The Highway Economic Requirements System: an introduction to HERS.
In 1989 the Chairman of the U.S. House of Representatives Committee on Public Works and Transportation called for the "Department of Transportation (DOT) to accelerate its efforts to examine the costs, benefits and national economic implications associated with a broad array of [highway] investment options." (1)(1)
The DOT now has a model which simulates improvement selection decisions based on the relative benefit/cost merits of alternative improvement options. The newly developed Highway Economic Requirements System (HERS) uses incremental life-cycle benefit/cost analysis to define the "near-optimal" cost-effective set of appropriate improvement options given user defined policy scenarios. (2)
HERS is designed to select the "best" improvements, reducing the total cost incurred by highway users and agencies while ensuring an acceptable economic return on the investment of public funds. The model recognizes reductions in direct user costs (travel time, incidents and vehicle operating costs) as highway-user benefits. Also considered as benefits are reductions in maintenance costs and the "residual value" of an improvement.
HERS procedures represent a dramatic change in traditional, National level, highway investment analysis. Other investment decision simulations are not sensitive to user benefits and are not intended to produce "optimal" solutions through the economic comparison of numerous alternatives.
This article provides an introduction to the logic design and capabilities of the HERS model. Initial HERS information will be reported in the upcoming 1993 Status of the Nation's Highways, Bridges and Transit Systems: Conditions and Performance Report to Congress (C&P Report).
The HERS model is distinguished from traditional highway investment analysis by two important features: The analytical technique and the software user interface.
Using empirically supplied current highway conditions, traffic forecasts, and established engineering relationships predicting the impact of highway condition on performance, HERS will identify deficiencies and simulate highway improvements that could satisfy user objectives. These Hers-generated, system improvement sets are evaluated, and reports on initial improvement costs, user impacts, and physical conditions are provided.
Numerous alternatives are considered to correct each section deficiency and the economically "best" section improvement alternative is selected. These best improvements are then compared to find the best system solution. Alternatives are evaluated through comparison of the benefits and costs generated through simulated implementation of each option under consideration. This process tends to produce the most economically beneficial highway investment strategies.
Use of this technique has several implications: * User cost considerations a re key to improvement
selection decisions. In HERS, the question
is: "What impact does system condition
and performance have on highway users?"
rather than "What impact do highway users
have on system conditions and performance?" * Several potential improvement options for
any deficiency are identified and analyzed. * The economically "best" time to implement
an improvement is considered.
Software user interface
The software user interface is unique and allows for the straightforward development and analysis of policy scenarios. The model is accessible; it operates on a personal computer and is user-friendly. The analyst may readily control the following variables: * Deficiency levels: The user can adjust the deficiency
levels used in the HERS procedure to
target highway sections for potential improvement.
(See discussion of deficiency triggers,
below.) * Improvement selection criteria: The user controls
the benefit/cost thresholds, establishes
funding or system condition constraints, assigns
relative importance to the various user
benefits, and specifies user-cost objectives by
highway functional class or vehicle type
categories. * Input parameters: inputs such as improvement
costs and the discount rate are easily
modified by the user. * Analysis objective: The system will operate in
one of two modes: It will predict system conditions
and performance given varying funding
levels, or it will estimate the funding required
to achieve a user-specified level of
Interest in quantifying highway investment requirements--current and future--was established with the 1968 Congressional requirement for a biennial "Needs Report." The continuum in figure 1 summarizes the developmental history of highway investment analysis techniques.
The first Needs Report, in 1968, provided a summary of independently assessed State highway needs. The States reported the investment level required to correct all current and anticipated pavement, alignment, and capacity deficiencies to the year 1985 ("full needs"). National standards for system classification, sufficiency rating criteria, or inventory data were not available. This first -era" was characterized by the perception of unlimited capital investment resources, and system expansion was the goal. (3)
By the early 1970's, the demand for highway travel was increasing dramatically, but investment resources were limited. The need to prioritize capital improvement projects had become apparent.
The 1972 report benefitted significantly from improved data collection and analytical techniques. The 1970 National Highway Functional Classification and Needs Study provided standardized information on physical conditions and needs by functional class.
