Incorporating Uncertainty and Risk in Transportation Investment Decision Making: Detroit River International Crossing Case Study

Large scale transportation projects represent major investments in construction, operation, and maintenance of facilities over an extended period. Typically, these investments are irreversible in nature and require long-term commitment by the public at large relative to utilization, maintenance, and operation. Traditional economic analysis techniques used to evaluate the feasibility of such projects are based upon the assumption of future cash flows that are deterministic in nature. In reality, many of these projects are associated with significant uncertainties and risks stemming from a lack of knowledge about future cost and benefit streams. There is not a unified methodology in the literature to address uncertainty and risk in transportation investment decision making. The authors present a framework for addressing uncertainty and risk for large scale transportation investments involving joint participation by the public and private entity. Demand, Corresponding Author: Tel.: +1 301 405 9424;fax: +1 301 314 5639. E-mail addresses: [email protected] (Sabyasachee Mishra), [email protected] (SnehamayKhasnabis), [email protected] (Subrat Swain) 1 fare/toll, and demand responsive costs are considered in the uncertainty analysis. A bi-level programming is proposed, where the upper level constitutes the preference of the policy maker, and the lower level determines the user’s response to the policy. The uncertainty analysis provides economic feasibility of the project. A set of relaxation policies is proposed to form various Ownership, Tenure, and Governance (OTG) strategies reflecting the nature and level of participation by the public and private entity. The uncertainty analysis output serves as an input to the risk analysis. Monte Carlo Simulation is used to address risks for feasible policy options selected from uncertainty analysis. The concept of Value at Risk (VaR) is used to quantify risk. Finally, a methodology is proposed to integrate uncertainty and risk. The framework is tested on the proposed multibillion dollar international river crossing entitled as the Detroit River International Crossing (DRIC) connecting the cities of Detroit in the US with Windsor in Canada. The analysis provides insights to probable outcomes for this transportation infrastructure investment. This methodology can be used as a tool for transportation infrastructure investment decision making process.