An Approach to Incorporate Uncertainty and Risk in Transportation Investment Decision Making: Detroit River International Crossing Case Study

Large scale transportation projects represent major investments devoted to the construction, operation, and maintenance of facilities over an extended period. Typically, these investments are irreversible in nature and require long-term commitment by the public at large relative to utilization, maintenance, and operation. Traditional economic analysis techniques used to evaluate the financial feasibility of such projects are based upon the assumption of deterministic future cash flows that are not subject to any uncertainty and risk. In reality, many of these projects are associated with significant uncertainties and risks stemming from lack of knowledge about future cost and benefit streams. There is a lack of comprehensive literature in addressing uncertainty and risk in transportation investment decision making. The authors present a framework for addressing uncertainty and risk for large scale transportation investments involving joint participation by the public and private entity. Demand, fare/toll, and demand responsive costs are considered in the uncertainty analysis. A bi-level programming is proposed, where the upper level constitutes the preference of the policy maker, and the lower level determines the user’s response to the policy. The uncertainty analysis provides economic feasibility of the transportation project. A set of relaxation policies is proposed to form various Ownership, Tenure, and Governance (OTG) strategies reflecting the nature and level of participation by the public and private entity. The uncertainty analysis output serves as input to the risk analysis. Monte Carlo Simulation is used to address risks for feasible policy options selected from uncertainty analysis. The concept of Value at Risk (VaR) is used to quantify risk. A methodology is proposed to integrate uncertainty and risk. The framework is tested on the proposed multi-billion dollar international river crossing entitled as the Detroit River International Crossing (DRIC) connecting the city of Detroit in the US and the city of Windsor in Canada. The combination of both uncertainty and risk reveals insights to the probable outcomes for a transportation infrastructure investment. This methodology can be used as a tool for transportation infrastructure investment decision making process.

• Corporate Authors:

  Transportation Research Board

  500 Fifth Street, NW
  Washington, DC  United States  20001
• Authors:
  • Mishra, Sabyasachee
  • Khasnabis, Snehamay
  • Swain, Subrat Kumar
• Conference:
  • Transportation Research Board 90th Annual Meeting
  • Location: Washington DC, United States
  • Date: 2011-1-23 to 2011-1-27
• Date: 2011

Language

• English

Media Info

• Media Type: DVD
• Features: Figures; Maps; References; Tables;
• Pagination: 29p
• Monograph Title: TRB 90th Annual Meeting Compendium of Papers DVD

Subject/Index Terms

• TRT Terms: Benefit cost analysis; Case studies; Decision making; Economic analysis; Economic factors; Infrastructure; Investments; Policy making; Risk assessment; Uncertainty
• Identifier Terms: Detroit River International Crossing
• Geographic Terms: Detroit (Michigan); Windsor (Canada)
• Subject Areas: Economics; Planning and Forecasting; I10: Economics and Administration;

Filing Info

• Accession Number: 01340568
• Record Type: Publication
• Report/Paper Numbers: 11-3288
• Files: TRIS, TRB
• Created Date: May 19 2011 9:00AM