What Is a Benefit-Cost Analysis (BCA)?
Definition and Uses
A benefit-cost analysis (BCA) is a systematic process for identifying, quantifying, and comparing expected benefits and costs of an investment, action, or policy. Common uses of BCA at DOT include regulatory impact analysis and policy analysis, as well as infrastructure project evaluation.
BCA provides a useful benchmark from which to evaluate and compare potential transportation investments, policies, and decisions. It also helps add greater rigor to the project and policy evaluation process.
DOT Discretionary Grant Programs that Require a Benefit-Cost Analysis
Many DOT discretionary grant programs require a BCA for projects seeking federal funding, particularly those involving construction projects. Those programs include:
- Rebuilding American Infrastructure with Sustainability and Equity (RAISE) Grant Program
- National Infrastructure Project Assistance program (Mega)
- Nationally Significant Multimodal Freight and Highway Projects Grants Program (INFRA)
- Rural Surface Transportation Grant Program (Rural)
- Reconnecting Communities Pilot (RCP) Program
- Bridge Investment Program - FHWA
- Promoting Resilient Operations for Transformative, Efficient, and Cost-Saving Transportation Program (PROTECT) (Resilience Improvement Grants and Community Resilience and Evacuation Route Grants only) - FHWA
- Port Infrastructure Development Program (PIDP) Grants (Large Projects only) - MARAD
- Consolidated Rail Infrastructure and Safety Improvements (CRISI) Program - FRA
- Federal-State Partnership for Intercity Passenger Rail (FSP-National Grants only) - FRA
As applicable to the program and project type, USDOT recommends applicants make use of the Department’s Benefit-Cost Analysis Guidance for Discretionary Grant Programs. This document, which is updated each fiscal year, contains an overview of BCA, discussion of BCA methodologies, recommended values for key parameters, and sample calculations to aid applicants in the development of their BCA.
Benefits measure the economic value of outcomes that are reasonably expected to result from the implementation of a project. Benefits typically accrue to the users of the transportation system because of changes to the characteristics of the trips they make and can also be experienced by the public at large. To the extent possible, all of the benefits reasonably expected to result from the implementation of the project or program should be monetized and included in a BCA. Where applicants are unable to quantify or monetize certain benefits, they should be linked to specific project outcomes, and their potential magnitudes and/or timing should be discussed in the analysis.
Common benefit types for transportation projects include, but are not limited to:
- Safety benefits
- Travel time savings
- Vehicle operating cost savings
- Emission reduction
- Improved comfort or journey quality
- Health benefits
- Reduced noise pollution
- Emergency service response time improvement
- Reductions in stormwater runoff and wildlife impacts
- Reductions in operations and maintenance costs
- Reductions in damages or outage impacts from improved resilience
- Other quality of life benefits
Benefit-Cost Analysis versus Other Types of Economic Analysis
BCA considers the increased economic efficiency resulting from a project, and assesses the net change to overall societal welfare. This is distinct from other types of economic analysis, such as
- Economic Impact Analysis (e.g., job creation)
- Financial Analysis (e.g., revenue impacts)
- Distributional Analysis (e.g., equity impacts)
These other types of analysis can be used to answer important questions and aid in decision-making. However, they use different approaches and answer fundamentally different questions than does BCA. Importantly, these analyses do not provide estimates of additive benefits to be considered in BCA.
Project costs consist of the economic resources needed to develop and maintain a new or improved transportation facility over its lifecycle. Cost data used in the BCA should reflect the full cost of the project(s) necessary to achieve the benefits described in the BCA. Applicants should include all costs regardless of who bears the burden of specific cost item (including costs paid for by State, local, and private partners, as well as the Federal government).
Capital costs generally include the cost of land, labor, material and equipment rentals used in the project’s construction. In addition to direct construction costs, capital costs may include costs for project planning and design, environmental reviews, land acquisition, utility relocation, or transaction costs for securing financing.
The operating and maintenance (O&M) costs of the new or improved facility throughout the entire analysis period should be included in the BCA, and should be directly related to the proposed service plans for the project. For projects intended to replace, reconstruct, or rehabilitate existing infrastructure, however, the net change in O&M costs under the proposed project will often be negative, as newer infrastructure requires less frequent and less costly maintenance to keep it in service than would an aging, deteriorating asset.
Benefit-Cost Analysis Resources
- USDOT’s Benefit-Cost Analysis Guidance for Discretionary Grant Programs
- USDOT BCA Webinars
- Build America Center, which provides BCA support
- Data and Information Sources