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What Is a Benefit-Cost Analysis (BCA)?

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Most DOT programs require a benefit-cost analysis (BCA) for projects seeking federal funding, particularly those involving construction. A benefit-cost analysis is a systematic process for identifying, quantifying, and comparing expected benefits and costs of an investment. 

BCA may be used to evaluate whether a project provides significant economic benefits to users, relative to the resources required to implement that project. In other words, the goal of BCA is to help determine whether the proposed project cost is justified given its expected benefits.

As applicable to the program and project type, USDOT recommends applicants use the BCA methodology and components outlined in the Benefit-Cost Analysis Guidance for Discretionary Grant Programs

Benefits

The benefits measure the economic value of positive outcomes that are reasonably expected to result from a project and may be experienced by the applicant, users of the transportation system, or the public at-large. Those benefits reasonably expected to result from the implementation of the project should be quantified and included in the BCA. For projects implemented in phases, the benefits over each phase or time period should be thoroughly described in the supporting documentation for the BCA.

Additionally, even though some transportation improvements could be justified by describing their merit in relation to a more costly alternative that would accomplish roughly the same goal, these avoided costs should not be included in a BCA. 

 Benefits could include: 

  • Superior quality of life
  • Value of travel time savings
  • Vehicle operating cost savings
  • Safety and emissions reduction
  • Health Benefits
  • Benefits to existing and new users of the project
  • Diversion of traffic across modes of transportation
  • Work zone impacts
  • Infrastructure resilience
  • Reduced Noise pollution
  • Emergency service route improvement
  • Increased property values

Costs

The costs should reflect the full cost of a resource or activity necessary to achieve the benefits described.

Project costs typically consist of capital resources (land, labor, and materials), accounting for the market value of these resources. Applicants should include each cost regardless of who bears the burden of the specific cost item (including costs paid for by Federal, State, local, and private partners). Cost data should include each aspect of the project regardless of the portion of the total cost of the project being federally funded. The BCA should be tied to the expected life of assets constructed or improved by the project.

 Costs could include:

  • Capital expenditures: Cost of land, labor, materials, and equipment rentals used in project construction
  • Other capital costs: project planning and design, environmental reviews, land acquisition, utility relocation, or transaction costs
  • Operating and maintenance costs
  • Residual value
  • Remaining service life

Operations and Maintenance Costs on New Construction vs. Existing Infrastructure

It is important to note that total operating and maintenance costs may generally be lower for projects involving new construction, as newer infrastructure requires less frequent and less costly maintenance to keep it in service than would an aging, deteriorating asset. Projects that will reconstruct or rehabilitate existing infrastructure may be more likely to have higher operating and maintenance costs compared to projects involving new construction. 

Agency Funding Constraints

Benefit-cost analysis cannot solve the issue of how to meet all the needs of the transportation system that confront most agencies.

A common concern about BCA is how to fit its results into the context of limited funding. Although funding levels will provide direction on the final set of projects to be funded, the transportation agency should complete the BCA outside of the funding process.

Once the agency identifies candidate projects that provide the greatest estimated benefits, the agency's decisionmakers can develop a program by selecting individual projects appropriate for expected funding levels.

Benefit-Cost Analyses Versus Economic Impact Analyses

BCAs are different from economic impact analyses, which aim to identify the economic benefits of transportation investments to regions, businesses, or employment levels. Although BCA contributes to economic impact analyses, the objectives of BCA and economic impact analyses are different. The difference relates to matching appropriate measures with the social concerns to be addressed, as well as the perspective of the stakeholders.

For the owners of transportation systems, BCA is the appropriate method when dealing with concerns such as limited funding and system performance. For elected officials, economic impact analyses might be the appropriate method for providing insights into the overall economy.

 Benefit-Cost Analysis Resources

Last updated: Thursday, June 30, 2022