Habitat International 39 (2013) 128e136

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Habitat International
journal homepage: www.elsevier.com/locate/habitatint

Resource allocation and uncertainty in transportation infrastructure

planning: A study of highway improvement program in Taiwan
Shuh Liang a, Wann-Ming Wey b, *
a
Department of International Business, Soochow University, No. 56, Kueiyang Street (Section 1), Taipei 100, Taiwan
b
Department of Real Estate and Built Environment, National Taipei University, 151 University Road, San Shia District, New Taipei City 23741, Taiwan

a b s t r a c t
Keywords: Transportation infrastructure planning can have significant impacts on urban development. However, to
Multi-objective optimization fund infrastructure projects can be a challenging task. On one hand, resources are normally too scared to
Uncertainty
undertake all feasible projects. On the other hand, the transportation investment decision-making
Highway construction project
Analytic network process
process has become increasingly complex and under severe scrutiny (particularly in the early planning
Monte Carlo Simulation stages) as the degree of uncertainty embedded in the outcome of a project increases. Facing uncertainty
and resource constraints, public administrators need to decide which projects to fund, and by how much.
Therefore, an appropriate appraisal mechanism should be established to optimize all objectives simul-
taneously. The mechanism should be able to evaluate and prioritize project implementation difficulty
levels based on the associations among project resource requirements. It should also be able to assess the
interdependencies within project properties. Thus, an appropriate appraisal mechanism evaluates and
prioritizes performance, uncertainty, project demands and needs, and resource constraints among
possible candidate projects. Taking into account the concepts of benefit-opportunity-cost-risk and multi-
objective optimization, this study presents a robust model by combining Monte Carlo Simulation and
Analytic Network Process techniques. An empirical study of a large-scale nationwide (east-west)
highway improvement program in Taiwan is conducted to illustrate how the modeling process proceeds.

2012 Elsevier Ltd. All rights reserved.

Introduction assess the potential success of nine highway mega-projects. Later,

Transportation infrastructure planning, which is governed by
uncertainty and limited resources, can directly affect human
settlement places. Such relationships have been investigated in the
literature. For example, Wey and Chiu (in press) examine the
impact of pedestrian needs and walkability design on transit-
oriented development planning. In their study, the use of existing
resources is taken into consideration in the early planning stages in
order to maximize the benefits of urban transportation infra-
structure. Kong, Tiong, Cheah, Permana, and Ehrlich (2008) analyze
the impact of human settlements (lived with lenders and investors)
on default risks and loan losses involved in the implementation of
infrastructure projects based on a case study of Hong Kong-Canton
highway project. Molenaar (2005) studies the relationship between
uncertainty and transportation planning. He incorporates
programmatic risks into the cost estimate validation process to
* Corresponding author. Tel.: þ886 2 8674 1111x67428; fax: þ886 2 8671 5308.
E-mail addresses: sliang@scu.edu.tw (S. Liang), wmwey@mail.ntpu.edu.tw
(W.-M. Wey).
Molenaar, Triplett, Porter, DeWitt, and Yakowenko (2007) conduct
a review of international policies, practices and technologies and
observe a delegation of traditional highway agency functions to
promote efficiency as well as a greater partnership between public
and private sectors. Dulal, Brodnig, and Onoriose (2011) also
recognize that urban transportation can be very effective through
the shift from private vehicle dependency to public private
financed transportation systems. While Sim, Malone-Lee, and Chin
(2001) claim that the urban traffic congestion can be alleviated
through an integration of transportation planning, land use, and
management of human settlements. In recent years, there has been
an increasing interest in the management of forms of urban
development on the city fringe so as to encourage the development
of megacity sustainable transportation systems (Zhao, 2010).
The Taiwanese government understands that the transportation
infrastructure planning can have significant impacts on Taiwan’s
urban development because Taiwan is a highly urbanized and
industrialized island nation, and transportation infrastructure
affects the people living on this island. Therefore, millions of dollars
are invested in transportation infrastructure projects every year.
Despite the substantial spending by the government, studies have

