3.4 Cost Effectiveness
Until notified by FTA, project sponsors must submit two measures of cost
effectiveness. The first, introduced this year in the New Starts Final Rule, is
defined as incremental cost divided by transportation system user benefits. The
second measure is defined as incremental cost per incremental passenger. The new
transportation system user benefits measure is being phased in to ultimately
replace the "incremental cost per incremental passenger" measure.
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Change Due to Major Capital Investment Projects Final
Rule
3.4.1 Incremental Cost Divided by Transportation System User Benefits
FTA has changed the cost-effectiveness index for projects entering or
in the New Starts pipeline. The new measure will be incremental cost
divided by transportation system user benefits. The inputs to calculate
this measure are produced as a matter of course in the development of
travel demand forecasts for the proposed project. The new
cost-effectiveness measure will be phased in as quickly as possible during
2001. In the meantime, all project sponsors should continue to submit the
previous incremental cost per incremental trip measure.
The user benefit calculation expressed in time equivalent units (hours)
will serve as the denominator of the cost-effectiveness measure. The
numerator is annualized capital and operating costs, resulting in a cost
effectiveness measure of the form $ per hour of transportation system user
benefits.
Implementing the new measure will require some changes to regional
travel demand models to ensure that the information needed to calculate
user benefits is saved as a model output. To smooth the transition to this
new measure, FTA has consultants under contract to directly perform the
travel demand model modifications necessary to report the user benefit
measure. FTA staff and project sponsors need to coordinate the
implementation of the new user benefit measure for specific projects. If
this coordination has not already occurred, project sponsors are
encouraged to contact their FTA Regional Office.
In addition, FTA will distribute in the summer of 2001, a software tool
called SUMMIT for analyzing and reporting travel demand model results. One
of the features of this product will be to automatically calculate and
report the user benefit measure. After completing the model modifications
described above, a set of trip tables and generalized cost files will be
produced by the regional travel demand model, which will be processed by
SUMMIT. The SUMMIT software, with some additional parameter inputs, will
automatically perform the calculations necessary to report the user
benefit measure. Detailed documentation of the methodology and
implementation process will be provided by FTA in the summer of 2001.
After the project sponsor’s regional travel demand model has been modified
and the SUMMIT software is in hand, the following steps and templates are
required to report the new cost-effectiveness measure.
3.4.1.1 Key Assumptions and Data Sources
The forecast year is year 20 of the analysis
period.
Annualized cost is based on constant base-year
capital and operating/ maintenance cost estimates developed as part of
the New Starts planning and project development process. The latest
available data should be applied in the calculation, and documentation
of these inputs should be provided.
Capital costs are to be annualized for input to
the calculation of cost effectiveness index based on FTA’s assumptions
on the useful life of specific cost components and an established
discount, illustrate the data and steps needed for calculating,
documenting, and reporting this measure, and shall be completed and
submitted by local agencies.
The study area consists of the region modeled
for travel demand purposes;
Transportation system user benefits in
equivalent hours are calculated by subtracting the transportation system
user expenditures in hours in the New Starts build alternative from the
New Starts baseline;
The calculation of transportation system user expenditures in hours
is produced by the SUMMIT travel demand reporting program using files,
produced by running the regional travel demand model, containing the
generalized cost of each trip and associated trip tables for each market
sector and mode for the New Starts baseline and build alternatives.
Travel time savings reported in this measure for the New Starts build
alternative should only reflect savings as a direct result of the New
Starts fixed guideway and related transit investments included in the
Build alternative. Travel time savings that would result from HOV or other
roadway improvements that may be included in the full build alternative or
multi-modal investment strategy but not proposed for Section 5309 New
Starts funds should not be reported in this measure.
Template 8 and Template 9 in Appendix A are including for reporting
this measure.
3.4.1.2 Calculation and Reporting Method
Step 1: Applying the best available data sources, report
total capital costs, in constant FY2001 dollars for the New Starts
baseline and build alternatives. Total capital costs are annualized based
on the annualization factors in Table 3-7. The FTA Office of Planning and Regional
Offices will work with local agencies to address questions and issues
related to this procedure.
Step 2: Applying the best available
local data sources, report total annual operating and maintenance costs
for the entire transit system under full operating conditions in the
forecast year for the New Starts baseline and build alternatives. Local
agencies need to attach documentation of the data inputs and factors
applied in the estimation of annual O&M costs.
