Quantifying the Value of Research in Indiana Tommy Nantung INDOT Research and Development Division AASHTO RAC Annual Meeting July 29, 2015 Portland, Oregon

INDOT/JTRP Research Program Three primary responsibilities: Conduct, oversee, implement and partner in effective research that benefits our customers (currently 92 active research projects and 185 implementation projects, monitored through SmartSheet). Conduct and oversee specialized testing programs for INDOT (e.g. Skid Accident Reduction Program, Deflection Program, Accelerated Testing Program). Assist in technology development, identification and transfer (emerging technology with a 10-year future perspective).

Quantifiable savings Projects selected where costs and benefits can be reasonably quantified Individual projects selected represent different research areas Analysis based on Engineering economic theory Methodology 3% inflation and 5% discount rates used Benefit/Cost Ratio Methodology 3

Calculation of Benefits

Benefits Calculation

Pavement B/C Example Cost of research (Present Value) = $88,942 Yearly use of Reclaimed Asphalt = 3.5 Million Tons Savings = $0.13/ton/1% re-use (based on contract price) Usage for Asphalt base = 20% Savings per year (Annual) = $9.1M B/C = $113.4M/88,942 = 1,275 : 1

In 2003 show benefit-cost (based on projects, ratios ranging from as high as 220 to 3 to 1. Previous B/C in 1999 and 2001 yielded ratios of 35 to 1 and 53 to 1, respectively. The B/C is based on either a direct replacement cost that was developed or costs and benefits that are expected during the life of a material, component, or system. Benefit/Cost Analysis Summary 7

Other Benefits Improved specifications and testing procedures Better methods resulting in improved material performance Cost-effective policy and procedures Safer highways and work zones New technologies and processes that improve productivity Environmentally-friendly solutions to Indiana’s waste problems 8

Spreadsheet Program created by INDOT Central Office (no hand calculations) Calculate the value of return on investment in research and development. Investment are calculated by the schedule and amount of free cash returned to investor. Costs to conduct R&D are all inclusive and comprise direct expenditures as well as indirect costs. Modified Rates-of-Return (MIRR)

Benefits can inure to INDOT in the form of: Improved business practices Reduce labor, provide savings in costs of material or other supplies and expenses, or reduce the time to develop and construct a project. Other "soft" benefits can be realized by reducing INDOT's exposure to potential liabilities, improving safety, or complying with new laws and regulations. Care must be exercised when attempting to place a value on these soft benefits.

Modified Rates-of-Return (MIRR) Methodology Evaluation period is to begin at the start of the project and extend 10 years from the date of the findings are implemented INDOT’s Hurdle Rate represents the risk premium it assigns to capital investments The MIRR represents the internal rate of return for a series of periodic cash flows, considering The cost of funds used to invest in the project The interest which could be earned on re-investment of free cash generated. Viable investment is if the MIRR exceeds the Hurdle Rate

Modified Rates-of-Return (MIRR)

Demonstrating implementation & return on investment is good, but demonstrating IMPACT is even more important IMPACT can be measured in multiple different ways Having a diverse portfolio of IMPACT messages is important It is important to have a variety of traditional and nontraditional media to communicate IMPACT New Way to Show Benefits

One size does not fit all Metrics include: Mapping into Executive Staff priorities Saving Dollars Prioritizing Capital Program Safety Outcome Assessment Extending Infrastructure Life Leveraging University Resources Environmental impact National Recognition of Impact Measuring IMPACT

Technical Reports Electronic repository (e ‐ Pubs) Print on Demand e ‐ Books Posters Pocket Portfolios Electronic Media: Website, Twitter and Flickr, Newsletters Video Abstracts Conferences, Presentations and Workshops Communicating and Dissemination

Governor’s Award

Conclusions Message is very important Show case past efforts Implement new communication initiatives to support engagement Implement series of case studies illustrating blended communications tools Maintain dialog