0197-3975/$ e see front matter
2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.habitatint.2012.11.004
 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136
shown that Taiwan lags behind other countries in terms of main-
tenance, upgrading and new construction of transportation infra-
structure, and human settlements could potentially fall behind its
global competitors (Chang-Fan Consultant Company, 2010). In
response to the need for action to improve its existing trans-
portation system, particularly the highway network, the Taiwanese
government initiates a large-scale nationwide (east-west) highway
improvement program, which consists of seven projects.
However, as the gap between the total budgetary resources
available for transportation infrastructure projects and the need for
new construction and upgrading projects for highway infrastruc-
ture widens, public administrators have a greater responsibility to
maximize the return on transportation investments by selecting
the most costebenefit projects (Yin, Madanat, & Lu, 2009). Under
constraints of limited budget, the primary and most challenging
task for public administrators is to decide which projects to fund,
and by how much. To select a subset of projects from a set of
feasible candidate projects is difficult because various factors must
be considered simultaneously in the selection process. For example,
when projects are selected based only on cost minimization, the
selection process is likely to overlook some salient aspects, such as
the perceived project value and chance of success. Therefore, the
project selection problem is a multi-criteria decision making
problem. In addition, it is often difficult to correctly estimate the
needed project resources, e.g., construction costs, human resources,
and material supplies, in the early planning stages. Public admin-
istrators thus normally fund projects without all the necessary
information.
Accordingly, developing and using evaluation criteria and
performance metrics can drive effective project selection. This is
especially important when considering human residences and land
use allocation in initiating a large-scale nationwide highway
improvement program in Taiwan. This is because Taiwan is a small
island and its population is highly urbanized, with about 70
percentage of the population living in urban areas in 2010 (Chang-
Fan Consultant Company, 2010). Also, current regulations regulate
administrative procedures in the allocation and administration of
project funds but not project selection criteria. These two factors,
coupled with the fact that the highway investment decision-
making process has become increasingly complex and under
severe scrutiny as the degree of uncertainty embedded in the
outcome of a project increases show the importance of developing
appropriate evaluation criteria and performance metrics.
There are many methods which can be used to effectively
incorporate criteria and performance metrics into an evaluation
model and help drive the project selection process. For example,
Lee and Sevebeck (1971) use the linear goal programming method
in their aggregative model for municipal economic planning.
Benjamin (1985) also develops a generalized goal programming
model to deal with the public sector project selection problem in
Trinidad and Tobago. Benjamin includes economic, financial, social,
and political factors in his model, but he does not tackle the project
scheduling problem despite he recognizes the existence of resource
constraints as well as the interdependence relationship between
scheduling and projects. More recently, Chan, DiSalvo, and
Garrambone (2005) use a goal-seeking methodology within
a capital budgeting framework to modernize military operations in
U.S. These methods are useful for solving the selection problem but
they require project administrators to specify a policy by explicitly
setting specific goals and evaluation criteria. These methods also do
not consider factors such as interdependence, project uncertainty,
or resource constraints. Moreover, Scott, Novak, Aultman-Hall, and
Guo (2006) argue that the evaluation and prioritization efforts
based on traditional evaluation criteria using localized performance
metrics do not consider system-wide impacts. Because it is possible
129
for a project to be ranked as highly important based on localized
performance metrics and yields very limited or even adverse
urban-wide (or social welfare) effects, while a comparable invest-
ment in another project may provide greater benefits to the
highway system.
To address the aforementioned modeling problems, Mohamed
and McCowan (2001) use possibility theory in the context of
uncertainty to assist investment decision-making of construction
projects. Additionally, Lee and Kim (2001) propose an integrated
approach using Delphi, Analytic Network Process (ANP), and 0e1
goal programming techniques for the selection of projects in
information systems. Badri, Davis, and Davis (2001) adopt the goal
programming technique to develop a project selection model for
health service institutions that takes multiple factors into consid-
eration. Leinbach and Cromley (1983) also construct a multi-
objective goal programming model for rural road project selec-
tion in an Indonesian rural works program. The multiple criteria
decision-making approach has the advantage to incorporate
a range of strategic criteria and a variety of performance metrics. In
addition, the approach is commonly performed based on combi-
nation of methods and is applied to many practical decision-
making problems (An & Casper, 2011; Gokey et al., 2009).
This study builds on and expands the above studies. A robust
model that explicitly incorporates multiple factors including socio-
economics, uncertainty, resource constraints, and interdepen-
dencies is proposed to deal with the optimal transportation infra-
structure project selection problem. More specifically, the proposed
model first uses probability distributions to specify construction
