This document discusses concepts related to highway economic analysis and financial analysis. It defines key terms and outlines the differences between economic analysis and financial analysis. Economic analysis considers all engineering and transportation costs and benefits from the societal perspective, while financial analysis focuses on the sources and allocation of project funds. The document also describes techniques used in highway economic evaluation, including benefit-cost analysis, net present value analysis, and internal rate of return analysis. It provides examples of how to calculate and use these metrics to evaluate highway projects and alternatives.
This document discusses life cycle costing (LCC), which is an accounting method used to estimate total costs of owning an asset over its entire life. It explains that LCC can be used for affordability studies, source selection, design tradeoffs, and more. The key steps of LCC are defined as determining the time period for costs, estimating costs, calculating net present values, summing costs annually, and analyzing results. An example LCC analysis is provided comparing costs of owning four different cars over four years to demonstrate how LCC can identify the most economical option.
This document summarizes the economic evaluation of proposed road improvement projects in Cambodia. Traffic studies were conducted in 2015 on 5 roads proposed for improvement projects, including traffic counts and origin-destination surveys. An economic analysis from 2017-2037 was conducted using the HDM-4 model to evaluate costs and benefits with and without the improvement projects. The results of the cost-benefit analysis showed economic internal rates of return ranging from 12.2-32.5% for individual road sections and 20.4% for all road sections combined, with an overall benefit-cost ratio of 1.58 and net present value of $45.55 million. A sensitivity analysis found the economic internal rate of return to be most sensitive to variations in traffic
The document discusses evaluating transportation alternatives using economic criteria. It describes measuring effectiveness, converting metrics to money for comparison, and using procedures like net present worth and equivalent uniform annual worth with discount rates to evaluate alternatives. It provides examples of costs considered like vehicle operation, travel time, and accidents. It also gives sample problems evaluating highway relocation and intersection improvement alternatives based on construction, maintenance, salvage, and operating costs over time horizons like 50 years.
Project management involves four key components: selection, planning, implementation, and completion. Project appraisal examines technical, financial, market, economic, and ecological aspects to determine a project's viability. It assesses factors like technology, costs, profits, demand, and environmental impacts. Financial appraisal focuses on costs, financing, income/expenditure, profitability, and pricing. Key financial metrics include net present value, internal rate of return, payback period, and debt service coverage ratio. The document analyzes and compares these metrics across projects A, B, and C to determine that Project C is the best investment option.
IRJET- Life Cycle Cost Analysis of a Residential BuildingIRJET Journal
This document discusses conducting a life cycle cost analysis of a residential building using the net present value method. It provides background on why life cycle cost analysis is important, as construction and maintenance costs over a building's lifetime are not typically considered. The methodology section outlines the steps to conduct an LCC analysis, including collecting cost data, applying relevant formulas to calculate total life cycle costs while discounting future costs. The document then applies this process to analyze costs over the lifetime of a specific 5-story residential building in India. It finds the total life cycle cost of this building using the net present value method is Rs. 86,22,64,309.
This document describes a model called the Indiana Highway Economic Evaluation Model (IHEEM) that was developed to provide the Indiana Department of Transportation with a uniform methodology for conducting economic analyses of highway investment projects. IHEEM uses a life-cycle benefit-cost analysis approach to evaluate projects. It incorporates both deterministic and probabilistic analyses. The model calculates agency costs and user benefits over an analysis period to determine metrics like net present value and benefit-cost ratio. An example application analyzing a highway expansion project is provided to demonstrate IHEEM's capabilities.
NAP Training Viet Nam - Cost Benefit Analysis and Development Adaptation OptionsUNDP Climate
This two-day workshop supported the Government of Viet Nam in building the necessary capacity to advance its National Adaptation Plan (NAP) process. The workshop closely focused on building National Adaptation Plans in the agricultural sector through multi-stakeholder collaboration, and increased knowledge and capacity on a number of topics including: prioritization of adaptation options, cost-benefit analysis, overview of the broad-based nature of climate change adaption impacts, analysis of challenges, and creation of an open discussion with key stakeholders on defining a road-map for the NAP process. The workshop was delivered using discussions and case studies to enhance interactive learning for participants, with supporting presentations by GiZ and SNV.