Step 3 : The annualized capital costs
(Step 1) are added to annual operating and maintenance costs (Step 2) to
report the total annualized cost for the New Starts baseline and New
Starts build alternatives. The incremental cost for the New Starts project
(compared to the New Starts baseline) is calculated and reported by
subtracting annualized total costs for the New Starts baseline alternative
from the annualized total costs for the New Starts investment.
Step 4: Run the modified travel demand
model for the New Starts baseline and build alternatives to produce the
files containing the generalized cost of making trips and the associated
trip tables for each market sector and mode. These files are created and
saved by the travel demand model. SUMMIT will use the information in these
files to estimate user benefits of the New Starts project relative to the
New Starts baseline.
Step 5: Locate the SUMMIT report file
and report calculations for change in user benefits (expenditure savings
in equivalent hours) between the New Starts baseline and New Starts build
alternatives in Line 4 of Template 9. All project sponsors must also
submit an electronic copy of the SUMMIT report file created for the user
benefit analysis.
Step 6: Report annualization factor in the
template and calculate the annual savings in user expenditures in travel
time equivalent units (hours). This value is called transportation system
user benefits.
Step 7: If the project sponsor includes
off-model trips in the ridership forecasts, estimate user benefits
associated with these trips, estimate the proper annualization factors,
and enter the information into Template 9. FTA will provide separate
guidance for reporting the user benefits of off-model trips in the near
future. In the meantime, project sponsors that wish to report benefits
associated with off-model trips (such as stadium or special event trips)
are encouraged to contact FTA for guidance and approval to make the
calculations.
Template 9 should be assembled and
attached.
Table 3-5: Cost Effectiveness: Incremental Cost per Change in Transportation System User Benefits in Forecast Year
|
| Line |
Variable |
Alternative: New Starts Baseline |
Alternative: New Starts Build |
Change |
Annual Factor |
Annual Total |
Source/Calculation |
| 1 |
Annualized Capital Cost (current year dollars) |
$15,000,000 |
$39,250,000 |
$24,250,000 |
|
|
Source: New Starts baseline and build alternatives capital cost
estimates; annualized. Include documentation as shown on attached
annualized cost worksheet). |
| 2 |
Total Systemwide Annual Operating and Maintenance Cost (current year
dollars) |
$10,000,000 |
$7,000,000 |
$(3,000,000) |
|
|
Source: System-wide operating and maintenance cost estimates for New
Starts baseline and build alternatives (attach
documentation). |
| 3 |
Total Annualized Cost in Forecast Year (current year
dollars) |
$25,000,000 |
$46,250,000 |
$21,250,000 |
|
|
Calculation: Sum of annualized capital costs (Line 1) and annual
O&M (Line 2). |
| 4 |
Weekday User Expenditure Savings (hours) |
|
|
6,000 |
280 |
1,680,000 |
Source: Weekday user expenditure savings from SUMMIT travel demand
evaluation software. Multiplying the weekday estimate by the Annual factor
produces the annual estimate. |
| 5 |
User Benefits from Off-Model Trips (hours) - Source 1 |
|
|
500 |
80 |
40,000 |
Source: Calculate off-model user benefits. Annual factor is based on
number of events for this special trip generator. Attach documentation.
|
| 6 |
User Benefits from Off-Model Trips (hours) - Source 2 |
|
|
1,200 |
8 |
9,600 |
Source: Calculate off-model user benefits. Annual factor is based on
number of events for this special trip generator. Attach documentation.
|
| 7 |
User Benefits from Off-Model Trips (hours) - Source 3 |
|
|
-- |
-- |
-- |
|
| 8 |
Incremental User Benefits (hours) |
|
|
|
|
1,729,600 |
Calculation: Sum annual user benefit estimates (sum Lines 4 thru
7) |
| 9 |
Cost-Effectiveness - Incremental Cost ($) / User Benefits
(hours) |
|
|
|
|
$12.29 |
Calculation: Divide Incremental Annual Cost (Line 7) by Incremental
User Benefits (Line 8) for the New Starts build vs. New Starts baseline
alternatives. |
3.4.2 Incremental Cost per Incremental Passenger in Forecast Year
The second cost effectiveness measure is defined as the incremental cost per
incremental passenger in the forecast year. This measure, expressed in constant
base year (2001) dollars, is based on the annualized total capital investment
(Federal and local funds) and annual operating costs divided by the forecast
change in annual transit system ridership measured in LINKED trips5,
comparing the New Starts project to the New Starts baseline. The estimate for
annualized cost is the same for both cost effectiveness measures.