costs. Next, project prioritization is determined based on the ANP
results, which reflect the interdependencies between criteria and
a set of feasible candidate projects. Finally, an empirical study of
nationwide (eastewest) highway improvement program in Taiwan
is conducted to illustrate how the modeling process proceeds. The
proposed model is unique because, by integrating Monte Carlo
Simulation into the ANP, it takes a multi-objective optimization
approach to deal with the selection problem. It is believed that the
proposed model effectively supports a (transportation) investment
policy that best suits the goal of urban land redevelopment for
a highly urbanized setting like Taiwan. The proposed model
incorporates optimization and the government’s inter-temporal
budget constraint into the highway project evaluation in order to
rank a set of feasible candidate projects with respect to which
projects could provide the largest urban-wide benefits. It helps
public administrators pinpoint most important projects to be
funded.
Methodology
Develop a project selection decision model involves three key
modeling aspectsdmultiple criteria, multi-objective optimization,
and probabilistic components (e.g., costs)din order to generate
feasible evaluation and prioritization results. The three modeling
aspects are discussed in the following subsections.
Multiple criteria decision making
Prioritizing a set of feasible candidate projects based on multiple
criteria is often referred to as a multi-criteria decision making
problem. Analytic Hierarchy Process (AHP) and Analytic Network
Process (ANP) are frequently applied to solve this type of problem.
Both methods use the judgments of individual experts. And,
because it is necessary to obtain group opinion for understanding
the interdependent relationships between evaluation criteria and
candidate projects. An expert interview is normally adopted to
collect group opinions.
130 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136
The ANP technique, which replaces hierarchies with networks,
is a generalization of AHP. The standard AHP is a well-known
technique that decomposes a problem into a hierarchical struc-
ture of homogenous clusters (Saaty, 1980). Each element in the
hierarchy is considered to be independent of all the othersdthe
evaluation criteria are considered to be independent of one
another, and the alternatives are considered to be independent of
the evaluation criteria and of each other. In addition, a relative ratio
scale of measurement is derived from pairwise comparisons of the
elements in a cluster of the hierarchy with respect to an element of
the preceding cluster. But in many real-world cases, there is
interdependence among the evaluation criteria and the alterna-
tives. In such cases, AHP is not an appropriate method.
Accordingly, ANP is designed to decompose a problem into
a network structure and to allow both interaction and feedback
within clusters of elements (inner dependence) and between
clusters (outer dependence) (Cheng & Li, 2007; Saaty, 1996). Thus it
is a general theory of relative measurement, which is used to derive
composite-priority-ratio scales from individual-ratio scales, repre-
senting the relative influence of factors that interact with respect to
evaluation criteria (Niemiraa & Saaty, 2004). Through a “super-
matrix” (a composition of matrices of column priorities), the ANP
catches the consequence of dependence and feedback within
clusters of elements and between clusters. The ANP has been
widely used in various multiple criteria decision-making problems,
such as environmental management, multi-dimensional fore-
casting, strategic decision, project selection, and alternative plan-
ning (Badri, 1999; Chung, Lee, & Pearn, 2005; Schniederjans &
Garvin, 1997; Wu & Lee, 2007).
Multi-objective optimization theory
The multi-objective optimization approach is frequently used in
the situation when it is difficult or undesirable to obtain an utility
function that is to be factored into a decision-making process. In the
case of multiple objectives, there may not exist one solution which
is best with respect to all objectives. It is more likely to exist a set of
solutions which are superior to the rest of solutions in the search
space when all objectives are considered simultaneously in the
model. These solutions are known as Pareto-optimal solutions.
Accordingly, in a Pareto-optimal solution, an improvement in one
of the objectives must come at the expense of at least one of the
other objectives (Cohon, 1978). For example, in the current work,
a Pareto-optimal solution corresponds to the selection of a subset of
projects from a set of feasible candidate projects. And, the multi-
objective optimization approach approximates all Pareto-optimal
solutions. A typical multi-objective optimization problem takes
the following form:
Max ff1 ðxÞ; .; fk ðxÞg
s:t: x˛S;
where fi(x) is the ith objective, and S is the problem constraint set.
After generating the Pareto-optimal solution set, project
administrators can apply an utility function to obtain the best
solution according to his or her preferences.
There are two methods which are commonly used to calculate
the Pareto-optimal solution set. The two methods are: the
weighting method and the constraint method (Cohon, 1978). When
applying the weighting method, each objective is multiplied by
a positive weight and then summed to arrive at a final aggregate
objective. This aggregate objective is an optimized subject to the
original feasible region. Thus a solution of this sub-problem is, by
its nature, a Pareto-optimal point in the original multi-objective
optimization (Miettinen, 1999, Theorem 3.1.2). The sub-problem
is defined as
X
k
Max wi fi ðxÞ
i¼1
s:t: x˛S;
where wi > 0, for i ¼ 1,.,k.
On the other hand, the constraint method optimizes only one
objective and creates additional constraints beyond the original
feasible region which incorporates appropriate bounds on the
other objectives. The constraint method aims to solve the
