Deciding between competing highway investments can be a challenging exercise. The Ministry of Transportation (MTO) must decide how to make the right investment in the right place at the right time, working within a constrained budget. The tools and methodologies of the Asset Management Business Framework are designed to assist with these decisions.

MTO decision-makers must assess whether a transportation investment is justified in terms of expected benefits. Across the highway network and various asset types, MTO must determine which investments maximize the benefits to the organization and public. Which investments minimize costs both now and in the future? Do the benefits outweigh the costs? Performing an economic analysis can help answer these questions.

Economic Analysis is a method for evaluating and comparing project alternatives. It provides one of the data points required to determine the "best" alternative. Economic Analysis results can help:

* capture agency and road user costs;

* Structure project-level tradeoffs; and,

* Support repeatable and transparent project justification and prioritization. MTO hired Cambridge Systematic to develop an Economic Analysis tool that would be quick and easy to use, and be built using the best practices of transportation Economic Analysis. There has been significant work completed on transportation Economic Analysis around the world, and CS has brought together the "best of the best" for a custom-designed MTO tool.

Following an intensive 6-month assignment, Cambridge Systematic and the MTO Asset Management Group have successfully developed a Priority Economic Analysis Tool, or PEAT, to calculate economic benefits and costs for highway project investments. The tool is a Microsoft Excel workbook that includes separate worksheets to analyze highway, bridge, intersection and expansion types of investments. A three-level cost estimating tool has also been built into PEAT that allows cost estimates to be refined as more project detail becomes available.

A proposed highway improvement project can be compared to a base case level of improvement or it can be compared relative to doing the proposed work now or later. The base case consists of the required day-to-day work on the pavements, such as routing and sealing cracks, and filling potholes, but excludes major rehabilitation treatment such as resurfacing. The Economic Analysis will determine the benefits and costs based on a comparison to the base case or based on the difference in timing. The PEAT tool will do this analysis using input data for both the current and future highway conditions. The difference in road user costs between doing only the base case improvements and the proposed rehabilitation are the calculated benefits of the proposed work.

For individual projects, the PEAT tool will calculate costs including:

* Costs to the agency incurred for con structure, design, property, and administration

* Costs to the road user resulting from travel time delays, accidents, and vehicle operation. The PEAT tool also calculates benefits including:

* Benefits for the agency, such as cost savings on future maintenance as pavement deteriorates

* Net present value, defined as the present discounted value of expected future expenditures on or revenues from an investment, less the cost of the investment.

By taking a ratio of benefits over costs, or b/c ratio, MTO can determine which projects are economically viable (b/c>1).

The concept of "priority" is significant when making trade-off decisions. The PEAT results will assist with an initial cut at prioritizing highway investments. However, focusing on economic benefits alone is not desirable, as it tends to favor investments on high volume roads. It is legitimate to consider a wide range of transportation impacts when making resource allocation decisions. Given that some of these impacts don't lend themselves easily to economic analysis, MTO must also consider aspects such as:

* Non-economic criteria, including community and environmental impacts

* Economic development

* Transit alternatives

* Available budget and resources

* Performance measure targets.

Examination of these criteria along with the PEAT analysis will be very useful towards the challenges facing MTO in making provincial highway investment decisions in the future.