Roads Economic Decision Model
(RED)
March 2006
Rodrigo Archondo-Callao
The World Bank
RED Objectives
• Simplify the economic evaluation of unpaved
roads
• Better capture the economic benefits of a project
• Characterize the wet and dry seasons separately
• Include in the analysis the high level of
uncertainty related to low volume roads (risk
analysis)
• Produce proper sensitivity, switching values, user
impacts, and distribution of benefits analyses
• Perform budget constraint optimization and multicriteria analysis
RED Development
• RED is being developed by the World Bank for the
Sub-Saharan Africa Transport Policy Program
(SSATP)
• RED version 1.0 was released in 1999, version 3.2
was released in 2004
• RED is being used at project and network level in
many countries worldwide (Nicaragua, Turkey,
Ecuador, Chad, Argentina, Ethiopia, Guatemala, Lao,
Cambodia, Yemen, South Africa, Benin, Rwanda,
Burkina Faso and Mali, etc.)
• RED version 3.2, 2004, is available at the website:
http://www.worldbank.org/afr/ssatp/Models/RED_3.2/red
32_en.htm
Economic Evaluation of Unpaved Roads
• Unpaved Road Versus Paved Roads (HDM-4
evaluation)
• Low Volume Roads Versus Very Low Volume Roads
(< 50? AADT unpaved roads: social evaluation,
maximize population served per investment, multicriteria, producer surplus)
• Consumer Surplus Approach Versus Producer
Surplus Approach (difficult to judge the assumptions
made, concern of double counting benefits)
• Customized Excel Model Versus HDM Models (HDMIII and HDM-4 models have unpaved roads
deterioration models, but are not particularly
customized to evaluated unpaved roads)
RED Characteristics
a) Constant average level of service over
evaluation period
b) Three options to define levels of service
c) Two periods during a year: period with and
without direct passability (wet and dry seasons)
d) User defined equations relating road user costs
and speeds to roughness
e) Generated, induced and diverted traffic benefits
f) Risk analysis with triangular distributions
g) Budget constraint optimization
h) Multi-criteria and cost effectiveness analysis
a) Constant average level of service over
evaluation period
18.0
16.0
14.0
12.0
HDM-III Road
Deterioration
10.0
RED Average Level of
Service
8.0
6.0
4.0
2.0
0.0
1
2
3
4
5
6
Year
7
8
9
10
HDM-III/HDM-4 Roughness Estimates
for Unpaved Roads
• Valid for engineered unpaved roads with good
maintenance (good drainage). Therefore:
– Higher rainfall yields lower roughness
– Higher percent of trucks yields lower roughness
– Earth roads (finer soils) have lower roughness than
gravel roads
• In practice, the condition of an unpaved road can
be different from what is being predicted by the
HDM models
b) Three options to define levels of service
b) Speed of a
Reference
Vehicle
a) Roughness
a)
Input Road
Roughness
Car
VOC
Utility
VOC
Bus
VOC
Car
Speed
Utility
Speed
Bus
Speed
.......
Light
Truck
VOC
Heavy
Truck
VOC
.......
Light
Truck
Speed
Heavy
Truck
Speed
| b)
|
|
|
|
|
|
|
|
|
|
Car
| VOC
|
|
|
|
Car
| Speed
|
c) Roughness
& Speeds of
All Vehicles
Input Reference
Vehicle Speed
Estimated Road
Roughness
Utility
VOC
Bus
VOC
Utility
Speed
Bus
Speed
.......
Light
Truck
VOC
Heavy
Truck
VOC
.......
