Costs

On this website, "costs" are defined as the resources, such as land, labor, and material, expended on the project by the entity providing it.

These "costs" are often referred to as "agency costs" and do not include any costs borne by the users of the project or the public at large. On this website the latter costs are considered negative benefits, sometimes referred to as disbenefits.

Costs are generally easier to measure than benefits and easier to value, because they represent goods or services that are usually traded for money, such as labor, land, and materials. Typical costs of a transportation improvement project are:

• • Initial costs: Site acquisition; planning, design, engineering, and construction

  • Continuing costs

  • Rehabilitation costs

  • "End of project" costs

Life-Cycle Cost Analysis

The costs used in benefit-cost analysis are the same as those used in a life-cycle cost analysis, and they are treated in the same way in terms of discounting and inflation. A benefit-cost analysis goes a step further and compares all costs of a project to its benefits.

Opportunity Costs

These are the benefits of the best improvement opportunity foregone in order to fund the proposed project. For example, if available funds are used to build a rail system, they cannot be used to widen a highway. In benefit-cost analysis, opportunity costs can be implicitly dealt with by analyzing project alternatives that represent the best alternative use of the project funds. The opportunities are, of course, limited to projects for which the available funds can actually be used.

The Calculations section of this website explains how to deal with inflation, discounting of future benefits, as well as how to handle joint costs, sunk costs, and transfer payments and avoid double-counting.