Cost and Environmental Evaluation of Flexible Strategies for a Highway Construction Project under Traffic Growth Uncertainty

Abstract

AbstractUncertainty about the scale of future demand presents a challenge for infrastructure design. The attraction of flexible strategies, incorporating upgrade options that can be exercised when and if required, has been recognized for a long time. The techniques of real options allowed the benefits of flexible strategies to be quantified for the first time. A new and simplified methodology for real options analysis has been developed and implemented in software. It performs evaluation in both cost and environmental impact terms. A case study of a real highway in Spain was evaluated using the new methodology and software. Seven alternative strategies for the roadway (subgrade, base course, and surface course) were evaluated, six with upgrade options that are exercised if the traffic demand crosses specified thresholds. The rate of traffic growth, and also the discount rate for financial evaluation, were treated as uncertain variables. The highway was designed when the Spanish economy was growing strongl...