Gaëlle Le Bars discusses using the Highway Development and Management model (HDM-4) as a decision making tool for road asset management. HDM-4 allows analysis of pavement behavior over the lifecycle, calculates economic indicators, and defines maintenance strategies and budgets. It helps answer questions about road network conditions, priorities, solutions, and efficient use of funds. HDM-4 predicts performance based on traffic, roads, maintenance, climate, and quantifies user benefits. It is a strong, quantitative model that supports optimal investment levels and strategies for road networks.
This document discusses life cycle costing (LCC), which is an accounting method used to estimate total costs of owning an asset over its entire life. It explains that LCC can be used for affordability studies, source selection, design tradeoffs, and more. The key steps of LCC are defined as determining the time period for costs, estimating costs, calculating net present values, summing costs annually, and analyzing results. An example LCC analysis is provided comparing costs of owning four different cars over four years to demonstrate how LCC can identify the most economical option.
This document summarizes the economic evaluation of proposed road improvement projects in Cambodia. Traffic studies were conducted in 2015 on 5 roads proposed for improvement projects, including traffic counts and origin-destination surveys. An economic analysis from 2017-2037 was conducted using the HDM-4 model to evaluate costs and benefits with and without the improvement projects. The results of the cost-benefit analysis showed economic internal rates of return ranging from 12.2-32.5% for individual road sections and 20.4% for all road sections combined, with an overall benefit-cost ratio of 1.58 and net present value of $45.55 million. A sensitivity analysis found the economic internal rate of return to be most sensitive to variations in traffic
The document discusses evaluating transportation alternatives using economic criteria. It describes measuring effectiveness, converting metrics to money for comparison, and using procedures like net present worth and equivalent uniform annual worth with discount rates to evaluate alternatives. It provides examples of costs considered like vehicle operation, travel time, and accidents. It also gives sample problems evaluating highway relocation and intersection improvement alternatives based on construction, maintenance, salvage, and operating costs over time horizons like 50 years.
Project management involves four key components: selection, planning, implementation, and completion. Project appraisal examines technical, financial, market, economic, and ecological aspects to determine a project's viability. It assesses factors like technology, costs, profits, demand, and environmental impacts. Financial appraisal focuses on costs, financing, income/expenditure, profitability, and pricing. Key financial metrics include net present value, internal rate of return, payback period, and debt service coverage ratio. The document analyzes and compares these metrics across projects A, B, and C to determine that Project C is the best investment option.
IRJET- Life Cycle Cost Analysis of a Residential BuildingIRJET Journal
This document discusses conducting a life cycle cost analysis of a residential building using the net present value method. It provides background on why life cycle cost analysis is important, as construction and maintenance costs over a building's lifetime are not typically considered. The methodology section outlines the steps to conduct an LCC analysis, including collecting cost data, applying relevant formulas to calculate total life cycle costs while discounting future costs. The document then applies this process to analyze costs over the lifetime of a specific 5-story residential building in India. It finds the total life cycle cost of this building using the net present value method is Rs. 86,22,64,309.
This document describes a model called the Indiana Highway Economic Evaluation Model (IHEEM) that was developed to provide the Indiana Department of Transportation with a uniform methodology for conducting economic analyses of highway investment projects. IHEEM uses a life-cycle benefit-cost analysis approach to evaluate projects. It incorporates both deterministic and probabilistic analyses. The model calculates agency costs and user benefits over an analysis period to determine metrics like net present value and benefit-cost ratio. An example application analyzing a highway expansion project is provided to demonstrate IHEEM's capabilities.
NAP Training Viet Nam - Cost Benefit Analysis and Development Adaptation OptionsUNDP Climate
This two-day workshop supported the Government of Viet Nam in building the necessary capacity to advance its National Adaptation Plan (NAP) process. The workshop closely focused on building National Adaptation Plans in the agricultural sector through multi-stakeholder collaboration, and increased knowledge and capacity on a number of topics including: prioritization of adaptation options, cost-benefit analysis, overview of the broad-based nature of climate change adaption impacts, analysis of challenges, and creation of an open discussion with key stakeholders on defining a road-map for the NAP process. The workshop was delivered using discussions and case studies to enhance interactive learning for participants, with supporting presentations by GiZ and SNV.
Gaëlle Le Bars discusses using the Highway Development and Management model (HDM-4) as a decision making tool for road asset management. HDM-4 allows analysis of pavement behavior over the lifecycle, calculates economic indicators, and defines maintenance strategies and budgets. It helps answer questions about road network conditions, priorities, solutions, and efficient use of funds. HDM-4 predicts performance based on traffic, roads, maintenance, climate, and quantifies user benefits. It is a strong, quantitative model that supports optimal investment levels and strategies for road networks.
