Principles and Guidelines for Economic Appraisal of Transport

308 Pages·2015·6.21 MB·English

Principles and Guidelines for Economic Appraisal
of Transport Investment and Initiatives
Transport Economic Appraisal Guidelines
March 2016
Principles and Guidelines for Economic
Appraisal of Transport Investment and
Initiatives
Transport Economic Appraisal Guidelines

Evaluation and Benefits, Finance and Investment
March 2016
2
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)
3
FOREWORD
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oft ransspeorrvtiT checeso .n doufec cto noampipcr apirsoavlie dveisd etnhcaaeit d s
soundde cimsaikointn ogw amradksi tnhge isnev estments.
TheT FNSWP rinciapnldGe usi delfoirnE ecso nomAipcp raoifsT arla nsport
InvestamneIdn nti tisaitwtiisvt tehhsiTe nr ansIpnovrets tPmoelnFitrc aym ewaonrdk
aimtsoh elmpa nagers tahTcer raonsssp ortt opC llaaunns cdto enrd euccotn omic
apprabiassaelod n a consisftreanmte woTrhkeu. s ea nda pplicoaftt hieo n
guideflaicnielsei vtaaltueoa fte icoonn oemffiicc ioefin ncvye stpmreonptoa snadl s
contrtiobi umtper orveesdo uarlcleo cbayte inosnu rtihnatgth s et rataelgiigcn ment
andv alfuoemr o neays sesshmaevnbete ecno nsisdteetnetrlmyai cnreotdsh se
Transport cluster.
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thdeo cumteomn atk teh eamc cestsoiu bsleer s.
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ClustTehre.sa eru ep daotnea dna nnubaalsa insda rdei ssemitnota htweeh do le
clusftoceror n tiannucdeo dn sistent application.
Botihn structoarn-dob nalsietndre a inmiondgu laerse p roviidnecdl uding
demonstraantdci uosntso mciassesedt udoinet sh ea pplicoafet cioonno mic
appramiestahloa dnsdm odetlops a rtipcruoljaeprcr tosg,ro aram cst iviintt hiee s
worakr eas.
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revieawnedud p datteoed n hanictrese levaanndce en suardeh eretnobc ees t
practNiecwme e.t hodoalroiegn icelsua dste hdeb ye cormeel etvoae nnts utrhea t
Transipsao ttr htle e adeidnggoe fr obutsrta,n spdaerceinsmtia oknia nngdd riving
valfuoemr o ney.
We welcoymoeu fre edboanct kh idso cumePnlte.as seen adn yc ommenttos
Julieta.Legaspi@troarEn csopnoormti.cn.sAwp.pgroavi.saaul @transport.nsw.gov.au
TimR eardon
Secretary
Contents
FOREWORD BY THE SECRETARY .................................................................................................................................. 4
1 INTRODUCTION .............................................................................................................................................................. 10
1.1 OBJECTIVE OF THIS DOCUMENT ................................................................................................................................. 10
1.2 VARIOUS EXISTING ECONOMIC ANALYSIS GUIDELINES .................................................................................................. 11
1.3 ECONOMIC APPRAISAL WITHIN THE INVESTMENT DECISION FRAMEWORK .................................................................... 12
1.4 PROCESS OF ECONOMIC APPRAISALS ........................................................................................................................ 14
1.5 FUNDING AND ASSESSMENT FRAMEWORK OF GOVERNMENT AGENCIES ....................................................................... 15
2 ECONOMIC APPRAISAL FRAMEWORK, PROCESS AND DECISION CRITERIA ................................................. 18
2.1 INTRODUCTION ......................................................................................................................................................... 18
2.2 COMMON APPROACHES ............................................................................................................................................ 21
2.3 MAJOR STEPS IN COST BENEFIT ANALYSIS ................................................................................................................ 22
2.4 SENSITIVITY AND RISK ANALYSIS ................................................................................................................................ 53
2.5 ECONOMIC VERSUS FINANCIAL ANALYSIS AND SUSTAINABILITY ANALYSIS.................................................................... 57
2.6 OPTIMISATION OF ROAD MAINTENANCE ..................................................................................................................... 59
2.7 ECONOMIC PARAMETERS – MEASUREMENT AND UPDATED VALUES ............................................................................ 67
3 SOCIO, ECONOMIC AND ENVIRONMENTAL ASSESSMENTS ............................................................................... 68
3.1 BROADER ASSESSMENT APPROACHES AND TOOLS .................................................................................................... 68
3.1.1 Multi-Criteria Analysis (MCA) .................................................................................................................. 68
3.1.2 Goal Achievement Matrix (GAM) ............................................................................................................ 69
3.1.3 Strategic Merit Test .................................................................................................................................. 70
3.1.4 Objective Impact Assessment (OIA) ....................................................................................................... 70
3.1.5 Appraisal Summary Technique (AST) .................................................................................................... 71
3.1.6 Economic Impacts Assessment (EIA) .................................................................................................... 71
3.1.7 Wider Economic Benefits ........................................................................................................................ 71
3.2 SAFETY .................................................................................................................................................................... 76
3.2.1 Procedures for Road-based Countermeasures ............................................................................................. 76
3.2.2 Major Steps in the process ................................................................................................................... 77
3.3 ENVIRONMENTAL ASSESSMENT ................................................................................................................................. 79
3.3.1 Introduction .............................................................................................................................................. 79
3.3.2 Environmental Impact Assessment ........................................................................................................ 80
3.3.3 Measurement ........................................................................................................................................... 81
3.3.4 Valuation Methodologies ......................................................................................................................... 81