The index used to calculate cost-effectiveness measures the incremental cost
per incremental passenger attracted to transit as a result of a New Starts
investment. It is computed as follows:
Equation -1: Cost Effectiveness Index
Cost Effectiveness Index = (D $CAP +
D $O&M)/D Annual Linked
Trips
where the D 's represent changes in costs and linked
trips resulting from the New Starts investment compared to the New Starts
baseline, and
|
$CAP |
= |
Total capital costs, annualized over the life of the
project; |
|
$O&M |
= |
Annualized operating and maintenance costs; and |
|
Annual Trips |
= |
Annual transit ridership, measured in "linked"
trips. |
3.4.2.1 Key Assumptions and Data Sources
- The forecast year is year 20 of the analysis period.
- All of the data inputs applied in the calculation of
this measure (capital and operating/ maintenance cost estimates, transit
system ridership forecasts) are developed as part of the New Starts planning
and project development process. The latest available data should be applied
in the calculation, and documentation of these inputs should be provided.
- Capital costs in constant 2001 dollars are estimated and refined for the
New Starts baseline and build alternatives during the New Starts planning and
project development process (systems planning, alternative analyses,
Preliminary Engineering/Environmental Impact Statements). Capital costs are to
be annualized for input to the calculation of cost effectiveness index based
on FTA’s assumptions on the useful life of specific cost components and an
established discount rate.6
- Annual operating and maintenance costs for the New
Starts baseline and the New Starts project’s transit elements are also
estimated and refined throughout the New Starts planning and project
development process. The latest available cost estimates, accurately
reflecting the definition of alternatives, should be applied in the
calculation.
- Annual transit ridership, measured as "linked" trips,
are derived from the travel demand model utilized to analyze the New Starts
baseline and New Starts build alternatives in the forecast year in the study
area.
- The cost effectiveness index reported in this measure for the New Starts
project alternative should only reflect costs and new transit riders as a
direct result of the New Starts fixed guideway and related transit investments
included in the build alternative.7
3.4.2.2 Calculation and Reporting Method
Table 3-6 and Table 3-7 illustrate the data and steps needed for calculating,
documenting, and reporting this measure, and shall be completed and submitted by
local agencies. Template 8 and Template 10 in Appendix A are including for
reporting this measure.
Step 1: Applying the best available data sources, report total
capital costs ($CAP), in current year dollars for the New Starts baseline and
New Starts build alternatives. Capital cost for the New Starts baseline
alternative include all transit related projects contained in the Regional Long
Range Plan. Total capital costs are annualized based on the annualization
factors in Table 3-7. The FTA Office of Planning and Regional Offices
will work with local agencies to address questions and issues related to this
procedure.
Step 2: Applying the best available local
data sources, report total annual operating and maintenance costs ($O&M) for
the entire transit system under full operating conditions in the forecast year
for the New Starts baseline and build alternatives. Local agencies need to
attach documentation of the data inputs and factors applied in the estimation of
annual O&M costs.
Step 3 : The annualized capital costs (Step
1) are added to annual operating and maintenance costs (Step 2) to report the
total annualized cost for the New Starts baseline and New Starts build
alternatives.
Step 4: Applying the best available
forecasts from the regional travel demand model8, report total annual transit system
ridership in linked trips under full operating conditions in the forecast year
for the New Starts baseline and build alternatives. Any locally derived
annualization factors applied to convert daily linked trips to annual totals
must be reported and documented. Annual forecasts of linked trips are used to
estimate the "new riders" applied in the calculation of the index. FTA requires
that the measure of new riders applied in this index only reflect incremental
linked trips from the introduction of the Section 5309 New Starts transit
investment. HOV riders are not included.
Step 5: The incremental cost for the
proposed New Starts project is calculated and reported by subtracting annualized
total costs for the New Starts baseline alternative from the annualized total
costs for the New Starts build alternative.
Step 6: The measure of incremental linked
trips for the New Starts project is calculated and reported by subtracting
annual linked trips for the New Starts baseline from the annual linked trips for
the New Starts build alternative.
