Roads Economic Decision Model

(RED) for Economic Evaluation of

Low Volume Roads

July 2004

Rodrigo Archondo-Callao
The World Bank
 RED Objectives
• Simplify the economic evaluation of low volume roads
• Better capture the economic benefits of a project
• Characterize the wet and dry seasons separately
• Include in the analysis the high level of uncertainty
related to low volume roads (risk analysis)
• Produce proper sensitivity, switching values, user
impacts, and distribution of benefits analyses
• Perform budget constraint optimization and multi-
criteria analysis
 RED Development

• RED is being developed by the World Bank for the Africa

Sub-Saharan Africa Transport Policy Program (SSATP)
• RED version 1.0 was released in 1999, version 3.2 is being
released in 2004
• RED is being used at project and network level in many
countries worldwide (Nicaragua, Turkey, Ecuador, Chad,
Argentina, Ethiopia, Guatemala, Lao, Cambodia, Yemen,
South Africa, etc.)
• RED version 3.2, 2004, is available at the website:

http://www.worldbank.org/afr/ssatp/Models/RED/RED_C
ontents.htm
 Products of RED

• Software: RED - Roads Economic Decision Model

• Technical Note: SSATP Africa Transport

Technical Note 18: Roads Economic Decision
Model (RED) for Economic Evaluation of Low
Volume Roads
World Bank Technical Notes Related to RED

• RT1 - Typical Unpaved Roads: Roughness Predicted

by the HDM-III Model
• RT2 - Unpaved Roads: Roughness Estimation by
Subjective Evaluation
• RT3 - Paving of Unpaved Roads: Economically
Justified Paving Costs

Software: DETOUR - Deterioration of Unpaved

Roads Model
 Economic Evaluation of Low Volume Roads
• Low Volume Road Versus High Volume Roads (> 300?
AADT paved roads: HDM-4 evaluation)
• Low Volume Roads Versus Very Low Volume Roads (<
50? AADT unpaved roads: social evaluation, maximize
population served per investment, multi-criteria)
• Consumer Surplus Approach Versus Producer Surplus
Approach (difficult to judge the assumptions made,
concern of double counting benefits)
• Customized Excel Model Versus HDM Models (HDM-III
and HDM-4 models have the same unpaved roads
deterioration models, which are not particularly
customized for developing countries)
 HDM Models and RED Benefits
Benefits HDM-III HDM-4 RED
VOC Normal Traffic Yes Yes Yes

VOC Generated Traffic Yes Yes Yes

VOC Diverted Traffic No Yes Yes

Passenger Time Yes Yes Yes

Cargo Delay Time Yes Yes Yes

Accidents No Yes Yes

Non Motorized Traffic No Yes Yes

Social and Other External External External

 Needs Addressed by RED
1. Reduce the input data requirements
2. Differentiate the wet and dry seasons
3. Differentiate the benefits resulting from
generated and induced traffic
4. Define the level of service of unpaved roads
with roughness and speeds
5. Present the results with sensitivity, switching
values, and risk analyses
6. Perform a network budget constraint
optimization
7. Perform a multi-criteria analysis and cost
effectiveness analysis (population served by
investment cost)
 RED Characteristics
a) Constant average level of service over evaluation
period
b) Three options to define levels of service
c) Two periods during a year: period with and without
direct passability (wet and dry seasons)
d) User defined equations relating road user costs and
speeds to roughness
e) Generated, induced and diverted traffic benefits
f) Risk analysis with triangular distributions
g) Budget constraint optimization
h) Multi-criteria and cost effectiveness analysis
a) Constant average level of service over
evaluation period
 HDM-III/HDM-4 Roughness Estimates
for Unpaved Roads
• Valid for engineered unpaved roads with good
maintenance (good drainage). Therefore:

– Higher rainfall yields lower roughness

– Higher percent of trucks yields lower roughness
– Earth roads (finer soils) have lower roughness than gravel
roads

