Public Disclosure Authorized

A fic Transport -
aTec hnical Note RM

SSATP Note N o. 18 April 1999

Roads Economic Decision Model (RED)

Public Disclosure Authorized

for Economic Evaluation of Low Volume Roads

by Rodrigo S. Archondo-Callao

T he decision-makingprocess for the development and maintenance of

low-volume rural roads suffers from the lack of a customizedeconomic
This Notepresents a consumersur- evaluation tool. The World Bank's Highway Design and Maintenance
plus modelto help evaluateinvest- Standards Model (HDM-III) (1) and the forthcoming Highway Develop-
mentsinroadswithtrafficvolumesbe-
tween50 and 200vehiclesperday,so ment and Management Model (HDM-4), being developed by the Intema-
prevalent in Africa.The model is tional Study of Highway Development and Management Tools, present a
implementedin a series of Excel good framework for the economic evaluation of road investments and
Public Disclosure Authorized

workbooks that estimatevehicleoper- maintenance but are not particularly customized for low-volume roads
atingcosts and speeds, performan (traffic ]ess than 200vehicles per dav) do not capture all the benefits associ-
economiccomparisonot investments (,
and maintenanceoptions.and per- ated with rural road investments, and require a series of inputs which are
formswitch-offvalues and stochastic impractical to collect for low traffic levels. Hence, the need for a simplified
risk analysis.Modelsottwareis now economic evaluation model to fulfill the planning and programming needs
beingtestedtordebugging,and a pilot
empiricalvalidationis planned for of highway agences i charge of low-volume roads, without demanding
Chad. Auser manual forthe modelis input parameters that may be unrealistic and costly to collect while pre-
underpreparation. senting the results in a practical and effective manner.
This note presents the Roads Econornic Decision Model (RED) that per-
ant in the WorldBank'sTransporta- forms an economic evaluation of road investments and maintenance op-
tion. Waterand UrbanDevelopment tions customized to the characteristics of low-volume roads such as:
Department,wherehe has been as- * high uncertainty of the assessment of traffic, road condition, and future
sociatedwith the developmentand maintenance of unpaved roads;
use of successivegenerationsof the
BanksHighwayDesignand Mainte- * periods durit a year with disrupted passabiity;
nanceModel(HDM). * levels of service and corresponding road user costs defined not only
Public Disclosure Authorized

through roughness;
Thepurposeofthisseriesisto share * high potential to influence economic development; and
intormation on studiescarriedout by * beneficiaries other than motorized road users.
or of interest Theopin-
to the SSATPR
ionsexpressedinthe studiesare
thoseotthe authorsanddo notneces-
sarilyretlecttheviewsotthe World The Model
Bankor anyof its affiliated
organiza- The model computes benefits accruing to normal, generated, and diverted
fions. traffic, as a function of a reduction in vehicle operating and time costs. It
also computes safety benefits, and model users can add other benefits (or
Forinformationon these notes,con- .
tactJulie WagshalintneAfricaRe- costs) to the analysis, such as those related to non-motorized traffic, social
gionofthe WorldBank.Washington, service delivery and environmental impacts. The model is presented in a
DC.Internetaddress: series of Excel 5.0 workbooks that collect all user inputs, present the results
[email protected]. in a user-friendlv manner and perform sensitivity, switching values and
stochastic risk analyses.

Sub-Saharan Africa TransDart Policy Proram (SSATP4 . IUNtECA annidiT1he Woirldl IBatik
21

9.0 r
RED adopts the consumer sur- r have the evaluation model on
plus approach which mea- 8.0 a spreadsheet, such as Excel, in
sures the benefits to road users order to capitalize on built-in fea-
and consumers of reduced C \ HDM RED tures and tools such as goal seek,
transport costs. This approach e 6.0 Roughness Level of scenarios, solver, data analvsis,
was preferred to the producer C 0 Progression Service and additional analytical add-
surplus (2) approach, since the 0
D 0s.
consumer surplus approach z 4.0
was judged to allow for a bet- 3.0 - - RED evaluates one road at a time
ter judgment of the assump- | comparing three project alterna-
tions made and an improved 2.0 L_t_ -t ives against the without-project
-