A Stream of Construction Management which covers Time Value of Money and Equivalence of Alternatives by Various Methods also includes basic idea of Benefit to Cost Ratio.
Dr. Eric E. Stannard, CEO of HDMGlobal, gave a presentation on the use and features of HDM-4, a decision support tool for road investment choices. HDM-4 has been sold to over 110 countries and is used by various government and private organizations. It predicts road network performance based on factors like traffic, road type, and maintenance. HDM-4 allows users to analyze strategies, maintenance programs, and project costs to optimize total transport costs. The software requires local calibration of models to provide accurate outputs for strategic planning, project evaluation, and research studies.
Total cost of ownership is a philosophy for really understanding all supply chain related costs of doing business with a particular supplier for a particular good or service (Lisa Ellam, May 1999)
Three Components of Total Cost
Acquisition Costs
Ownerships Costs
Post-Ownership Costs
Purchase Price: But One Component of Cost
TCO, Net Present Value Analysis (NPV), and Estimated Costs
The Importance of Total Cost of Ownership in Supply Management
Service Providers
Retail
Manufacturing
This document discusses various topics related to construction project management including:
- Project cost control methods like cost planning, direct costs, indirect costs, and total cost curves.
- Economic analysis methods for construction projects such as present worth, equivalent annual cost, and discounted cash flow.
- Depreciation analysis and break-even cost analysis for construction projects.
- The importance of cost planning and economic comparisons of alternatives in selecting the most cost-effective option.
- An example comparing the present worth of two alternatives for purchasing a concrete mixer to demonstrate the economic comparison method.
8.06 Project Risk Management_Project Life Cycle.pptxIftekarHasnine
This document discusses risks associated with project implementation and management. It covers risk identification, analysis, assessment, and monitoring processes. Key points include:
- Risk management involves identifying, analyzing, mitigating risks to successfully implement a project.
- Various project risks include financial, technical, execution, legal, contractual, operational, and strategic risks.
- Feasibility studies help identify risks by analyzing technical, financial, economic, environmental, market, operational, legal, and social feasibility.
- Risk analysis and mitigation measures are important parts of project documents like the Development Project Proposal.
Presentation by Tom Worsley, Visiting Research Fellow, delivered as part of the annual series of Beesley lectures, organised by the Institute of Economic Affairs at the Institute of Directors in London.
Engineering Economy discusses evaluating facility investment alternatives. It is important to rationally evaluate projects regarding individual economic feasibility and relative net benefits of mutually exclusive options. A systematic approach includes generating investment options, establishing an analysis period, estimating cash flows, specifying a minimum return rate, establishing an acceptance criterion, conducting sensitivity analysis, and selecting based on the criterion. Present worth analysis compares the net present worth of cash flows to select the optimal alternative over the analysis period. It is important to appropriately handle alternatives with different lifetimes by comparing them over their least common multiple time period.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate method that uses cost drivers to allocate indirect costs to cost centers. Ethical practices, like avoiding deception, are important for creating unbiased cost estimates.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate allocation method that uses cost drivers. Ethical practices like avoiding deception are important for quality cost estimation.
Engineering economics Slides for Postgraduatesssuser50050d1
Engineering management involves applying engineering knowledge and judgment to develop solutions that utilize natural resources for the benefit of humanity. There are physical and economic environments to consider. The engineering process includes determining objectives and strategies, proposing solutions, evaluating proposals, and assisting with decision making. Engineering economy deals with analyzing the costs and benefits of projects over time. It is used to evaluate which projects are worthwhile and how projects should be designed and prioritized. Manufacturing costs include direct materials, direct labor, and manufacturing overhead. Prime costs refer to direct materials and labor, while factory costs also include factory overheads.
This document discusses using statistical benchmarking to evaluate the efficiency of authorities that maintain highway networks. It explains that benchmarking can identify potential cost savings by determining authorities' minimum possible costs given their characteristics, quality levels, and citizen satisfaction. The document outlines models developed to estimate cost frontiers for highway maintenance, street lighting, and winter services. Authorities performing above the cost frontier are deemed inefficient, and the analysis can estimate potential savings if they adopted best practices. However, the document notes the analysis does not explain why costs gaps exist or are a maximum potential saving rather than absolute. It concludes benchmarking should be used alongside other analyses to help authorities understand how to improve.
