1. HDM-4 Analysis Options The World Bank Christopher R. Bennett Director - Data Collection Ltd.

2. Analysis by Sections or Project ä Analysis by Section: Alternatives are defined for each section. Each alternative defines a set of works standards. The analysis determines the optimum alternative for each section. NPV is calculated for each section alternative. Analysis by Sections supports neither new sections nor diverted traffic. äAnalysis by Project: Each alternative defines a set of work standards for each section. The analysis determines the optimum alternative for the sections as a group. NPV is calculated for each alternative (i.e. for the group of sections). Analysis by Project supports the analysis of new sections and diverted traffic.

3. Analysis by Sections Each section is evaluated individually and can have any number of alternatives. HDM-4 produces a NPV for each section- alternative that is used to find the optimal alternative per section.

4. Analysis by Project Analyses road sections together as a package by considering project alternatives as the unit for performing economic analysis. HDM-4 produces a NPV for each project-alternative.

5. Analysis by Project Analysis involving new sections and diverted traffic can only be performed using the Analysis by Project method.

6. Projects Project Road NetworksVehicle FleetsWork Standards One Road Some Vehicles Some Standards

7. Programmes Programme Road NetworksVehicle FleetsWork Standards Network of Roads Some Vehicles Some Standards Budget Constraints

8. Strategies Strategy Road NetworksVehicle FleetsWork Standards Road Classes Some Vehicles Some Standards Budget Constraints

9. Project, Programmes & Strategies

10. Life-cycle Evaluation  Two or more options comprising different maintenance and/or improvement works are specified for each candidate road section with one section-option designated as the ‘ Base Case ’. The benefits of the other section-options are calculated over a specified analysis period by comparing the predicted economic cost streams in each year against that for the respective year of the base section-option.

11. Multi-year Forward Programme Evaluation äThe multi-year forward programme method is a simplification of life-cycle analysis based on comparison of the following two alternatives: - apply the assigned capital works in a budget period; - or postpone the capital works to the first year after the budget period.

12. Multi-year Forward Programme Evaluation IRI Budget Period Deferred investment Investment now Benefits from Investment Years Budget period: for example 1, 2 or 3 years

13. HDM-4 Optimization Options äMaximize NPV using the incremental NPV/Cost method. HDM-4 selects the combination of investment options on road sections which maximizes the NPV for the whole network subject to the sum of the investment financial costs being less than the budget available. äMaximize dIRI. For the maximization of network condition improvement, the roughness reduction (dIRI) is used instead of NPV.

14. HDM-4 Optimization Options... äMinimize Cost for Target IRI. The target desired average IRI over the analysis period is specified for each section. The optimization is reduced to a simple selection of the works options for which the average IRI over the analysis period is equal to or just below the target IRI and has the lowest total financial works cost.

15. HDM-4 Optimization Setup COST BENEFITS A2 A3 A4A5 dNPV/dCost Minimum Allowable Incremental Value default = 0, min 0 Efficiency Frontier Zone default = 95%

16. Incremental NPV/Cost Method COST BENEFITS B1 B2 B4 A1 A2 A3 A4A5 Priority by slope 1. B1 2. A1 3. A2 4. A3 5. B3 6. A4 7. A5 A, B - Sections 1,2,3,.. - Mutually Exclusive B3

17. Incremental NPV/Cost Example Two Sections - Three Options OptionNPVCost A 4 2 B 7 5 C 8 7 OptionNPVCost A 3 1 B 6 3 C 8 5 Section 1 Section 2

18. Incremental NPV/Cost Example Sections Efficiency Frontier dNPV/dCost

19. Incremental NPV/Cost Example Section-Options Sequence

20. Incremental NPV/Cost Example Network Efficiency Frontier

21. EBM Optimization Methods äTotal Enumeration Method: EBM computes the NPV of all feasible options, yielding an unconditional optimal solution. This method can be applied only to very small networks (for example: 10 sections with 5 alternatives and 2 resource constraints yields 2 million possibilities). äEffective Gradient (Ahmed) Method: Approximate method that uses the concept of effective gradient (dNPV/dCosts) and then searches for better solutions.