Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives

Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives Transport Economic Appraisal Guidelines March 2016......Page 1
Contents......Page 5
List of Tables......Page 8
List of Figures......Page 9
1.1 Objective of this document......Page 10
1.2 Various existing economic analysis guidelines......Page 11
1.3 Economic Appraisal within the Investment Decision Framework......Page 12
1.4 Process of economic appraisals......Page 14
1.5 Funding and assessment framework of Government agencies......Page 15
2.1.2 Market Prices, Opportunity Costs and Willingness to Pay......Page 18
2.1.3 Discount rate......Page 19
2.1.4 Project period......Page 20
2.2.2 Cost Benefit Analysis (CBA)......Page 21
1. Statement of objective of the study and the problem being addressed by the project......Page 22
2. Project specification and determination of the scope of the project......Page 23
3. Specify the Base Case and alternative options......Page 24
4. Identify and Analyse Options......Page 25
5. Determine the level of the evaluation to be undertaken......Page 26
Project Costs......Page 27
Capital costs components include:......Page 28
Construction Dis-benefits and Secondary Costs......Page 34
Principles in identification and measurement of benefits......Page 35
1. Travel Time Savings......Page 36
2. Vehicle Operating Costs Savings (VOCS)......Page 37
3. Safety Benefits and Accident Cost Savings......Page 38
4. Improvements in Travel Time Reliability......Page 39
Induced and Generated Trips......Page 40
Improvement in Pedestrian safety and amenities......Page 41
Reduced Environmental Externalities......Page 42
Consumer surplus from induced trips......Page 44
Cross modal and network effects......Page 45
Residual value of the project’s capital investment......Page 46
9. Discount costs and benefits......Page 48
Benefit cost ratio (BCR)......Page 49
Net present value per dollar of capital investment (NPVI)......Page 50
FIRST YEAR RATE OF RETURN (FYRR)......Page 51
13. Prepare Economic Appraisal Report......Page 52
2.4 Sensitivity and risk analysis......Page 53
Risk and Uncertainty......Page 54
2.5 Economic versus Financial Analysis and Sustainability Analysis......Page 57
2.6.1 Maintenance optimisation process......Page 59
2.6.2 Dealing with budget and other constraints......Page 60
2.6.3 Approaches to road maintenance optimisation......Page 61
2.6.5 Optimising the investment – maintenance trade-off......Page 62
2.6.8 Analytical framework for Maintenance Project Economic Analysis......Page 63
2.6.9 CHOOSING THE BEST OPTION – PROJECT LEVEL ANALYSIS......Page 64
CONCLUSIONS:......Page 66
2.7 Economic Parameters – Measurement and Updated Values......Page 67
3.1.1 Multi-Criteria Analysis (MCA)......Page 68
3.1.2 Goal Achievement Matrix (GAM)......Page 69
3.1.4 Objective Impact Assessment (OIA)......Page 70
3.1.7 Wider Economic Benefits......Page 71
1. Agglomeration economies......Page 72
3. Increased output in imperfectly-competitive markets......Page 73
1. TRESIS-SGEM Model......Page 74
2. TfNSW WEBs Model......Page 75
3.2.1 Procedures for Road-based Countermeasures......Page 76
3.2.2 Major Steps in the process......Page 77
3.3.1 Introduction......Page 79
3.3.2 Environmental Impact Assessment......Page 80
3.3.4 Valuation Methodologies......Page 81
2. Contingent Valuation Method (CVM)......Page 82
3. Conjoint Analysis (Choice Modelling)......Page 83
5. Hedonic Price Approach......Page 84
Assessment......Page 85
1. Noise......Page 86
Noise Reduction Assessment Methods (NRAM)......Page 88
2. Vibration......Page 89
Assessment of Impact......Page 90
5. Visual Intrusion......Page 91
Valuation of Air Pollution......Page 92
Measurement of Impacts on Water Quality:......Page 93
8. Road Damage Cost......Page 94
9. Social Exclusion......Page 95
10. Disability......Page 96
4. Land Use Integration in Economic Appraisal......Page 97
4.1 Spatial zones......Page 98
4.3 Accessibility......Page 99
4.4 Impacts of transport system on land use system......Page 101
5.1 Freight versus passenger......Page 104
5.2.1 Freight investment evaluation framework......Page 105
