Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives

358 Pages·2017·5.81 MB·English

Principles and Guidelines
for Economic Appraisal
of Transport Investment and Initiatives
June 2018
Principles and Guidelines for Economic
Appraisal of Transport Investment and
Initiatives
Transport Economic Appraisal Guidelines

Evaluation and Assurance, Finance and Investment
June 2018
VERSION CONTROL AND DOCUMENT HISTORY
Version: 1.4
Version Release March 2013
Date:
Status: Final Draft
Document Principles and Guidelines for Economic Appraisal of
Name: Transport Investments and Initiatives

Version No: 1.5
Version Release 1 Nov. 13
Date:
Amendment: Updated Appendix 4 for 2012/13

Version No: 1.6
Version Release March 15
Date:
Amendment: 1. Updated Appendix 4
• Economic parameter values indexed for 2013/14
prices
• Included infrastructure cost benchmarks
• Reference to the Willingness to pay (WTP) approach in
value of travel time (VTT) –flag NSW Stated
Preference Study including for rail, bus, ferry, car
drivers and car passengers
2. Incorporated new sections
• Clearways CBA methodology and case study
• Road safety advertising campaign CBA methodology
and case study
• ICT Investment benefits
3. Included Program Evaluation section
4. Expanded Benefit Realisation section
5. Expanded Post Completion Evaluation section
Version No. 1.7
Version Release July 2016
Date:
1. Updated/indexed Appendix 4 economic parameter values
for 2015/16 prices
2. Included estimating travel time reliability benefits of
transport projects
3. Included Pro-Forma Brief to Economic Appraisal
Consultants and CBA Summary Reporting Template
(Appendix 5)
4. Included practice guide and worked examples in
estimating de-congestion benefits
5. Expanded Technical Appendix 9 on consumer surplus by
including a resource cost correction in using the public
transport project model (PTPM)
6. More detailed guidance on probabilistic cost benefit
analysis including @risk and a worked up example
(Appendix 10)
7. More detailed guidance on estimation of wider economic
benefits (Appendix 12)
Version No. 1.8
Version Release June 2018
Date:
1. Appendix 4 updated/indexed economic parameter values
for 2017/18 prices for all relevant parameters to reflect
the latest ABS data releases (CPI/PPI for March 2018,
and to AWE for November 2017)]
2. Modification to discount rate sensitivity 4% to 3% in line
with NSW Government Guide to cost Benefit Analysis,
Treasury ref TPP 17-03, March 2017
3. Appendix 4 – Inclusion of high level commentary on the
Austroads approach to calculating vehicle operating
costs (as recommended by Infrastructure Australia)
4. Appendix 4 – update, formatting of content and tables to
ensure greater consistency throughout the document,
and improve readability.
5. Updated references and minor correction to grammar
and spelling.
FOREWORD to Version 1.7

Transport for NSW is committed to achieving greater value for money from our significant
investment in transport assets and to improving the efficiency and quality of transport
services. An important cornerstone in achieving these is ensuring that programs, projects
and new initiatives represent the best possible transport solutions. The conduct of economic
appraisal provides evidence that aids sound decision making towards making these
investments.

The TfNSW Principles and Guidelines for Economic Appraisal of Transport Investment and
Initiatives sits within the Transport Investment Policy Framework and aims to help managers
across the Transport Cluster to plan and conduct economic appraisal based on a consistent
framework. The use and application of the guidelines facilitate evaluation of economic
efficiency of investment proposals and contributes in improved resource allocation by
ensuring that the strategic alignment and value for money assessment have been
consistently determined across the transport cluster.
The Transport Economic Appraisal Guidelines set out the principles, concepts, methodology
and procedures to be used in the evaluation of proposed investments and initiatives in the
transport cluster. Analytical steps, illustrative calculations, practice guides and advice and
references to reports and tools are provided. User friendly models and tools have been
developed covering prototype transport projects to assist in cost benefit analysis of similar
projects. The links to these calculation models are embedded in the document to make it
accessible to users.
Economic parameter values are provided for consistent use across the Transport Cluster.
These are updated on an annual basis and are disseminated to the whole cluster for
continued and consistent application.
Both instructor-based and online training modules are provided including case studies and
practice guides on the application of economic appraisal methods and models to particular
projects, programs or activities in the work areas.
The Transport Economic Appraisal Guidelines is a living document that is continuously being
reviewed and updated to enhance its relevance and ensure adherence to best practice.
New methodologies are included as they become relevant to ensure that Transport for NSW
is at the leading edge of robust, transparent decision making.
You can send any comments or feedback to [email protected]
or [email protected]

