Glossary
- Aggregation: The process of combining multiple assets or asset classes to perform value calculations at a group level, rather than for individual assets or components. While it saves effort, it can introduce errors if asset groups are not homogeneous or if non-linear effects are present.
- Ancillary Charges: The process of combining multiple assets or asset classes to perform value calculations at a group level, rather than for individual assets or components. While it saves effort, it can introduce errors if asset groups are not homogeneous or if non-linear effects are present.
- Asset Consumption Ratio (ACR): The ratio of the current asset value to the initial value of an asset when purchased or constructed. It quantifies the portion of the asset that remains after accounting for depreciation. This measure ranges from 0 for a fully depreciated (completely consumed) asset to 1 (100%) for a new asset.
- Asset Funding Ratio (AFR): The ratio of asset preservation, rehabilitation, and replacement funding planned over a 10-year period to the total funding required over the same period to achieve and maintain the agency’s desired state of good repair. If this measure is 1, planned expenditures are equal to the needed expenditures; if less than 1, planned expenditures are insufficient.
- Asset Hierarchy: A framework for organizing a set of assets, specifying asset classes and subclasses, as well as any parent-child relationships between different types of assets.
- Asset Life (Useful Life): The expected duration an asset would remain in service, assuming that treatments such as routine maintenance are performed and it is not removed from service due to becoming obsolete or more costly to maintain than replace.
- Asset Sustainability Ratio (ASR): The ratio of annual asset expenditures, omitting improvements, to the cost to maintain current value. If the ratio is 1, annual expenditures are sufficient for maintaining value.
- Asset Value Driver: The basic motivation for calculating asset value, which guides decisions concerning the details of the calculation. Drivers include maintaining consistency with financial reporting, reporting asset value for TAM, evaluating treatment decisions, and determining benefits to users and society.
- Asset Value: The discounted stream of future benefits that the asset is expected to yield. It is important for both financial reporting and transportation asset management (TAM). There is no single correct way to define or calculate asset value, as the best approach depends on the agency’s perspective on what “value” represents, how the results will be used, and available data. See definitions for “Economic Perspective”, “Market Perspective”, and “Cost Perspective” for more information on these approaches.
- Base Year: The year chosen as the reference point for economic valuations, to which all dollar values for future costs and benefits are converted, typically set as the current year.
- Benefit-Cost Analysis (BCA): Benefit-cost analysis (BCA) is a method used to determine if a project’s benefits outweigh its costs. It involves calculating the net present value (NPV) of an asset. If the NPV is positive, the asset or investment is considered worthwhile.
- Book Value: The value at which agencies record their assets in annual financial reports to comply with Government Accounting Standards Board (GASB) Statement 34.
- Cash Flow: The projected amount of money an asset will potentially generate over the remaining term of a concession, which is determined by forecasting revenue and deducting expected expenses; the expected future level of cash generation directly influences the price an investor is willing to pay.
- Code of Federal Regulations (CFR) Part 515, Title 23: Federal regulations that detail requirements for State Departments of Transportation (DOTs) to develop a risk-based Transportation Asset Management Plan (TAMP), which includes asset valuations.
- Component Level Approach (Componentization): The process of decomposing an asset into its individual components for a more detailed calculation of asset value. This is done, for example, when components have different service lives and may be rehabilitated at different times.
- Cost Perspective: An approach to asset valuation that focuses on the capital costs incurred by the asset owner. It is recommended when maintaining consistency with financial reporting and bases calculations on historic costs.
- Cost to Maintain Current Value: The average annual asset preservation, rehabilitation, and replacement funding which, if spent over a specified period, is predicted to result in an ending asset value equal to the value at the start of the period.
- Crash Modification Factor (CMF): A factor that represents the proportion of crashes expected to remain after implementing a safety measure. It is related to the Crash Reduction Factor (CRF) by the formula CMF = 1 – CRF.
- Crash Reduction Factor (CRF): The percent reduction in crashes expected from implementing a safety measure.
- Current Cost: The cost of replacing an asset in today’s dollars, regardless of its original purchase price. Also referred to as Replacement Cost.
- Current Replacement Cost: The cost of replacing the asset with its modern equivalent in today’s dollars. Also referred to as the “gross replacement cost”.
- Depreciated Replacement Cost (DRC): A method for determining the fair value of infrastructure assets, based on how much it would cost to construct a network of equivalent service potential, adjusted for depreciation.
- Depreciation: Loss in the value of an asset as it ages, equivalent to the consumption of fixed capital. It represents the consumption of an asset’s benefits over its useful life.
- Deterioration: The decline in the physical condition of an asset, which is closely related to depreciation. While assets age and their benefits are consumed, and they deteriorate, the rates of benefit consumption (depreciation) and condition decline (deterioration) often occur at different rates.
- Deterioration Curve: A graphical representation that illustrates how an asset’s condition rating changes as a function of its effective age, used to estimate effective age based on observed condition.
- Discount Factor: A factor used to estimate present values for each year, calculated by the formula 1 / [(1 + Discount Rate) ^ (Future Year – Base Year)]. This equation monotonically decreases by a factor of the discount rate to convert all values into the uniform context of present value.
