Transport Notes
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The goal of Transport Notes series is dissemination of recent experiences and innovations in the World Bank Group’s transport sector operations.
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Publication
Risk and Uncertainty Analysis
(World Bank, Washington, DC, 2005-01)One statement that can confidently be made about any transport project is that the costs and benefits are uncertain. An important question is 'how uncertain'? By analyzing the risk and uncertainty which surrounds the project the probability of a poor outcome can be assessed. In addition, it is often possible to identify ways in which the project can be made more robust, and to ensure that the risks that remain are well managed. Risk and uncertainty analysis is therefore a standard component in the project reporting requirements for Bank projects. Risk and uncertainty analysis also features other in Bank tools, such as the RED model (see Note Low Volume Rural Roads). This note reviews the general principles of risk and uncertainty analysis in transport (Section 1); and outlines the three principal methods which may be used- sensitivity analysis (Sectio -
Publication
Notes on the Economic Evaluation of Transport Projects
(World Bank, Washington, DC, 2005-01)In response to many requests for help in the application of both conventional cost benefit analysis in transport and addressing of the newer topics of interest, we have prepared a series of Economic Evaluation Notes that provide guidance on some of issues that have proven more difficult to deal with. The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. Economic evaluation involves the assessment of the net value of projects and policies. In the transport sector we value projects in terms of their net worth, the difference between the value of their benefits and their costs, both measured so far as is possible in terms of monetary units. This disarmingly simple statement leads to many questions; evaluation by whom, for whom, from what perspective, at what stage. One of the features of transport decisions is that they typically impact on many parties - transport operators, individual transport users, local residents and businesses, land and property owners, national and local taxpayers. -
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Treatment of Pedestrian and Non-Motorised Traffic
(World Bank, Washington, DC, 2005-01)Pedestrians and Non-Motorized Traffic vehicles (NMTs) are part of the complete transport scene and in some cases form a very important aspect of that scene. As with the motorized sector of the transport market, this sector will experience positive and negative impacts as a consequence of a transport investment and the sector therefore needs to be included within the appraisal of that investment. Wheeled NMTs (e.g. bicycles and rickshaws) can experience benefits as smoother roads reduce operating costs and journey times, whether that be in an urban or rural environment. New roads and smoother roads can also lead to mode switching from pedestrian modes to either wheeled NMTs or motorized vehicles, giving both journey time and operating cost savings. An increase in the speed of traffic on an upgraded road may result in an increase in the seriousness of road accidents (i.e. an increase in the average number of fatalities per accident), with pedestrians and NMTs being the vulnerable road user groups. In some situations increases in capacity of urban intersections or urban arterials (e.g. construction of an urban motorway or freeway) may reduce the amount of road space available for NMTs thereby imposing costs (both travel time and operating costs) on that road user group. As with motorized transport, pedestrians and NMTs may benefit from a transport investment through operating cost savings, travel time savings, and accident and safety impacts. The inclusion of benefits to pedestrians and NMTs can form a significant proportion of the total scheme benefits for investments such as low volume rural roads. -
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Evaluation Implications of Sub-Optimum Pricing
(World Bank, Washington, DC, 2005-01)The note focuses on three specific ways in which sub-optimal pricing can impact on project benefits: 1) through congestion and overcrowding (Section 1); 2) through overpricing and loss of user benefits (Section 2); and 3) through financial deficits which have implications for the rest of the economy (Section 3). Sections 1-3 of the Note seek to give practical advice on each situation, including how to approach the economic analysis of the situation, and the key implications for project appraisal. If pricing policy is not known with certainty at the time of the appraisal, then alternative pricing policies must form part of the risk and uncertainty analysis. This is covered in Section 4. Conclusions are given in Section 5. -
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When and How to Use NPV, IRR, and Modified IRR
(World Bank, Washington, DC, 2005-01)The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. All three NPV, IRR, and modified IRR are summary measures of project performance. Each one provides a single figure summarizing the impact of the project on economic welfare. Each of the three measures does, however, give subtly different information: 1) NPV focuses on the total welfare gain over the whole life of the project; and, 2) IRR and Modified IRR focus on the rate at which benefits are realized following an initial transport investment. -
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Where to Use Cost Effectiveness Techniques Rather Than Cost Benefit Analysis