Further, the concept of minimum tolerable conditions (MTC) was introduced. The MTC's represented a consensus of highway engineer expert opinion regarding highway safety, performance, and physical design. Each functional class was assigned an appropriate MTC level. For the first time, "needs" estimates represented the cost to provide a standard level of condition appropriate for a particular system's function (as opposed to jurisdiction).
The 1972 report included an assessment of investment priorities as well as an analysis of various alternatives to full needs. Relatively sophisticated modeling techniques were used to evaluate alternative investment options intended to "maintain (or preserve) the physical system." This report exhibited an important new orientation toward "system preservation" and marked the beginning of highway investment analysis as conducted today. (4)
In the mid-1970's, the notion of performance-related investment was taking hold as the appropriate way to express highway investment options given constrained funding. The 1976 National Highway Inventory and Performance Study (NHIPS) provided the data and analytical modeling techniques necessary to establish the foundation for designing a framework to evaluate the tradeoffs between capital investment and changes in highway system conditions and performance. (5)
The Highway Performance Monitoring System (HPMS) was introduced in the 1983 report. The HPMS was the product of a long-term research and development effort initiated by the Federal Highway Administration (FHWA) to establish a continuous data collection system and develop analytical models to project future investment requirements based on the current state of the highway system. Although the coordinated HPMS data base and analytical package is highly regarded, it does not explicitly consider the relationship between user benefits and improvement costs. (6)
A shift from a primarily engineering orientation to one which includes economics, or user costs, characterizes the third era depicted on the continuum. The user impact orientation of HERS allows decision makers to compare productivity, or return on investment, for various scenarios.
The next mark on the continuum is expected to be the expansion of HERS from an exclusively highway investment analysis tool to one that includes options for alternative surface transportation system improvements. The benefit/cost framework of HERS can accommodate the inclusion of multimodal improvement options. The first step in this HERS evolution is to incorporate transit options.
Relationship of HERS to HPMS
HPMS system overview
A flowchart of the HPMS analytical procedure is presented in figure 2. As with HERS, the model predicts resulting highway conditions, identifies deficiencies, and selects potential improvements to correct the deficiencies based on user-specified travel demand.
However, when the HPMS model identifies a deficiency and it simulates the improvement selection decision process, only one pre-determined improvement is selected for each deficiency. Cost-effectiveness is not considered.
The HPMS model can also test the impact of constrained system investment. The improvement selection decision process is extended to include prioritization of the individual improvements necessary to correct all deficiencies. The prioritization procedure is primarily a function of changes to physical conditions as opposed to user cost impacts.
The HPMS uses a cost effectiveness index to measure system performance and determine decisions given constrained funding objective. It is derived from the status of physical characteristics (pavement, alignment, etc.). Although it is understood that user costs vary with physical conditions, they are not directly calculated.
Use of HPMS in HERS development
Development of HERS assumed that the HPMS data base would be used and that many of the procedures from the HPMS analytical models would be shared as well. The contract to develop HERS did not include provisions for developing new engineering relationships or collecting additional highway inventory data.
The comprehensive HPMS data base is the most detailed description of the Nation's highway conditions available. It is a stratified random sample of approximately 105,000 sections of non-local roads. The data base is updated annually.
The HPMS analytical procedures have been extensively reviewed by government oversight agencies such as the Government Accounting Office (GAO) and by many transportation professionals, and the procedures have been found reliable and credible. The HERS model could not have been developed without the foundation provided by HPMS.
However, the unique features of HERS--its deficiency identification and improvement selection process, its extraordinary computation requirements, and its increased sensitivity to user costs-- necessitated significant modifications to the HPMS procedures.
In fact, the forecasting procedure was the only HPMS process applied directly to HERS. It should be noted, however, that even when the HPMS procedures were modified, the underlying engineering relationships were preserved.
HERS system description
The HERS system will run on a 386-class microcomputer. The main HERS program has 74 subroutines and 425,000 bytes of source code and is written primarily in standard FORTRAN 77.
