HIGHWAY ENGINEERING

LECTURE # 2
HANDOUTS
INTENDED LEARNING OUTCOME
1. Discuss the different aspects of highway project study
2. Calculate of net present value, benefit cost ratio and internal rate of return.
DIFFERENT ASPECT OF HIGWAY PROJECT STUDY
1. ENGINEERING ASPECT
o This aspect deals with the construction and the operation of the project. This also
includes the estimation of the capital and the operation cost.

2. MANAGERIAL ASPECT
o Deals with the management and staffing problems involving in the construction
and operation of the project.

3. FINANCIAL ASPECT
o Deals with the cost and income of the enterprise for the project.

4. ECONOMIC ASPECT
o Deals with the economic cost and benefit of the project to the whole country.

FACTORS AFFECTING TOTAL TRANSPORTATION COST

1. CONSTRUCTION COST
o These are the cost that deals with the engineering aspect such as design,
surveying, investigation, supervision etc.

2. MAINTENANCE COST
o Costs that will came from the continues repairs that will be done after the
construction.

3. ROAD USER COST

FACTORS AFFECTING THE ROAD USER COST
1. Roadway Factor
o Pavement Width
o Surface Type and Riding quality
o Vertical Profile
o Horizontal Geometry
2. Vehicle Factor
o Type
o Make
o Engine

1|Page
 3. Traffic Factor
o Traffic Volume
o Speed
o Congestion
4. Environmental Factor
o Weather
o Altitude
METHODS OF ECONOMIC EVALUATION
1. NET PRESENT VALUE METHOD
o In this method the stream of costs/ benefits associated with the project over an
extended period of time is calculated and is discounted at a selected discount
rate to give the present value.
o Benefits are treated as positive and cost as negative and the summation gives
the net present value (NPV).
o Any project with positive NPV is treated as acceptable.
o In comparing more than one project, a project with higher NPV should be
accepted
n
 B  Ci 
o NPV   i  
n 
i 0  (1  r ) 

 where, Bi is the benefit of the ith year, Ci is the cost of the ith year and n is
the number of years.

2. BENEFIT COST RATIO METHOD

o In cost benefit ratio, the costs and the benefits of individual highway projects are
calculated, bringing all the expenditures to the base year for comparison
purposes. The cost-benefit ratios of the various alternative highway projects are
then compared.
o In this method all costs and benefits are discounted to their present worth and
the ratio of benefit to cost is calculated.

3. INTERNAL RATE OF RETURN METHOD

o The internal rate of return is the discount rate, which makes the discounted future
benefits, is equal to the initial outlay.
o The higher the rate of return the greater the economy.
o Internal rate of return is that discount rate, for which the NPV value is zero. This
can be obtained by setting the value of NPV as zero, and solving (by trial and
error) for the value of r. If the rate of return thus calculated is more than the
market interest, then the project is adjudged to be acceptable.
COMPARISON OF VARIOUS METHODS
 The cost-benefit model is simple to use, but sometimes when the cost-benefit ratio of
two models are close to each other, it becomes difficult to interpret, and choose the best
option.

2|Page
 Some components whether will be treated as benefit or cost (i.e. whether it will go to the
numerator or denominator), sometimes appear confusing. This is because savings in
cost is benefit in other words.
 In the NPV or cost-benefit ratio methods, some discount rate is assumed, and various
alternative projects are compared. If different discount rate is assumed instead, the order
of choice among the alternatives may change.
 IRR method itself finds out the discount rate, and therefore inaccuracy in analysis in
assuming some arbitrary discount rate (as is done in cost-benefit ratio or in NPV
method) is taken care.

3|Page