Scheme Appraisal for Highway Projects 53
B/C score given the rank 1, the second highest score given the rank 2, and so
on.
Selecting a criterion for deciding between project options can be contentious.
Some decision-makers are used to incorporating certain techniques in their
analyses and are loath to change. IRR is rarely mentioned in the preceding para-
graph, yet a number of national governments have a preference for it. This incli-
nation towards it by some decision-makers is to some extent based on the fact
that many have a background in banking and thus have an innate familiarity
with this criterion, together with the perception that its use does not require a
discount rate to be assumed or agreed. The latter statement is, in fact, incorrect,
as, particularly when evaluating a single project, IRR must be compared with
some agreed discount rate.
Other supplementary methods of analysis such as cost effectiveness analysis
and the payback period could also be used to analyse project options. Details
of the payback method are given later in this chapter.
3.3.6 Highway CBA worked example
Introduction
It is proposed to upgrade an existing single carriageway road to a dual carriage-
way and to improve some of the junctions. The time frame for construction of
the scheme is set at two years, with the benefits of the scheme accruing to the
road users at the start of the third year. As listed above, the three main benefits
are taken as time savings, accident cost savings and vehicle operating cost reduc-
tions. Construction costs are incurred mainly during the two years of
construction, but ongoing annual maintenance costs must be allowed for
throughout the economic life of the project, taken, in this case, to be 10 years
after the road has been commissioned.
The following basic data is assumed for this analysis:
Accident rates: 0.85 per million vehicle-kilometres
(existing road)
0.25 per million vehicle-kilometres
(upgraded road)
Average accident cost: £10 000
Average vehicle time savings: £2.00 per hour
Average vehicle speeds: 40 km/h (existing road)
85 km/h (upgraded road)
Average vehicle operating cost: ((2 +(35/V) +0.00005*V^2 ) ∏100) £ per km
Discount rate: 6%
The traffic flows and the construction/maintenance costs for the highway
proposal are shown in Table 3.2.
