SENSITIVITY ANALYSIS OF RATE OF RETURN

The Oregon Department of Transportation recently completed a study of the rate of return method of evaluating highway projects. Sensitivity analysis, the most interesting feature of the research, derives from the flexibility of the computer program that was developed to facilitate the calculations. Most sensitivity analyses have tested the effects of varying the assumptions underlying road-user studies such as project life, discount rate, or terminal value. The Oregon program can analyze the sensitivity of variables such as speed, average daily traffic, and maintenance costs calcualted for each project. Using the program, rates of return were computed for 66 projects and then recomputed with a number of specified changes in each of the major variables. Average errors and confidence intervals were calculated for every variable. Changes in some items such as right-of-way and construciton costs, average daily traffic, value of time, and, especially, speed greatly affected rate of return. Increases or decreases in other factors such as vehicle operating cost and maintenance and operation cost had negligible effects. This study clearly shows that estimates of some factors need to be improved and that care should be exercised in using the results of highway economy studies. Until better estimates exist, the use of a range of values for a rate of return is more defensible than is specifying a particular number.

• Record URL:
  • http://onlinepubs.trb.org/Onlinepubs/trr/1975/550/550-006.pdf
• Summary URL:
  • https://scholar.google.com/scholar_lookup?title=SENSITIVITY+ANALYSIS+OF+RATE+OF+RETURN&author=F.+Miller&publication_year=1975
• Availability:
  • Find a library where document is available. Order URL: http://worldcat.org/isbn/0309024560
• Supplemental Notes:
  • Publication of this paper sponsored by Committee on Application of Economic Analysis to Transportation Problems. Distribution, posting, or copying of this PDF is strictly prohibited without written permission of the Transportation Research Board of the National Academy of Sciences. Unless otherwise indicated, all materials in this PDF are copyrighted by the National Academy of Sciences. Copyright © National Academy of Sciences. All rights reserved.
• Authors:
  • Miller, Fred
• Conference:
  • 54th Annual Meeting of the Transportation Research Board
  • Location: Washington District of Columbia
  • Date: 1975-1-13 to 1975-1-17
• Publication Date: 1975

Media Info

• Media Type: Print
• Features: Tables;
• Pagination: pp 63-66
• Monograph Title: Application of Economic Analysis to Transportation Problems
• Serial:
  • Transportation Research Record
  • Issue Number: 550
  • Publisher: Transportation Research Board
  • ISSN: 0361-1981

Subject/Index Terms

• TRT Terms: Analysis; Average daily traffic; Computer programs; Confidence intervals; Construction; Costs; Errors; Evaluation; Highway planning; Maintenance management; Operating costs; Project management; Rate of return; Right of way (Land); Sensitivity; Speed; Time
• Uncontrolled Terms: Construction costs; Maintenance costs; Projects
• Old TRIS Terms: Confidence level; Time factor
• Subject Areas: Administration and Management; Construction; Finance; Highways;

Filing Info

• Accession Number: 00129481
• Record Type: Publication
• ISBN: 0309024560
• Files: TRIS, TRB
• Created Date: Mar 10 1976 12:00AM