• In practice, the condition of an unpaved road can be

different from what is being predicted by the HDM
models
 b) Three options to define levels of service
b) Speed of a c) Roughness
a) Roughness Reference & Speeds of All
Vehicle Vehicles
a) | b) | c)
Input Road | Input Reference |
Roughness | Vehicle Speed | Input Road
| | Roughness
| |
| Estimated Road |
| Roughness |
| |
| |
Light Heavy | Light Heavy | Heavy
Car Utility Bus Truck Truck | Car Utility Bus Truck Truck | Car Truck
VOC VOC VOC ....... VOC VOC | VOC VOC VOC ....... VOC VOC | VOC …. VOC
| |
| |
Light Heavy | Light Heavy | Input Speeds
Car Utility Bus Truck Truck | Car Utility Bus Truck Truck | for All Vehicles
Speed Speed Speed ....... Speed Speed | Speed Speed Speed ....... Speed Speed | …….
| |

Equations for each vehicle type and each terrain-road type:

a) Vehicle Operating Costs = a0 + a1 * Roughness + a2 * Roughness^2 + a3 * Roughness^3
b) Speed = b0 + b1 * Roughness + b2 * Roughness^2 + b3 * Roughness^3

Equation for each terrain-road type and for the defined reference vehicle:
c) Roughness = c0 + c1 * Speed + c2 * Speed^2 + a3 * Speed^3
 Vehicle Operating Costs and Speeds
Function of Roughness Obtained from
HDM-III, HDM-4 or Other Models

Results from HDM Fitted Cubic

(VOC X IRI) Polynomial
 c) Two periods during a year

Days Per Year Days Per Year

With Direct Passability Without Direct Passability

- Different Length
- Different Roughness
- Different Speeds
- Different Traffic

Higher Transport Costs

d) User defined equations relating vehicle operating
costs and speeds to roughness
Vehicle Operating Costs ($/veh-km)

0.45
y = -2E-05x3 + 0.0009x2 - 0.0004x + 0.1153
0.40
Terrain Type R2 = 0.9997
0.35
0.30
A B C 0.25
0.20
Road X 0.15
0.10
Type Y 0.05
0.00
Z AZ
0 5 10 15 20 25
Roughness (IRI)

Vehicle Car
Vehicle Speeds (km/hour)
Type Utility
Light Bus 100
Medium Bus 80
Heavy Bus 60
Light Truck
40
Medium Truck y = 0.0073x3 - 0.2767x2 + 0.2562x + 86.24
Heavy Truck 20 R2 = 0.998
Articulated Truck 0
0 5 10 15 20 25
Roughness (IRI)
e) Generated, induced, and diverted traffic benefits

• Normal traffic. Traffic without any new investment

• Generated traffic. Traffic associated with existing users
of the road driving more frequently or driving further
than before
• Induced traffic. Traffic attracted to the project road
from other roads, changing its origin or destination, due
to increased economic activity in the road’s zone of
influence brought about by the project
• Diverted traffic. Traffic that diverts to the project road
from an alternative road with the same origin and
destination as the project
 Generated Traffic <> Lower Transport Costs
Induced Traffic <> Local Economic Development
Decrease in Transport Costs Special Local Economic Development (Induced Traffic)
Transport Costs Transport Costs

Consumer Consumer
Surplus Surplus

COST1 COST1

COST2 COST2

d2

d1 d1

ADT1 ADT2 Traffic ADT2 ADT3 Traffic

Normal Generated Traffic Generated Traffic

Traffic due to Decrease in due to Special Local
Transport Costs Economic Development

User enters: User enters:

- Percent of normal traffic or - Amount of generated traffic due to special local economic development
or
- Price elasticity of demand = Percent Increase in Traffic
Percent Decrease in Transport Cost
 f) Risks analysis with Country
Project
Africa Region
Road Management Initiative

triangular distributions
Road Road from Point A to Point B
Option 2 Upgrade to ST