3.3.5 Environmental Externalities ..................................................................................................................... 86
4 LAND USE INTEGRATION IN ECONOMIC APPRAISAL ........................................................................................... 97
4.1 SPATIAL ZONES ........................................................................................................................................................ 98
4.2 LAND USE VARIABLES REPRESENTED IN A SPATIAL ZONE ............................................................................................. 99
4.3 ACCESSIBILITY.......................................................................................................................................................... 99
4.4 IMPACTS OF TRANSPORT SYSTEM ON LAND USE SYSTEM ...........................................................................................1 01
5 ECONOMIC ANALYSIS OF FREIGHT INITIATIVES ................................................................................................. 104
5.1 FREIGHT VERSUS PASSENGER ................................................................................................................................. 104
5.2 FREIGHT COST BENEFIT ANALYSIS (CBA) .................................................................................................................1 05
5.2.1 Freight investment evaluation framework ............................................................................................. 105
5.2.2 Freight demand forecast .......................................................................................................................1 07
5.2.3 Identification and measurement of freight benefits ...............................................................................1 08
5.3 EVALUATION TECHNIQUES .......................................................................................................................................1 09
5.3.1 Macro and Input Output Approach ........................................................................................................1 09
5.3.2 Use of Computable General Equilibrium Model (CGE) .......................................................................1 11
5.3.3 Hybrid model ..........................................................................................................................................1 12
6 PATRONAGE DEMAND MEASUREMENT: ESTIMATING TRIP MOVEMENT ......................................................1 14
6.1 LINKING DEMAND MODELS WITH ECONOMIC APPRAISALS ...........................................................................................1 14
6.1.1 Outputs ...................................................................................................................................................1 14
6.2 DEMAND FORECAST ................................................................................................................................................1 17
6.2.1 Four step transport models ...................................................................................................................1 17
6.2.2 Behavioural travel demand models ......................................................................................................1 17
5
6.2.3 Linked urban land use and transport models .......................................................................................1 18
6.2.4 Integrated urban land use and transport models .................................................................................1 18
6.2.5 Generalised cost specification ..............................................................................................................1 18
6.3 DEMAND MODELS USED IN TRANSPORT FOR NSW PORTFOLIO..................................................................................1 20
6.3.1 Sydney Strategic Models ......................................................................................................................1 20
6.3.2 Road traffic models ................................................................................................................................ 121
6.4 RAIL PATRONAGE FORECAST ...................................................................................................................................1 25
6.5 BUS PATRONAGE FORECAST ...................................................................................................................................1 25
6.6 FIXED TRIP MATRIX AND VARIABLE TRIP MATRIX TECHNIQUES .................................................................................1 26
6.6.1 Definition ................................................................................................................................................1 26
6.6.2 When to use of the variable trip matrix ................................................................................................. 126
6.6.3 Variable trip matrix in transport modelling ............................................................................................. 126
6.6.4 Benefit estimate in variable matrix technique .......................................................................................1 27
6.6.5 Economic parameters to support variable matrix technique ................................................................ 127
7 ESTIMATING TRAVEL TIME RELIABILITY ...............................................................................................................1 29
7.1 FRAMEWORK FOR ESTIMATING TRAVEL TIME RELIABILITY BENEFITS .........................................................................1 30
7.2 KEY STEPS IN ESTIMATING TRAVEL TIME RELIABILITY BENEFITS ...............................................................................1 31
7.2.1 Estimate the expected travel time variability .........................................................................................1 32
7.2.2 Estimate the buffer time applied by drivers as a collective group ........................................................1 34
7.2.3 Estimate the economic benefit of travel time reliability .........................................................................1 35
7.3 USING PUBLIC TRANSPORT INFORMATION AND PRIORITY SYSTEMS (PTIPS) AND OPAL DATA IN MEASURING TRAVEL TIME
VARIABILITY ....................................................................................................................................................................1 38
8 PRACTICE GUIDE – CASE STUDIES .........................................................................................................................1 40
8.1 ECONOMIC APPRAISAL OF ROAD UPGRADE AND MAINTENANCE ................................................................................1 40
8.1.1 HW10 Pacific Highway Devils Pulpit Upgrade: REVS Case Study .....................................................1 40
8.2 NORTH SYDNEY RAIL FREIGHT CORRIDOR ECONOMIC EVALUATION .........................................................................1 44