Tim Reardon

Secretary
Table of Contents

1. INTRODUCTION ............................................................................................................................. 1
1.1 OBJECTIVE OF THIS DOCUMENT .................................................................................................. 1
1.2 OTHER ECONOMIC ANALYSIS GUIDELINES .................................................................................... 1
1.3 ECONOMIC APPRAISAL WITHIN THE INFRASTRUCTURE INVESTOR ASSURANCE FRAMEWORK .......... 2
1.4 PROCESS OF ECONOMIC APPRAISALS ......................................................................................... 4
1.5 FUNDING AND ASSESSMENT FRAMEWORK OF GOVERNMENT AGENCIES ......................................... 5
2. ECONOMIC APPRAISAL FRAMEWORK, PROCESS AND DECISION CRITERIA .................... 8
2.1 INTRODUCTION .......................................................................................................................... 8
2.1.1 Scope and Level of Economic Analysis .......................................................................... 8
2.1.2 Market Prices, Opportunity Costs and Willingness to Pay .............................................. 8
2.1.3 Discount rate ................................................................................................................... 9
2.1.4 Evaluation period........................................................................................................... 10
2.2 COMMON APPROACHES ........................................................................................................... 11
2.2.1 Cost Effectiveness Analysis (CEA) ............................................................................... 11
2.2.2 Cost Benefit Analysis (CBA) ......................................................................................... 11
2.2.3 CBA and Financial Analysis .......................................................................................... 11
2.3 MAJOR STEPS IN COST BENEFIT ANALYSIS ............................................................................... 12
2.4 SENSITIVITY AND RISK ANALYSIS ............................................................................................... 42
2.5 ECONOMIC VERSUS FINANCIAL ANALYSIS AND SUSTAINABILITY ANALYSIS .................................. 46
2.6 OPTIMISATION OF ROAD MAINTENANCE .................................................................................... 47
2.6.1 Maintenance optimisation process ................................................................................ 48
2.6.2 Dealing with budget and other constraints .................................................................... 49
2.6.3 Approaches to road maintenance optimisation ............................................................. 50
2.6.4 Maintenance deferral .................................................................................................... 50
2.6.5 Optimising the investment – maintenance trade-off ...................................................... 51
2.6.6 Estimating the maintenance backlog ............................................................................ 51
2.6.7 Maintenance Optimisation Model .................................................................................. 51
2.6.8 Analytical framework for Maintenance Project Economic Analysis .............................. 52
2.6.9 Choosing the best option – project level analysis ......................................................... 53
2.7 ECONOMIC PARAMETERS – MEASUREMENT AND UPDATED VALUES ........................................... 55
3. SOCIO, ECONOMIC AND ENVIRONMENTAL ASSESSMENTS ............................................... 57
3.1 BROADER ASSESSMENT APPROACHES AND TOOLS ................................................................... 57
3.1.1 Multi-Criteria Analysis (MCA) ........................................................................................ 57
3.1.2 Goal Achievement Matrix (GAM) .................................................................................. 58
3.1.3 Strategic Merit Test (SMT) ............................................................................................ 59
3.1.4 Objective Impact Assessment (OIA) ............................................................................. 59
3.1.5 Appraisal Summary Technique (AST)........................................................................... 60
3.1.6 Economic Impacts Assessment (EIA) ........................................................................... 60
3.1.7 Wider Economic Benefits .............................................................................................. 60
3.2 SAFETY ................................................................................................................................... 66