resulting single objective problem. Accordingly, if additional
constraints are binding, the solution will correspond to a Pareto-
optimal point.
In principle, a reasonable approximation to the Pareto-optimal
solution set can be obtained if the weighting method and the
constraint method are used iteratively (e.g., assign different
weights to each objective or apply different boundary constraints).
Moreover, certain duality gap points can exist when the Pareto set
is not convex. These points are Pareto solutions that can usually be
found by applying the constraint method. But, if computation
involves an integer programming problem, a computational
complexity may arise; and thus, the weighting method is appealing
for its simplified computational operation. The weighting method
simply assigns a grid of values to obtain different weights.
Accordingly, if the research objective is to generate a representa-
tive subset rather than to enumerate the entire Pareto optimal
solution set, the weighting method is an appropriate method. In
their study, the multi-objective programming approach is applied
to solve a nuclear waste management problem. The authors
recognize the presence of duality gaps but do not pursue them.
They also find that these duality gaps are the driving force behind
all research activities involving multi-objective integer program-
ming (Rasmussen, 1986).
Combining Monte Carlo Simulation with optimization
As mentioned in Section 1 of this study, the transportation
infrastructure project selection problem involves multi-objective
optimization. The optimization technique, involving Monte Carlo
Simulation, has a potential advantage to incorporate uncertainty in
the data to arrive at robust resource allocations.
Monte Carlo method simulates realizations of random variables
(e.g., costs) and includes these variables as part of the optimization
problem in order to find a solution. However, this method does not
rely on using utility functions to combine the objectives. Therefore
other methods, such as the weighting method or the constraint
method, can be used to incorporate the randomness of uncertain
elements into the calculation of Pareto set approximations. The
computational difficulty involved in solving each sub-problem
(weighted sub-problem or constraint sub-problem) is much less
when compared to stochastic programming approaches, such as
the chance-constrained approach or the extensive-form recourse
approach. By combining Monte Carlo Simulation with optimization,
the convexity of feasible region is often not an issue and the
complete replication of constraints for each scenario is also not
required. Additionally, the computation procedure reduces the
need to use more complicated methods, such as the L-shaped
method, for an implicit two-stage recourse approach. In this study,
the Monte Carlo Simulation combined with a multi-objective
generating method is used to deal with the highway project
selection problem involving uncertainty.
 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136
Database and variables
The database used in this study is originated from the highway
project directory in Taiwan. Each year, the Taiwanese government
finances highway construction and maintenance. The project cost
data was randomized in accordance with the probabilistic consid-
erations discussed above. In order to obtain appropriate probability
distributions, historical data on the same type of projects were
gathered. Also, three key assumptions were used to determine
which distributions should be applied to model project costs. These
assumptions are: (1) the cost distribution is positive; (2) the cost
distribution is bounded above by the actual cost, and (3) the cost
distribution is continuous.
In this section, the authors describe a sequence of experiments
using Monte Carlo Simulation in order to compare the results
provided by rules with the results obtained for precise cardinal
information. Each generated random problem is characterized by
a (precise) value matrix and a (precise) weights vector. By applying the
additive model to the random data, the authors calculate the needed
cost for each project. Moreover, based on the chi-square goodness of
fit test, two distributions (Beta General and Triangular) were selected
with parameters depending on project type. Parameters used for the
two distributions were: (a) shape parameter 1, (b) shape parameter 2,
(c) min and max for the Beta General distribution, and (d) min, mode,
and max for the Triangular distribution. Furthermore, four key
elementsdproject rank, project cost, the needed number of project
managers, and project riskdwere used to evaluate each project
(i ¼ 1,.,n). There is also a need to consider the potential impacts of
projects on social welfare. One important objective associated with
the project selection is the perceived project value. For the projecti,
RANKi is the score given to the projecti based on the ANP computation
(Saaty, 1996) which compares a project’s value with that of the other
projects. Although project benefits can be expressed as multiple
criteria, the ANP groups these criteria into one measure.
In this study, a large-scale nationwide (eastewest) highway
improvement program, which consists of seven projects, is evalu-
ated to illustrate how the modeling process proceeds. The seven
highway infrastructure projects are described in Table 1 and their
locations are depicted in Fig. 1. These projects are denoted as P1, P2,
P3, P4, P5, P6, and P7. As argued by Dimitriou (2006), mega and
primary cities have an acknowledged transportation crisis that
attract major planning efforts (and large-scale investment
projects), while the middle-sized cities (with only a fraction of the
resources available to them) remain neglected. As a result, the
middle-sized cities will reach their own crisis points unless effec-
tive policies are developed and implemented. Table 1 shows that
five out of seven projects are located in major urban areas in
Taiwan, i.e., Taoyuan metropolitan (include Taoyuan county), Tai-