assessment of the investment 0 5 10 15 20 case, yielding the investment ef-

alternatives simulated. The Year ficiency indicators needed to se-
HDM models also adopt the Figure1. Levelof ServicewithandwithoutProject lect the more desirable alterna-
consumer surplus approach tive and to quantify its economic
and can be used for the economic evaluation of low vol- benefits. RED considers an average constant level of ser-
ume roads but are not particularly customized for this vice, for the with- and without-project cases, over a
purpose and are more demanding in terms of input re- twenty year analysis period (see Figure 1). Road deteriora-
quirements. RED simplifies the process and addresses the tion equations, such as the ones contained on the HDM
following additional concerns: models, in which the roughness of a given road varies
- reduce the input requirements for low-vol-ume roads; over time as function of condition, traffic and mainte-
* take into account the higher uncertainty related to the nance characteristics are not irnplemented in RED. Rather
input requirements; RED uses the concept of average levels of service, which is
* clearly state the assumptions made, particularly on the considered reasonable for low volume roads due to the
road condition assessment and the economic develop- following main reasons:
ment forecast;
* compute internally the generated traffic due to decrease * convenience in defining levels of service for low-vol-
in transport costs based on a ume roads with param-
defined price elasticity of de- eters other than average
mand; PassengerCar/ Flat Terrain/Two-Lane Road annual roughness and
- quantify the economnic costs 0.45 _ . l 90 gravel thickness;
associated with the days per 0.40 80 *difficulty in measuring or
year when the passage of ve- 0.35 T V \ 70 estimating the roughness
hicles is further disrupted by a 0.30 Costs i 60 of unpaved roads and de-
highly deteriorated road con- 0.25 ($/km) , 50 termining the grading fre-
dition; 0.20 40 quency to be applied to un-
* use alternative parameters 0.15 Vehicle- 30 paved roads;
to road roughness to define the 0.10 - (km/hour 20 *seasonal change in road
level of service of low-volume 0.05 - ( 10 condition and passability;
roads; .00
°0 and
* allow for the consideration 0 5 10 15 20 25 *cyclical nature of the road
in the analysis of road safety Roughness (IRI) deterioration under a
improvements; Figure2. TypicalVOCandSpeedRelationships proper maintenance policy.
* include in the analysis other
benefits (or costs) such as those To calculate vehicle operat-
related to non-motorized traffic, social service delivery ing costs and speeds for a given level of service, the rela-
and environmental impacts; tionships between vehicle operating costs and speeds to
* raise questions in different ways; for example, instead of road roughness have to be defined, using cubic polynomi-
asking what is the econornic return of an investment, one als, for up to nine vehicle types; three terrain types; and
could ask for the maximum economically justified invest- three road types (see Figure 2 for one such relationship).
ment for a proposed change in level of service, with addi-
tional investments being justified by other social impacts; To estimate road roughness as a function of the speed of
* present the results with the capability for sensitivity, a reference vehicle, similar cubic polynomials also need to
switching values and stochastic risk analyses; and be defined for the reference vehicle. These relationships
 13

can be defined by any means GoodPassabilitty

Period injuries, and accidents with
or easily calculated using the damage only.
RED Vehicle Operating
Costs Module that com- Disrupted
PassabilityPeriod RED evaluates benefits accru-
putes, for particular country - ing to the following traffic
conditions, vehicle operat- types:
ing costs and speeds as a , Ditferent
Length
-Different Roughness
function of roughness. This - - Different Speeds * normal traffic,i.e. trafficpass-
module implements the Higher
Road
userCosts ing along the road in the ab-
HDM-III vehicle operating sence of any new investment;
costs equations (4), requires * diverted traffic, i.e., traffic that
the same inputs as HDM-III, Figure3. Passability
Periods
duringa Year diverts to the project road from an
and automatically computes alternative road while keeping the
the coefficients of the cubic poly- same origin and destination.
nomials relating vehicle operating costs and speeds to * generated traffic due to a decrease in transport costs, i.e.
roughness. traffic associated with existing users driving more fre-
quently or driving further than before, or with new trips
To define an average yearly level of service, road condi- undertaken; and
tion is defined for the following two possible seasonal pe- . generated traffic (induced traffic) diverted to the project
riods during a year (see Figure 3): road from other roads, changing its origin or destination,
due to increased development activity in the road's zone
* period with good passability (dry season); and of influence brought about by the project.
e period when the passability is disrupted by a highly de-
teriorated road condition (wet season); in this case, ve- RED breaks down the generated traffic into two compo-
hicles will find alternatives routes or use alternative paths nents: generated traffic due to a decrease in transport costs
along the existing road that facilitate the passage, result- and generated traffic due to specific local economic devel-
ing in higher transport costs due to a change in travel dis- opment (induced traffic). Model users specify the gener-
tance, road roughness, and speeds. ated traffic due to decrease in transport costs either by de-
fining it as a percentage of normal traffic or by inputting a
For each yearly period, model users have the following price elasticity of demand (3), i.e. the percent increase in
three choices with reference to the parameters to be used traffic per percent decrease in transport costs. The induced
to define the road condition: traffic and the diverted traffic are entered separately by
i enter the road roughness; in this case, vehicle operating vehicle type. The benefits accruing to generated traffic are
costs and vehicles speeds are estimated as a function of approximated by calculating one-half of the reduction of
the inputted roughness, using the previously defined rela- transport costs for each unit of generated traffic, while the
tionships; benefits accruing to the diverted traffic are estimated on
. enter the speed of a reference vehicle; in this case, RED the basis of the difference between transport costs using
estimates the road roughness based on the speed of the the alternative road and using the project road. The traffic
reference vehicle (using a model user-defined relation- growth rate to be inputted in the model is the foreseen in-
ship) and then it estimates vehicle operating costs and crease in traffic due to an overall increase in economic ac-
speeds of all other vehicles using the estimated roughness; tivity, thus affecting equally all traffic types and project-al-
and ternatives.
. enter both the roughness and the speeds of all vehicles To achieve, and maintain a level of service, an initial in-
directly; in this case, only vehicle operating costs are esti- vestment and annual maintenance costs (fixed and traffic
mated as a function of the input roughness. dependent) are specified by the model user, along with
The second option is appropriate for level and rolling other net benefits (or costs), the country/project road and
terrain where vehicle speeds are essentially a function of currency names, the evaluation date, the economic to fi-
roughness. The last option is indicated for hilly and nancial costs factor, the discount rate and the initial calen-
mountainous terrain where vehicle speeds are less a func- dar year. For each project-alternative, RED calculates the
tion of roughness than of road geometry (vertical and following investment efficiency indicators:
horizontal alignments).
To compute safety benefits, model users may enter acci- . net present value at the given discount rate;
dent rates and average costs per accident broken down, . intemal rate of return;
data allowing, in accidents with fatalities, accidents with
41