3.2.1 Procedures for Road-based Countermeasures ............................................................ 66
3.2.2 Major Steps in the process ............................................................................................ 66
3.3 ENVIRONMENTAL ASSESSMENT ................................................................................................ 68
3.3.1 Introduction .................................................................................................................... 68
3.3.2 Environmental Impact Assessment ............................................................................... 69
3.3.3 Measurement ................................................................................................................ 70
3.3.4 Valuation Methodologies ............................................................................................... 70
3.4 EXTERNALITIES ....................................................................................................................... 75
4. LAND USE INTEGRATION IN ECONOMIC APPRAISAL .......................................................... 87
4.1 SPATIAL ZONES ....................................................................................................................... 88
4.2 LAND USE VARIABLES REPRESENTED IN A SPATIAL ZONE ............................................................ 89
4.3 ACCESSIBILITY ........................................................................................................................ 89
4.4 IMPACTS OF TRANSPORT SYSTEM ON THE LAND USE SYSTEM ..................................................... 91
5. ECONOMIC ANALYSIS OF FREIGHT INITIATIVES .................................................................. 93
5.1 FREIGHT VERSUS PASSENGER .................................................................................................. 93
5.2 SCOPE AND LEVEL OF ECONOMIC ANALYSIS ............................................................................. 93
5.3 FREIGHT DEMAND FORECAST ................................................................................................... 96
5.4 IDENTIFICATION AND MEASUREMENT OF FREIGHT BENEFITS ........................................................ 97
5.5 EVALUATION TECHNIQUES ........................................................................................................ 98
5.6 MACRO AND INPUT OUTPUT APPROACH .................................................................................... 98
5.7 USE OF COMPUTABLE GENERAL EQUILIBRIUM (CGE) MODELS .................................................. 99
5.8 HYBRID MODELS .................................................................................................................... 100
6. PATRONAGE DEMAND MEASUREMENT: ESTIMATING TRIP MOVEMENT ....................... 102
6.1 LINKING DEMAND MODELS WITH ECONOMIC APPRAISALS .......................................................... 102
6.2 OUTPUTS .............................................................................................................................. 102
6.3 DEMAND FORECAST ............................................................................................................... 105
6.4 FOUR STEP TRANSPORT MODELS ............................................................................................ 105
6.5 BEHAVIOURAL TRAVEL DEMAND MODELS ................................................................................. 105
6.6 LINKED URBAN LAND USE AND TRANSPORT MODELS ................................................................. 106
6.7 INTEGRATED URBAN LAND USE AND TRANSPORT MODELS ......................................................... 106
6.8 GENERALISED COST SPECIFICATION ....................................................................................... 106
6.9 DEMAND MODELS USED IN THE TRANSPORT CLUSTER: STRATEGIC TRAVEL MODEL (STM) ........ 107
6.10 DEMAND MODELS USED IN THE TRANSPORT CLUSTER: STRATEGIC FREIGHT MODEL (SFM) ...... 108
6.11 DEMAND MODELS USED IN THE TRANSPORT CLUSTER: ROAD TRAFFIC MODELS ......................... 108
6.12 DEMAND MODELS USED IN THE TRANSPORT CLUSTER: RAIL PATRONAGE FORECASTS ............... 112
6.13 BUS PATRONAGE FORECAST .................................................................................................. 113
6.14 FIXED TRIP MATRIX AND VARIABLE TRIP MATRIX TECHNIQUES ................................................ 113
6.15 WHEN TO USE THE VARIABLE TRIP MATRIX ............................................................................... 114
6.16 VARIABLE TRIP MATRIX IN TRANSPORT MODELLING .................................................................. 114