- Discount Rate: The rate applied to future cash flows to calculate their present value, reflecting the time value of money. It plays a critical role in project analysis and investor pricing decisions by influencing the present value of future cash flows.
- Discounting: The process of converting future monetary values to their present worth using a discount rate. This is performed to allow for a direct comparison of benefits and costs occurring at different times.
- Economic Perspective: An approach to asset valuation that quantifies the value an asset provides to its users and society as a whole, often through monetizing user benefits such as travel time savings, reduced operating costs, safety improvements, and emissions reductions.
- Economic Value: The present value of the benefits of an asset to the asset’s owner and users. When this approach is used, the initial value is the sum of future benefits of the asset at a specific point in time.
- Effective Age: An asset’s age adjusted based on its condition or the treatments it has received. An asset deteriorating slower than expected or receiving maintenance might have a lower effective age than its actual age, while accelerated deterioration can result in a higher effective age.
- Elasticity of Demand: An economic concept that describes how responsive the demand for a good or service (e.g., travel) is to changes in its price or cost. It influences how changes in travel costs affect total user value.
- Externalities: Costs and benefits imposed on others that are not perceived by the buyer in a market transaction. Positive examples include support for emergency services, while negative examples include air pollution, congestion, and noise.
- Fair Value: The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
- Fixed Travel Costs (Sunk Costs): Costs associated with travel that do not directly depend on the distance traveled (e.g., annual vehicle ownership costs), which are generally not included in per-mile or per-hour user cost calculations, thus potentially understating total willingness-to-pay.
- Functional Obsolescence: A condition where an asset becomes outdated or inefficient due to changes in design standards, technology, or user needs, rather than physical deterioration.
- Future Value: The predicted value of assets given a set of assumptions about asset funding, use, deterioration, and other parameters.
- Generally Accepted Accounting Principles (GAAP): A set of common accounting principles, standards, and procedures followed by companies in the United States. U.S. GAAP emphasizes conservatism to avoid overstating net assets and income.
- Government Accounting Standards Board (GASB) Statement 34: Regulations that require U.S. public agencies to report asset value in their financial reports and record their assets’ book value. It allows for either a standard (historic cost with straight-line depreciation) or a modified approach to valuation.
- Handback Requirements: Conditions specified at the conclusion of a concession term regarding the state in which an asset must be returned to the public sector, typically requiring it to be properly maintained, with non-compliance potentially leading to financial penalties for the investor.
- Highway Performance Monitoring System (HPMS): A system used by State DOTs to maintain an inventory of their roadway pavement and collect condition data for pavement on the National Highway System (NHS).
- Historic Cost: The actual cost paid to first construct or acquire the asset, expressed in year of expenditure dollars.
- International Financial Reporting Standards (IFRS): The predominant international accounting standards, used by 166 jurisdictions globally.
- Induced Travel: Refers to increased vehicle trips brought about by a project improvement. These new trips generate additional traffic with impacts to other users and the roadway, and tend to increase external costs due to downstream congestion, crash risk, emissions, and noise.
- Inflation: The rate at which the general level of prices for goods and services is rising, used by agencies to adjust historic asset costs to current replacement costs.
- Initial Value: The value of an asset at a starting point in time (t0), typically when it was constructed, purchased, or when the last significant treatment was performed. This value serves as the baseline for calculating depreciation.
- Intelligent Transportation Systems (ITS): Devices such as cameras, sensors, detectors, and variable message signs, often included under Traffic and Safety Assets.
- Level of Service: A defined target condition or performance standard for an asset, which agencies using the GASB 34 modified approach aim to maintain.
- Life Cycle Cost Analysis (LCA): An analysis performed to compare different investment strategies for a given asset, where the costs for an asset are computed over time relative to a base case.
- Life Cycle Strategy: A strategy that describes the different treatments typically performed on an asset following its initial construction or acquisition, influencing the asset’s useful life and residual value.
- Maintaining Financial Reporting Consistency: An asset value driver where the goal is to ensure the calculated asset value aligns with an agency’s financial reports, which are often based on historic costs and GASB 34.
- Maintenance: A category of asset treatments that includes routine upkeep activities like sealing joints and cracks, polymer surface treatments, cleaning, refurbishing, or replacing service elements. These treatments are generally assumed to occur and are incorporated into the estimate of asset useful life.
- Market Perspective: An asset valuation perspective focused on the price of an asset on the open market, asking, “For how much can an asset be sold on the market?”. This perspective is valuable when a well-defined, competitive market exists for an asset, as the market price theoretically accounts for the future benefits provided to the buyer. However, it can be challenging to identify such markets for many transportation assets, and market prices may not fully account for externalities.
- Market Value: The price of an asset if offered for sale in a competitive market. This value can only be established if such a market exists.
- National Bridge Investment Analysis System (NBIAS): A tool developed by the Federal Highway Administration (FHWA) to help assess national bridge investment needs and analyze the trade-off between funding and bridge performance. It models the improvement needs of the nation’s bridges and simulates various investment scenarios to inform decision-making.
