Infrastructure 179 >\0NAL _______________ March 2001 +/ os Findings reports on ongoing operational, economic, and sector work carried out by the World Bank and its member govemments in the Africa Region. It is published periodically by the Knowledge and Leaming Center on behaff of the Region. The views expressed in Findings are those of the WOR L D BA N K ) author/s and should not be attributed to the World Bank Group. °, JM%Roads Economic Decision Model (RED) ,PON ANO EconomicEvaLuation of Low Volume Roads he decision-making process for * high uncertainty of the assessment T the development and mainte- of traffic, road condition, and future U ) nance of low-volume rural maintenance of unpaved roads; roads suffers from the lack of a cus- . periods during a year with dis- tomized economic evaluation tool. rupted passability; Admik The World Bank's Highway Design * levels of service and correspond- _1 1 - and Maintenance Standards Model ing road user costs defined not only (HDM-III) (1) and the forthcoming through roughness; NW Highway Development and Manage- * high potential to influence eco- ment Model (HDM-4), being devel- nomic development; and oped by the International Study of * beneficiaries other than motorized Highway Development and Manage- road users. ment Tools, present a good frame- work for the economic evaluation of The Model road investments and maintenance The model computes benefits accru- but are not particularly customized ing to normal, generated, and di- for low-volume roads (traffic less verted trafflc, as a function of a re- than 200 vehicles per day), do not duction in vehicle operating and time capture all the benefits associated costs. It also computes safety ben- W' with rural road investments, and re- efits, and model users can add other quire a series of inputs which are im- benefits (or costs) to the analysis, practical to collect for low traffic lev- such as those related to non-motor- els. Hence, the need for a simplified ized trafflc, social service delivery and economic evaluation model to fulftll environmental impacts. The model the planning and programming is presented in a series of Excel 5.0 needs of highways agencies in charge workbooks that collect all user in- of low-volume roads, without de- puts, present the results on an user- manding input parameters that may friendly manner and perform sensi- be unrealistic and costly to collect tivity, switching values and stochas- while presenting the results in a tic risk analyses. practical manner. RED adopts the consumer surplus This note presents the Roads Eco- approach which measures the ben- nomic Decision Model (RED) that efits to road users and consumers performs an economic evaluation of of reduced transport costs. This ap- road investments and maintenance proach was preferred to the producer options customized to the character- surplus (2) approach which mea- istics of low-volume roads such as: sures the 'value added' or generated benefits to productive users in Figure 1. Level of service with and without project RED evaluates one road at a the project zone of influence, 9.0 r- . ....... .......... time comparing three project e.g. agricultural producers, be- alternatives against the with- cause the consumer surplus 7 out-project case, yielding the approach was judged to allow 7.0 investment efficiency indicators for a better judgment of the as- ¢ 60 Roughness Levelof needed to select the more de- sumptions made and an im- Progression Service sirable alternative and to quan- 5.0 proved assessment of the in- m tify its economic benefits. RED vestment alternatives simu- cr 4.0 considers an average constant lated. The HDM models also 30 t…levelofservice,forthewithand adopt the consumer surplus without project cases, over a approach and can be used for 2.0 twenty1yearanalysisperiod(see the economic evaluation of low Year Figure 1). Road deterioration volume roads but are not par- equations, such as the ones ticularly customized for this contained on the HDM models, purpose and are more demanding * pose questions in different ways; in which the roughness of a given in terms of input requirements. RED for example, instead of asking what road varies over time as function of simplifies the process and addresses is the economic return of an invest- condition, traffic and maintenance the following additional concerns: ment, one could ask for the maxi- characteristics are not implemented - reduce the input requirements for mum economically Justified invest- in RED. Rather RED uses the con- low-volume roads; ment for a proposed change in level cept of average levels of service, which * take into account the higher un- of service, with additional invest- is considered reasonable for low vol- certainty related to the input require- mnents being justified by other social ume roads due to the following main ments; impacts; reasons: . clearly state the assumptions * proper presentation of the results . convenience in defininglevels of ser- made, particularly on the road con- with the capability for sensitivity, vice for low-volume roads with pa- dition assessment and the economic switching values and stochastic risk rameters other than average annual development forecast; analyses; and roughness and