* modified rate of return con- Upgrade

Roadto Surface
Treatment
Standard CONCLUSIONS
sidering the reinvestment rate 8°8 r - - RED is easy to use and re-
assumed at the given discount quires limited number of input
rate; data requirements consistent
* net present value per finan- . 6% with the level of data likely to
cial investment costs; and . be available for the analysis of
. first-yearbenefit/cost ratio. 4% low-volume roads in develop-
'S 3 ing countries. The model can
REDpresents a detailed eco- E be used to evaluate road in-
nomic feasibility report for 2l I v
vestments and maintenance
each project-alternative con- 1% and estimate benefits accruing
taining all main input assump- 0% to motorized road users to
tions, as well as the computed , O
C ,, , N , , . o which other benefits can be ex-
vehicle speeds, travel times, InternalRateof Return ogenously added. Particular
generated traffic, streams of attention was given to the pre-
net benefits, and economicin- Figure4 - TypicalRiskAnalysisOutput sentation of the results, with a
dicators. It also presents a user view to highlight all input as-
impacts report presenting the percentage reduction of eco- sumptions and comprehensivelyintegrate them with sen-
nornic road user costs per vehicle class and the savings in sitivity, switching values and stochastic risk analyses. This
financial annual trip costs in the year after the initial in- would assist the analyst in addressing the high variability
vestment is completed. RED does a sensitivity analysis for and uncertainty which normally surrounds the economic
eighteen main inputs, where model users enter two pos- analysis of low-volume roads in African countries.
sible multipliers for each input and the model presents the
corresponding investment efficiency indicators. RED also
performs a switching values analysis, presenting, in this References
case, the values of the eighteen main inputs that yield a 1. Watanatada, Thawat, et al. 1987. The Highway Design and
net present value equal to zero. Maintenance Model. Volume 1, Description of the HDM-III
The RED Risk Analysis Module performs a risk analysis Model. The World Bank, Washington, DC
based on triangular probability distributions for the main 2. Beenhakker,H. and Lago, A. 1983. Economic Appraisal of
eighteen input parameters. Model users define the esti- Rural Roads: Simplified OperationalProceduresfor Screening
mate of an input variable and some measure of the likeli- and Appraisal. World Bank Staff Working Paper,No. 610. The
hood of occurrence for that estimate taking the form of a World Bank, Washington, DC.
triangular probability distribution. The risk analysis mod- 3. Transport and Road Research Laboratory, Overseas Unit.
ule then uses this information to analyze every possible 1988. A guide to roadproject appraisal.OverseasRoad Note 5.
outcome, by executing hundreds of "what-if" scenarios. Transportand Road ResearchLaboratory,United Kingdom.
In each scenario, random inputs following the defined 4. Archondo-Callao,Rodrigo and Faiz, Asif. 1993. Estimating
probability distributions are generated, and the resulting VehicleOperating Costs. World Bank TechnicalPaperNumber
frequency distributions presented in graphic form (see 234. The World Bank, Washington, DC.
Figure 4) together with the following indicators:

* minimum, maximum, average, standard deviation and

median rate of return;
. rate of return percentile for three percentile options;
. probability that the rate of return is less than or greater
than a certain value.

The RMIwaslaunchedin 1988by the UnitedNationsEconomicCommission forAfrica(UNECA) andtheWorldBank,underthe aus-

picesof theSub-Saharan AfricaTransportPolicyProgram(SSATP).
Thecountriestakingpart inthe RMIareCameroon,Kenya,Madagas-
car,Rwanda,Tanzania,Uganda,Zambia,andZimbabwe.Othersreceivingassistancefromthe programincludeAngola,Benin, Cape
Verde,Djibouti,Ethiopia,Ghana,Guinea, Lesotho,Malawi,Mozambique, andTogo.RMIis administered by the WorldBank'sAfrica
Region,andis co-financed withthe governmentsof Denmark,France,Germany,the Netherlands, Sweden,Switzerland,
andthe Euro-
peanUnion.France,Japanand Norwayprovideseniorstaffmembers to workonthe Program.