ETHIOPIA TECHNICAL UNIVERSITY

COURSE
NAME
Transportation Planning and
Economics

Chapter Four
TITLE
Cost Analysis in the Evaluation of Transportation System

NATNAEL MELSEW (MSc.)

Road and Transport Engineer
nathanmelsew@gmail.com
 Outline 2

• Introduction
• Basic Costs
• Method of Evaluation

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 Introduction 3

• We mainly do feasibility evaluation for two cases

 Before the Project
 After the project (Post facto)

• We may use the evaluation process for the comparison of two

or more different projects

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 Basic Costs 4

Maintenance Costs
 Ordinary repairs
 Periodic repairs
 Operation expenses
 Supervision and operation exchanges
Road User Cost
 Vehicle operating cost
 Delay time cost
 Accident cost

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 Basic Costs 5

• Components of vehicle operating costs are the cost of

 Fuel and Lubricant
 Tires and Spare parts
 Maintenance
 Depreciation
 Wages of crew
 Fixed cost
Fixed Cost
• Interest on capital, taxes, garaging charges, permit charges,
commission on booking, registration fee

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 Basic Costs 6

Delay time cost

 Value of occupation time
 Values of goods in transit
 Value of time of commercial vehicles
Accident Cost
 Cost of human fatal accidents
 Loss due to injury
 Cost of hospitalization
 Damage to property vehicle

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 Basic Costs 7

• Social and Environmental Costs

 Noise
 Visual quality
 Community cohesion
 Air and water quality

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 Method of Evaluation 8

TECHNIQUES
• The different steps involved in LCC analysis are
 Establishing alternatives
 Determining timings of activities
 Estimating costs and
 Computing the costs, respectively
• Two of the more commonly used economic indicators are the
net present value (NPV) or net present worth (NPW) and
equivalent uniform annual cost (EUAC).

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 Method of Evaluation 9

• Net Present Value is the discounted monetary value of

expected net benefits
i.e. benefits minus costs
• In this method, monetary values are assigned to benefits
and costs, which are discounted using a discount rate to
determine their present values (PV), and then
• The Present Value of the costs is subtracted from the
Present Value of the benefits.

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 Method of Evaluation 10

• Analysis Methods
1. Present worth method
2. Equivalent Uniform Annual Cost method
3. Benefit Cost Ratio
4. Internal Rate of Return

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Method of Evaluation 11

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Method of Evaluation 12

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Method of Evaluation 13

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Method of Evaluation 14

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 Method of Evaluation 15

• Cash flow diagram for Net Present Worth will be

S
R

+
5
- 0 1 2 3 4
Cost

(M + O + U)

Co

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 Method of Evaluation 16

Examples 1: Present Worth Cost

For an analysis period of 20 years, there are two alternative
pavement designs with equal salvage values. The first alternative
is to reconstruct the pavement when it reaches failure, while the
second alternative is to improve the condition of the pavement at
the 8th, 16th, and 24th years.
The costs are as follows:
Alternative-A: initial cost: $18 million; cost to reconstruct
after 20 years: $9 million.
Alternative-B: initial cost: $15 million; cost for improvement
at 8th, 16th, and 24th years: $5 million each occurrence
• Which alternative should be selected?

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Method of Evaluation 17

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 Method of Evaluation 18

• 
)

) )

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 Method of Evaluation 19

• EUAC Method

• When more than one alternative is being examined the one

with the lowest EUAC is most economical.

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Method of Evaluation 20

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 Method of Evaluation 21

•  Benefit–Cost Ratio
• The ratio of the present worth of net project benefits and
net project costs
• In this method, it is necessary to make project comparisons to
determine how the added investment compares with the
added benefits

• If the BCR is 1 or greater, then the higher cost alternative is

economically attractive
• If the BCR is less than 1, this alternative is discarded

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 22

THANK YOU

Natnael
Melsew