Appendix 5: METHODOLOGY OF BENEFIT-COST ANALYSIS

Appendix 5: METHODOLOGY OF BENEFIT-COST ANALYSIS

Benefit-cost analysis is a useful tool for evaluating the feasibility of implementing new technology, but it does not replace the decision process itself. Benefit-Cost Ratios show whether the returns (benefits) on a project outweigh the resources outlaid (cost) and what this difference is. Although a ratio greater than one suggests that a project should be pursued and less than one suggests that it should not, there may be other factors to consider. The goal of benefit-cost analysis is to provide information to assist with the decision.

The methodology that was used to calculate the benefits and costs for the options presented is outlined below:

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  Note the number of underrun protected (UP) and non UP vehicles in fleet the last year,
  
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  Reduce these by a 3% assumed fleet attrition rate,
  
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  Note the number of vehicles that were registered in the last year,
  
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  Multiply this by 0.8 to remove the influence of European vehicles assumed to be already fitted with; and
  
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  Add this to the last year’s reduced UP fleet to get the size of the UP fleet and the total fleet for the next year.
  

2. Estimate the unit cost of front UP.

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  Note the proportion of each type (rigid and articulated) and length of trucks in the fleet this year’
  
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  Estimate the unit cost of side UP per vehicle metre,
  
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  Multiply this by the length of different types of truck and trailers,
  
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  Calculate a weighted average unit cost (rigid and articulated) by proportioning this out by the relative numbers of different trucks and trailers in the fleet.
  

5. Estimate the effectiveness of the different UP types;

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  Note the reported effectiveness of UP under studies at various speeds to reduce fatal, serious and minor injuries,
  
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  Average the effectiveness at various speeds,
  
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  Both increase and decrease the effectiveness to give a number of alternative scenarios (A,B,C,) for sensitivity analysis,
  
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  Add an extra scenario to represent energy absorbing UP (D).
  

6. Estimate the overall cost of underrun crashes per year;

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  Summarise the 1990-99 FCD data and other estimates, for underrun crashes with rigid and articulated heavy commercial vehicles over 7.5 tonnes, in to the number of fatal, serious and minor injuries,
  
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  Proportion injuries relating to front, side or rear underrun using State crash databases,
  
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  Note the cost of a single fatality, serious injury and minor injury for passenger vehicles and splitting this in to trauma cost (injuries) and non-trauma cost (property),
  
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  Multiply the non-trauma cost by 1.5 for the cost of a single heavy vehicle fatality,
  
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  Convert this to 2005 dollars,
  
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  Multiply this by the summarised injury data on numbers to get an overall cost.
  

7. Calculate the possible overall yearly benefit from installing UP devices to the whole fleet;

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  Multiply the yearly injury numbers and types (fatal, serious, minor) by the effectiveness of the underrun devices for each effectiveness scenario,
  
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  Cascade any reduction in injury down to the next level ie fatal injuries saved become serious injuries, serious injuries saved become minor injuries (note that minor injuries are not cascaded to injury free),
  
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  Take the reduced injury numbers away from the original injury numbers to get the net reduction in injuries.
  

8. Calculate the Benefit-Cost Ratio for installing UP progressively to the whole fleet through new registrations for each UP effectiveness scenario.

This method calculates the cost to fit UP to new vehicles registered within a year, and compares this to the accumulation of benefits that these new vehicles then generate over their life. The benefits are discounted back to the starting year for comparison. This Benefit-Cost ratio represents a steady state in the fleet. This steady state is achieved once the initial group of vehicles have moved through their life (having provided all their benefits) and are beginning to exit the fleet. At this point, the costs become equivalent to the yearly cost to fit UP to new vehicles. The benefits become equivalent to the yearly benefits flowing from all vehicles in the fleet, at various stages in their lives, that are fitted with UP.

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  Establish a general profile of the vehicle fleet made up of, for any given year of vehicle age up to 20 years old, the number of new registrations as a proportion of the cumulative fleet over the entire period, divided in to the number of fatal or injury crashes as a proportion of the cumulative number of fatal or injury crashes over the same period,
  
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  For any given year after year zero (first registration), reduce the proportions by the generic time discount factor of (1 + d)ⁿ,
  
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  Add the proportions up for each year that the safety device of interest has been fitted,
  
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  Multiply the final result by the estimated net saving in injuries established at point 7,
  
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  Calculate the cost to fit the safety device of interest to newly registered vehicles,
  
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  Calculate the Net Present Values of the benefits and costs.
  
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  Calculate the Benefit-Cost Ratios.
  

(b). Fleet registration approximation

This method calculates the cost to fit UP to new vehicles registered over a period, set at 10, 15 or 25 years (coinciding with the expected life of a vehicle). It then, compares this cost to the accumulation of benefits that new vehicles generate over this period, whatever their age at the time. Both the costs and benefits are discounted back to the starting year of the period for comparison. T
This Benefit-Cost ratio represents costs and benefits that occur from the beginning of the period up until steady state in the fleet. This steady state is achieved once the initial group of vehicles have moved through their life (having provided all their benefits) and are beginning to exit the fleet.
This results of this method differ from the method in (a) mainly in that the costs and benefits are cumulative from the start of the period. The results would then be expected to be more conservative because they include the later years where costs have been incurred but benefits are yet to be gained.
Note: this method was used to provide a sensitivity comparison to the method above.

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  For a given year, calculate the proportion of vehicles in the fleet fitted with UP, assuming they are only fitted to new vehicles (the figures only apply to rigid or articulated trucks).
  
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  For a given year, multiply the overall cost of installing UP with the calculated proportion of the fleet. Adjust the cost using Present Values.
  
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  For a given year, multiply the possible overall benefit from installing UP with the calculated proportion of the fleet. Adjust the benefit using Present Values.
  
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  For a given year, calculate the cumulative Net Present Values of the benefits and costs.
  
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  For a given year calculate the cumulative Benefit-Cost Ratio.
  

Regardless of the method used, a starting point is summarising the Fatal Crash Database (FCD) data by the number of persons involved in road crashes between 1990-1999. A dataset for fatalities arising from heavy commercial vehicle (greater than 7.5 tonnes GVM) underrun collisions was composed from the FCD. The number of persons involved in serious and minor injuries were obtained from New South Wales and Queensland road crash databases and statistical reports published by state road safety agencies. The data set on serious injuries built up from state crash data and recent reports from the ATSB may have underestimated the true potential of the problem. Estimates for serious injuries can be validated if state road safety agencies are able to respond to questions raised in Section 4 of the analysis by providing data for serious injuries resulting from underrun collisions.

According to Rechnitzer (1993), rigid rear underrun systems are highly effective for speeds up to 60 kilometres per hour since they then engage the car’s safety systems. Rear UP of the energy absorbing type is effective in collisions at speeds up to 90 kilometres per hour when occupants are restrained occupants and in airbag-equipped cars.

Source: Rechnitzer, 1993, Haworth, 2002, Various studies