This document discusses tools for conducting an economic analysis of small hydro-power projects. It outlines various economic analysis methods like payback period, return on investment, net present value, benefit-cost ratio, and internal rate of return. It provides examples of how to calculate these metrics and compares the advantages and disadvantages of each. The document also includes an example economic analysis of a typical small hydro-power project, outlining parameters like installed capacity, estimated annual output, project costs, revenue assumptions, and results of the net present value and benefit-cost ratio calculations.
Clear Air Zones – What are Local Authorities Proposing? - Nigel BellamyIES / IAQM
The document summarizes progress on Clean Air Zones in the UK. It outlines that the UK has been in breach of legal limits for nitrogen dioxide and discusses the need for immediate action to improve air quality and health. It defines Clean Air Zones as areas with restrictions on certain vehicles to encourage cleaner vehicles. Authorities need to develop local plans with measures to achieve compliance, which requires modeling emissions and impacts. Options being considered by authorities include charges for different vehicle types in Clean Air Zones of varying sizes and stringency. Authorities are at different stages with some publishing initial plans focusing on buses, taxis, HGVs or LGVs. The overall progress aims to achieve compliance with legal limits as soon as possible to reduce human exposure
1) PPP projects in infrastructure like tollways and highways can provide long-term value through more efficient construction, maintenance, and operations due to performance-based payments and risk transfer to private partners.
2) Key sources of long-term value include whole-life cost minimization, innovation through collaborative working models, and improved outcomes from performance management.
3) However, accurate long-term traffic and revenue forecasts are challenging, and overestimates are common, particularly for new toll road projects. Close risk analysis and management is needed to realize sustained benefits over the life of long-term PPP concessions.
The document discusses power system planning and economics. It begins by defining key terms used in power system planning and economic analysis, such as revenue, costs, profit, depreciation, interest rates, and present value. It then explains the cash flow concept and time value of money. The main method of economic analysis discussed is the present worth method. This method is explained for both equal-life and different-life alternatives. Calculating the present worth and selecting the alternative with the highest present worth is the approach. Examples are provided to illustrate present worth analysis for both equal-life and different-life power system projects or alternatives. Factors that drove a shift to smaller power plants in the 1960s from the previous economies of scale approach
This document presents the City of Toronto's Consolidated Green Fleet Plan for 2014-2018. The plan was developed jointly by the city's five major fleets - Centrally-Managed Fleet, Emergency Medical Services, Fire Services, Police Service, and Transit Commission. The goal is to reduce fuel consumption, greenhouse gas emissions, and air pollution from city vehicles and equipment in a cost-effective manner. The plan builds on lessons from previous green fleet plans and sets objectives like purchasing more efficient vehicles and improving operational efficiency. It also recommends strategies like obtaining ISO certification, developing alternative fuel criteria, and creating a green fleet coordinator position to help achieve the city's environmental and economic goals.
Guidelines for contractual arrangements for brt systemsBRTCoE
This document discusses guidelines for contractual arrangements for BRT systems. It analyzes contracts from various public transportation systems to inform best practices for BRT. The research aims to import experience from other modes to the design, implementation, and monitoring of BRT contracts. Case studies of 58 transportation contracts from around the world are analyzed based on factors like risk allocation, award procedures, and infrastructure provision models. Preliminary findings show different prevalent contract types and lengths. Next steps include further analyzing BRT contracts and finalizing guidelines for contractual arrangements tailored for BRT systems.
This document provides an overview of engineering economics and its application in process engineering. It discusses key concepts like the time value of money, methods for quantifying project profitability like net present value, payback period, return on investment, and internal rate of return. It also covers typical accounting tools used like income statements and cash flow statements. The document explains how to estimate capital costs using methods like the turnover ratio and Lang's factor as well as operating costs considering factors like labor, materials, and utilities. It emphasizes the need to balance accuracy and cost when developing cost estimates.
A Stream of Construction Management which covers Time Value of Money and Equivalence of Alternatives by Various Methods also includes basic idea of Benefit to Cost Ratio.
Dr. Eric E. Stannard, CEO of HDMGlobal, gave a presentation on the use and features of HDM-4, a decision support tool for road investment choices. HDM-4 has been sold to over 110 countries and is used by various government and private organizations. It predicts road network performance based on factors like traffic, road type, and maintenance. HDM-4 allows users to analyze strategies, maintenance programs, and project costs to optimize total transport costs. The software requires local calibration of models to provide accurate outputs for strategic planning, project evaluation, and research studies.