chung metropolitan (include Taichung city and Changhua county),
and Tainan metropolitan (include Tainan city).
Moreover, the geographical data, taken from The Plan for Tai-
wan’s Transportation Infrastructure Projects Planning and Evaluation
Table 1
Project information.
Location Name
Taoyuan county Guanyin-Daxi improvement project (P1)
Taichung city Zhangbin-Taichung construction project (P2)
Changhua county Hanbao-Caotun new construction project (P3)
Yunlin county Tai78, Tai 17, and Tai 61 arterials separation and
interchange upgrade project (P4)
Yunlin county Dounan interchange construction of additional
EasteWest ramp construction project (P5)
Tainan city Beimen-Yujing new construction project (P6)
Tainan city Tainan-Guanmiao road construction project (P7)
131
(Chang-Fan Consultant Company, 2010), includes location, land use,
population, economic consideration, and cultural impact. With the
data, a total of seven quantitative and qualitative criteria were
identified: transportation capacity improvement (CI), balancing
national development (ND), national road network continuity (NC),
construction cost (CF), construction difficulty (CD), political
consideration (PC), and environmental impact (EI). These criteria
are derived not only from the benefit-opportunity-cost-risk
concept but also from the following aspects: building, sitting and
surrounding, culture, finance, social, and creativity. These criteria
are considered as important criteria to further urban development
in Taiwan. Also, there exists interdependencies among the
criteriadthe criterion CI influences both ND and NC, the criterion
PC influences both CF and CD, and the criterion EI influences both
CD and PC. As an example, in order to increase cultural aspect in
clerical operations, the understanding of creativity aspect needs to
be increased further.
Next, the seven highway projects are scored and prioritized
according to the seven criteria by senior specialists and team
leaders in the studied field. These experts assign a pairwise
comparison cardinal number score to each project. The higher the
score, the more important the project is. A group discussion is then
conducted to obtain the subjective expert judgments. The modeling
framework and structure are illustrated schematically in Fig. 2. In
the proposed model, the needed cost to complete a project
(denoted as COSTi) reflects both labor and non-labor costs. But
a separate cost is assigned for the project management team and is
denoted as TEAM_COSTi. Moreover, the number of project
managers needed to complete a project is denoted as PMNOi. The
overall annual budget available for project is denoted as BUDGET.
Hence, the general terms of variables used in the model are
expressed as follows:
 xi is a binary variable which has a value of 1 if project i is
selected, and 0 otherwise.
 yþij
; y
ij , are intermediate variables used in the calculation of the
modified mean absolute deviation for project i and scenario j,
i ¼ 1,.,n,j ¼ 1,.,m, described in the following section.
Multi-objective optimization modeling
When modeling the problem consisting of seven possible
highway infrastructure projects to select from, two multi-objective
optimization models are constructed and solved to select the most
costebenefit projects from each cycle of call for projects (normally
one year). The first model selects projects based on current
government budget plans, such that either the project i receives full
funding (xi ¼ 1) or the project i receives no funding (xi ¼ 0). After
completing the project selection, a second optimization model
appropriates the residual budget in a fractional manner. That is,
public administrators try to allocate budget optimally by providing
Description
One highway integrated with ramp construction improvement project
One highway construction connecting two major freeways
One new corridor construction between two major arterials
One construction with 3 arterials change to upgrade separation and interchange
One eastewest ramp interchange construction
One new eastewest freeway construction connecting Beimen-Yujing
One new eastewest major road construction connecting Tainan-Guanmiao
132 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136
Fig. 1. Taiwan’s major transportation infrastructure projects and projects’ locations.
full funding for the project. A project is then deleted from the
available project list if it is fully funded. Nevertheless, if any funding
remains after the initial appropriation, the remaining funds will be
used to partially support projects in a scaled-down scope. Thus the
decision-making process includes two main loops: one loop is
designed to vary multi-objective weights, which are used to
generate a Pareto-optimal solution, while the other loop is
designed to specify different years. The two optimization problems
can then be solved based on a specific choice of weights in a given
year. In order to simplify notations, the year subscripts are omitted
in the description of optimization problem. These two optimization
problems consider the following four objectives:
(1) Maximize the total ANP-based ranking number: (Max
Pn
i ¼ 1 RANKi xi ),
(2) Maximize the number of projects completed given the resources
P
available for a particular year: (Max ni¼ 1 xi )
(3) Minimize the total number of project managers needed to
P
complete a project: (Min ni¼ 1 PMNOi xi ),
(4) Minimize the modified mean absolute deviation (MMAD) of the
scenario cost and the expected project cost, respectively:
(Min MMAD).
The variance in costs for a project portfolio can be used to
measure the cost risk associated with selecting that project.
However, by doing so, it penalizes any deviation from the mean,
either positive or negative. An alternative measure is to use
a variation of the mean absolute deviation (Konno & Yamazaki,
1991; Markowitz, 1952). The modified mean absolute deviation
is a measure of risk that has some advantage over the variance
 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136 133

