Efficiency

Introduction

For the latest information, please see the Assessment Framework for the 2015-18 NLTP.

The economic efficiency assessment considers how well the proposed solution maximises the value of what is produced from the resources used.

Benefit Cost Ratio

The Benefit Cost Ratio (BCR) is the primary tool to rate the economic efficiency of improvement packages and projects.

All improvement projects other than Minor Improvements, including significant new public transport services, should be supported by the provision of a robust BCR.

The NZ Transport Agency requires that Approved Organisations and the NZTA (state highways) use the NZ Transport Agency Economic Evaluation Manual (Nov 2013) procedures and templates to determine the BCR for projects and packages.

Alternatives to benefit cost analysis

For assessment of road operations, maintenance and renewal programmes and existing public transport services programmes, alternative methods may be used in place of the BCR.

A brief description of these methods is included below:

Non-monetised benefits and additional benefits

If a proposed solution has demonstrable non-monetised benefits that are not included in the BCR, then these should be taken into account and may, if the NZ Transport Agency considers these benefits to be reasonable and significant, result in a higher rating.

Additional benefits are usually in the form of wider economic benefits that are not specifically covered by the NZ Transport Agency’s Economic Evaluation Manual (Nov 2013). The NZ 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

Economic efficiency is not required for some activities.

Activities which are not required to calculate an economic efficiency rating include:

• those in the Transport Planning activity class, incorporating Work Categories 001, 002 and 003
• Total mobility activities, incorporating work categories 517, 519 and 521, and
• SuperGold Card concessions.

Use of generic or default BCRs

In specific cases generic or default BCRs may be used in lieu of a calculated BCR for the activity. These are:

• new Stock Effluent Facilities - a generic BCR of 12 may be applied to an activity instead of a calculated BCR
• projects that can only be evaluated on a 'whole of life cost net present value' basis, e.g. bridge renewals - a default BCR 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)

No BCR or no robust supporting evidence

An activity can be included in a National Land Transport Programme (NLTP) when no economic efficiency assessment has been made or no robust evidence has been provided to support the assessment. In such cases the rating for economic efficieny will default to Low. Unless the activity is an exception, it will not be recommended by the NZ Transport Agency for funding approval.

No rating

When no economic efficiency assessment has been made to support the funding application for an activity, or no robust evidence has been provided to support its assessment, the activity, or combination of activities, will not be given a rating. In other than exceptional situations it will not be eleigible for funding approval.

If the calculated BCR is below 1.0, then the package or project is considered to be economically inefficient. In this case, no rating for economic efficiency will be given. The NZ 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.

Requirements for low rating

A BCR greater than or equal to 1.0 and below 2.0 receives a Low efficiency rating.

The NZ Transport Agency reserves the right to require a peer review of the economic efficiency calculations, including any non-monetised/additional benefits and adverse impacts, regardless of the scope, prior to an investment decision.

Components of maintenance, operations and renewals programmes, and existing public transport services programmes, will be given a low rating when cost effectiveness shows below-average efficiency through benchmarking.

Requirements for medium rating

A BCR greater than or equal to 2.0 and below 4.0 receives a Medium efficiency rating.

Components of maintenance, operations and renewals programmes, and existing public transport services programmes, will be given a medium rating when cost effectiveness shows average efficiency through benchmarking.

Requirements for high rating

A BCR greater than or equal to 4.0 receives a High efficiency rating.

Components of maintenance, operations and renewals programmes, and existing public transport services programmes, will be given a high rating when cost effectiveness shows above-average efficiency through benchmarking.

Assessment of incremental economic efficiency

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