gravel thickness; a compute internally the generated * have the evaluation model on a * difficulty in measuring or estimat- traffic due to decrease in transport spreadsheet, such as Excel, in order irng the roughness of unpaved roads costs based on a defined price elas- to capitalize on built-in features and and determining the grading fre- ticity of demand; tools such as goal seek, scenarios, quency to be applied to unpaved * quantify the economic costs asso- solver, data analysis, and additional roads; ciated with the days per year when analytical add-ins. * seasonal change in road condition the passage of vehicles is fur- and passability; and ther disrupted by a highly * cyclical nature of the road deteriorated road condition; deterioration under a * use alternative parameters Figure 2. Typical VOC and speed relationships proper maintenance policy. to road roughness to define Passenger Car / Flat Terrain / Two-Lane Road the level of service of low-vol- 0.45 - -- ..9..0.............. . .... ------ .-...-..---g To calculate vehicle operat- ume roads; 0.40 - , 80 ing costs and speeds for a . allow for the consider- 0.35 Vehic 70 given level of service, the re- ation in the analysis of road 0.30 Costs ig0 lationships between vehicle safety improvements; o205-($/km) , 5040 operating costs and speeds safety improvements; ~0.204 . include in the analysis 0.15 - - -- -" Vehicle 30 to road roughness must be other benefits (or costs) 0.10 - . 'Speed 20 defined, usingcubic polyno- such as those related to 0.05 t10 mials, for up to nine vehicle non-motorized traffic, social 0.00 0 types; three terrain types; service delivery and environ- 0 5 1R0 1s5 20 25 and three road types (see mental impacts; Figure 2). To estimate road roughness as Figure 3. Passability periods during a year diverted to the project road from a function of the speed of a refer- other roads. changing its origin ence vehicle, similar cubic poly- Good Passabilitty Period or destination, due to increased nomials also need to be defined development activity in the road's for the reference vehicle. These re- zone of influence brought about lationships can be defined by any Disrupted Passability Period by the project. means or easily calculated using - the RED Vehicle Operating Costs , Lg RED breaks down the gener- Module that computes. for par- - Different Roughness ated traffic into two components: ticular country conditions, ve- - Different Speeds generated traffic due to a de- hicle operating costs and speeds - Higher Road user Costs crease in transport costs and as a function of roughness. This generated traffic due to specific module implements the HDM-III local economic development (in- vehicle operating costs equations (4), and speeds of all other vehicles us- duced traffic). Model users specify requires the same inputs as HDM- ing the estimated roughness; and the generated traffic due to decrease III, and automatically computes the * enter both the roughness and the in transport costs either by defining coefficients of the cubic polynomials speeds of all vehicles directly; in this it as a percentage of normal traffic or relating vehicle operating costs and case, only vehicle operating costs are by inputting a price elasticity of de- speeds to roughness. estimated as a function of the input mand (3), i.e. the percent increase in To define an average yearly level of roughness. traffic per percent decrease in trans- service, road condition is defined for The second option is appropriate for port costs. The induced traffic and the following two possible periods level and rolling terrains where ve- the diverted traffic are entered sepa- during a year (see Figure 3): hicle speeds are essentially a func- rately by vehicle type. The benefits ac- * period with good passability (dry tion of roughness. The last option is cruing to generated traffic are ap- season); and indicated for hilly and mountainous proximated by calculating one-half of * period when the passability is dis- terrains where vehicle speeds are less the reduction of transport costs for rupted by a highly deteriorated road a function of roughness than of road each unit of generated traffic, while condition (wet season); in this case, geometry (vertical and horizontal the benefits accruing to the diverted vehicles will find alternatives routes alignments). traffic are estimated on the basis of or use alternative paths along the ex- To compute safety benefits, model the difference between transport isting road that facilitate the passage, users may enter accident rates and costs using the alternative road and resulting in higher transport costs average costs per accident broken using the project road. The traffic due to a change in travel distance, down, data allowing, in accidents growth rate to be inputted in the road roughness, and speeds. with fatalities, accidents with injuries, model is the foreseen increase in traf- For each yearly period, model us- and accidents with damage only. fic due to an overall increase in eco- ers have the following three choices RED evaluates benefits accruing to nomic activity, thus affecting equally with reference to the parameters to the following traffic types: all traffic types and project-alterna- be used to define