- Net Present Value (NPV): The difference between total discounted benefits and total discounted costs of an asset or investment. When economic value is used as the basis for calculating asset value, the resulting value of an asset is its NPV.
- No-Build Scenario: Refers to the “without-project” context, where average travel times are estimated for calculating travel time benefits.
- Payback Period: A measure calculated using the Return on Investment (ROI) tool, indicating the length of time required for an investment to recover its cost.
- Preservation: A category of asset treatments aimed at maintaining or extending an asset’s life and condition, including activities like microsurfacing, thin overlays, painting, bridge preventive maintenance, and scour mitigation. These treatments can be explicitly included in asset value calculations, especially for predicting future value.
- Public Goods: Transportation assets are described as public goods, meaning users gain no intrinsic value from them, but rather value them for enabling faster and safer travel, given associated operating costs.
- Reconstruction: A major asset treatment that involves rebuilding an asset entirely. For asset valuation purposes, it is often assumed to have the same cost and effect as initial construction, resetting the asset’s age to 0 and restoring it to best condition.
- Rehabilitation: A type of treatment that can be performed on an asset to extend its life, potentially causing it to regain some or all of its value.
- Residual / Salvage Value: The value of an asset once it has reached the end of its useful life. This is also referred to as salvage value.
- Return on Investment (ROI): A measure of the efficiency of an investment, specifically for transit assets to achieve and maintain a state of good repair, quantifying the value of investments to a transit agency, users, and society.
- Revenue Vehicles: A transit asset class that includes vehicles directly used for passenger transport and revenue generation, such as buses, light rail vehicles, and paratransit vehicles.
- Sensitivity Analysis: An analysis performed to show the degree to which changes in key parameters (such as asset useful life, treatment costs, or economic parameters) would impact the results of asset value calculations. It is particularly recommended for predictions of future value.
- Social Rate of Time Preference: The concept reflected by the discount rate, indicating a preference for benefits to occur sooner rather than later.
- State of Good Repair (SGR): A desired condition of assets where a structured sequence of maintenance, preservation, repair, rehabilitation, and replacement actions will achieve and sustain this state over the assets’ life cycle at minimum practicable cost.
- Straight-line Depreciation: Straight-line depreciation is the simplest approach to calculating depreciation, which is the loss of an asset’s value over time. In this method, it is assumed that depreciation increases linearly as a function of the asset’s actual age. This means the asset’s value is presumed to decline by a constant amount each year, moving from its initial value to its end-of-life residual value.
- Technical Obsolescence: A key issue beyond physical deterioration that can cause an asset to lose value, occurring when an asset becomes obsolete due to technological or functional factors (e.g., not meeting industry technical standards, inability to obtain replacement parts, or outdated design standards). Typically, an obsolete asset is assumed to be fully depreciated.
- Transportation Asset Management (TAM): The process of making investment decisions to maintain and extend the life of physical assets, such as pavement, bridges, and facilities, and communicating what an organization owns and must maintain.
- Transportation Asset Management Plan (TAMP): A plan that State Departments of Transportation (DOTs) are required by Federal regulations (Title 23 of the Code of Federal Regulations (CFR) Part 515) to develop. It includes requirements for calculating asset value for National Highway System (NHS) bridges and pavement, as well as the cost to maintain their value.
- Travel Demand Model: A model used to estimate the demand for new assets or changes to existing ones, accounting for route and modal shifts as well as induced demand.
- Travel Time Benefits: Refers to the value of time saved on transport due to a project. These are calculated by estimating average travel times in both “Build” (with project) and “No-Build” (without project) scenarios for a base year and a forecast year.
- Travel Time Reliability: Captures the operational performance of an asset based on its design and physical condition, impacting how users experience and value it.
- Travel Time Savings: The benefit of reaching a destination faster, which is a key component of the value of time in conventional practice.
- Treatments: The activities performed on an asset over its life. These activities can influence an asset’s useful life and residual value.
- Unit Cost: The cost associated with a single unit of a treatment or asset component, imperative to have for any treatment included in the calculation.
- User Benefit: In a conceptual model, this is recognized as the ability to reach a destination in less time. It includes benefits like travel time savings and reliability, vehicle use and ownership, and safety improvements.
- User Costs: Costs incurred by the users of a transportation asset, such as increased travel time, operating costs, or social costs (e.g., increased traffic congestion) that may increase as an asset’s condition deteriorates. The reduction of these costs constitutes a benefit provided by the asset.
- Value of Travel Time (VTT): The value placed on reaching a destination faster (i.e., travel time savings), typically handled in conventional practice as a single value derived from a median hourly wage.
- “Value From” vs. “Value Of”: “Value from” refers to the benefits generated from asset use or ownership. “Value of” refers to the asset’s sale value or book value.
- Vehicle Miles Traveled (VMT): The total distance traveled by vehicles. Projects can affect vehicle costs by changing VMT, traffic speeds, and delay. Reducing overall VMT can also help avoid crashes.
- Willingness-to-Pay: An economic concept representing the maximum amount an individual is willing to sacrifice (e.g., pay in money or time) to obtain a good or service. In the context of transportation, observed user costs reflect a minimum value of travel, as individuals only travel if the value realized is at least equal to the cost incurred.