Methodology

The benefit-cost method is elaborated on in detail in a number of standard references, including the ITE Transportation Planning Handbook (11) and various American Association of State Highway and Transportation Officials (AASHTO) publications (12, 13). The basic premise of this method of evaluation is to compare the incremental benefit between two alternatives to the incremental costs between the same alternatives. Assuming Alternatives A and B, the equation for calculating the incremental benefit-cost ratio of Alternative B relative to Alternative A is given in Equation 3-1.

Benefit-cost analysis typically takes two forms. For assessing the viability of a number of alternatives, each alternative is compared individually with a no-build alternative. If the analysis for Alternative A relative to the no-build alternative indicates a benefit-cost ratio exceeding 1.0, Alternative A has benefits that exceed its costs and is thus a viable project.

For ranking alternatives, the incremental benefit-cost ratio analysis is used to compare the relative benefits and costs between alternatives. Projects should not be ranked based on their benefit-cost ratio relative to the no-build alternative. After eliminating any alternatives that are not viable as compared to the no-build alternative, alternatives are compared in a pair-wise fashion to establish the priority between projects.

Since many of the input parameters may be estimated, a rigorous analysis should consider varying the parameter values of key assumptions to verify that the recommended alternative is robust, even under slightly varying assumptions, and under what circumstances it may no longer be preferred.