for MMAD. In particular, it is required that

Goal

East-West Highway Improvement Program

sij xi  COSTi xi ¼ yþ ij
 y
ij ci ¼ 1; .; n; j ¼ 1; .; m, which
defines the deviation of the scenario cost from the expected cost for
the project as the difference of two non-negative variables, denoted
as yþ ij
and y
ij , respectively. But, only positive deviations are used
Aspects

Benefit Opportunity Cost Risk when the scenario cost (denoted as sij) exceeds the nominal cost
(denoted as COSTi). The modified mean absolute deviation,
a measure of risk minimization, is expressed as follows:
Pn Pm
capacity

C1 C2 C3 C4 C5 C6 C7
i¼1 j¼1 yþ
development

continuity

ij
Transportation

Balancing national

National road network

Construction cost

Construction difficulty
Political consideration
Environmental impact
MMAD ¼
Criteria

nm
Based on the concept of model formulation introduced by
Gabriel, Kumar, Ordonez, and Nasserian (2006), the first multi-
objective optimization problem is expressed in the following.

P
n
Max RANKi xi
i¼1
P
n
Max xi ;
i¼1 (1)
P2. Zhangbin-Taichung cconstruction project

P3. Hanbao-Caotun New construction project

P5. Dounan interchange construction of additional

P7. Beimen-Yujing new construction project

P1. Guanyin-Daxi improvement project

P4. Tai78, Tai 17, and Tai 61 arterials separation

P6. Tainan-Guanmiao road construction project

Pn
East-West ramp construction project
and interchange upgrade project

Min PMNOi xi
i¼1
Min MMAD;
s.t.
Projects

X
n
ðCOSTi xi þ TEAM COSTi xi Þ  BUDGET; (1a)
i¼1

sij xi  COSTi xi ¼ yþ 
ij  yij ci ¼ 1; .; n; j ¼ 1; .; m; (1b)

Pn Pm
i¼1 j¼1 yþ
ij
MMAD ¼ ; (1c)
nm

Inner dependence Loop xi ˛f0; 1g ci ¼ 1; .; n; (1d)

Fig. 2. Proposed model structure.

dþ ; d ˛Zþ ; (1e)
The resulting weighted objective function to (1) is given as
measure. Assuming m is a derived solution for each separate item
of the cost estimate. For each m generated by the Monte Carlo X
n X
n X
n
Simulation (or observed in practice), MAD is computed as w1 RANKi xi þ w2 xi  w3 PMNOi xi  w4 MMAD (2)
follows: i¼1 i¼1 i¼1

1 Xm  
D 
where the weights w1 ; w2 ; w3 ; w4 > 0 and (2) is to be maximized.
MAD ¼ With regard to the second optimization model, the weighting
m j¼1 j
problem for the residual fund is expressed as follows:

where Dj ¼ jth realization  mean value (Ball & Savage, 1999). A X

n X
n X
n
modified version of MAD in which only the positive deviations in Max w1 RANKi xi þ w2 xi  w3 PMNOi xi  w4 MMAD
cost are penalized is i¼1 i¼1 i¼1
(3)
1 Xm   s.t.
MMAD ¼ max Dj ; 0
m j¼1 X
n
ðCOSTi xi þ TEAM COSTi xi Þ  RESID BUDGET; (3a)
And, as argued by Ball and Savage (1999), more intricate piecewise i¼1

linear functions combined with optimization problems are also

sij xi  COSTi xi ¼ yþ 
ij  yij ci ¼ 1; .; n; j ¼ 1; .; m; (3b)
possible.
The model specifies that the total cost of selected projects
Pn Pm
can only be smaller or equal to the budget limit, and such specifi- i¼1 j¼1 yþ
ij
cation can be expressed as a formula in the following: MMAD ¼ ; (3c)
Pn nm
i ¼ 1 ðCOSTi xi þ TEAM COSTi xi Þ  BUDGET. In addition, for
each project i and scenario j, the project cost is generated 0  xi  1 ci ¼ 1; .; n; (3d)
based on a known distribution function as described above. This
þ 
scenario cost, denoted as sij, is used as part of the computation d ; d ˛Zþ (3e)
134 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136