Light
Truck
Speed
Heavy
Truck
Speed
Equations for each vehicle type and each terrain-road type:
a) Vehicle Operating Costs = a0 + a1 * Roughness + a2 * Roughness^2 + a3 * Roughness^3
b) Speed = b0 + b1 * Roughness + b2 * Roughness^2 + b3 * Roughness^3
Equation for each terrain-road type and for the defined reference vehicle:
c) Roughness = c0 + c1 * Speed + c2 * Speed^2 + a3 * Speed^3
| c)
|
|
Input Road
|
Roughness
|
|
|
|
|
|
Heavy
|
Car
Truck
| VOC …. VOC
|
|
|
Input Speeds
|
for All Vehicles
|
…….
|
c) Two periods during a year
Days Per Year
With Direct Passability
Days Per Year
Without Direct Passability
- Different Length
- Different Roughness
- Different Speeds
- Different Traffic
Higher Transport Costs
d) User defined equations relating vehicle
operating costs and speeds to roughness
Vehicle Operating Costs ($/veh-km)
Terrain Type
A
Road
X
Type
Y
Z
B
C
AZ
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
y = -2E-05x3 + 0.0009x2 - 0.0004x + 0.1153
R2 = 0.9997
0
5
10
15
20
25
20
25
Roughness (IRI)
Vehicle
Type
Car
Utility
Light Bus
Medium Bus
Heavy Bus
Light Truck
Medium Truck
Heavy Truck
Articulated Truck
Vehicle Speeds (km/hour)
100
80
60
40
y = 0.0073x3 - 0.2767x2 + 0.2562x + 86.24
R2 = 0.998
20
0
0
5
10
15
Roughness (IRI)
Vehicle Operating Costs and Speeds
Function of Roughness Obtained from
HDM-III, HDM-4 or Other Models
Flat / Paved / Car
Flat / Paved / Car
0.45
0.45
0.40
0.40
y = -2E-05x + 0.0009x - 0.0004x + 0.1151
0.35
0.35
R = 0.9997
0.30
0.30
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
3
2
2
0.00
0
5
10
15
20
Roughness (IRI)
HDM-III Values
Results from HDM
(VOC X IRI)
25
30
0
5
10
15
20
Roughness (IRI)
HDM-III Values
Polynomial
Fitted Cubic
Polynomial
25
30
e) Generated, induced, and diverted traffic
benefits
• Normal traffic. Traffic without any new investment
• Generated traffic. Traffic associated with existing
users of the road driving more frequently or driving
further than before
• Induced traffic. Traffic attracted to the project road
from other roads, changing its origin or destination,
due to increased economic activity in the road’s zone
of influence brought about by the project
• Diverted traffic. Traffic that diverts to the project road
from an alternative road with the same origin and
destination as the project
Generated Traffic <> Lower Transport Costs
Induced Traffic <> Local Economic Development
Decrease in Transport Costs
Special Local Economic Development (Induced Traffic)
Transport Costs
Transport Costs
Consumer
Surplus
Consumer
Surplus
COST1
COST1
COST2
COST2
d2
d1
ADT1
Normal
Traffic
ADT2
Traffic
Generated Traffic
due to Decrease in
Transport Costs
User enters:
- Percent of normal traffic or
or
- Price elasticity of demand =
d1
ADT2
ADT3
Traffic
Generated Traffic
due to Special Local
Economic Development
User enters:
- Amount of generated traffic due to special local economic development
Percent Increase in Traffic
Percent Decrease in Transport Cost
f) Risks analysis with
triangular distributions
Africa Region
Road Management Initiative
Road from Point A to Point B
2
Upgrade to ST
Internal Rate of Return
Upgrade Road to Surface Treatment Standard
Normal Traffic
35%
30%
Frequency Distribution
Country
Project
Road
Option
25%
20%
15%
10%
5%
Minimum
Maximum
Average
Standard Deviation
Median
Percentile