8.3 ECONOMIC APPRAISAL OF GROWTH BUSES, INTERCHANGE AND PARKING FACILITIES, INTELLIGENT TRANSPORT SYSTEMS
(ITS) .............................................................................................................................................................................1 46
8.3.1 Bus acquisition CBA tool .......................................................................................................................1 46
8.3.2 Interchanges - Assessment and Ranking ............................................................................................. 149
8.3.3 Intelligent Transport Systems – CCTV ................................................................................................. 159
161
8.3.4 Intelligent Transport Systems – Variable Message Signs (VMS) ........................................................1 62
8.3.5 Bicycle facility CBA tool .........................................................................................................................1 65
8.3.6 High Occupancy Vehicle (HOV) Lanes ................................................................................................ 168
8.3.7 Strategic Bus Priority Measures ............................................................................................................1 71
8.3.8 Economic Appraisal of Clearways Proposals .......................................................................................1 77
8.3.9 Economic Evaluation of Road Safety Campaigns ...............................................................................1 84
8.4 ECONOMIC APPRAISAL OF POLICIES AND REGULATIONS ...........................................................................................1 94
8.5 ECONOMIC APPRAISAL OF ICT PROJECTS ...............................................................................................................1 96
9 REPORTING AND PRESENTATION OF ECONOMIC APPRAISAL RESULT .......................................................2 00
10 PRIORITISATION OF INVESTMENT BASED ON ECONOMIC APPRAISAL RESULTS ...............................2 09
11 POST COMPLETION EVALUATION AND BENEFIT REALISATION ...............................................................2 14
11.1 BENEFITS OF CONDUCTING A POST COMPLETION EVALUATION .................................................................................2 14
11.2 PRINCIPAL AREAS OF INTEREST IN POST COMPLETION REVIEW ................................................................................2 15
11.3 SCOPE OF POST COMPLETION EVALUATION ............................................................................................................2 15
11.4 APPROACHES TO POST COMPLETION EVALUATION ..................................................................................................2 16
11.5 REPORTING POST COMPLETION EVALUATION ..........................................................................................................2 16
11.6 BENEFIT REALISATION ............................................................................................................................................2 17
LIST OF ABBREVIATIONS .............................................................................................................................................2 19
GLOSSARY OF TERMS ..................................................................................................................................................2 22
APPENDIX 1 .....................................................................................................................................................................2 30
AUSTRALIAN ECONOMIC APPRAISAL GUIDELINES .............................................................................................................2 30
APPENDIX 2 .....................................................................................................................................................................2 32
REVIEW OF DISCOUNT RATES FOR USE IN ECONOMIC EVALUATION OF TRANSPORT INVESTMENTS AND INITIATIVES ................2 32
COST BENEFIT ANALYSIS ................................................................................................................................................2 36
APPENDIX 3 DISCOUNTED CASH FLOW ANALYSIS ..............................................................................................................2 36
APPENDIX 4 ECONOMIC PARAMETER VALUES AND VALUATION METHODOLOGIES ................................................................2 39
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APPENDIX 5 .......................................................................................................... ERROR! BOOKMARK NOT DEFINED.
BRIEF TO ECONOMIC APPRAISAL CONSULTANTS AND CBA SUMMARY REPORTING TEMPLATEERROR! BOOKMARK NOT DEFINED.
APPENDIX 6 .....................................................................................................................................................................3 28
CHECKLIST FOR THE CONDUCT OF ECONOMIC APPRAISAL ..................................................................................................3 28
APPENDIX 7 .....................................................................................................................................................................3 31
SUMMARY OF ENVIRONMENTAL EXTERNALITY PARAMETERS & METHODOLOGY ...................................................................3 31
APPENDIX 8 .....................................................................................................................................................................3 34
APPRAISAL SUMMARY TABLE ..........................................................................................................................................3 34
APPENDIX 9 .....................................................................................................................................................................3 36
TECHNICAL APPENDIX- CONSUMER SURPLUS AND LOGSUM MEASURE ..............................................................................3 37
APPENDIX 10 PROBABILISTIC COST BENEFIT ANALYSIS ......................................................................................................3 41
APPENDIX 11 ...................................................................................................................................................................3 47
SOCIAL INCLUSION INDEX ................................................................................................................................................3 47
APPENDIX 12 ...................................................................................................................................................................3 51
WIDER ECONOMIC BENEFITS ..........................................................................................................................................3 51