5.2.2 Freight demand forecast......Page 107
5.2.3 Identification and measurement of freight benefits......Page 108
5.3.1 Macro and Input Output Approach......Page 109
Box 2 Generalised Regional Input Output (GRIT) Models......Page 110
5.3.2 Use of Computable General Equilibrium Model (CGE)......Page 111
5.3.3 Hybrid model......Page 112
Box 4 TREDIS APPROACH......Page 113
6.1.1 Outputs......Page 114
6.2.2 Behavioural travel demand models......Page 117
6.2.5 Generalised cost specification......Page 118
NSW Strategic Freight Model (SFM)......Page 120
a. Strategic models......Page 121
f. Rural evaluation model (REV)......Page 122
h. TRARR......Page 124
6.5 Bus patronage forecast......Page 125
6.6.3 Variable trip matrix in transport modelling......Page 126
6.6.5 Economic parameters to support variable matrix technique......Page 127
7. Estimating Travel Time Reliability......Page 129
7.1 Framework for Estimating Travel Time Reliability Benefits......Page 130
7.2 Key Steps in Estimating Travel Time Reliability Benefits......Page 131
7.2.1 Estimate the expected travel time variability......Page 132
7.2.2 Estimate the buffer time applied by drivers as a collective group......Page 134
7.2.3 Estimate the economic benefit of travel time reliability......Page 135
7.3.2 UK Model......Page 137
7.4 Using Public Transport Information and Priority Systems (PTIPS) and OPAL data in measuring travel time variability......Page 138
TfNSW Recommendation......Page 139
8.1.1 HW10 Pacific Highway Devils Pulpit Upgrade47: REVS Case Study......Page 140
d) Construction Cost......Page 141
h) Other Data......Page 142
Table 8.1(d) Summary of Results of Pacific Highway Upgrade REVs Study......Page 143
Forecast Freight Demand......Page 144
Economic Evaluation Results......Page 145
Description of model......Page 146
Costs and Benefits......Page 147
Project Costs......Page 149
Project Scoring Process......Page 150
Summary of Project Scoring Results......Page 153
Assumptions......Page 159
Costs and Benefits......Page 160
Costs and Benefits......Page 162
Costs and Benefits......Page 165
Costs and Benefits......Page 168
Define the base case and project options......Page 171
1. Value of travel time savings......Page 172
2. Vehicle operating cost (VOC) savings......Page 173
Economic evaluation results and conclusions......Page 174
Strategic Merit Test......Page 177
Environmental costs......Page 180
Parking utilisation and traffic flow impact......Page 181
Step 2- Collect data......Page 184
Step 3 - Identify the Base Case; the Base Year, Evaluation Period and the Option Case.......Page 185
Option Case – With Advertising Campaign in 2014/15......Page 186
Step 4 – Estimate crash reduction attributable to the campaign.......Page 187
Partially controlled before and after analysis......Page 188
Step 5 – Estimate safety benefits arising from the advertising campaign and other benefits such as travel time benefits......Page 191
Unquantifiable benefits......Page 193
8.4 Economic Appraisal of Policies and Regulations......Page 194
General Requirements for ICT Business Cases......Page 196
Funding Source - ICT Reinvestment Pool......Page 197
A. Efficiency savings (monetary benefits)......Page 198
D. Added Value - non-monetary benefits......Page 199
8.6 Measuring de-congestion benefits in economic appraisal......Page 200
Vehicle operating cost (VOC) savings......Page 201
Summary of benefits......Page 202
8.6.2 Worked example – Upgrade of Rail Freight Corridor......Page 203
9. Reporting and Presentation of Economic Appraisal Result......Page 205
B. COMPARISON OF OPTIONS - RESULTS......Page 207
Some Fund Allocation Rules:......Page 209
Calculated Decision Criteria......Page 211
Constrained Optimisation......Page 212
11.1 Benefits of Conducting a Post Completion Evaluation......Page 214
11.3 Scope of Post Completion Evaluation......Page 215
11.5 Reporting Post Completion Evaluation......Page 216
11.6 Benefit Realisation......Page 217
GRIT......Page 219
PET......Page 220
WTP......Page 221
GLOSSARY OF TERMS......Page 222
Australian Economic Appraisal Guidelines......Page 230
ECONOMIC ANALYSIS GUIDELINES / MANUALS FOR ECONOMIC APPRAISALS......Page 231