Total cost of ownership is a philosophy for really understanding all supply chain related costs of doing business with a particular supplier for a particular good or service (Lisa Ellam, May 1999)
Three Components of Total Cost
Acquisition Costs
Ownerships Costs
Post-Ownership Costs
Purchase Price: But One Component of Cost
TCO, Net Present Value Analysis (NPV), and Estimated Costs
The Importance of Total Cost of Ownership in Supply Management
Service Providers
Retail
Manufacturing
This document discusses various topics related to construction project management including:
- Project cost control methods like cost planning, direct costs, indirect costs, and total cost curves.
- Economic analysis methods for construction projects such as present worth, equivalent annual cost, and discounted cash flow.
- Depreciation analysis and break-even cost analysis for construction projects.
- The importance of cost planning and economic comparisons of alternatives in selecting the most cost-effective option.
- An example comparing the present worth of two alternatives for purchasing a concrete mixer to demonstrate the economic comparison method.
8.06 Project Risk Management_Project Life Cycle.pptxIftekarHasnine
This document discusses risks associated with project implementation and management. It covers risk identification, analysis, assessment, and monitoring processes. Key points include:
- Risk management involves identifying, analyzing, mitigating risks to successfully implement a project.
- Various project risks include financial, technical, execution, legal, contractual, operational, and strategic risks.
- Feasibility studies help identify risks by analyzing technical, financial, economic, environmental, market, operational, legal, and social feasibility.
- Risk analysis and mitigation measures are important parts of project documents like the Development Project Proposal.
Presentation by Tom Worsley, Visiting Research Fellow, delivered as part of the annual series of Beesley lectures, organised by the Institute of Economic Affairs at the Institute of Directors in London.
Engineering Economy discusses evaluating facility investment alternatives. It is important to rationally evaluate projects regarding individual economic feasibility and relative net benefits of mutually exclusive options. A systematic approach includes generating investment options, establishing an analysis period, estimating cash flows, specifying a minimum return rate, establishing an acceptance criterion, conducting sensitivity analysis, and selecting based on the criterion. Present worth analysis compares the net present worth of cash flows to select the optimal alternative over the analysis period. It is important to appropriately handle alternatives with different lifetimes by comparing them over their least common multiple time period.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate method that uses cost drivers to allocate indirect costs to cost centers. Ethical practices, like avoiding deception, are important for creating unbiased cost estimates.
Direct and indirect costs must be estimated for engineering projects. Common direct cost estimation techniques include the unit method, cost indexes, and cost-estimating relationships. Indirect costs can comprise 25-50% of total costs and are traditionally allocated using predetermined rates. Activity-based costing is a more accurate allocation method that uses cost drivers. Ethical practices like avoiding deception are important for quality cost estimation.
Engineering economics Slides for Postgraduatesssuser50050d1
Engineering management involves applying engineering knowledge and judgment to develop solutions that utilize natural resources for the benefit of humanity. There are physical and economic environments to consider. The engineering process includes determining objectives and strategies, proposing solutions, evaluating proposals, and assisting with decision making. Engineering economy deals with analyzing the costs and benefits of projects over time. It is used to evaluate which projects are worthwhile and how projects should be designed and prioritized. Manufacturing costs include direct materials, direct labor, and manufacturing overhead. Prime costs refer to direct materials and labor, while factory costs also include factory overheads.
This document discusses using statistical benchmarking to evaluate the efficiency of authorities that maintain highway networks. It explains that benchmarking can identify potential cost savings by determining authorities' minimum possible costs given their characteristics, quality levels, and citizen satisfaction. The document outlines models developed to estimate cost frontiers for highway maintenance, street lighting, and winter services. Authorities performing above the cost frontier are deemed inefficient, and the analysis can estimate potential savings if they adopted best practices. However, the document notes the analysis does not explain why costs gaps exist or are a maximum potential saving rather than absolute. It concludes benchmarking should be used alongside other analyses to help authorities understand how to improve.
This document discusses tools for conducting an economic analysis of small hydro-power projects. It outlines various economic analysis methods like payback period, return on investment, net present value, benefit-cost ratio, and internal rate of return. It provides examples of how to calculate these metrics and compares the advantages and disadvantages of each. The document also includes an example economic analysis of a typical small hydro-power project, outlining parameters like installed capacity, estimated annual output, project costs, revenue assumptions, and results of the net present value and benefit-cost ratio calculations.