Percentile
Percentile
25%
50%
75%
4.2%
22.7%
11.9%
3.5%
11.7%
9.4%
11.7%
14.1%
Probability that IRR is less than
Probability that IRR is greater than
12%
12%
50%
50%
1.96
1.88
1.81
1.73
1.65
1.58
1.50
1.42
1.35
1.27
1.19
1.12
1.04
0.96
0.88
0.81
0.73
0.65
0.58
0.50
0%
Upgrade Road to Surface Treatment Standard
Multiplier Factor
8%
7%
Multiplier Factor
Internal Rate of Return
24.5%
23.5%
22.4%
21.4%
20.4%
19.4%
18.3%
17.3%
16.3%
15.3%
1.96
1.88
1.81
1.73
1.65
1.58
1.50
1.42
1.35
1.27
1.19
1.12
1.04
0.96
0.88
0.81
0.73
0.65
0.58
0%
14.2%
0%
13.2%
2%
12.2%
1%
11.2%
4%
10.1%
2%
9.1%
6%
3%
8.1%
8%
4%
7.1%
10%
0.50
Frequency Distribution
12%
5%
6.0%
14%
6%
5.0%
Frequency Distribution
Project Investment Costs
g) Budget constraint optimization
Program Net Present Value
5% Margin
Net Present Value (M$)
25.00
20.00
B
C
U
A
R
D
E
15.00
10.00
5.00
0.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
NPV
PV Economic Agency Costs (M$)
Program-Alternative
Code
U
Net
Internal
Equivalent
Modified
PV
Financial
NPV
Present
Rate
Annual
Internal Rate
of Economic
Investment
per
per
Value
of Return
Benefits
of Return
Agency Costs
Cost
PV Agency
Investment
Description
(M$)
(%)
($/km)
(%)
(%)
(M$)
(#)
(#)
Unconstrained Budged
20.40
63%
322414
20%
9.01
8.92
2.26
2.29
A
Budget Constraint A
20.25
70%
319993
21%
7.97
7.72
2.54
2.62
B
Budget Constraint B
19.50
77%
308123
21%
6.92
6.52
2.82
2.99
C
Budget Constraint C
18.94
81%
299261
22%
6.27
5.96
3.02
3.18
D
Budget Constraint D
17.59
91%
277943
22%
5.22
4.76
3.37
3.70
E
Budget Constraint E
16.13
101%
254813
23%
4.51
3.84
3.58
4.20
R
Recommended Program
20.40
63%
322414
20%
9.01
8.92
2.26
2.29
h) Multi-criteria and cost effectiveness analysis
User Defined
Recommended Alternative
Road
No.
1
2
3
4
5
6
7
8
Road
ID
R01
R02
R03
R04
R05
R06
R07
R09
Road
Name
Road R01
Road R02
Road R03
Road R04
Road R05
Road R06
Road R07
Road R08
with
with
with
with
with
with
with
with
25 AADT
50 AADT
100 AADT
200 AADT
300 AADT
400 AADT
500 AADT
600 AADT
Road
Name
Road R01 with 25 AADT
Road R02 with 50 AADT
Road R03 with 100 AADT
Road R04 with 200 AADT
Road R05 with 300 AADT
Road R06 with 400 AADT
Road R07 with 500 AADT
Road R08 with 600 AADT
Number
0
1
2
3
3
3
3
4
Criteria
1
1
Criteria
1
(-10/0/10)
-10
0
0
-10
0
10
0
-10
Financial
Net
NPV
Internal
Population
Investment
Present
per
Rate Population
per
Cost
Value Investment of Return Served
Investment
Name
(M$)
(M$)
(#)
(%) (persons) (person/1000$)
Current Poor Condition
0.000
0.000
0.000
#N/A
750
0
Bring to Fair Condition
0.120
0.004
0.032
12.9%
1000
8
Bring to Good Condition
0.400
0.278
0.694
29.4%
1000
3
Pave with ST
1.600
1.230
0.768
31.4%
2000
1
Pave with ST
1.600
2.626
1.641
50.3%
3500
2
Pave with ST
1.600
4.023
2.514
68.0%
3000
2
Pave with ST
1.600
5.420
3.387
85.3%
4000
3
Multi-Criteria Weights
Pave with AC 6m
2.000
6.823
3.412
85.8%
3000
2
Criteria
Criteria
Criteria
Criteria
Criteria
Criteria
Criteria
Sum
2
3
4
5
6
7
8 Weights
1
1
1
1
1
0
0
6
Multi-Criteria Indicators
Criteria
Criteria
Criteria
Criteria
Criteria
Criteria
Criteria
Criteria
2
3
4
5
6
7
8
Overall
(-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10) (-10/0/10)
-10
-10
10
0
10
-2
0
0
0
0
0
0
10
10
10
-10
0
3
0
10
-10
0
-10
-3
0
-10
-10
10Importance
-10 Rank
-3 Class
Importance
-10
0
0 (1-highest,
0 2-second,
0 3-third, etc.)