Step 7: The value generated in Step 5
(incremental costs) is divided by the value generated in Step 6 (incremental
linked trips). The result is the cost effectiveness index of the proposed New
Starts project compared to the New Starts baseline alternative.
Step 8 : Additional documentation and
background information as requested on the reporting format in Template 10
should be assembled and attached.
Table 3-6: Cost Effectiveness: Incremental Cost per
Incremental Passenger
| Line |
Factor |
Alternative: New Starts Baseline |
Alternative: New Starts Project |
New Starts Project vs. Baseline |
Source/Calculation |
| 1 |
Annualized Capital Cost (constant 2001 dollars) |
$15,000,000 |
$39,250,000 |
na |
Source: New Starts basline and build alternative capital cost estimate; Include documentation as shown Table 3-7. |
| 2 |
Total Systemwide Annual Operating and Maintenance Cost (constant 2001 dollars) |
$10,000,000 |
$7,000,000 |
na |
Source: System-wide operating and maintenance cost estimates for New Starts baseline and build alternatives (attach documentation). |
| 3 |
Total Annualized Cost in Forecast Year (constant 2001 dollars) |
$25,000,000 |
$46,250,000 |
na |
Calculation: Total Cost = Annualized Capital Cost + Annual Operating Cost (Line 1 + Line 2) |
| 4 |
Total Annual Ridership in Linked Trips (forecast year) |
74,000,000 |
77,000,000 |
na |
Source: Regional travel demand model (attach documentation of factors to annualize daily ridership, if applicable) |
| 5 |
Incremental Annualized Cost |
na |
na |
$21,250,000 |
Calculation:
Subtract Total Annualized Costs (Line 3) for the New Starts baseline from New Starts build alternative |
| 6 |
Incremental Annual Ridership |
na |
na |
3,000,000 |
Calculation:
Subtract Total Annual Ridership (Line 4) for the New Starts baseline from New Starts build alternative |
| 7 |
Cost-Effectiveness (Incremental Cost per New Rider) |
na |
na |
$7.08 |
Calculation: Divide Incremental Annual Cost (Line 5) by Incremental Annual Ridership (Line 6) for the New Starts baseline from New Starts build alternative |
Helpful Hints For Cost Effectiveness:
- The project sponsor must provide the Supplemental
Annualization worksheet for each alternative.
- The transit system Annual Operating Cost should
equal the Operating Efficiencies Systemwide Annual Operating Cost.
- The Total Annual Ridership should equal the total
Forecast Systemwide Annual Ridership shown in the Project Description
worksheet under "Travel Demand Estimates."
- The annual new riders (the difference in riders
between the New Starts build and New Starts baseline alternatives) should
equal the Systemwide Annual New Riders shown in the Project Description
worksheet under "Travel Demand Estimates."
- The New Start Total Annual Ridership, when divided
by the annual factor in the Travel Times Savings, should be approximately
equal to the average weekday transit system linked trips in the Project
Description worksheet under "Travel Demand Estimates."
- The annualization factor must be the same as the factor used to
calculate the travel time savings measure under Mobility Benefits. Do not
assume that the annualization factor will exceed 300 if the current levels
of transit service on weekends are limited or non-existant. FTA staff will
request documentation justifying use of annualization factors in excess of
300.
Table 3-7: Cost Effectiveness: Calculating
Annualized Cost
| Line |
Factor |
Alternative: New Starts Baseline |
Alternative: New Starts Project |
New Starts Project vs. Baseline |
Source/Calculation |
| 1 |
Annualized Capital Cost (constant 2001 dollars) |
$15,000,000 |
$39,250,000 |
na |
Source: New Starts basline and build alternative capital cost estimate; Include documentation as shown Table 3-7. |
| 2 |
Total Systemwide Annual Operating and Maintenance Cost (constant 2001 dollars) |
$10,000,000 |
$7,000,000 |
na |
Source: System-wide operating and maintenance cost estimates for New Starts baseline and build alternatives (attach documentation). |
| 3 |
Total Annualized Cost in Forecast Year (constant 2001
dollars) |
$25,000,000 |
$46,250,000 |
na |
Calculation: Total Cost = Annualized Capital Cost + Annual Operating Cost (Line 1 + Line 2) |
| 4 |
Total Annual Ridership in Linked Trips (forecast year) |
74,000,000 |
77,000,000 |
na |
Source: Regional travel demand model (attach documentation of factors to annualize daily ridership, if applicable) |
| 5 |
Incremental Annualized Cost |
na |
na |
$21,250,000 |
Calculation:
Subtract Total Annualized Costs (Line 3) for the New Starts baseline from New Starts build alternative |
| 6 |
Incremental Annual Ridership |
na |
na |
3,000,000 |
Calculation:
Subtract Total Annual Ridership (Line 4) for the New Starts baseline from New Starts build alternative |
| 7 |
Cost-Effectiveness (Incremental Cost per New Rider) |
na |
na |
$7.08 |
Calculation: Divide Incremental Annual Cost (Line 5) by Incremental Annual Ridership (Line 6) for the New Starts baseline from New Starts build alternative |
Helpful Hints For Cost Effectiveness:
- The project sponsor must provide the Supplemental Annualization
worksheet for each alternative.