HERS system overview
A schematic overview of the HERS procedure is presented in figure 3. The user first defines a policy scenario for analysis. For example, the user may be interested in system user-cost levels resulting from a constrained highway investment budget. By changing the parameters in the HERS "RUNSPEC" file, the user indicates the level of available investment, acceptable values for project benefit/cost ratios, levels at which a section will be found deficient, and so on.
The user also determines the length of the overall analysis period (OAP) and the length of the funding periods. Generally, the highway system will be evaluated over a 20-year horizon (OAP) divided into four funding periods of 5 years each. HERS will implement no more than one improvement type per deficient highway section for each funding period.
The HERS analysis process starts by forecasting traffic growth and pavement condition for each highway section in the HPMS data base. The model then proceeds to the first pass where it evaluates each section for unacceptable conditions. Unacceptable conditions refer to deficiencies that the user determines must be corrected regardless of economic attractiveness. A potential least-cost improvement is identified to correct each deficiency.
User benefits and costs associated with the least-cost improvement are simulated and used to generate an incremental benefit/cost ratio (IBCR). The selected improvements are then prioritized according to their IBCR. Depending on the user-defined constraints (e.g., available funding), these improvements are placed on a list for potential selection.
A deficiency that violates the unacceptable conditions standard will always be improved. However, each potential improvement selected in the first pass will be re-evaluated in the second pass to consider the economic feasibility of implementing a higher cost, more aggressive option.
In the second pass, highway sections violating the user-defined "serious deficiency level" or "deficiency level" are evaluated. All potential improvements are identified and considered for implementation via the incremental benefit/cost procedure. Improvements are selected according to their IBCR's until some user defined constraint is violated. The best improvements are simulated, and final reports are produced. The unique features of HERS are described in greater detail below.
HERS checks eight characteristics of each highway section for deficiencies: pavement condition, surface type, volume/capacity (V/C), lane width, right shoulder width, shoulder type, horizontal alignment, and vertical alignment.
There are three levels of deficiencies within the HERS framework: unacceptable level, serious deficiency level and deficiency level. These deficiency triggers serve two important functions.
First, they allow the user to control computation time. HERS currently requires well in excess of 1 working day to evaluate a scenario using the full sample set. The 'run time" may be reduced, without losing significant accuracy, by judiciously setting the deficiency levels.
Second, they allow the user to establish the allowable condition of a section. There is a lack of consensus concerning how the MTC's should be established. For example, it has been suggested in policy debate that the MTC for congestion should be lowered from a level of service "D" to "E" or "F." The impact of such a policy change can be readily tested using HERS.
Highways violating the "unacceptable level" standard will always be corrected (assuming available funds) with, at least, an inexpensive improvement. There is no requirement for these improvements to pass the benefit/cost test.
Serious deficiency level (SDL) standards are used to reduce the number of improvements analyzed to correct a deficiency, reducing the HERS run time. If the SDL for a given section characteristic is violated, only one improvement that corrects the SDL deficiency will be considered.
The HERS model will analyze up to six aggressive and nonaggressive improvement options for any section violating a user-defined deficiency level (DL). The greater the number of potential improvements evaluated, the closer the final set of system improvements will be to optimal.
The closer a deficiency trigger is set to the MTC, the fewer the number of potential improvements that will be analyzed (decreases computation time). The closer the trigger is to the design standard, the larger the number of potential improvements that will be analyzed.
Improvement options and costs,
Improvement types considered by HERS consist of various combinations of pavement, widening, and alignment options. The HERS model selects from among 28 improvement types. The options range from least aggressive (e.g., resurfacing) to more aggressive (e.g., reconstruct with improved alignment).
Life-cycle incremental benefit/cost analysis: An overview
HERS uses benefit/cost analysis (BCA) to select the best improvement options for each user-defined funding period. The heart and soul of the BCA procedure is the benefit/cost ratio (BCR):
User Costs + Agency Costs + Residual Value/Improvement Cost
For each improvement option, user costs and ongoing agency maintenance costs are calculated. Also calculated is the amount by which implementing this improvement will reduce the cost of subsequent improvements (residual value). Improvement cost refers to the initial cost of the improvement.