Producer or consumer rate......Page 232
Conclusion......Page 233
APPENDIX 3......Page 236
Summary Analysis for Option 1......Page 239
APPENDIX 4 Economic Parameters Values and Valuation Methodologies......Page 240
1.1 Value of private and business travel time......Page 241
1.2 Recommended value of travel time......Page 245
1.3 Real value of travel time escalation in project evaluation period......Page 246
1.5 Value of transfer......Page 247
Average hourly value ($/vehicle-hr)......Page 248
Average hourly value ($/vehicle-hr)......Page 249
2.1 Urban vehicle operating cost......Page 250
Table 15 Vehicle operating cost parameters for cars......Page 253
Average congestion cost......Page 254
Marginal congestion cost......Page 255
2.3 Rural vehicle operating cost: light vehicle......Page 258
VOC Adjustments for traffic volume, vertical grades and horizontal curvature......Page 259
Roughness (NRM)......Page 261
Roughness (NRM)......Page 262
Roughness (NRM)......Page 263
Roughness (NRM)......Page 264
Roughness (NRM)......Page 265
Roughness (NRM)......Page 266
Roughness (NRM)......Page 267
Roughness (NRM)......Page 268
Roughness (NRM)......Page 269
Roughness (NRM)......Page 270
Roughness (NRM)......Page 271
Roughness (NRM)......Page 272
Roughness (NRM)......Page 273
Roughness (NRM)......Page 274
Roughness (NRM)......Page 275
Roughness (NRM)......Page 276
Roughness (NRM)......Page 277
2.4 SWIDE......Page 278
3.2 Heavy Rail – Freight Operating Costs......Page 279
Fixed Track Maintenance Costs......Page 281
3.3 Light Rail –Operating and Maintenance Costs......Page 282
3.5 Bus depot......Page 283
3.6 Ferry Service......Page 284
3.7 Benchmark Costs for Local Infrastructure Projects......Page 285
3.8 Average fare......Page 286
4.1 Introduction......Page 287
4.2 Value of statistical life in existing literature......Page 288
4.3 Casualty and crash costs - Inclusive Willingness to Pay Approach......Page 289
Components of Inclusive Willingness to Pay Costs......Page 290
4.4 Human Capital Approach......Page 292
5. Environmental impacts......Page 293
6. Active transport......Page 296
Step 3: Separate the cost into the following groups:......Page 298
Step 5: Estimate the unit costs by vehicle types as shown in Table 65 below.......Page 299
8. Transport elasticity......Page 300
9. Expansion factors......Page 301
10.1 Train crowding......Page 304
10.3 Value of stop and station quality attributes......Page 305
10.4 Value of vehicle quality attributes......Page 306
10.5 Reliability......Page 307
12. Contingency......Page 308
13. Disability......Page 309
14. Option Value......Page 310
15. Key Indices......Page 311
References for economic parameters......Page 312
Consultancy Briefing Economic Appraisal services Project name......Page 316
Contents......Page 317
1.2 Key dates and details......Page 318
3.1 Guidelines......Page 319
3.4 Transport modelling......Page 320
3.7 Decision Criteria & Sensitivity Tests......Page 321
4. Response to this Consultancy Brief......Page 322
5.1 Selection of the preferred service provider......Page 323
5.4 Consultant’s Obligations and Requirements......Page 324
PROJECT OPTION DESCRIPTION......Page 326
Additional Issues......Page 328
Pro-forma Checklist for Economic Evaluations of Projects......Page 329
APPENDIX 7 Summary of environmental externality parameters & methodology......Page 331
References......Page 333
APPENDIX 8 Appraisal Summary Table......Page 334
1. CONSUMER SURPLUS......Page 336
2. Use of Logsum measure of consumer surplus benefits......Page 337
3. Resource Cost Correction on Public Transport Project Model (PTPM)......Page 339
Resource cost correction steps......Page 340
APPENDIX 10 Probabilistic Cost Benefit Analysis......Page 341
@Risk Input Variable 1: Fatality reduction......Page 342
@Risk Input Variable 2: Economic cost per fatality......Page 343
Run @Risk Simulation for identified risk elements......Page 344
Check the simulation outputs......Page 345
APPENDIX 11 Social Inclusion Index......Page 347
Social exclusion index......Page 348
Valuation of additional trips......Page 350
APPENDIX 12 Wider Economic Benefits......Page 351