where RESID_BUDGET represents the residual budget after the following parameters: weights (w1 ¼ 0.5, w2 ¼ 0.5, w3 ¼ 0.5) and
initial appropriation and the project selection variable Wi is 1000 simulation iterations. The second column from the left side of
allowed to be fractional, as opposed to the binary selection variable Table 2, which is labeled “full funding,” shows the selected projects
in the first optimization problem. are fully funded for given year. The third column, which is labeled
It should be noted that the coefficients of mathematical multi- “partial funding,” indicates projects are partially funded with the
objective optimization model can be represented as priorities residual budget. The remaining funds are mandated to only
derived from pairwise comparison judgments. When measurement partially support a project. And, the planned budget for next year is
scales exist, the solution to the relative multi-objective programming reduced by the difference between the cost of selected projects and
model (with coefficients of objective function in the optimization the partial funding allocation.
model are normalized to unity in order to correspond to priorities Table 2 shows the model results for a reasonable and objective
obtained with relative measurement) and the solution to the multi- project selection in each year over four years. For example, the
objective optimization model (the “traditional” model with requested funding for the seven projects in year 1 amounts to
measurements and physical scales) are the same within a multipli- $5.512 billion which is much higher than available budget ($3.987
cative constant (Saaty, Vargasa, & Dellmann, 2003). It is then possible billion). Thus the model prioritizes the relative importance degrees
to construct a multi-objective optimization model using only relative of the five projects (excluding the two projects that do not submit
measurements to optimize resource allocation. Thus, the objective budget requests) by accounting for multiple factors simultaneously,
function of the multi-objective optimization model proposed in including socio-economics, uncertainty, resource constraints, and
this study is normalized by weights. That is, the weights for each interdependencies. The model results suggest that P2, P4, and P5
of the integer variables are determined via the weighting should be fully funded, while P6 and P7 can be partially funded in
calculationsdweights are first divided by one and then are allocated year 1. However, according to the budget requests submitted by P6
to each alternative. Thus, the allocation process is the normalization and P7, P6 needs another $1.9938 billion and it is $0.4196 billion for
for the state variables of the objective function. (However, it should be P7 in order to complete all work activities. Therefore, in year 2, the
caution that there is no need to normalize the control variables in the model first makes up the year 1’s budget request shortfall to both
constraints part.) The contribution of a project to each year’s esti- P6 and P7, and then appropriates the remaining $3.6527 billion to
mated budget is proportional to the existing project production rates. the seven projects based on their relative importance degrees. As
shown in the table, five projects receive full funding. While the
Empirical study: seven highway projects in Taiwan residual budget is distributed to only P6 (and P2 receives no
funding). This is because the remaining fund is not sufficient to
This paper presents an empirical study of a large-scale nation- meet all the constraints (set for P2) so that the quantity of P2 in the
wide (eastewest) highway improvement program in Taiwan to maximized function is zero (thus we have a corner solution in the
demonstrate how the proposed model works. The program consists model results). This also shows that P6 is seen as more important
of seven projects and is an ongoing program. As mentioned in than P2 in terms of highway construction for year 2. In addition, P2
Section 3 (and Table 1), five out of seven projects are located in receives full funding in year 1 and 3 but not year 2. This means that
major urban areas because these areas are highly populated and are
facing severe congestion and pollution problems, like many other Table 2
developing Asian cities. Consequently, public officials initiate this Results for weights w1 ¼ 0.5, w2 ¼ 0.5, and w3 ¼ 0.5.c
large-scale highway program in an attempt to redevelop urban Year Full fundinga Partial fundingb Available Requested
land. A council, consisting of ten senior experts, is set up to select budgetb funding
and fund the most costebenefit projects from a set of feasible 1 P2, P4, P5 P6 (0.4196) $30.987 P1 ¼ $0
candidate projects. Under the council, five scholars are invited to used: $10.768 used: $14.414 P2 ¼ $6
identify a methodology that will help the senior experts to select P7 (0.5804) P3 ¼ $0
used: $5.8040 P4 ¼ $3.135
projects. Therefore, the evaluation methodology needs to be able to
P5 ¼ $1.633
incorporate the subjective judgments of experts in the council, and P6 ¼ $34.352
therefore form a consensus. Additionally, these scholars are P7 ¼ 10
required to develop appropriate evaluation criteria according to the 2 P1, P3, P4, P5, P7 P6 (0.1342) $60.661 P1 ¼ $1.957
following subjects: decision-making, urban development, used: $31.918 used: $4.6090 P2 ¼ $6
P3 ¼ $15.193
economic development, traffic engineering, culture, and environ- P4 ¼ $3.135
ment. And, these evaluation criteria should be incorporated into the P5 ¼ $1.633
selection process. As invited scholars, the authors recommend the P6 ¼ $34.352