Clear Air Zones – What are Local Authorities Proposing? - Nigel BellamyIES / IAQM
The document summarizes progress on Clean Air Zones in the UK. It outlines that the UK has been in breach of legal limits for nitrogen dioxide and discusses the need for immediate action to improve air quality and health. It defines Clean Air Zones as areas with restrictions on certain vehicles to encourage cleaner vehicles. Authorities need to develop local plans with measures to achieve compliance, which requires modeling emissions and impacts. Options being considered by authorities include charges for different vehicle types in Clean Air Zones of varying sizes and stringency. Authorities are at different stages with some publishing initial plans focusing on buses, taxis, HGVs or LGVs. The overall progress aims to achieve compliance with legal limits as soon as possible to reduce human exposure
1) PPP projects in infrastructure like tollways and highways can provide long-term value through more efficient construction, maintenance, and operations due to performance-based payments and risk transfer to private partners.
2) Key sources of long-term value include whole-life cost minimization, innovation through collaborative working models, and improved outcomes from performance management.
3) However, accurate long-term traffic and revenue forecasts are challenging, and overestimates are common, particularly for new toll road projects. Close risk analysis and management is needed to realize sustained benefits over the life of long-term PPP concessions.
The document discusses power system planning and economics. It begins by defining key terms used in power system planning and economic analysis, such as revenue, costs, profit, depreciation, interest rates, and present value. It then explains the cash flow concept and time value of money. The main method of economic analysis discussed is the present worth method. This method is explained for both equal-life and different-life alternatives. Calculating the present worth and selecting the alternative with the highest present worth is the approach. Examples are provided to illustrate present worth analysis for both equal-life and different-life power system projects or alternatives. Factors that drove a shift to smaller power plants in the 1960s from the previous economies of scale approach
This document presents the City of Toronto's Consolidated Green Fleet Plan for 2014-2018. The plan was developed jointly by the city's five major fleets - Centrally-Managed Fleet, Emergency Medical Services, Fire Services, Police Service, and Transit Commission. The goal is to reduce fuel consumption, greenhouse gas emissions, and air pollution from city vehicles and equipment in a cost-effective manner. The plan builds on lessons from previous green fleet plans and sets objectives like purchasing more efficient vehicles and improving operational efficiency. It also recommends strategies like obtaining ISO certification, developing alternative fuel criteria, and creating a green fleet coordinator position to help achieve the city's environmental and economic goals.
Guidelines for contractual arrangements for brt systemsBRTCoE
This document discusses guidelines for contractual arrangements for BRT systems. It analyzes contracts from various public transportation systems to inform best practices for BRT. The research aims to import experience from other modes to the design, implementation, and monitoring of BRT contracts. Case studies of 58 transportation contracts from around the world are analyzed based on factors like risk allocation, award procedures, and infrastructure provision models. Preliminary findings show different prevalent contract types and lengths. Next steps include further analyzing BRT contracts and finalizing guidelines for contractual arrangements tailored for BRT systems.
This document provides an overview of engineering economics and its application in process engineering. It discusses key concepts like the time value of money, methods for quantifying project profitability like net present value, payback period, return on investment, and internal rate of return. It also covers typical accounting tools used like income statements and cash flow statements. The document explains how to estimate capital costs using methods like the turnover ratio and Lang's factor as well as operating costs considering factors like labor, materials, and utilities. It emphasizes the need to balance accuracy and cost when developing cost estimates.
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3. Difference between Economic And
Financial Analysis
Financial Analysis:
Concerned with the sources of financing a project (by
floating bonds or by levying toll), and
Availability of funds and the allocation of funds.
Financial profitability of the project.
3
4. Difference between Economic And
Financial Analysis
Economical Analysis:
Concerns with the economic viability of the project
considering all the Engineering Aspects.
Deal with the economic costs and benefits from the point
of view of the country as a whole.
Engineering Aspects
Deal primarily with the technical construction process and the
operating of the project after it is completed, as well as with the
estimates of capital and operating costs.
4
6. Terms Related to Economic Analysis
Time Horizon
The investment for highway construction, maintenance, and its
benefits are spread over a time span, and is called as the time
horizon of economic assessment.
This is generally selected as twenty to thirty years for a
highway project, depending on policy or type of road.
Time horizon, basically, is the economic analysis period.