- The transit system Annual Operating Cost should equal the Operating
Efficiencies Systemwide Annual Operating Cost.
- The Total Annual Ridership should equal the total Forecast Systemwide
Annual Ridership shown in the Project Description worksheet under "Travel
Demand Estimates."
- The annual new riders (the difference in riders between the New Starts
build and New Starts baseline alternatives) should equal the Systemwide
Annual New Riders shown in the Project Description worksheet under "Travel
Demand Estimates."
- The New Start Total Annual Ridership, when divided by the annual factor
in the Travel Times Savings, should be approximately equal to the average
weekday transit system linked trips in the Project Description worksheet
under "Travel Demand Estimates."
- The annualization factor must be the same as the factor used to
calculate the travel time savings measure under Mobility Benefits. Do not
assume that the annualization factor will exceed 300 if the current levels
of transit service on weekends are limited or non-existant. FTA staff will
request documentation justifying use of annualization factors in excess of
300.
Table 3-7: Cost Effectiveness: Calculating
Annualized Cost
This Template is Completed for Each Alternative (CIRCLE
ONE)
NEW STARTS BASELINE NEW STARTS PROJECT
| Item |
Units |
Useful Life (Years) |
Annualization Factor |
Total Cost (millions) |
Annualized Cost (millions) |
| Right-of-way |
NA |
100 |
0.070 |
$41.70 |
$2.92 |
| Right-of-way preparation (major grading, etc.) |
NA |
100 |
0.070 |
$32.50 |
$2.28 |
| Structures (#) |
10 |
30 |
0.081 |
$231.00 |
$18.71 |
| Trackwork (meters) |
13,000 |
30 |
0.081 |
$40.40 |
$3.27 |
| Signals, electrification (meters) |
13,000 |
30 |
0.081 |
$52.60 |
$4.26 |
| Pavement, parking lots, grade crossings |
NA |
20 |
0.094 |
$23.70 |
$2.23 |
| Rail vehicles (#) |
30 |
25 |
0.086 |
$64.90 |
$5.58 |
| Buses (#) |
0 |
12 |
0.126 |
$- |
$- |
| Contingencies |
NA |
Add item-specific contingency to line items |
|
|
|
| Engineering, construction management |
NA |
Allocate proportionally |
|
|
|
| Total |
NA |
NA |
NA |
$486.80 |
$39.25 |
5Linked trips refer to trips that begin at the trip origin and end at the final destination. One linked trip could be composed of several unlinked trips such as driving to a park and ride, riding a commuter train, and taking a bus to the final destination is all one linked trip but is made up of three unlinked trips and two transit system boardings.
6Annualization factors are equivalent annual payments at a specific discount rate, r, over the useful life of the investment, n. In keeping with OMB
practice, the discount rate is assumed to be 7%. The formula to calculate the annualization factor is
 .
7Cost effectiveness should not be reported for
HOV or other roadway improvements which may be included in the full definition
of the build alternative or multi-modal investment strategy, but not proposed
for Section 5309 New Starts funds. (FTA will allow local agencies to
additionally report the cost effectiveness measure reflecting the definition of
the build alternative, including HOV and roadway improvements, to reflect the
multi-modal nature of the New Starts investment.)
8Section 2.1.5 outlines assumptions applied in the development of demand estimation forecasts for the Baseline and New Starts alternatives.
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