Railway Investment Appraisal Techniques

Abstract

Railway transport involves the expenditure of resources on a combination of investment in capital items (e.g. stations, tracks, equipment) and/or in operations (e.g. subsidies). Concerning the fact that there are limited amounts of resources, it is necessary to maximize the returns obtained from the investments of those resources. The best way to do this is to ensure that the resources will be allocated on those projects that maximize their return. Railway appraisals therefore represent a way of thinking about all the costs and benefits of different railway related spending projects in a systematic manner so that, the projects can be compared and investments made in those which are going to provide the maximum possible return on the investment. This chapter provides a review of the main analytical tools that should be used in the process of railway investments appraisal. Namely, a detailed description of discounting, Net Present Value (NPV), Internal Rate of Return (IRR) and Cost Benefit Analysis (CBA) is covered by this chapter.