6
7. Terms Related to Economic Analysis
Interest Rate
It is the interest paid or the return obtained at the end of one
year,
Expressed as a percentage of the capital at the beginning of
the year.
Interest rate can be either simple rate or compound rate.
Eg : Rs 100 ; Interest Rate = 10%, Time Horizon = 10 years
Rs. 100 worth today is Rs. 200/- after 10 years (Simple Interest)
Rs. 100 worth today is Rs. 259/- after 10 years (Compound Interest)
7
8. Terms Related to Economic Analysis
Discount Rate
Discounting is the process of calculating the present worth of a
future payment.
Discount rate is the interest rate at which future payments are
reduced to a present time.
Eg : Rs 100 ; Discount Rate = 10% per annum, Time Horizon = 10
years
Rs 259/- at the end of 10 years, when discounted at 10 % per annum,
amounts to Rs 100/- at the present time.
8
11. Total Transportation Costs
Road Agency Cost – RAC:
1. Construction Cost
2. Maintenance & Operation Cost over
the design life
Road User Cost (RUC)
11
12. Total Transportation Costs –
Construction Costs
1
• Survey, Investigation And Design Cost
2
• Land Acquisition Cost
3
• Construction Costs
4
• Supervision, Quality Control
5
• Administration Charges
12
14. Total Transportation Costs –
Road User Costs
1
• Vehicle Operation Cost
2
• Travel Time Cost
3
• Accident Cost
14
15. Total Transportation Costs –
Road User Costs - VOC
Variable Cost
(i) fuel consumption,
(ii) spare parts,
(iii) tyre wear
(iv) lubricants
(v) maintenance labour cost
(i) depreciation
(ii) value of the passengers time
(iii) wages of the crew
Fixed Cost
Capital Cost
Registration fees
Insurance
Road permit charges
Road and other taxes
15
16. Total Transportation Costs –
Road User Costs – Travel Time Cost
Travel Time Cost
(i) Value Of Occupation Time
(ii) Value Of Goods In Transit
(iii) Value Of Time Of Commercial Vehicle
16
17. Total Transportation Costs –
Road User Costs – Accident Cost
Accident Cost
(i) Cost of Human Fatal Accident
(ii) Loss Due To Injury
(iii) Cost of Hospitalization
(iv) Damage To Property Vehicle
17
18. In economic analysis, one is concerned with economic costs
and not financial costs.
Financial costs are easy to determine, because they
represent the actual amount one has to pay to get a road
constructed and maintained.
The cost after removing the taxes levied from financial cost
is Economic cost.
Economic Cost = Financial Cost - Taxes
Difference Between Economic
and Financial Cost
18
20. Factors Affecting Road User Costs
Road Way Factors
(i) Pavement width
(ii) Surface type and riding quality
(iii) Vertical profile
(iv) Horizontal geometry
(iv) Number of junctions per Km
20
21. Factors Affecting Road User Costs
Traffic Factors
(i) Traffic Volume
(ii) Traffic Composition
(iii) Speed
(iv) Congestion
21
22. Factors Affecting Road User Costs
Vehicle Factors
(i) Type
(ii) Age
(iii) Make
(iv) Engine horse-power
(iv) Power - Weight ratio
22
25. Total Benefits – Road User Benefits
Road User Benefits
(i) Vehicle operating cost saving
(ii) Value of travel time savings
(iii) Value of savings in accident cost
(iv) Savings in maintenance cost
25
26. Total Benefits – Social Benefits
Social Benefits
(i) Improvement in administration, Law and order and
defense
(ii) Improvements in health and education
(iii) Improvements in agriculture, industry, trade, mining
and environmental standards
(iv) Appreciation in value of land adjacent to roads.
NOT Considered in HDM-4
26
28. Study of Alternatives :
Economic analysis is carried out to determine the most
realistic solution from among a number of alternatives.
For example : Two-lane road needs some maintenance.
For this we select following alternatives:
Alternative 1 = Do-nothing; Alternative 2 = Resealing
Alternative 3 = Strengthening
Economic Analysis compares ‘Do-nothing’ alternative with
all other alternatives to select the most attractive one.
Techniques for Economic
Evaluation
28
29. Marginal or Incremental Analysis :
This includes the analysis in the following order :
Analysis (1) : Comparing Alternative 2 against Alternative 1
Analysis (2) : Comparing Alternative 3 against Alternative 2
The results will establish whether the incremental
investments will yield the desired benefits.