proposed project selection model to the council. P7 ¼ $10
3 P1, P2, P4, P5 P3 (0.1063) $50.083 P1 ¼ $1.957
To fund only a subset of projects (from a set of feasible candidate
used: $12.725 used: $1.6150 P2 ¼ $6
projects) can be a challenging task. The difficulty arises when P3 ¼ $15.193
project administrators attempt to minimize project costs and P4 ¼ $3.135
maximize project deliverables. The funding can be even more P5 ¼ $1.633
challenging when the factors (such as costs) involved in the P6 ¼ $34.352
P7 ¼ $10
selection process are uncertain. This section reports the results 4 P7 used: $10.000 P3 (0.3045) $38.026 P1 ¼ $1.957
obtained from applying the modeling process introduced in Section used: $4.1360 P2 ¼ $0
4. Using the LINDO software, the proposed model varies the P6 (0.6955) P3 ¼ $15.193
weights for each objective and generates different Pareto-optimal used: $23.892 P4 ¼ $0
P5 ¼ $0
project selection plans. Also, the ranges of w1, w2, and w3 are set
P6 ¼ $34.352
as 0.4e0.6, 0.3e0.6 and 0.2e0.6, respectively. In order to ensure P7 ¼ $10
stable and reliable model results, two different random number a
Note: Unit: one hundred million dollars.
seeds are chosen in conjunction with two numbers of simulation b
1000 iterations and seed ¼ 4.
iterations for random project costs. The model simulation results c
Similar project selection results were obtained for other weights and number of
are presented in Table 2. These results are obtained based on the iterations.
 S. Liang, W.-M. Wey / Habitat International 39 (2013) 128e136
P2 has a relatively lower priority than not only P6 but also the other
five projects for year 2. This coupled with the fact that P2’s
construction costs for year 2 are too high to obtain funding, make it
not a costebenefit project for that particular year.
Under the proposed model, all projects are funded in less than
five years, as opposed to the usual eight or ten. The combined
multiple criteria, multi-objective optimization, and probabilistic
components approach appear to be effective in achieving a high
level of budget allocative efficiency.
Conclusions
Transportation infrastructure planning can have significant
impacts on urban development. Evaluation and prioritization of
highway projects may not be intuitive in terms of the impacts that
individual projects can have on human settlements and of the
aggregate impacts of a set of projects. Urban-wide performance
cannot be predicted by comparing the performance outcomes of
individual projects with that of a set of projects because a small
change on the project group may have potential to affect urban
development. That is, implement a set of projects may reduce (or
even completely eliminate) the benefits of individual projects.
Accordingly, careful prioritization and sequencing of projects is
needed from the resource management perspective.
This study introduces a new multi-objective mixed integer
programming model to prioritize seven highway infrastructure
projects in Taiwan. The Taiwanese government initiates a policy to
redevelop urban land. However, to fund infrastructure projects can
be a challenging task. The proposed model provides a much-
needed decision support tool to public administrators for
deciding which projects to fund, and by how much. It is considered
a better decision tool because the model forms an achievement
function that optimizes the total weighted deviation from all the
objectives identified in the model. The weights of objectives, i.e.,
the relative importance degrees of the objectives, are not
preemptive but reflect decision-makers’ preferences. And it has
been proved that the method of pairwise comparisons, such as AHP
or ANP, is effective in assessing relative weights.
The model results have three main contributions. First, by
encoding project funding decisions into an optimization model,
public sector resources can be efficiently allocated. This is especially
important when facing limited budgets. Second, the proposed
model allows project administrators to directly incorporate
uncertain elements (such as costs) and to more accurately charac-
terize key tradeoffs in funding projects. At present, such an explicit
characterization of risk is not commonly considered in practice.
Although some authors have built project selection models that
incorporate the concept of risk management for the private sector
(e.g., Medaglia, 2003; Medaglia, Graves, & Ringuest, 2007; Sefair &
Medaglia, 2005), much work is needed to develop models for the
public sector. Third, since the weighted sub-problem can be
modeled more than once, the model results can approximate the
Pareto-optimal solution set and fund projects accordingly. This
result is obtained without the need to impose specific utility
functions to combine multiple objectives. As such, the model can be
generalized for other human settlement studies and illustrates the
spatially complex characteristics of transportation networks as well
as some of the difficulties raised with respect to prioritization of
national capital improvement projects.
Acknowledgments
The authors would like to thank a number of individuals whose
assistance was invaluable to this research. The authors wish to
acknowledge Ying-Tsen Lin for her participation in data collection
135
and analysis activities. The authors also wish to acknowledge the
help of Kitty Wu for language assistance. Finally, the authors are
grateful to the anonymous referee and the Editor of the journal for
their constructive comments that significantly improve the paper.
All opinions, errors, omissions and such are solely the responsibility
of the author.
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