Benefit and cost appraisal

Introduction

The benefit and cost appraisal considers how well the proposed solution maximises the value of what is produced from the resources used, and the timeliness of intervention.

Assessment of improvement activities uses the benefit–cost as the default approach.

Cost-effectiveness and performance comparisons are used for road maintenance and public transport programmes.

Benefit Cost Ratio

The Benefit Cost Ratio (BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. ) is the primary tool to measure the efficiency of improvement programmes and activities.

All improvement activities other than Minor Improvements, including significant improvements of public transport services, should be supported by the provision of a robust BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. .

The Transport Agency requires that Approved Organisations and the Transport Agency (state highways) use the Transport Agency Economic Evaluation Manual procedures and templates to determine the BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. for activities and improvement programmes.

Alternatives to benefit cost ratio

For assessment of road maintenance, public transport programmes, and road safety promotion programmes, alternative methods may be used in place of the BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. .

A brief description of these methods is included below:

Additional guidance and resources may be provided to determine benefit and cost appraisal ratings for each activity class, as required, including:

• Public transport programmes benefit and cost appraisal

Non-monetised benefits and additional benefits

If a proposed solution has demonstrable non-monetised benefits that are not included in the BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. , then these should be taken into account and may, if the Transport Agency considers these benefits to be significant, result in a higher rating.

Additional benefits are usually in the form of wider economic benefits that are not specifically covered by the Transport Agency’s Economic Evaluation Manual. The Transport Agency may consider additional benefits as reasonable and may determine a higher rating as a result. Alternatively, it may consider that the additional benefits should be presented as part of sensitivity analysis, but will not impact the rating.

Exceptions

Benefit and cost appraisal is not required for some activities.

Activities which are not required to calculate a benefit and cost appraisal include:

• individual minor improvements activities, when included in the minor improvements allocation
• Transport planning activities, incorporating work categories 001, 002, 003 and 004
• Road safety promotion activities with a total cost of up to $300,000
• Total mobility activities, incorporating work categories 517, 519 and 521
• SuperGold Card concessions (which are outside of the NLTF The fund established under section 10 of the LTMA ).

Housing Infrastructure Fund Programmes

The benefit cost ratios (BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. ) for HIF activities which provide access to housing development in high growth areas are to be calculated assuming that the level of housing development that cannot occur without the investment is advanced ; the costs and benefits generated by the infrastructure work are brought forward in the BCR calculation.

For example, it is expected by 2030 that a local road connecting lifestyle blocks in a Greenfield area will be widened to arterial standards so as to meet the demand posed by the construction of 1,000 new dwellings that is earmarked for that area. If the project attracts HIF funding, and this advances the road widening by 10 years (2020 rather than 2030), the BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. will be calculated based on the number of new houses previously predicted in 2030 being in place in 2020.

Use of generic or default BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs.

In specific cases generic or default BCRs may be used in lieu of a calculated BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. for the activity. These are:

• Stock Effluent Facilities - a generic BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. of 12 may be applied to a stock effluent facility, as identified in the National Stock Effluent Strategy, instead of a calculated BCR
• Projects which cannot be justified on benefits alone, and are evaluated on a whole of life, net cost present value basis, or where failure is imminent e.g. bridge renewals - a default BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. of 99 may be applied to an activity instead of a calculated BCR (where an improvement component exists in such a project, it must be supported by a calculated BCR). The present value evidence must be attached in TIO The NZTA's web-based funding allocation system. to support the 99 rating.

No other placeholder, generic or default BCRs should be used.

Peer review

The Transport Agency reserves the right to require a peer review of benefit and cost appraisal determinations and measures, including any non-monetised/additional benefits and adverse impacts, regardless of the scope, prior to an investment decision.

Insufficient information (1*, or, Low*)

An activity can be included in the National Land Transport Programme Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities. (NLTP A National Land Transport Programme Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities. adopted by the NZTA under section 19 of the LTMA, as from time to time amended or varied ) when no benefit and cost appraisal has been made or when no robust evidence is able to be provided to support the assessment. In such cases the rating for benefit and cost appraisal will default to Low. The Transport Agency represents these activities as Low* to nominate that more information is required.

An activity will not be recommended by the Transport Agency for funding approval with a Low* status.

No rating

If the calculated BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. is below 1.0, then the programme or activity is considered to be economically inefficient. In this case, no rating for benefit and cost appraisal will be given. The Transport Agency may, at its discretion, make an assessment of any non-monetised benefits to determine whether the total of monetary and non-monetary benefits outweigh costs.

BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. range

1- 3

All activities with BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. greater than or equal to 1 and below 3 are prioritised in a single band for improvements to local roads, state highways, public transport, and walking and cycling.

BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. range

3 - 5

All activities with BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. greater than or equal to 3 and below 5 are prioritised in a single band for improvements to local roads, state highways, public transport, and walking and cycling.

BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. range > 5

All activities with BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. greater than or equal to 5 are prioritised in a single band for improvements to local roads, state highways, public transport, and walking and cycling.

Benefit and cost appraisal for programmes

Activities which are unable to determine the benefit cost appraisal using a Benefit Cost Ratio, are given a rating using Low, Medium, or High based on their relative cost effectiveness or performance comparisons.

Existing programmes for road maintenance, public transport programmes, road policing, and road safety promotion will be given a rating, through comparative benchmarking Benchmarking is undertaken when the NZTA makes comparisons against similar regions and the national average. A lack of information supporting differences from regional and national averages may result in changes to the efficiency rating for public transport or maintenance programme or a requirement for a study as a condition of investment approval. Trends in these measures over time are used rather than just annual values. , of:

• Low - when cost effectiveness shows below-average efficiency
• Medium - when cost effectiveness shows average efficiency
• High - when cost effectiveness shows above-average efficiency

For public transport, the Public Transport Programmes benefits and cost appraisal process will be used.

Assessment of incremental economic efficiency

Assessment of incremental benefit and cost appraisal is required for option selection, optimisation (other than between projects within packages) and scope change proposals.