On the Evaluation of Urban Logistics Intermodal Terminal Projects

Abstract

This paper is looking to incorporate uncertainty and risk in the financial assessment of an urban logistics investment project – a ““rail-road” intermodal terminal performing urban logistic distribution functions. A “cost benefit analysis” (CBA) is performed for four decision scenarios (with different destinations and technologies). The variables included in the CBA are treated as random variables with different distribution functions (uniform, binomial, normal). The net present value (NPV) used to rank the different decision scenarios is based on results from a Monte Carlo simulation. NPV obtained as a discrete variable has been used to evaluate risk (expressed with specific indicators) and for the comparison with a NPV of a similar project in operation. A comparison with CBA that expresses NPV deterministically and the “states of nature” with known probabilities is made. Under uncertainty conditions (the “states of nature” completely unknown) the preferences of the decision maker are analysed for a certain scenario depending on his/her attitude towards risk (cautious, optimistic, pessimistic). The CBA is complemented by a “cost-efficacy analysis” (CEA) which reflects the manner in which the non-financial, social consequences of the project can be used to rank the decision scenarios. In conclusion, the paper pleads for the professionalism required by CBA and CEA, when risk and uncertainty cannot be ignored, this being the case of most infrastructure investments with social implications difficult to estimate financially.