Airport projects are often complex and costly, requiring careful planning and evaluation. How do you compare and prioritize different airport projects based on their cost-benefit ratios? In this article, you will learn about some common methods and tools for airport cost and benefit analysis, and how to apply them to your own scenarios.
Cost-benefit analysis (CBA) is a technique that compares the expected costs and benefits of a project or policy, and calculates its net present value (NPV). NPV is the difference between the present value of benefits and the present value of costs, discounted by a certain rate. A positive NPV means that the project or policy is worthwhile, while a negative NPV means that it is not.
Airport projects can have significant impacts on the economy, society, and environment, both locally and globally. Therefore, it is important to assess the potential effects of different alternatives and choose the one that maximizes the net benefits. Cost-benefit analysis can help you identify and quantify the relevant costs and benefits of each option, compare and rank them based on their NPV or benefit-cost ratio (BCR), communicate and justify your decisions to stakeholders and regulators, as well as monitor and evaluate the performance and outcomes of the implemented project.
Cost-benefit analysis for airport projects involves defining the scope and objectives of the project, identifying alternatives and the base case, estimating the costs and benefits of each alternative over the project life cycle, discounting the costs and benefits to their present value with a suitable discount rate, calculating the NPV or BCR of each alternative, performing sensitivity and risk analysis to test the robustness of the results, and presenting and reporting the findings and recommendations.
Various methods and tools can assist in conducting cost-benefit analysis for airport projects, depending on the type, scale, and complexity. For instance, you can create your own cost-benefit analysis model in a spreadsheet software like Excel, and use formulas and functions to calculate the costs and benefits of each alternative. Additionally, specialized software packages such as @RISK, Crystal Ball, or Expert Choice can help handle uncertainty, risk, and multiple criteria with techniques like Monte Carlo simulation, decision trees, or analytic hierarchy process (AHP). Moreover, you can refer to guidelines and manuals such as the Federal Aviation Administration’s (FAA) Airport Benefit-Cost Analysis Guidance for best practices and standards for airport cost-benefit analysis in the United States.
To apply cost-benefit analysis to your own scenarios, you should tailor the steps outlined to your specific context and objectives. Additionally, key factors that can affect the quality and reliability of your analysis must be considered, such as data availability and accuracy, stakeholder involvement and consultation, and uncertainty and risk management. To ensure relevant and reliable data sources are used to estimate costs and benefits of each alternative, assumptions and methods should be documented and justified with cited data sources. Furthermore, stakeholders should be consulted to identify their needs, preferences, and expectations. Results and recommendations should also be communicated with stakeholders to address their feedback and concerns. Finally, it is important to acknowledge uncertainty and risk inherent in any project, especially in the long term, by performing sensitivity and risk analysis to test how results change under different scenarios.
Based on my experiences the cost benefit analysis is a blunt tool for initially assessing the viability and cost effectiveness of a change. The focus and main consideration that is underplayed is the associated costs in engagement and consultation to bring the changes in. The ability for an individual, group or collective to raise the fundings for an appeal or challenge on either the engagement, requirements for a change or final decision/approval can increase any associated costs significantly. This element is normally unrealistically factored into the change costings so making a true cost benefit analysis calculation a real challenge.