6.17 BENEFIT ESTIMATE IN VARIABLE MATRIX TECHNIQUE ................................................................ 114
6.18 ECONOMIC PARAMETERS TO SUPPORT VARIABLE MATRIX TECHNIQUE ....................................... 115
7. ESTIMATING TRAVEL TIME RELIABILITY .............................................................................. 116
7.1 FRAMEWORK FOR ESTIMATING TRAVEL TIME RELIABILITY BENEFITS ........................................ 117
7.2 KEY STEPS IN ESTIMATING TRAVEL TIME RELIABILITY BENEFITS .............................................. 118
7.2.1 Estimate the expected travel time variability ............................................................... 118
7.2.2 Estimate the buffer time applied by drivers as a collective group ............................... 120
7.2.3 Estimate the economic benefit of travel time reliability ............................................... 121
7.3 OTHER MODELS FOR ESTIMATING TRAVEL TIME RELIABILITY BENEFITS ................................... 123
7.3.1 RMS-ISG Model .......................................................................................................... 123
7.3.2 UK Model ..................................................................................................................... 123
7.4 USING PUBLIC TRANSPORT INFORMATION AND PRIORITY SYSTEMS (PTIPS) AND OPAL DATA IN
MEASURING TRAVEL TIME VARIABILITY ................................................................................................ 124
8. PRACTICE GUIDE – CASE STUDIES ....................................................................................... 126
8.1 ECONOMIC APPRAISAL OF ROAD UPGRADE AND MAINTENANCE ............................................... 126
8.1.1 HW10 Pacific Highway Devils Pulpit Upgrade: REVS Case Study ............................ 126
8.2 NORTH SYDNEY RAIL FREIGHT CORRIDOR PROGRAM ECONOMIC EVALUATION ........................ 130
8.3 ECONOMIC APPRAISAL OF GROWTH BUSES, INTERCHANGE AND PARKING FACILITIES, INTELLIGENT
TRANSPORT SYSTEMS (ITS) ............................................................................................................. 132
8.3.1 Bus acquisition CBA tool ............................................................................................. 132
8.3.2 Interchanges - Assessment and Ranking ................................................................... 135
8.3.3 Intelligent Transport Systems – CCTV ........................................................................ 145
8.3.4 Intelligent Transport Systems – Variable Message Signs (VMS) ............................... 148
8.3.5 Bicycle facility CBA tool ............................................................................................... 151
8.3.6 High Occupancy Vehicle (HOV) Lanes ....................................................................... 154
8.3.7 Strategic Bus Priority Measures .................................................................................. 157
8.3.8 Economic Appraisal of Clearways Proposals ............................................................. 163
8.3.9 Economic Evaluation of Road Safety Campaigns ...................................................... 170
8.4 ECONOMIC APPRAISAL OF POLICIES AND REGULATIONS .......................................................... 180
8.5 ECONOMIC APPRAISAL OF ICT PROJECTS .............................................................................. 182
8.6 MEASURING DE-CONGESTION BENEFITS IN ECONOMIC APPRAISAL ............................................ 186
8.6.1 Worked example - Light Rail Project ........................................................................... 187
8.6.2 Worked example – Upgrade of Rail Freight Corridor .................................................. 189
9. REPORTING AND PRESENTATION OF ECONOMIC APPRAISAL RESULT ........................ 191
10. PRIORITISATION OF INVESTMENT BASED ON ECONOMIC APPRAISAL RESULTS ........ 195
10.1 INVESTMENT NET STRATEGIC VALUE......................................................................................... 196
10.2 CALCULATED DECISION CRITERIA ............................................................................................. 196
10.3 RANKING PROJECTS ............................................................................................................... 197
10.4 CONSTRAINED OPTIMISATION ................................................................................................... 198
11. POST COMPLETION EVALUATION AND BENEFIT REALISATION ...................................... 199
LIST OF ABBREVIATIONS................................................................................................................ 203
GLOSSARY OF TERMS .................................................................................................................... 206
Appendices

