A procedure is developed for optimal allocation of highway safety improvement funds. The approach minimizes the total number of crashes in a study area during an analysis period within the constraints of funding resources. The uniqueness of the model lies in its flexibility for considering the effectiveness of safety improvement projects in future years. The model can consider carryover of unspent funds from previous years. The effect of errors involved in estimation of initial investment costs, annual maintenance costs, crash reduction rates, and additional traffic growth factors can be studied. The application of the model is illustrated. The effect of funding level on the effectiveness of the safety improvement program is studied through sensitivity analysis.