Economic Appraisal

Alright now, so we found what is an appropriate solution for a given location. For example we found out that if we add an exclusive left turn lane at an intersection, we will be able to prevent many intersection-related crashes such as angle or rear end crashes. But is it worth it to do so is another question yet to be answered in the process of safety management. 

After a suitable countermeasure is identified for a spot, we need to evaluate the cost-effectiveness of that solution and if it is not, then we can argue on the appropriateness of its implementation for the case (see footnote 1).

This story of the  6-story safety management building is about economic evaluation of the countermeasures "usually" proposed by the transportation planners based on the crash history data of an area. This economic appraisal is carried out by taking into account the potential benefits that we gain as a result of implementing the countermeasures and comparing it with the costs of the project for implementation. Although, sometimes, benefits can be gained after some years which is alright as long as the time to receiving benefit is reasonably short. 

So, how do we come up with a monetary value for the benefits we are going to attain? The first thing we need to know is that how any specific countermeasure will affect (decrease or increase) the frequency and/or severity of crashes occurring at the candidate location where the countermeasure is proposed for. Then, the change in the crash frequency/severity statistics can be converted into some monetary value which is in fact the potential benefit we are looking for. Obviously, if any safety project results in an increase in crash frequency or worsen the severity of crashes, there will not be any benefits obtained! 

Again, here also, we have some criteria by which we can assess the beneficial outcomes of a countermeasure. The HSM provides the following characteristics that can be considered in the economic appraisal:

• • The cost of the safety project 

  • The monetary value of the potential benefits 

  • Reduction in crash frequency (Total)

  • Reduction in crash frequency (Fatal and Severe injury)

  • Reduction in crash frequency (Fatal and Any injury)

• Net Present Value (NPV)

• Benefit-Cost Ratio (BCR)

• Cost-Effectiveness Index

Sometimes, for a given location with alternative countermeasures can be proposed. Then their benefits can be evaluated based on several of the above criteria, the cost of the implementation can be estimated, and then the best alternative can be selected accordingly. 

In the case of determining BCR for a countermeasure, the benefit and cost of the countermeasure implementation project should be first determined. Then the BCR is calculated by dividing the benefit by the cost and if the B/C ratio is higher than 1, then the countermeasure is economically justified to proceed to implementation. That is about this step in the safety management process; however, there are some question to be answered:

How to determine the change in crash frequency/severity?

There are different ways to do this. The HSM provides a reliable method to estimate the change in crash frequency due to implementing a countermeasure. It is called the HSM predictive method and is presented in part C of HSM. A equation is defined that presents the number of crashes as a function of different geometric design and traffic characteristics of the roadway. This function is called the Safety Performance Function (SPF). A SPF is usually defined for a specific roadway type and there are several of these functions for various roadways depending on the roadway being in a rural or urban area, being a two-, four-, or multiple-lane highway, etc. 

Given the required data to plug into the SPF equation, an SPF can be used to estimate the crash frequency for the existing or a future condition (based on the changes in the geometric or traffic data). There we are, we have the crash frequency for the current and after-countermeasure condition. All it takes is a subtraction! 

There is, although, another way to do this and that is to use the Crash Modification Factors (CMF). After the SPF is used for the current condition and the existing crash frequency is estimated, a modification factor can be applied to estimate the future crash frequency for that same location. How the CMFs are determined is a different tale but for the moment let's say there is a table that provides the CMF value for a given countermeasure. For example, the CMF for the countermeasure of adding a left turn lane at an intersection located in a two-way rural highway equals 0.73. This means that if the crash frequency for the current condition is estimated to be x, then after implementing this countermeasure we will have 0.73x number of crashes. Again, all it takes is a subtraction!

Sometimes, the SPF is not available, or we just don't like to use it or don't know how to use it for estimation! Then you can just simply take an average of the last 3-5 years of crash frequency/severity data for the location where you have proposed the countermeasure and use that as the current crash frequency. Then apply the CMF and find the after-countermeasure crash frequency. Subtract!

There are a lot of little modes and challenges in this process but what presented above is the idea of how to conduct this and how it works in general. Details of steps are presented in the HSM.

How is the monetary value of a change (usually reduction) in crash frequency/severity determined?

This is imply done by applying the societal cost of crashes. That is if you know a crash with a specific severity (e.g. a property damage only crash) costs the society the amount of x dollars, then if implementing a countermeasure results in a reduction of, say, 2 crashes then we are actually benefiting 2x monetary value here. That's how it's done. The tables of the societal crash costs for different severity categories are presented in Table 7-1 of the HSM. Be careful that the monetary values in that table are presented in 2001 dollars and have to be scaled to the current year. 

The costs presented therein are determined by the researchers at Federal Highway Administration (FHWA) considering the monetary losses associated with medical cares, emergency services, property damage, lost productivity, etc. to the society. 

How is the cost of the safety project (countermeasure implementation) determined?

Just like any other project, implementing a countermeasure is a project with several steps. Each on of these steps has its own cost that has to be considered in the cost estimation. Some of the categories that should be considered in this respect include the cost of preliminary engineering and planning, material and construction, right-of-way, value of developed land, maintenance, operation etc. One can consult with the different section in a department of transportation to figure out how much a specific project's cost estimate is. Sometimes, agencies provide their own average value of generic construction items that can be used for cost estimation. An example of such an information sheet for the State of Arkansas can be found here.

Should all this be done by hand manually?

Software can help planners in this regard. Simple Excel spreadsheets can be very helpful and with a little data handling all the above can be achieved. Easier than that, FHWA has developed the Safety Analyst that is designed specifically for this purpose to follow the HSM standard for safety management. Also, the crash prediction module of the IHSDM software can be used in this process which is great. 

Here is another note I tried to write on how to calculate BCR for the economic appraisal of safety management.

Useful Resources:

NCHRP Report 617: Accident Modification Factors for Traffic Engineering and ITS Improvements. (Last accessed 02/18/2015)

CMF Clearinghouse: A major resource for the CMFs determined through various research studies.

CMFs in Practice: Guidelines to consider an quantify safety in specific applications. (Last accessed 02/18/2015)

CMF development: A guide in developing CMFs. (Last accessed 02/18/2015)

Desktop reference for CRFs and Toolboxes of countermeasures for:

    - Intersection crashes (Last accessed 02/18/2015)

    - Pedestrian crashes (Last accessed 02/18/2015)

    - Roadway departure crashes (Last accessed 02/18/2015)

So what's next?

Now we have several countermeasures that are found to be economically justified and will save lives and reduce the crash frequency and severity on our roadways. so what is next, jump into construction? 

Next is to see which one of the locations have the priority. In other word we need to prioritize the projects we came up with base don certain aspects, which is the next step in the safety management process.

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Footnote 1:

We need to know that there are many things done in this world that are only based on power as well as money. "Sometimes," or one may claim "many times", things happen around us but cannot come up with a legitimate reason for it. Those are the things happening based on power and money, and not necessarily based on evidence and engineering proof. What is presented in the manuals, and engineering text books are based on the laws governing the universe, and not based on the powers governing societies.

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