AB - MSR - Eco - Oct 23

Economic Analysis
for
Determination
of
Feasibility of Project.
Relevant Topics/ Eco Analysis
 Economic Analysis,
 EIRR/NPV, Life-cycle Cost Model,
 HDM-IV
 Sensitivity Analysis of Case Study
 Discussion on Economic Evaluation of
Highway Projects
FUNDS SCARCITY !
How to allocate the scarce

resources in the most beneficial
manner amongst various sectors
and within sector, amongst various
schemes ?
Subjective to Analytical Approach
 Relevance;
 Effectiveness
 Sustainability
Cost Components of ‘Life-Cycle Cost’ of road project
ROAD COST ROAD USER COST

• Construction Cost • Vehicle Operating Cost
• Maintenance Cost • Accident cost
• Other User Costs
TOTAL TRANSPORTATION COST

The total transportation cost comprises of two basic components: Road Cost and Road User
Costs. Different research studies on various aspects of road pavements and transportation have
indicated that the road user costs constitute a major part, around 80-90% of total transportation
cost
CASE STUDY OF NH SEGMENT TAKEN UP FOR
O & M (YEAR 2002)
 Design life of Project Road = 20 years

 Length of the Project Road = 86 Km
 Construction Cost =86Km @ 4 Cr/km = 344 Cr.

 Mainten. Cost =86km@8Lacs/km/yr. X 20yrs= 138 Cr.
 Total Road Cost = 482 Cr.
Car / Jeep 3469
 Traffic Data Bus 793
2-X Truck 7672
Multi- Axle 702
CASE STUDY OF NH SEGMENT TAKEN UP
FOR O & M
Vehicle Type Nos. Operating Length Design Days per Total

Cost of Life year VOC (RS
(Rs) Road (Yr.) in Cr.)
(km)
Car/Jeep 3469 2.5 86 20 365 544
Bus 793 10 86 20 365 498
Truck 7672 10 86 20 365 4,816
Multi-Axle 708 15 86 20 365 667
TOTAL 6,525
VOC
CASE STUDY OF NH SEGMENT TAKEN UP
FOR O & M
 Total Transportation Cost = Construction Cost +

Vehicle Operating Cost ( VOC)
 Rs 482 Cr. + Rs 6,525 Cr = Rs 7,007 Cr.
Finding:
Construction Cost (Rs. 482 Cr.) is 7.0% of
Total Transportation Cost (Rs.7,007 Cr. )
* Construction cost includes maintenance cost also
OBJECTIVE OF ECONOMIC ANALYSIS
 To decide whether the scheme under consideration

is worth investment at all.
 To rank schemes competing for scarce resources
in order of priority.
 To compare various alternative schemes and select
the one most economical
 To assist in phasing the programme (Stage
Construction) depending upon the availability of
resources.
INPUT DATA
 Road Network Data (Aggregate Physical Characteristics)
 Vehicle Fleet Data ( Vehicle Operating Cost)
 Works Standard Data ( Road Works Cost)

INPUT DATA
Input Without Project With Project

Road Network Data
Length 70km 65km
Carriageway 5.5m 7.0m
Shoulder 1.0m 2.5m
R&F 12m/ km 10m/km
Curvature 65o /km 40o /km
Vehicle Fleet Data
Classified Veh Number & Growth Rates C, B, T, M-XL C, B, T, M-XL
Automobile Data FA, Fuel Efficiency, costs
Works Standard Data
RM/ PMC / Overlay/ Reconstruction Only RM, OL, Recon,
Unit Costs, Maintenance Costs
INPUT DATA
Item Without Project With Project

Length 70km 65km
Carriageway 5.5m 7.0m
Shoulder 1.0m 2.5m
Pavement Flexible Flexible
R&F 12m/ km 10m/km
Curvature 65 Degree /km 40 Degree /km
Road (Network) Data
 Length, Carriageway width, Shoulder width, Pavement

Composition, Rise & Fall, Curvature
 Surface Condition (Cracks, Ravel, Edge break, pot holes,

etc.), Road History
Structural Number : SN= 0.0394 x (Sum of ai x TI)
 Benkelman Beam Deflection, Roughness

(IRI =0.0032 x BI 0.89)
Vehicle Fleet Data
 AADT, Motorized & Non-motorized, Classified

Traffic Volume
 Future Growth Rates
 Vehicle Attributes: Basic Characteristics &

Economic Unit Costs
 Vehicle Calibration Data

Works Standards Data
 Routine Maintenance Composition and Costs
 Combination of Maintenance Standards and Costs
 Combination of Improvement Standards and Costs

ECONOMIC INDICATORS
 Net Present Value : The stream of costs and benefits

associated with the project over its time horizon is
calculated and is discounted at a selected discount rate to
give present value. Project with +ive NPV is acceptable.
 Benefit Cost (B/C)Ratio: Discount all costs and benefits to
their present worth and calculate the ratio of benefits to
costs. B/C ratio more than one, the project is worth undertaking.
 The Internal Rate of Return (IRR) is the discount rate
which makes the discounted future benefits equal to the
initial outlay. If the IRR is greater than the rate of interest obtainable
by investing the capital in the open market, the scheme is considered
acceptable.
TIME VALUE OF MONEY
 Fundamental: Money earns income over a period of time.

 Example: Rs 100 today will be worth Rs 672.75 at the end
of 20 years, if invested @ 10% compound rate of interest.
So also, a sum of Rs 672.75 which might become due to an
individual after 20 years from today is worth only Rs 100 at
the present, assuming same rate of interest. The process of
calculating the present worth (NPV) of a future payment is
known as “discounting” and the interest rate is called the
”discount” rate.
SENSITIVITY ANALYSIS
1. Base Cost & Base Benefits

2. Base Cost increases 15% & Base Benefit
3. Base Cost & Base Benefit decreases 15%
4. Base Cost increases 15% & Base Benefit
decreases 15%

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Economic Analysis

How to allocate the scarce

ROAD COST ROAD USER COST

TOTAL TRANSPORTATION COST

 Design life of Project Road = 20 years

 Construction Cost =86Km @ 4 Cr/km = 344 Cr.

Vehicle Type Nos. Operating Length Design Days per Total

Car/Jeep 3469 2.5 86 20 365 544

Bus 793 10 86 20 365 498

Truck 7672 10 86 20 365 4,816

Multi-Axle 708 15 86 20 365 667

 Total Transportation Cost = Construction Cost +

 To decide whether the scheme under consideration

 Road Network Data (Aggregate Physical Characteristics)

 Vehicle Fleet Data ( Vehicle Operating Cost)

 Works Standard Data ( Road Works Cost)

Input Without Project With Project

Item Without Project With Project

 Length, Carriageway width, Shoulder width, Pavement

 Surface Condition (Cracks, Ravel, Edge break, pot holes,

 Benkelman Beam Deflection, Roughness

 AADT, Motorized & Non-motorized, Classified

 Future Growth Rates

 Vehicle Attributes: Basic Characteristics &

 Vehicle Calibration Data

 Routine Maintenance Composition and Costs

 Combination of Maintenance Standards and Costs

 Combination of Improvement Standards and Costs

 Net Present Value : The stream of costs and benefits

 Fundamental: Money earns income over a period of time.

1. Base Cost & Base Benefits

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