Appraisal Methodology

A wide range of options for reducing the impact of the problem identified should be considered – ranging from new infrastructure to doing nothing. If ITS solutions are not addressed, it is not possible to demonstrate that ITS is the most effective option:

• in some cases there will be existing designs for infrastructure schemes which were drawn up when there was a prospect of funding being available
• in other cases, judgements will be needed to develop a set of options, which could be developed in consultation with stakeholders

A benefit of public consultation at an early stage is that it helps to rule out or modify options which are not acceptable to the public – and which, if adopted, might lead to protests and delay progress on the scheme.

In many cases an ITS option enables a network operator to make better use of the existing infrastructure and may delay the need for capital investment and other expenses such as new construction.

The rationale for investment in ITS is to provide benefits to road users and, in some cases, to the road network provider – which are valued as greater than the initial investment and on-going costs. Since an ITS installation has a life of up to 10 years or more, a forecast of the traffic likely to benefit from the investment in ITS is required to estimate the expected benefits over the life of the investment (See Benefits of ITS).

There are a number of approaches to forecasting road traffic, ranging from extrapolation of recent trends to more advanced models which are derived from identifying and analysing the causes of traffic growth. An example of the modelling approach to traffic forecasting is provided on the UK Government website at https://www.gov.uk/government/publications/road-transport-forecasts-2013.

The process of appraisal requires both:

• a prediction of the future volumes of road traffic that will benefit from an ITS application or investment scheme
• an estimate of the benefits that each user of the highway network, affected by the scheme, will derive from it

A traffic or transport model is used to show:

• how traffic flows will evolve as the volume of traffic increases over time:
  • the performance of the network, in terms of journey times, levels of congestion, reliability and emissions, is based on the concept of a speed/flow curve
  • the speed/flow curve shows the relationship between the capacity of the network, in terms of the number of lanes and design of the intersections, the volume of traffic in terms of the number of vehicles per hour (or shorter time period) – and the speed that can be achieved
• the improvements to vehicle speeds, reliability and other impacts delivered by the ITS, the responses of drivers to these improvements and – through the application of the forecasts – the volume of traffic likely to benefit

Forecasts are needed for each option, including the ‘do-nothing’ reference case, to provide a comparison of the costs and benefits of options as well as a comparison between any option and the reference case.

Running the model for each year of a project’s life is time consuming and costly. It is common practice to run the transport and economic appraisal models for just two forecast years – one shortly after the planned opening date of the scheme and the other perhaps seven or ten years later. The costs and of the benefits for intermediate years are estimated (by interpolation based on the trend between the two dates). If the life of the infrastructure extends beyond the final forecast year, costs and benefits have to be extrapolated based on the same trend.

Most ITS applications have lives of ten years or longer before any decision is required about whether the application should be upgraded or renewed. The capital investment is incurred at the start of the project and this results in a stream of revenues or other benefits – and a stream of costs for maintaining and operating the system over the life of the assets. A process is needed to convert these future benefits into a value that can be compared with the initial costs of the investment.

A discount rate is applied which progressively reduces the value of a given level of benefit in all future years. The discounted future benefits can then be added together and expressed as a current (“present”) value of future benefits for comparison with costs. Ongoing costs, such as the costs of operating, maintaining and renewing the ITS equipment over its life, are discounted on the same basis and expressed as current value costs – and then added to the estimate of the capital costs.

The discount rate used in transport appraisal differs between countries and the appropriate national value should be used in appraisal to ensure comparisons can be made between different investment projects.

Subtracting the current (“present”) value of costs from the current value of the benefits, provides an estimate of the project’s net present value. A project with a positive net present value will – in absence of other unquantified impacts – be beneficial to the society which implements it.

Use of the NPV as a metric for prioritisation does not help to differentiate between:

• whether a large positive NPV is the consequence of a small inexpensive scheme with large returns relative to its costs
• or whether it is a high cost scheme with comparably large absolute returns – but which are low in relation to the sum invested

In many countries decision-makers are presented with a Benefit Cost Ratio (BCR) – the present value of the benefits divided by the present value of the costs. A BCR helps to rank schemes according to returns/per unit of money invested. Having comprehensive information on the capital costs of all of the feasible schemes, enables decision-makers to allocate budget to those schemes which deliver the greatest benefits.

Not all of the impacts of a transport investment can be quantified or measured in monetary terms and expressed as a component of the Benefit Cost Ratio (BCR). Advances have been made in recent years in valuing many of the environmental impacts of transport schemes – including carbon emissions and changes in the levels of traffic related noise and local air quality.

No adequate method has been devised for assigning monetary values to impacts such the effect of new transport infrastructure on the landscape or the natural environment. While ITS schemes can be expected to have a more limited impact on the natural environment than a new road – there may be cases where the gantries and masts that are often part of an ITS scheme, will be regarded as having an adverse environmental impact.

More importantly, perhaps, is the failure of conventional transport appraisal methods to identify who benefits from the scheme.

While land use/transport models can provide some indication of the likely incidence of the benefits, the use of such complex models is only justified in the case of major infrastructure schemes.

Not all of the impacts of a transport scheme can be captured in the BCR. Where they cannot be valued in monetary terms but are likely to be significant, decision-makers will want to take them into account. They will not want to be restricted to only prioritising schemes and selecting options on the strength of a BCR alone. Analysts can help decision-makers by providing as much information as possible about these unquantifiable impacts. This might include information about the consequences of choosing a scheme with a lower BCR – and assigning funds to it that might otherwise been spent on a scheme with a higher BCR.

Decision-makers and stakeholders need to be informed about the expected impacts of a project in a way which is neither unnecessarily complex nor risks concealing important information.