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Taking a benefit cost approach to road safety

Taking a benefit cost approach to road safety. Blair Turner, Principal Research Scientist, Australian Road Research Board (ARRB). Acknowledgements. Dr Dimitris Tsolakis, Chief Economist, Australian Road Research Board

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Taking a benefit cost approach to road safety

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  1. Taking a benefit cost approach to road safety Blair Turner, Principal Research Scientist, Australian Road Research Board (ARRB)

  2. Acknowledgements • Dr Dimitris Tsolakis, Chief Economist, Australian Road Research Board • Dr Mark Harvey, Research Manager, Australian Bureau of Infrastructure, Transport and Regional Economics

  3. Overview • What is benefit cost analysis? • Why do we need benefit cost analysis? • How to conduct a benefit cost analysis? • Building blocks • Crash costing • Example calculation • Other costs and benefits • Examples of treatment effectiveness • Further information

  4. What is benefit cost analysis? • “An economic technique for gauging the value of economic decisions in terms of their capacity to satisfy the … wants of all members of society” Austroads, 2005 • “to assist policy-makers allocate resources to maximise social well-being” • The best way of evaluating the desirability of a project • Applied in many areas of public policy decision making • BCA and public policy are inextricably linked. • First used in US from 1930’s

  5. Why use benefit cost analysis? • Without sustainable funding, it is very hard to take serious action to address road safety • Presenting a case for further funding • Competing for limited resources • Business case for funding • Allocating existing funding • Limited resources • Helps prioritise

  6. Decision criteria summary • BCA key output indicators: BCR, NPV, FYRR, IRR • Key rules as to when to use these indicators • e.g. BCR rules – e.g. not ‘huge’ projects; independent Produced by Dr Mark Harvey, derived from Austroads, 2005

  7. A note on cost-effectiveness analysis • Given a set budget, what is the least costly means to achieve a target • Cost effectiveness ratio = number of crashes prevented cost of measure • A useful variant method of BCA • A simpler technique to determine minimum cost for providing a given safety benefit (e.g. saving of life/injury) • Does not indicate when a treatment is cost-ineffective • Cannot be used to compare other policy objectives

  8. How to conduct a benefit cost analysis • The building blocks • Information on the road safety problem • Number of crashes • Cost of crashes • Information on the treatment to be used • Likely benefit in terms of crash reduction • Likely cost of treatment • How long will the treatment deliver a safety benefit?

  9. Number of crashes • From crash data • Defining the ‘base case’ - there may be a difference between current crashes, and business as usual Intervention

  10. Number of crashes • From crash data • Defining the ‘base case’ - there may be a difference between current crashes, and business as usual Predicted benefit

  11. Number of crashes • From crash data • Defining the ‘base case’ - there may be a difference between current crashes, and business as usual Actual benefit

  12. Social cost of crashes • Why a cost? • How to calculate this • Human capital approach • Willingness to pay

  13. Cost of crashes Dahdah & McMahon 2007

  14. Cost of crashes • iRAP Rule of thumb: • VSL = GDP / capita x 70 • Serious injury cost = VSL x 0.25 • e.g. Cambodia • GDP / Capita = US$677* • US$677 x 70 = US$47,390 • Serious injury = $US47,390 x 0.25 = $US11,848 • *World Bank figures for 2009

  15. Cost of crashes • Problem – low values in developing countries • Is it appropriate to use current values for projects with 30+ year horizons in countries where GDP is rapidly growing? 1980 = $250 VSL = $17,500 2009 = $6,500 VLS = $455,000 www.indexmundi.com/china/gdp_per_capita_(ppp).html

  16. Treatment effectiveness • 3 decades of research • Good information on treatment effectiveness in developed countries • Problems in translating to developing countries

  17. Treatment cost • What will the treatment cost to install and maintain? • Differs by road environment type • Often errors in this estimation

  18. Treatment life • How long will the treatment deliver a safety benefit? • Varies due to: • type of project • climate • traffic volumes • local standards • available materials

  19. iRAP Road Safety Toolkit http://toolkit.irap.org/

  20. Discount rate • Given that projects span many years, there is a need to convert future benefits and costs to present values • Takes account of the changing value of money over time • A discount rate is used to do this • Discount rate set by Treasury or Department of Finance