the road condition: . normal traffic, i.e. traffic passing tives. . enter the road roughness; in this along the road in the absence of any To achieve, and maintain a service case, vehicle operating costs and ve- new investment; level, the model user specifies an ini- hicles speeds are estimated as a func- * diverted traffic, i.e., traffic that di- tial investment and annual mainte- tion of the inputted roughness, us- verts to the project road from an al- nance costs (fixed and traffic depen- ing the previously defined relation- ternative road while keeping the same dent), along with other net benefits ships; origin and destination. (or costs), the country/project road . enter the speed of a reference ve- . generated traffic due to a decrease and currency names, the evaluation hicle; in this case, RED estimates the in transport costs, i.e. traffic associ- date, the economic to financial costs road roughness based on the speed ated with existing users driving more factor, the discount rate and the ini- of the reference vehicle (using a model frequently or driving further than be- tial calendar year. For each project- user-defined relationship) and then fore, or with new trips undertaken; alternative, RED calculates the follow- it estimates vehicle operating costs . generated traffic (induced traffic) ing investment efficiency indicators: . net present value at the Figure4. Typical riskanalysis graph tions and comprehensively in- given rateoof re; Upgrade Road to Surface Treatrnt Standard tegrate them with sensitivity, * internal rate of return; switching values and stochas- . modified rate of return con- 8% r ----- ------- ------------------ tic risk analyses. This would sidering the reinvestment rate 7% hopefully assist the analyst in assumed at the discount rate; - 6% addressing the high variability . net present value per finan- 2 5%- and uncertainty which nor- cial investment costs; and 4% mally surrounds the economic . first-year benefit/cost ratio. I analysis of low-volume roads RED presents a detailed eco- in developing countries. nomic feasibility report for each project-alternative con- taining all main input as- sumptions, as well as the computed vehicle speeds, Internal Rate of Return travel times, generated traffic, streams of net benefits, and economic dreds of "what-if' scenarios. In each This article was authored by Rodrigo indicators. It also presents a user im- scenario, random inputs following S. Archondo-Callao and was first pacts report presenting the percent- the defined probability distributions published by the Road Management age reduction of economic road user are generated, and the resulting prob- Initiativefor Africa, the World Bank, costs per vehicle class and the sav- ability distributions presented in as SSATP Note No. 18, April 1999. ings in financial annual trip costs in graphic form (see Figure 4) together For more information, please e-mail the year after the initial investment with the following indicators: Mdesthuis@worldbank.org is completed. RED does a sensitivity . minimum, maximum, average, analysis for eighteen main inputs, standard deviation and median rate To learn more where model users enter two pos- of return; 1. Watanatada, Thawat, et al. 1987. sible multipliers for each input and * rate of return percentile for three The Highway Design and Mainte- the model presents the correspond- percentile options; nance Model. Volume 1, Description ing investment efficiency indicators. * probability that the rate of return of the HDM-III Model. The World RED also performs a switching val- is less than or greater than a certain Bank, Washington, DC ues analysis, presenting, in this case, value. 2. Beenhakker, H. and Lago, A. 1983. the values of the eighteen main in- Economic Appraisal of Rural Roads: puts that yield a net present value Conclusions Simpl!fled Operational Procedures equal to zero. The model is easy to use and re- for Screening and Appraisal. World The RED Risk Analysis Module quires limited number of input data Bank Staff Working Paper, No. 610. performs a risk analysis based on requirements consistent with the The World Bank, Washington, DC. triangular probability distributions level of data likely to be available for 3. Transport and Road Research for the main eighteen input param- the analysis of low-volume roads. Laboratory, Overseas Unit. 1988. A eters. Model users define the estimate The model can be used to evaluate guide to road project appraisal. of an input variable and some mea- road investments and maintenance Overseas Road Note 5. Transport sure of the likelihood of occurrence and estimate benefits accruing to and Road Research Laboratory, for that estimate taking the form of a motorized road users to which other United Kingdom. triangular probability distribution, beneflts can be exogenousely added. 4 Archondo-Callao, Rodrigo and The risk analysis module then uses Particular attention was given to the Fatz, As(f 1993. Estimating Vehicle this information to analyze every pos- presentation of the results, with a Operating Costs. World Bank Tech- sible outcome, by executing hun- view to highlight all input assump- nical Paper Number 234. The World Bank, Washington, DC. Jea-nnette tMarie, Smith 86540 1 MC C3-301