46 Highway Engineering
terms, in which case the decision is made on the basis of whether the project is
‘economically efficient’ or not. A negative net present value or a benefit/cost
ratio less than unity would indicate an inefficient scheme where society would
end up worse off with the scheme than without it. The economic benefits accru-
ing to the beneficiaries of the highway would be exceeded by economic costs
incurred by those ‘losing out’ as a result of its construction. In the main, the
beneficiaries are the road users and the ‘losers’ are those funding the scheme.
Where the appraisal is being used to help differentiate between the economic
performances of competing options under examination, the scheme with the
highest measure of worth will be deemed the most efficient, assuming that at
least one will have a positive NPV or a B/C ratio greater than unity.
The framework within which this evaluation of the economic consequences
of highway schemes takes place is referred to as cost-benefit analysis.3.3 Cost-benefit analysis,
3.3.1 Introduction
Within Europe, the method usually adopted for the economic evaluation of
highway schemes, termed cost-benefit analysis, utilises the net present value
technique where the costs and benefits of the scheme are discounted over time
so that they represent present day values. Using this method, any proposal
having a positive net present value is economically sustainable in absolute terms.
Where competing project options are being compared, assuming they are being
used in identical capacities over the same period, the one with the numerically
larger NPV is selected (i.e. the one that is less negative or more positive). A brief
historical background to the method has already been given in Chapter 1. The
main steps in the technique involve the listing of the main project options, the
identification and discounting to their present values of all relevant costs and
benefits required to assess them, and the use of economic indicators to enable
a decision to be reached regarding the proposal’s relative or absolute desirabil-
ity in economic terms.3.3.2 Identifying the main project options
This is a fundamental step in the CBA process where the decision-makers
compile a list of all relevant feasibleoptions that they wish to be assessed. It is
usual to include a ‘do-nothing’ option within the analysis in order to gauge those
evaluated against the baseline scenario where no work is carried out. The ‘do-
minimum’ option offers a more realistic course of action where no new highway
is constructed but a set of traffic management improvements are made to the
existing route in order to improve the overall traffic performance. Evaluation of