. It is important to ensure that benefits and costs accrued in the future are accounted for properly through discounting (i.e., estimating the present value of future benefits and costs). 10. Perform a sensitivity analysis: Since uncertainty is inherent in benefit and cost estimates, it is important to evaluate the alternatives under varied assumptions. Adjusting assumptions may affect the ranking of alternatives. 11. Make recommendation of best course of action: The recommendation will specify if the activity should be pursued and, if so, which alternative should be chosen. This will be based on the measured benefits and costs, consideration of benefits and costs that are more diffi- cult to quantify, and the sensitivity of the alternatives in response to changes in assumptions. The FAA reviews BCAs for airport projects and verifies that the analyses have been done in accordance with FAA guidance. However, if a BCA is approved by the FAA, this does not mean that the project has received funding. A 2006 FAA memorandum entitled Planning Information Needed for FAA Headquarters Review of Benefit Cost Analysis (BCA) provides guidance to FAA headquarters for reviewing BCAs. In particular, it states that FAA should ensure that: â(1) the data and analysis used for BCA are consistent with data and analysis of earlier planning and envi- ronmental studies for the project; or (2) in cases of different data or analysis, it is demonstrated through sensitivity analyses, that use of those data or analysis does not change planning, envi- ronmental and financial conclusionsâ (FAA, 2006a). The FAA reserves the right to reject a BCA if it is not deemed reasonable (e.g., because of overstated benefits or a lack of quantification of environmental or other costs). However, applications are not often rejected. According to ACRP Synthesis of Airport Practice 13: Effective Practices for Preparing Airport Improvement Program BenefitâCost Analysis, only six out of 117 BCAs received by the FAA from 1988 to 2008 were not accepted; 70 were either accepted, partially accepted, or conditionally accepted. The rest were either withdrawn, resolved at an FAA regional office, or exempt (Landau and Weisbrod, 2009).