Profitability Evaluation of Intelligent Transport System Investments

Pekka Leviäkangas · J Lahesmaa

69 citations0/0 files storedJournal of Transportation Engineering

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transportation and logistics systems Transportation Systems and Logistics Capital Investment and Risk Analysis

Abstract

The objective of this study was to consider evaluation methods for intelligent transport system (ITS) investments, to point out some shortcomings of traditional methods (mainly benefit-cost analysis), to develop alternative methods, and to make recommendations for how the profitability of ITS investment should be evaluated. The results can be used when ITS investments are compared with each other and also when ITS investments are compared with road building investments. This work identifies the fundamental differences between ITS and road infrastructure investments and how they impact on the profitability evaluation. The conclusion is that traditional cost-benefit analysis (BCA), which was developed for investments in physical infrastructure, does not capture all the benefits or costs related to ITS. Economic evaluation methods for ITS investments need improving. This work illustrates how BCA could be used to take into consideration the option value of ITS investment and risks caused by, for example, different time horizons of investments. The work also discusses and demonstrates the use of multicriteria analysis in profitability evaluation. It illustrates how a method called analytical hierarchy process could be utilized to evaluate other risks that do not have specific monetary values and to compare the results of different profitability analyses. These evaluation methods can be used within the project assessment framework in the transport sector to highlight different aspects of the profitability and efficiency of transport investments. None of the methods themselves can reflect all aspects in decision making, but by using a suitable set of different methods depending on the decision situation and by comparing the results, a wider and more realistic picture of investments can be obtained.

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References

1973The Pricing of Options and Corporate Liabilities 1980Financial Theory and Corporate Policy.1998The Options Approach to Capital Investment 1993The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options 1992Waiting to Invest: Investment and Uncertainty 1987Analytical planning—The organization of systems 1995The options approach to capital investment

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