0
(-10-low, 0-medium,
10-high)
0
10
10 Economic
10
0
5
Population
MultiEconomic Population
Multi0
0
0
-10
-10
-5
Analysis
Served
Criteria
Analysis
Served
Criteria
NPV
Population
MultiNPV
Population
Multiper
per
Criteria
per
per
Criteria
Road
Investment Investment
Sum
Investment Investment
Overall
Name
(#)
(#)
(#)
(-10/0/10) (-10/0/10) (-10/0/10)
Road R01 with 25 AADT
8
8
5
-10
-10
0
Road R02 with 50 AADT
7
1
3
-10
10
10
Road R03 with 100 AADT
6
2
2
-10
10
10
Road R04 with 200 AADT
5
7
6
0
-10
-10
Road R05 with 300 AADT
4
4
6
0
0
-10
Road R06 with 400 AADT
3
5
3
10
0
10
Road R07 with 500 AADT
2
2
1
10
10
10
Road R08 with 600 AADT
1
6
8
10
-10
-10
RED Excel Software Modules
Old
HDM-4 Vehicle Operating Costs
Module
RED - HDM-4 VOC (version 3.2).XLS
HDM-III Vehicle Operating Costs
Module
RED - HDM-III VOC (version 3.2).XLS
Main Economic
Evaluation Module
RED - MAIN (version 3.2).XLS
Risk Analysis
Module
RED - RISK (version 3.2).XLS
Program Analysis
Module
RED - Program (version 3.2).XLS
RED Package Contents
RED - Main (version 3.2).XLS
RED - HDM-III VOC (version 3.2).XLS
RED - HDM-4 VOC (version 3.2).XLS
RED - Risk (version 3.2).XLS
RED - Program (version 3.2).XLS
RED - Read Me (version 3.2).XLS
RED - User Guide & Case Studies (version 3.2).DOC
RED - SSATP Technical Note 18.PDF
RED and Urban Roads
• Level of service defined by roughness and
vehicle speeds
• Non-motorized and motorcycles benefits
• Alternative pavement options (cement blocks,
cobblestones, etc.)
• User defined equations relating road user costs
and roughness (e.g. unpaved/paved or /noncongested/congested)
• Generated, induced and diverted traffic benefits
What is Next for RED
• Further dissemination within the Bank and other
Agencies (ongoing)
• Preparation of an Applications Guide presenting
case studies based on real applications of the
model (ongoing)
• Deal with cases with no passability
• Deal with social benefits
• Create a Seniors Executives Module
RED Related Web Sites
• Software Tools
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTT
RANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:204831
89~menuPK:1097394~pagePK:148956~piPK:216618~theSite
PK:338661,00.html
• Sub-Saharan Africa Transport Policy Program (SSATP)
http://www.worldbank.org/afr/ssatp/
• World Bank Infrastructure Notes
http://www.worldbank.org/html/fpd/transport/publicat/tdinflst.ht
m#rural
• Design and Appraisal of Rural Transport Infrastructure Topic
http://www.worldbank.org/html/fpd/transport/rural_tr/des&appr.
htm#aspects