Cost and Environmental Evaluation of Flexible Strategies for a Highway Construction Project under Traffic Growth Uncertainty
Publication: Journal of Infrastructure Systems
Volume 21, Issue 3
Abstract
Uncertainty about the scale of future demand presents a challenge for infrastructure design. The attraction of flexible strategies, incorporating upgrade options that can be exercised when and if required, has been recognized for a long time. The techniques of real options allowed the benefits of flexible strategies to be quantified for the first time. A new and simplified methodology for real options analysis has been developed and implemented in software. It performs evaluation in both cost and environmental impact terms. A case study of a real highway in Spain was evaluated using the new methodology and software. Seven alternative strategies for the roadway (subgrade, base course, and surface course) were evaluated, six with upgrade options that are exercised if the traffic demand crosses specified thresholds. The rate of traffic growth, and also the discount rate for financial evaluation, were treated as uncertain variables. The highway was designed when the Spanish economy was growing strongly and a high roadway specification performed best. Before the highway was built the economy crashed and construction was canceled. Recalculation for the posteconomic shock conditions with lower traffic growth and a higher interest rate favored a lower highway specification with upgrade options. Sensitivity analysis shows how the specification choice varies with the values taken by the uncertain variables. A novel specification was proposed to maximize flexibility when there is high uncertainty about traffic growth, and evaluation showed that it performed better in many conditions. The methodology of evaluating flexible strategies could be used in many applications, including infrastructure for climate change adaptation.
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Acknowledgments
The case study was carried out as part of the collaborative CILECCTA project funded by the European Community’s Program FP7/2007-2013 for Research, Technological Development and Demonstration Activities, under EC Grant Agreement no. 229061. The project duration was 2009–2013. The full project name is A User-Oriented Knowledge-Based Suite of Construction Industry Life Cycle Cost and Assessment Software for Pan-European Determination and Costing of Sustainable Projects. See www.cileccta.eu. The case study data was provided by APIA XXI, an engineering company based in Santander, Spain, and a participant in the CILECCTA project. See www.apiaxxi.es
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Published In
Journal of Infrastructure Systems
Volume 21 • Issue 3 • September 2015
Copyright
© 2014 American Society of Civil Engineers.
History
Received: Nov 26, 2013
Accepted: Jul 2, 2014
Published online: Sep 8, 2014
Discussion open until: Feb 8, 2015
Published in print: Sep 1, 2015
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