Information published on 15 October 2019 in the UIC electronic newsletter "UIC eNews" Nr 664.

Finland: Where to build the road? Cost-benefit analysis helps to determine the best solution

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FTIA examines the benefits and costs of each transport project thoroughly before the shovel hits the ground. The examination takes account of, for example, the construction costs, the amount of travel time saved by the new route and the impacts on safety and emissions.

Well begun is half done, as they say. Thorough planning includes the comparison of options. For example, in road and railroad projects, there may be numerous different alternatives. But which option is the most reasonable? This question can most often be answered through cost-benefit analysis.

“There are three main stages in transport project planning: pre-planning, general planning and technical railway or road planning. Usually the first two stages include several alternative solutions. The best option for further planning can be determined by assessing the project’s benefits and costs,” says Anton Goebel, Transport Finance Specialist at FTIA.

Nearly everything has a price
On a global scale, cost-benefit analysis is the most used decision-making tool in connection with transport projects. In order to carry out the analysis, a monetary value needs to be specified for the analysed items. Sometimes the specification process is relatively straightforward, but sometimes it is not.

“For example, the operating costs of trains or trucks can be specified on the basis of market prices. On the other hand, it is more difficult to calculate the value of subjective things, such as the value of saved transport time or improved safety,” Goebel explains.

Willingness-to-pay (WTP) study enables specifying a value measured in euros even for subjective things. WTP studies are surveys whose purpose is to find out how much people value certain things. For example, people can be asked how much they would be ready to pay for shortening the time spent commuting by 10 minutes. As only a few WTP studies have been conducted in Finland, FTIA has often applied the results of WTP studies carried out in Sweden.

Cost-benefit analyses may also make use of software intended for project analysis. The software facilitate making the required calculations and improve the intercomparability of separate projects’ calculations.

Sophisticated methods to support decision-making
Transport project impact assessments take account of, for example, construction costs, travel times, accidents, noise, emissions and vehicle operating costs. The feasibility study’s end result is an estimate of the project’s financial feasibility.

Even though modern analyses are highly extensive, not everything can be calculated. For example, the aesthetic impacts of a project are not assessed from a financial point of view. Furthermore, there is still room for development in the calculation of more extensive financial impacts. Projects may also have unpredictable impacts.
“It’s impossible to calculate each and every aspect of the overall picture. However, the methods of cost-benefit analysis are highly sophisticated and enable analysing reliably which projects are financially feasible and which are not. Such information is very beneficial for decision-makers,” Goebel states.

(Source: FTIA)