APPENDIX 1 ....................................................................................................................................... 214
AUSTRALIAN ECONOMIC APPRAISAL GUIDELINES
APPENDIX 2 ....................................................................................................................................... 216
REVIEW OF DISCOUNT RATES FOR USE IN ECONOMIC EVALUATION OF TRANSPORT
INVESTMENTS
APPENDIX 3 ....................................................................................................................................... 221
COST BENEFIT ANALYSIS – DISCOUNTED CASH FLOW ANALYSIS (DCF)
APPENDIX 4 ....................................................................................................................................... 225
ECONOMIC PARAMETER VALUES AND VALUATION METHODOLOGIES
APPENDIX 5 ....................................................................................................................................... 311
CONSULTANCY BRIEFING ECONOMIC APPRAISAL SERVICES
APPENDIX 6 ....................................................................................................................................... 321
CHECKLIST FOR THE CONDUCT OF ECONOMIC APPRAISAL
APPENDIX 7 ....................................................................................................................................... 325
SUMMARY OF ENVIRONMENTAL EXTERNALITY PARAMETERS & METHODOLOGY
APPENDIX 8 ....................................................................................................................................... 328
APPRAISAL SUMMARY TABLE
APPENDIX 9 ....................................................................................................................................... 330
TECHNICAL APPENDIX – CONSUMER SURPLUS AND LOGSUM MEASURE
APPENDIX 10 ..................................................................................................................................... 335
PROBABILISTIC COST BENEFIT ANALYSIS
APPENDIX 11 ..................................................................................................................................... 341
SOCIAL INCLUSION INDEX
APPENDIX 12 ..................................................................................................................................... 345
WIDER ECONOMIC BENEFITS
List of Tables
Table 1.1 Funding and Assessment Framework of Commonwealth and State Governments
Table 2.1 List of Benefits and Costs
Table 2.2 CBA Summary Results
Table 2.3 CBA Benefit Components
Table 2.4 Cost Variation in Estimates
Table 2.5 Risk Register Template
Table 2.6 Risk Evaluation Table
Table 2.7 Incremental Benefit Cost Ratio Calculation
Table 3.1 Elasticity of productivity with respect to employment density by industry
Table 3.2 Wider economic impacts-Sydney Melbourne High Speed Rail
Table 3.3 Wider Economic Benefits Summary
Table 3.4 RMS Road Noise Level Criteria
Table 3.5 Unit costs of road maintenance, by vehicle types
Table 4.1 Land use impacts
Table 5.1 Effects of Improved Freight Transport and Logistic Re-organisation
Table 6.1 Levels of traffic modelling
Table 7.1 Equation parameters for estimating travel time variability
Table 7.2 Applicability ratios of buffer time for different trip purposes
Table 7.3 Adjustment factors for variability calculation
Table 7.4 Regression coefficients – ISG Model for Reliability Calculations
Table 8.1(a) Traffic Forecast – Pacific Highway Upgrade REVS Study
Table 8.1(b) Traffic Composition – Pacific Highway Upgrade REVS Study
Table 8.1(c) Capital Cost – Pacific Highway Upgrade REVS Study
Table 8.1(d) Summary of Results – Pacific Highway Upgrade REVS Study
Table 8.2(a) North Sydney Freight Corridor Stage projects
Table 8.2(b) Forecast demand (annual tonnage)
Table 8.2(c) North Sydney Freight Corridor Summary of Economic Results
Table 8.3(a) AST Application: Transport Objectives, Criteria and Suggested Scores
Table 8.3(b) Points for Hybrid B-C Score
Table 8.3(c) Assessment of Projects/Programs/Options Based on Qualitative Attributes
Table 8.3(d) Appraisal Summary Table- Interchange Projects Scores
Table 8.3(e) APT Scores and Costs
Table 8.3(f) Capital, operational and maintenance costs
Table 8.3(g) Travel Time and Average Speeds
Table 8.3(h) Vehicle kilometres travelled
Table 8.3(i) Emission rate and unit cost of emission
Table 8.3(j) Economic evaluation results
Table 8.3(k) Traffic models, evaluation tools and methodologies
Table 8.3(l) Crash history
Table 8.3(m) Cost of advertising campaigns
Table 8.3(n) Base case crashes due to mobile phone use
Table 8.3(o) Contribution of key factors in road safety campaigns
Table 8.3(p) Fatalities, injuries and PDO crashes before and after safety campaigns
Table 8.3(q) Economic parameters in estimating reduction benefits
Table 8.3(r) Undiscounted costs and benefits is safety campaigns
Table 8.3(s) Summary of CBA results – safety campaigns
Table 8.4(a) ICT Project Treasury Requirements
Table 8.4(b) ICT Reinvestment Pool Process and Schedule
Table 8.4(c) ICT Investment Benefits
Table 9.1 Transport NSW Economic Appraisal Summary Report
Table 10.1 Core Functions, Optimisation Strategy and Methodologies
Table 10.2: Decision Criteria
Table 10.3: Ranking projects