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Components of economic appraisal

Short answer

Economic appraisal compares all costs and benefits over the project life. Costs include capital, maintenance, operation, and environmental/social costs. Benefits include vehicle operating cost savings, travel time savings, accident reduction, generated/diverted traffic, regional development, and salvage value. Analysis uses BCR, NPV, IRR, sensitivity analysis, and converts financial prices to economic prices using shadow prices.

List out the various components of economical appraisal (of a highway project).

Economic appraisal checks whether a highway project is worthwhile for the nation by comparing all its costs and benefits over its life.

Components

A. Costs

  1. Initial (capital) cost: land acquisition, earthwork, pavement, structures, drainage, engineering and supervision.
  2. Maintenance costs (routine, periodic) and rehabilitation.
  3. Operation costs of the highway agency (traffic control, lighting).
  4. Environmental and social costs (resettlement, pollution).

B. Benefits (road user and others)

  1. Savings in vehicle operating cost (fuel, tyre, repair, depreciation).
  2. Savings in travel time of passengers and goods.
  3. Savings from reduced accidents.
  4. Benefits from generated and diverted traffic.
  5. Regional and development benefits (agriculture, industry, tourism, land value).
  6. Reduced maintenance on the old road, and salvage value at the end of the analysis period.

C. Analysis items

  • Analysis period and discount rate, traffic forecast.
  • Economic indicators: Benefit-Cost ratio (BCR), Net Present Value (NPV), Internal Rate of Return (IRR), First Year Rate of Return.
  • Sensitivity and risk analysis (cost increase, traffic decrease).
  • Conversion of financial prices into economic prices (shadow prices, removal of taxes and subsidies).

✓ Answer checked by Claude Opus 5.5 (high effort)

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