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Session 2139

The Choice of An Analytical Technique for Economic Evaluation of Highway Safety Projects

Snehamay Khasnabis and Joseph Bartus Wayne State University Detroit, MI 48202

Abstract

The purpose of evaluation of public projects is to make efficient allocations of society’s resources in aiding social decision making. Such economic evaluation is based upon the premise that in order for a project to be viable, its benefits to whomsoever they may accrue, must exceed the estimated costs. Within this conceptual framework, a number of analytical tools have been used in the past to evaluate engineering projects. These include the Internal Rate of Return (IRR), Benefit Cost Ratio (B/C), Cost Effectiveness (C/E) and Payoff Period (PP) techniques. Each of these techniques has certain basic characteristics and limitations, and can be used to identify the optimal project. The selection of a particular technique for a given project may depend upon the availability of the data, the validity of the assumptions used and the intended use of the results.

While the presentation of these techniques in a typical undergraduate Engineering Economy course is simple and straightforward, the integration of these concepts explaining their exact relationship is sometimes problematic. In this paper, its authors attempt to demonstrate that under compatible assumptions the selection of the optimal project is not affected by the choice of analytic technique. Principles of engineering economy are used to offer a theoretical foundation followed by empirical demonstrations.

1. Introduction

The purpose of evaluation of public projects is to make efficient allocations of society’s resources in aiding social decision making1. Such economic evaluation is based upon the premise that in order for a project to be viable, its benefits to whomsoever they may accrue, must exceed the estimated costs2. Rational decisions among alternatives, whether they are mutually exclusive or independent, depend upon their prospective consequences that should include consideration of all benefits and disbenefits, tangible or intangible. Further, much of these consequences of decisions occur after decisions are made. The estimation thus always applies to the future, adding one more degree of complexity to the decision making processes.

Proceedings of the 2003 American Society for Engineering Education Annual Conference & Exposition Copyright © 2003, American Society for Engineering Education

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Bartus, J., & Khasnabis, S. (2003, June), The Choice Of An Analytical Technique For Economic Evaluation Of Public Projects Paper presented at 2003 Annual Conference, Nashville, Tennessee. 10.18260/1-2--11778