Cost Benefit Analysis (CBA or Benefit Cost Analysis — BCA) is an evaluation tool that state transportation agencies can use to compare infrastructure project options across transportation modes and gauge if the discounted value of benefits exceed the costs. CBA lets policymakers compare alternative project proposals to a baseline scenario, or status quo case, under which no investments are made. CBA is used to select which proposal is the most sensible investment—ideally, the project that maximizes benefits while minimizing costs should be chosen. As the use of CBA to evaluate projects and grant applications (e.g., TIGER Discretionary Grants) continues to grow, state transportation agencies must gain knowledge of CBA methodologies, especially if they want to remain competitive for federal funding. This study documents historical trends in CBA from literature and past studies, provides background on how CBA’s are performed, and describes the purpose and basic function of CBAs. The researchers investigated CBA applications and programs that the Kentucky Transportation Cabinet (KYTC) could potentially use to prioritize projects and identify other investment opportunities. This report serves as a primer on the basic elements of CBA, describes what costs and benefits are typically incorporated into analysis, and gives an overview of the formulas that are used to derive costs and benefits. In the transportation context, most benefits are derived from travel time savings and crash reductions. Typical costs include construction and subsequent maintenance.Researchers developed a simple workbook application that KYTC personnel can use run a CBA. The workbook calculates present value of costs and benefits and makes both NPV and BCR available to the user.

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© 2016 University of Kentucky, Kentucky Transportation Center

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The contents of this report reflect the views of the authors, who are responsible for the facts and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the University of Kentucky, the Kentucky Transportation Center, the Kentucky Transportation Cabinet, the United States Department of Transportation, or the Federal Highway Administration. This report does not constitute a standard, specification, or regulation. The inclusion of manufacturer names or trade names is for identification purposes and should not be considered an endorsement.