Techniques for Economic
Evaluation
29
Used for Budget Optimization Analysis in HDM-4
30. Three common methods of economic evaluations
normally adopted are as follows:
1) Benefit - Cost Ratio Method
2) Net Present Value Method
3) Internal Rate of Return Method
Techniques for Economic
Evaluation
30
31. Benefit - Cost Ratio Method
Procedure is to discount all costs and benefits to their
present worth and calculate the ratio of the benefits to
costs.
Negative flows are considered as costs whereas positive
flows as benefits.
If the B/C ratio is more than one, the project is worth
undertaking.
Techniques for Economic
Evaluation
31
32. Net Present Value Method
The stream of costs/benefits associated with the project
over an extended period of time is calculated and is
discounted at a selected discounted rate to give the
present value.
Benefits are treated as positive and costs as negative and
the summation give the Net Present Value (NPV).
Techniques for Economic
Evaluation
32
33. 1. If the NPV is positive, for the chosen discount rate, then
the alternative is acceptable.
2. If the NPV is negative, for the chosen discount rate, then
the alternative is unacceptable. (discounted costs
exceeded benefits )
NPV Decision Rule
n
i
n
i
i
r
C
B
NPV
0 )
1
( 33
34. Internal Rate of Return Method
Internal rate of return is that discount rate, for which the
NPV value is zero.
If the rate of return thus calculated is more than the
market interest, then the project is adjudged to be
acceptable.
Techniques for Economic
Evaluation
34
35. Discount Net
Rate (i) Discount Present
12.0% Rate (i) Present
Investments Profits Present 0.0% 7500
or or Net Value Present 3.0% 6326
Year Costs Benefits Benefits Factor Value 6.0% 5281
a b c d = c-b e = 1/(1+i)^a f = d*e 9.0% 4347
12.0% 3508
0 10000 0 -10000 1.0000 -10000 15.0% 2752
1 0 6500 6500 0.8929 5804 18.0% 2068
2 0 3000 3000 0.7972 2392 21.0% 1447
3 0 3000 3000 0.7118 2135 24.0% 881
4 0 5000 5000 0.6355 3178 27.0% 365
30.0% -109
33.0% -544
Total 10000 17500 7500 3508 36.0% -944
39.0% -1315
NPV = 3508 42.0% -1657
45.0% -1975
IRR = 29.3% 48.0% -2271
NPV and IRR Calculation
35
36. NPV and IRR Calculation
-4000
-2000
0
2000
4000
6000
8000
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Discount Rate (%)
Net
Present
Value
(M$)
NPV at 12%
Discount Rate
Internal Rate
of Return
36
37. NPV Versus IRR
- The IRR and NPV will not necessarily rank the alternatives by the same order
- Always use NPV to compare project alternatives
-4000
-2000
0
2000
4000
6000
8000
10000
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%
Discount Rate (%)
Net
Present
Value
(M$)
NPV at 12%
Discount Rate
Internal Rate
of Return
37
39. 39
No Rate of Return
Net
Year Benefits
0 200
1 300
2 350
NPV at 12% 747
IRR #NUM!
Discount
Rate NPV
0% 850.0
2% 830.5
4% 812.1
6% 794.5
8% 777.8
10% 762.0
12% 746.9
14% 732.5
16% 718.7
18% 705.6
20% 693.1
22% 681.1
24% 669.6
26% 658.6
28% 648.0
30% 637.9
No Rate of Return
0
100
200
300
400
500
600
700
800
900
0% 5% 10% 15% 20% 25% 30% 35%
Discount Rate (%)
Net
Present
Value
(M$)
40. Alternatives NPV
0.0
3.7
6.7
5.5
When comparing project-alternatives, the Net Present Value
(NPV) is used to select the optimal project-alternative (alternative
with highest NPV)
Optimal Alternative:
Highest NPV
Project
Comparison of Alternatives
40
41. When comparing the economic priority of different
projects, a recommended economic indicator is the NPV
per Investment ratio
Projects
Selected Alternative
Overlay 25 mm
Reseal 25 mm
Overlay 40 mm
NPV/Investment
8.4
5.2
2.1
P
R
I
O
R
I
T
Y
Ranking Projects
Project
41
economic
viability of a project has been established, the government may not take up the project
due to lack of funds or because of the fact that the financial analysis has indicated that
the returns are not attractive for the funding
Blue color – Distance related factors
Green color – Time related factors