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