---
title: "Components of economic appraisal"
subject: "Transportation Engineering I"
chapter: 2
key: "semester_6/transportation_engineering_i:economic-appraisal"
source: https://www.bctengineer.com/q/semester_6/transportation_engineering_i/economic-appraisal
site: BCT Engineering
---

# Components of economic appraisal

Transportation Engineering I · Chapter 2: Highway Alignment and Engineering Survey

- Asked in: 2068 Bhadra (old course)
- Video: [5_Highway Economics](https://www.youtube.com/watch?v=SB2wSeiFS1Q) — maheshwari bisanal
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/transportation_engineering_i/economic-appraisal
- Whole chapter: https://www.bctengineer.com/md/semester_6/transportation_engineering_i/chapter-2

## Question

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

## 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.

## Answer

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).

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is economic appraisal of a highway?
   A. Checking whether the project is worthwhile by comparing costs and benefits over its life
   B. Measuring pavement strength
   C. Selecting the road width
   D. Fixing the speed limit
   Answer: A. It compares all costs and benefits over the life of the project. (Key point: Purpose)

2. Which is a road-user benefit?
   A. Land acquisition cost
   B. Maintenance cost
   C. Savings in vehicle operating cost, travel time and accidents
   D. Resettlement cost
   Answer: C. User benefits include savings in VOC, time and accidents. (Key point: Benefits)

3. Which are economic indicators?
   A. CBR, DCP and PCU
   B. BCR, NPV and IRR
   C. AADT, ADT and PHF
   D. SSD, OSD and PIEV
   Answer: B. BCR, NPV and IRR are the standard economic indicators. (Key point: Indicators)

4. What does sensitivity analysis test?
   A. Soil strength
   B. Effect of changes like cost increase or traffic decrease on the result
   C. Camber slope
   D. Sight distance
   Answer: B. It checks how robust the appraisal is to changes in cost and traffic. (Key point: Sensitivity)

## Related in Transportation Engineering I

- [Components of highway drainage system](https://www.bctengineer.com/question.md?key=semester_6%2Ftransportation_engineering_i%3Adrainage-components) — Transportation Engineering I, chapter 4
- [Setback on six lane highway, 550 m radius](https://www.bctengineer.com/question.md?key=semester_6%2Ftransportation_engineering_i%3An-72a-setback-350) — Transportation Engineering I, chapter 3

## Related in other subjects

- [Importance of appraisal; economic vs financial](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aappraisal-importance-economic-financial) — Project Engineering, chapter 2
- [Necessity and aspects of project appraisal](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Awhy-appraisal-necessary-aspects) — Project Engineering, chapter 2, asked 4×
- [Appraisal aspects of a hydropower project](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aappraisal-aspects-hydropower) — Project Engineering, chapter 2, asked 4×
- [Project appraisal and its importance](https://www.bctengineer.com/question.md?key=semester_7%2Fproject_engineering%3Aappraisal-concept-importance) — Project Engineering, chapter 2