Internal Rate of Return

Upgrade Road to Surface Treatment Standard
Normal Traffic Minimum 4.2%
Maximum 22.7%
35%
Average 11.9%
30% Standard Deviation 3.5%
Frequency Distribution

Median 11.7%
25%
Percentile 25% 9.4%
20% Percentile 50% 11.7%
15% Percentile 75% 14.1%
10%
Probability that IRR is less than 12% 50%
5% Probability that IRR is greater than 12% 50%
0%
0.50
0.58
0.65
0.73
0.81
0.88
0.96
1.04
1.12
1.19
1.27
1.35
1.42
1.50
1.58
1.65
1.73
1.81
1.88
1.96
Multiplier Factor Upgrade Road to Surface Treatment Standard

8%

7%

Frequency Distribution
Project Investment Costs 6%

14% 5%

12%
4%
Frequency Distribution

10%
3%
8%
2%
6%

4% 1%

2% 0%
10.1%
11.2%
12.2%
13.2%
14.2%
15.3%
16.3%
17.3%
18.3%
19.4%
20.4%
21.4%
22.4%
23.5%
24.5%
5.0%
6.0%
7.1%
8.1%
9.1%

0%
0.50
0.58
0.65
0.73
0.81
0.88
0.96
1.04
1.12
1.19
1.27
1.35
1.42
1.50
1.58
1.65
1.73
1.81
1.88
1.96

Multiplier Factor Internal Rate of Return

 g) Budget constraint optimization
Program Net Present Value
5% Margin

25.00

20.00 A U
B
Net Present Value (M$)

C R
D
E
15.00

10.00

5.00

0.00
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
PV Economic Agency Costs (M$)