7
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 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 Form
Table 10.1 Core Functions, Optimisation Strategy and Methodologies

8
List of Figures
Figure 1.1 Transport Investment Decision Framework
Figure 1.2 Cost Benefit Analysis Process
Figure 2.1 Components of an outturn cost estimate
Figure 2.2 Probabilistic cost curve
Figure 2.3 Change in PERS Scores for link characteristics
Figure 2.4 Illustrative pavement cycles
Figure 4.1 Ideal land use transport CBA framework
Figure 4.2 Interaction of land use and transport
Figure 5.1 Freight Economics Influence Diagram
Figure 6.1 Links between economic appraisals and transport modelling
Figure 7.1 Framework for estimating travel time reliability benefits
Figure 8.1 Liverpool to Bankstown bus route
Figure 8.2 Bus lane
Figure 8.3 Framework for economic appraisal of clearway program
Figure 8.4 Environmental emission cost of speed
Figure 8.5 Conceptual framework of CBA for safety campaign
Figure 8.6 Base case for trend for injury crashes
Figure 8.7 Base case trend for PDO crashes
Figure 8.8 CBA of Advertising campaign
Figure 8.9 Advertising and crash reduction effect
Figure 8.10 Impact of advertising campaign over time

9
PRINCIPLES AND GUIDELINES: ECONOMIC APPRAISAL OF
TRANSPORT INVESTMENTS AND INITIATIVES

1. Introduction

The Transport Legislation Amendment Bill 2011, which amends the Transport Administration
Act 1988 and other transport legislation to establish new arrangements for the administration
of the NSW transport sector. The new integrated transport authority – Transport for NSW –
is now responsible for the coordinated delivery of transport services. Transport planning and
service delivery are now consolidated across the transport cluster into the one authority.

Funding decisions are now vested on the integrated authority and thus will require a
consistent framework for assessment of project and program proposals and funding
requirements.

Other changes affecting the NSW transport sector include:
 The need for an integrated approach in addressing the expected growth in freight
and passenger transport task;
 A focus on the relationship between transport infrastructure and economic
productivity and land use;
 The need to appraise new modes; and
 Emerging approaches in forecasting transport demand.

1.1 Objective of this document

The objective of this document is to put together the underlying principles and guidelines to
inform the economic appraisal of transport projects and initiatives. It promotes a standard
appraisal framework to be applied to proposed projects, programs and initiatives within the
NSW transport portfolio. A consistent set of economic parameters and values are also
provided for use in economic appraisal across the transport sector.

The document provides clear exposition of concepts, a logical set of analytical steps,
illustrative calculations, practical advice for dealing with data limitations and references to
reports and tools that can assist practitioners in estimating the benefits and costs of
transport investment projects.

The development of a standard appraisal approach across the NSW transport sector will
ensure multi-modal (i.e. cross agency and network) impacts are not only considered but are
also captured and quantified in the appraisal process. This multi-modal portfolio approach is
likely to increase the comparability of project appraisals and hence, optimise the efficiency of
State-funded capital investment.

The objective of providing overarching guidelines to transport portfolio is to improve the
resource allocation to projects by ensuring that the strategic alignment and value for money
assessment of projects programs and initiatives have been consistently determined across
the transport portfolio. This is to say that a dollar of investment in the road network is treated
as a dollar of investment in the rail network.

This document also presents various remaining economic appraisal issues in relevant sections,
which although may not be totally resolved within the guidelines, are presented clearly and
concisely. The varying interpretation and approaches adopted by various entities in relation to
the issues and possible resolutions are included in the discussions.
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