(World Bank, Washington, DC, 2005-01)Cost Benefit Analysis, and the measures of economic performance that can be derived from it (see Note 6: When and How to Use NPV, IRR and Adjusted IRR), is the preferred method for demonstrating the economic justification of transport investments. Such an approach, however, relies on the ability to be able to measure costs and benefits in monetary terms (see Note 5: Framework), which renders it problematic for projects where the majority of benefits cannot be readily monetised. Such a project could be a Low Volume Rural Road (see Note 21: Low Volume Rural Roads). In such situations consideration should be given to the use of measures derived from cost effectiveness or weighted cost effectiveness (also known as Multi Criteria Analysis) techniques as the basis for the decision regarding whether to invest or not. Cost effectiveness techniques are also a very useful tool for project screening or ranking. Such a screening process ensures that projects that are subjected to a more detailed analysis (including cost benefit analysis) are those that best fit with the objectives of the investment (e.g. poverty alleviation). Section 1 of this note outlines the situations in which cost effectiveness techniques should be used, whilst Section 2 describes the two main types of approaches. Section 3 discusses the issue of economic viability and cost effectiveness whilst Section 4 presents a summary of recommendations. -
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Treatment of Induced Traffic
(World Bank, Washington, DC, 2005-01)Induced traffic can be an important part of the economic appraisal particularly when the objective of the investment is to stimulate economic development; it's importance, however, is not restricted to such situations. The omission of induced traffic from the economic appraisal, or its incorrect treatment, may lead to either over or underestimations in the user benefits (consumer surplus) of an investment. In addressing this issues, this note, considers: the importance of induced traffic for the economic appraisal (Section 1); what constitutes induced traffic (Section 2); the situations in which induced traffic is likely to be relevant (Section 3) and the manner in which it can be modeled (Section 4) and user benefits calculated when it is present (Section 5). The annexes show the relative importance of including the benefits of induced traffic in the evaluation of an urban transport project; where the standard "rule of one half" breaks down in some situations that are often present in Bank projects, while another shows a numeric integration technique that can be used as a valid alternative to the rule of one half in many of these situations (and coincidently, provides a more precise evaluation even where the "rule of one half" gives an acceptable estimation). -
Publication
Valuation of Time Savings
(World Bank, Washington, DC, 2005-01)This note has been drawn from a number of texts including "The Value of Time In Economic Evaluation of Transport Projects" (Gwilliam, 1997), "Values of Travel Time Savings in the UK - Summary and Conclusions" (Mackie et al, 2003), and "The Value of Time in least Developed Countries" (IT Transport, 2002). The conceptual basis for valuing time is discussed in Section 1. Sections 2 and 3 discuss the theoretical basis for valuing work time savings and non-work time savings respectively, while Sections 4 and 5 discuss the value of time savings to buses, and to freight. The treatment of small time savings are presented in Sections 6 and 7. Section 8 sets out the manner that disparities between regions for values of time should be treated within the cost benefit analysis, and the use of standard values of time. Section 9 summarizes the practical methodologies that should be used for the estimation of travel time savings, while Section 10 summarizes the key recommendations of this note. -
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Notes on the Economic Evaluation of Transport Projects : Fiscal Impacts
(World Bank, Washington, DC, 2005-01)The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. Transport projects have an impact not only on citizens and businesses, but on governments - central, regional and local. Financing and managing the project will place demands on the government's capital and current accounts. Whether these demands are greater or smaller, and how they are phased over time, will depend on the financing mechanisms used and the extent to which the public sector is involved. Alternative approaches for private finance and management are described in the World Bank's 'Public-Private Options' toolkit. In this note, we consider how the appraisal should take the financial effects into account, and how they fit within the appraisal results, as described in the Framework. -
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Valuation of Accident Reduction
(World Bank, Washington, DC, 2005-01)The objective of this note is to advise on a desired and workable method that can be used to place values on accident reduction. The first section of this note identifies the need to categorize accidents if accidents are to be valued, and suggests a method of categorization. Following, it identifies the components of cost that make up total accident costs, while further sections suggest methods that can be used to value casualty related costs, and incident related costs. Other Sections discuss how accident valuation may vary between modes, and suggest that accident valuations are consistent with those utilized in other Bank projects (e.g. health projects). Final Sections discuss the manner that accident costs vary with time, and the relationship between the valuation and the accident prediction m model. The final Section summarizes the principal recommendations of the note.