Cost-Effectiveness & Benefit-Cost Analysis for Transportation Projects
Office of Transportation System Management
Standard Value Tables - July 2019
All inputs to cost-effectiveness / benefit-cost analysis are forward-looking estimates and subject to uncertainty. The degree of uncertainty—and its influence on the final result of each analysis—varies across input variables and project specifications. By recognizing and accounting for this uncertainty among select high-leverage inputs, MnDOT will better understand the likely economic return from its planned projects across a reasonable range of background conditions.
To achieve this goal efficiently, standard values for low, most likely, and high outlooks have been developed from published guidance on key input sensitivities. Economic assessments should be performed and reported for each of these three outlooks. For the purpose of bracketing the economic outcome expected from a project while also managing calculation burden, the assumptions made in either the low, most likely, or high outlook can be treated in isolation as an independent bundle (i.e. it is not necessary to model complex input/outlook combinations, such as “low traffic growth + most likely travel time savings + high crash costs”—only low [all inputs], most likely [all inputs], and high [all inputs]).
Data collected from a sample of current projects under these different outlooks will be used in the future to update MnDOT’s cost-effectiveness policy with the aim of providing clearer and more complete guidance for the selection of a preferred project alternative from the set of options studied. Until this update can be made, the most likely outlook will continue as the reference for best value assessment (which tests a project alternative’s benefit-cost ratio against the breakeven level of 1.0).
If you have any questions or suggestions concerning the sensitivity enhancement to our economic analysis, please call John Wilson at 651-366-3732 or send email to email@example.com.
|Expected life (years)>>||25||30||35||40||50||60||100|
|Analysis: 20 years||0.22||0.37||0.48||0.56||0.67||0.74||0.88|
Example: $10 million spent on structures (60 years expected life) for an analysis period of 25 years has a remaining capital value of 0.67 x $10 million ($6.7 million) in the last year of the analysis period. (Factors reflect a real discount rate of 1.2%).