The Value of Time as a Variable of Highway Transportation Benefit Cost Analysis

In transportation systems and highway projects, the benefit cost analysis of projects has been used internationally as a recognized method of decision making and prioritization. There is usually a well-known and important component of these analysis that originates on the savings produced by the differences in vehicle operation costs that users of a project will have when their vehicles travel a better, more efficient route compared to the current one used.

The vehicle operating costs are calculated by the transportation authorities in charge of projects, and to do continued research of the variables related to the operation costs needed. Variables such as cost of fuels, vehicle maintenance, tires, lubricants, depreciation of the vehicle, are part of the data, as well as how they relate to specific types of road (dirt, gravel, paved), and their characteristics such as grade, (steep, or flat terrain by percentage increments), curvature , speeds, congestion etc. Costs are estimated for different types of vehicles in order to simulate the traffic composition of the area of analysis (country or region). These values are calculated for the traffic projections of the project in analysis, either analyzing the network system or the individual project. Well known transportation cost models exist and are applied since the 1980’s.

Two types of operation costs

There are two types of operation costs that are calculated: the economic costs and the financial costs. The economic costs are of interest in the calculation of the net benefits the country´s economy will have with the new project, while the financial costs, include taxes where applicable and are used to understand the out of pocket costs of the users as a whole, but are usually not part of the feasibility studies done to pursue financial resources from multilateral banks.

There is one, less known component of the estimates of economic benefits and costs of highway projects that is very interesting and relevant, known as the Value of Travel Time Savings. This concept is complex, but it has been subject of study for several decades and it is a well-known and accepted practice that it should be incorporated in benefit cost analysis.

Value of Travel Time Savings

The value of time is taken into account by people to choose the best available alternative to travel. In modern times, an application such as WAZE makes this easy to understand for anyone. WAZE gives its users a choice of routes and time of expected travel as relevant information provided in order for the user to choose the final route. People want to get to their destination in the least time possible because time has value and that value influences travel choices. This has been modeled for years by transport experts. It is interesting to note that even such variables as waiting times and walking time are taken into account when simulating user decisions, for example when deciding on the use of public transportation system versus using a car, or when choosing between the train or a plane.

Time is limited and it can be used in different ways by the individual. Some of the time can be invested for work, but also it can be used for leisure or other activities. Government analysts of transportation systems work with general models based on different types of wages to calculate the value of time for specific types of projects.

According to the U.S. Department of Transportation, 2011 guidelines “ the value of reducing travel time expresses three principles. First, time saved from travel could be dedicated to production, yielding a monetary benefit to either travelers or their employers. Second, it could be spent in recreation or other enjoyable or necessary activities for which individuals are willing to pay. Third, the conditions of travel during part or all of a trip may be unpleasant and involve tension, fatigue, or discomfort. Reducing the time spent while exposed to such conditions may be more valuable than saving time on more comfortable portions of the trip” (page 3)

In the 2011 document: The Value of Travel Time Savings: Departmental Guidance for Conducting Economic Evaluations Revision 2, the use of the median wage rate was adopted in the U.S. This document is published regularly with new findings and guidance on the calculation of parameters to estimate this value.

Time is important

In urban projects time is so important that even the expected delays of the construction period should be taken into account in the analysis of the cost of the project. A benefit cost analysis in urban projects should include the costs associated to the value of time lost because of increased congestion at the construction site and its effects on the highway network.

Usually benefit cost analysis of the project takes the time value savings to calculate benefits during the life of the project, yet the costs incurred during construction are not calculated, much less are these costs considered purposefully in the project management process of the construction project. If the planner does not incorporate the cost of time during the construction period in the feasibility studies, less is expected of a project manager with less expertise in the field, nor any reference values in the feasibility studies that could point to this as a variable that is important for meeting the project´s expected economic benefits.

Social cost

Good construction planning of sensitive projects should be done with this social cost in mind. Mitigation measures including detour information and alternative route improvements, bus lane priority, extra communication efforts and timing can be planned. Even simple analysis of peak traffic seasons, months, and days can be used in order to make work schedule adjustments from the start. The costs of this construction period could very well affect the general benefit cost relationships of the project. Time is valuable in individual decision making and it has an economic value, so it should matter to all of us, and in particular for the planners and project management of urban public transportation projects and other similar work affecting people´s time.

To illustrate, I will refer to a recently lived situation in Costa Rica. The project had planned to close the two lanes going in one direction of a four lane highway that happens to be the most important and congested urban highway. This was to happen for 24 hours just a few days before Christmas 2016 when traffic is altered and unusually high (La Nación, 2016). Notice of the closure was given a couple of days before it happened catching by surprise many uninformed drivers. This raised a lot of criticism and public discontent. If only an analysis of peak traffic behavior would have been done during the construction planning process with the minimum consideration of the value of time of the stakeholders involved, it would have been evident that there was a possibility of planning the work for the last week of December, a few days later when traffic in Costa Rica falls dramatically as the main vacation period occurs.

The reason given for this disruption was precisely a strict schedule management, so not a day was to be wasted. This might sound good and determined, but in the end the project is expected to end with a two month delay ( Teletica, 2017). Credibility has been lost for the project and the institution. The way the government made the schedule commitment was very risky.

In conclusion

The information shared in this article aims to help project planners and project managers understand the economic value of time saved, and to motivate the consideration of it when planning urban transportation projects, that can impact economic costs through increased congestion. With this concept in mind, new tools and techniques such as traffic data bases can be used to analyze more adequate project schedules economically speaking, as well as the planning of creative and effective mitigation measures.

Bibliography

Department of Transportation, The Value of Travel Time Savings: Departmental Guidance for Conducting Economic Evaluations, 2011, retrieved from https://www.transportation.gov/sites/dot.dev/files/docs/vot_guidance_092811c.pdf

Department of Transportation, Revised Departmental Guidance on Valuation of Travel Time in Economic Analysis, 2016 retrieved from https://www.transportation.gov/office-policy/transportation-policy/revised-departmental-guidance-valuation-travel-time-economic

La Nacion, Diego Bosque y Eilyn Jimenez ,”Este miércoles no habrá paso por el puente de ‘la platina’ en sentido Alajuela-San José”, retrieved from http://www.nacion.com/nacional/Autopista-General-Canas-Alajuela-San-Jose_0_1604639584.html

Teletica, “Tras atraso en construcción de puente de ‘la platina’ ministro del MOPT ‘no abandonaría el barco” 2017 retrieved from http://www.teletica.com/m/note.aspx?note=149037

Ing. María Lorena López R. Msc, MAP

Professor of the Project Methologies, Processes and Products course in the Master in Project Management Program at the University for International Cooperation.