  21. Example discount rates

  22. An example – speed camera installation ***Hypothetical and simplified for illustration only***

  23. Speed Cameras • 40% reduction in fatal crashes • 20% reduction in all injury crashes • Treatment life of 10 years

  24. Case study • Cameras installed at 30 locations with a high crash history, and speed identified as contributor • Total crashes at these sites = 347 per year (29 fatal, 318 injury) • Assume crashes will occur at the same rate in the future • Assume no change in vehicle costs, emissions etc. • Value of statistical life = US$100,000; US$8,000 for other injuries • $100,000 x 29 = $2.9 million • $8,000 x 318 = $2.5 million • Total expected cost if you ‘do nothing’ is $5.4 million / year

  25. Case study (cont) • Expect 40% reduction in fatal = 11.6 fatal less per year • Expect 20% other injury = 63.6 injury less per year • $100,000 x 11.6 = $1,160,000 • $8,000 x 63.6 = $508,800 • Total benefit per year = US$1,668,800 • Subtract an annual maintenance cost from this of $5,000 per site, or a total of $150,000 • Net annual benefit of $1,518,800 • Apply discount rate of 4% over 10 years, and this becomes $12,300,000 per year (8.113 x $1,518,800) • Note – not including residual value or revenue derived from fines

  26. Case study (cont) • Cost of installation = US$40,000 per site • Construction for 30 sites = US$1,200,000 • BCR = benefits divided by costs • BCR = $12,300,000 / $1,200,000 • BCR = 10 • Sensitivity testing • Discount rate, capital cost, crash reduction outcomes, treatment life etc

  27. Other benefits and costs • There are other project costs and benefits besides safety to consider e.g.: • Travel time • Vehicle operating costs • Noise, air pollution etc • Severance

  28. Synergies with transport projects • Investment effectiveness • $10 million in targeted improvements saves 22 KSI/year • $10 million in general improvements saves 1.5 KSI/year • Targeted safety investment produces higher return for safety • However, safety budgets very small • May be getting our greatest benefits from general safety improvements • Need to better include safety within these programs

  29. Synergies – an Australian example MeasureTypical Benefits • Optimum maintenance • Right balance of routine, periodic and rehabilitation works • $2 - $3 net benefits per $ • Optimum maintenance + seal width & roadside improvements • Account for maintenance and safety benefits • $4 - $6 net benefits per $

  30. Examples of effective treatments

  31. Drink driving measures • Random roadside testing BCR 36 – 51 (ETSC study) • Lower BAC level for novice drivers – BCR 71 (Switzerland) • Combined enforcement and publicity – BCR 7 (NZ)

  32. Seat-belts and child restraints • E.g. introduction of compulsory seatbelts • 50% reduction in fatal crashes (front seat) • 30% reduction in all casualties • BCR of between 3 and 8

  33. Motorcycle helmets • E.g. introduction of compulsory helmet wearing • 40-50% reduction in deaths • 25% reduction in all injuries • BCR between 11 and 23

  34. iRAP Assessments 70 countermeasures triggered ever 100m across a network Crash reduction based on typical before and after evaluations Average countermeasure costs applied at a network Minimum BCR threshold set (e.g. BCR > 5) Returns calculated across the network – linked to GPS 38

  35. iRAP infrastructure improvements

  36. Key references Benefit Cost Analysis: Austroads Guide to Project Evaluation www.austroads.com.au

  37. Key references Treatment effectiveness: http://toolkit.irap.org Elvik, Hoye, Vaa & Sorensen (2009) Highway Safety Manual (US) ROSEBUD http://partnet.vtt.fi/rosebud/

  38. Key references Treatment life: Turner, B & Comport, L 2010, Road safety engineering risk assessment part 4: treatment life for road safety measures. Austroads report AP-T149/10. Austroads, Sydney, Australia. www.austroads.com.au Elvik, Hoye, Vaa & Sorensen (2009)

  39. Key references Crash costing: Dahdah, S & McMahon, K 2007, The true cost of road crashes – valuing life and the cost of a serious injury. iRAP, UK. www.irap.org ADB – The cost of road traffic accidents (10 reports) www.adb.org Tsolakis, D Turner, B Perovic, J & Naude, C 2009, Component costs in transport projects to ensure the appropriate valuing of safety effects. Austroads report AP-T125/09. Austroads, Sydney, Australia. www.austroads.com.au Estimating Crash Costs - GRSP www.grsproadsafety.org

  40. Key points • BCA is vital • To attract funding • To allocate resources effectively • Process is not difficult • Guidance is available • Several issues need to be addressed: • Value of statistical life in low and middle income countries • Appropriate valuing of safety in major projects and maintenance

  41. Questions? blair.turner@arrb.com.au

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