Net Internal Equivalent Modified PV Financial NPV NPV

Present Rate Annual Internal Rate of Economic Investment per per
Program-Alternative Value of Return Benefits of Return Agency Costs Cost PV Agency Investment
Code Description (M$) (%) ($/km) (%) (%) (M$) (#) (#)
U Unconstrained Budged 20.40 63% 322414 20% 9.01 8.92 2.26 2.29
A Budget Constraint A 20.25 70% 319993 21% 7.97 7.72 2.54 2.62
B Budget Constraint B 19.50 77% 308123 21% 6.92 6.52 2.82 2.99
C Budget Constraint C 18.94 81% 299261 22% 6.27 5.96 3.02 3.18
D Budget Constraint D 17.59 91% 277943 22% 5.22 4.76 3.37 3.70
E Budget Constraint E 16.13 101% 254813 23% 4.51 3.84 3.58 4.20
R Recommended Program 20.40 63% 322414 20% 9.01 8.92 2.26 2.29
 h) Multi-criteria and cost effectiveness analysis
User Defined Financial Net NPV Internal Population
Recommended Alternative Investment Present per Rate Population per
Road Road Road Cost Value Investment of Return Served Investment
No. ID Name Number Name (M$) (M$) (#) (%) (persons) (person/1000$)
1 R01 Road R01 with 25 AADT 0 Current Poor Condition 0.000 0.000 0.000 #N/A 750 0
2 R02 Road R02 with 50 AADT 1 Bring to Fair Condition 0.120 0.004 0.032 12.9% 1000 8
3 R03 Road R03 with 100 AADT 2 Bring to Good Condition 0.400 0.278 0.694 29.4% 1000 3
4 R04 Road R04 with 200 AADT 3 Pave with ST 1.600 1.230 0.768 31.4% 2000 1
5 R05 Road R05 with 300 AADT 3 Pave with ST 1.600 2.626 1.641 50.3% 3500 2
6 R06 Road R06 with 400 AADT 3 Pave with ST 1.600 4.023 2.514 68.0% 3000 2
7 R07 Road R07 with 500 AADT 3 Pave with ST 1.600
Multi-Criteria Weights 5.420 3.387 85.3% 4000 3
8 R09 Road R08 with 600 AADT 4 Pave with AC 6m 2.000 6.823 3.412 85.8% 3000 2
Criteria Criteria Criteria Criteria Criteria Criteria Criteria Criteria Sum
1 2 3 4 5 6 7 8 Weights
1 1 1 1 1 1 0 0 6
Multi-Criteria Indicators
Criteria Criteria Criteria Criteria Criteria Criteria Criteria Criteria Criteria
Road 1 2 3 4 5 6 7 8 Overall
Name (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10)
Road R01 with 25 AADT -10 -10 -10 10 0 10 -2
Road R02 with 50 AADT 0 0 0 0 0 0 0
Road R03 with 100 AADT 0 10 10 10 -10 0 3
Road R04 with 200 AADT -10 0 10 -10 0 -10 -3
Road R05 with 300 AADT 0 0 -10 -10 10Importance-10 Rank -3 Class
Importance
Road R06 with 400 AADT 10 -10 0 0 (1-highest,0 2-second, 0 3-third, etc.) 0
(-10-low, 0-medium, 10-high)
Road R07 with 500 AADT 0 0 10 10 Economic 10 0
Population Multi- Economic Population5 Multi-
Road R08 with 600 AADT -10 0 0 0 -10
Analysis -10
Served Criteria Analysis -5
Served Criteria
NPV Population Multi- NPV Population Multi-
per per Criteria per per Criteria
Road Investment Investment Sum Investment Investment Overall
Name (#) (#) (#) (-10/0/10) (-10/0/10) (-10/0/10)
Road R01 with 25 AADT 8 8 5 -10 -10 0
Road R02 with 50 AADT 7 1 3 -10 10 10
Road R03 with 100 AADT 6 2 2 -10 10 10
Road R04 with 200 AADT 5 7 6 0 -10 -10
Road R05 with 300 AADT 4 4 6 0 0 -10
Road R06 with 400 AADT 3 5 3 10 0 10
Road R07 with 500 AADT 2 2 1 10 10 10
Road R08 with 600 AADT 1 6 8 10 -10 -10
 RED Excel Software Modules
New
HDM-III Vehicle Operating Costs HDM-4 Vehicle Operating Costs
Module Module
RED - HDM-III VOC (version 3.2).XLS RED - HDM-4 VOC (version 3.2).XLS

Main Economic
Evaluation Module
RED - MAIN (version 3.2).XLS

New
Risk Analysis Program Analysis
Module Module
RED - RISK (version 3.2).XLS RED - Program (version 3.2).XLS
 RED Package Contents

RED - Main (version 3.2).XLS

RED - HDM-III VOC (version 3.2).XLS
RED - HDM-4 VOC (version 3.2).XLS
RED - Risk (version 3.2).XLS
RED - Program (version 3.2).XLS
RED - Read Me (version 3.2).XLS
RED - User Guide & Case Studies (version
3.2).pdf
RED - Africa Transport Technical Note.pdf
 What is Next for RED

• Further dissemination within the Bank and other

Agencies (ongoing)
• Preparation of an Applications Guide presenting
case studies based on real applications of the
model (ongoing)
• Deal with cases with no passability
• Deal with social benefits
• Create a Seniors Executives Module
 RED Related Web Sites
• Software Tools
http://www.worldbank.org/html/fpd/transport/roads/tools.htm#rt
tools
• Sub-Saharan Africa Transport Policy Program (SSATP)
http://www.worldbank.org/afr/ssatp/
• SSATP Africa Transport Technical Note 18
http://www.worldbank.org/afr/transport/newsletter/web18.pdf
• World Bank Infrastructure Notes
http://www.worldbank.org/html/fpd/transport/publicat/tdinflst.ht
m#rural
• Design and Appraisal of Rural Transport Infrastructure Topic
http://www.worldbank.org/html/fpd/transport/rural_tr/des&appr.h
tm#aspects