The IBCR is calculated by comparing the BCR (or IBCR) from one improvement option to the BCR (or IBCR) associated with another base case alternative. The BCR, as used in HERS, is expressed in "present value." That is, it represents the stream of benefits and costs over the overall analysis period, discounted back to the funding period of interest.
The key concept underlying BCA is the sequential comparison of alternative options until the "optimal" action is found. HERS evaluates alternative options in three dimensions: 1. Alternatives are compared to the option of
postponing any improvement to address the
deficiency until a subsequent funding period.
The question addressed in the first dimension
is: "Should the deficiency be corrected now
or later?" 2. Assuming that the above analysis finds addressing
the deficiency in the current funding
period to be economically acceptable, HERS
proceeds to the second dimension. The option
with the highest IBCR relative to the
"postpone any improvement option" is compared
to more aggressive alternatives that
could correct the deficiency. This is done in a
sequential fashion until the improvement with
the highest IBCR is identified. The question
addressed in the second dimension is: "What
is the best improvement to correct this section
deficiency?" 3. After all HPMS highway sections have passed
through the first two dimensions of analysis,
improvements are selected in order of IBCR
for system implementation until some user-defined
scenario constraint has been violated
(e.g., funds are exhausted). The question addressed
in the third dimension is: "Given the
user- defined system constraint, what mix of
improvements will generate the highest return
on the investment dollar?"
A detailed flowchart of the HERS benefit/cost and improvement selection procedures is presented in figure 4.
The HERS model represents a significant advancement in the methodology available to estimate National level highway investment requirements. Results from this model will provide a "highway-user dimension" to needs analysis.
The system is designed to readily accommodate necessary refinements as new research findings become available. It is anticipated that future versions of HERS will include an expanded list of improvement options (e.g, new construction on new alignment, demand management strategies, and other-mode options), additional benefits (e.g., National economic impacts), and additional costs (e.g., air and noise pollution).
Throughout the HERS development process, one of the more important goals was to produce a working model that would use the best data and highway engineering knowledge available. To facilitate this process, the contractor designed HERS using an open framework, or modular, structure. The model is viewed as a work in progress" with the FHWA's intent being to update and refine HERS as the results of various research efforts become available. (1) Italic number in parentheses identify references on page 111.
(1) U.S. Congress, House, Committee on Public Works and Transportation, The Status of the Nation's Highways and Bridges: Conditions and Performance Report of the Secretary of Transportation, House Document No. 101-2, 101st Congress, 1st Session, Washington, DC, June 1989, p. 2. (2) The Highway Economic Requirements System (HERS): Users Guide, Technical Report and System Maintenance Manual, documentation produced in three parts under FHWA Contract DTFH61-88-C-00006 by Jack Faucett Associates, Bethesda, Maryland, July 1991. (Available from the Office of Policy Development [HPP-22], Federal Highway Administration, Washington, DC) (3) U.S. Congress, House, Committee on Public Works, 1968 National Highway Needs Report, transmitted by the Secretary of the Department of Transportation, House Document No. 91-28, 90th Congress, 2d Session, Washington, DC, 1968. (4) U.S. Congress, House, Committee on Public Works, Part I of the 1972 National Highway Needs Report, transmitted by the Secretary of the Department of Transportation, House Document No. 92-266, 92d Congress, 2d Session, Washington, DC, March 1972. (5) U.S. Congress, House, Committee on Public Works, The Status of the Nation's Highways: Conditions and Performance Report of the Secretary of Transportation, House Document No. 95-29, 95th Congress, 1st Session, Washington, DC, September 1977. (6) U.S. Congress, House, Committee on Public Works and Transportation, The Status of the Nation's Highways: Conditions and Performance Report of the Secretary of Transportation, House Document No. 98-14, 98th Congress, 1st Session, Washington, DC, July 1983.
Regina McElroy is a transportation specialist in Federal Highway Administration's (FHWA's) Highway Needs and Investment Branch in the Office of Policy Development. She is responsible for development and implementation of the Highway Economic Requirement System (HERS) model. Before joining the FHWA, Ms. McElroy was an economist with the American Trucking Associations, Inc.
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|Date:||Dec 1, 1992|
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