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Workshop: Cost-benefit analysis for transport investments

This workshop explores the strengths, weaknesses, and effectiveness of ex-ante and ex-post cost-benefit analysis methodologies for transport investments. It covers topics such as demand forecasting, risk analysis, and the utility of ex-post CBA as a tool for impact evaluation.

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Workshop: Cost-benefit analysis for transport investments

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  1. Workshop with EU Member States: Work Package B Session 4a – Cost-benefit analysis for transport investments 3 February 2011

  2. Content • 1A – The strengths and weaknesses of the ex ante CBA methodologies observed • 1B – The effectiveness of ex ante CBA as a tool supporting decision-making Part 1 EX ANTE CBA • 2A – The utility of ex post CBA • 2B – Ex post CBA as tool for impact evaluation Part 2EX POST CBA

  3. EX ANTE CBA • 1A – Strengths and weaknesses of the ex ante CBA • 1B – Effectiveness of ex ante CBA as a tool supporting decision-making

  4. Scope of ex ante CBA 1A • Scope of ex ante studies focuses on the main impacts • Environmental impacts, wider impacts and impacts on other modes are often excluded

  5. Overview of ex ante analysis 1A EC Guidelines • Good compliance with EC guidelines Choice of marginal values • In some instances significant divergence from HEATCO unit values (e.g. for time savings) Unit costs • Unit costs are not available except in the main at a Level 1 Adherence to guidelines, but are guidelines sufficient?

  6. Demand forecasting 1A Demand forecasting • Dominance of ‘sketch’ models • Scope limited in terms of network, time periods, modes. • No details available on model validation • Significant journey time errors were present in one ex ante CBA • Forecasting simplistic • Based on external growth factors in the main • Only 5 studies considered re-assigned traffic • Only 4 studies included induced traffic Demand forecasting is the foundation for a CBA

  7. Risk analysis 1A Sensitivity tests undertaken Sensitivity tests omitted • Future economic growth • Changing traffic growth • Changing fuel prices • Cost overruns/underspend • Varying the discount rate • Growth in marginal values over time • Operating cost values changing over time • Change in project scope (more or less interventions included) • Project delays/early completion • Length of the appraisal period • Future population growth • Additional development • Impact of other transport infrastructure schemes • Impact of pricing policies Risk analysis has been undertaken, but not all risk bearers identified

  8. EX ANTE CBA • 1A – Strengths and weaknesses of the ex ante CBA • 1B – Effectiveness of ex ante CBA as a tool supporting decision-making

  9. Pros and cons of using ex ante CBA 1B Technical Political Practical • Pros • Focuses on ‘easy’ to measure direct impacts • Cons • A lack of understanding of CBA by officials and politicians • Partial analysis • Modal comparisons difficult • Pros • Prioritisation • Efficient use of resources • Financial viability • Choice between alternatives/options • Optimise timing • Pros • Ensures transparency • Cons • Lack of alignment with policy objectives • Too much transparency

  10. Use of CBA in the 10 case studies 1B Compliance with EC CF application requirements (9) • Limited role of these 10 CBAs in Member States’ decision-making • Why is this the case? Ensure value for money (6) Choose alignment (2) Choose design standards (2) Prioritise elements of national transport strategy (1) Allocate budget and optimise timing (0)

  11. Part 1: Ex ante CBA - Questions 1A – Strengths and weaknesses of CBA • Reasons for divergence of unit values used from HEATCO? • Obstacles to more developed demand modelling and risk analysis? • Need for additional guidance / regulation (e.g. externalities)? 1B – CBA as tool to support decision-making • Why doesn’t ex ante CBA play a more significant role in strategic decision-making?

  12. EX POST CBA • 2A – Utility of ex post CBA? • 2B – Ex post CBA as tool for impact evaluation

  13. The merits of an ex post programme 2A POPE – England’s Highways Agency ex post programme • Objective • Have impacts of highway schemes materialised? • What lessons can be learned? • Method • Before data collection • 1 yr and 5 yr after opening studies • Findings: • Has improved transparency and accountability • Improved practice and development of new techniques (includes bi-annual meta-analysis) • Strengthened evidence base Ex post CBA is seen as an asset by UK transport authorities

  14. What is the utility of ex post CBA? 2A Challenges and requirements faced with ex post CBA • Definition of counterfactual • Background impacts can dominate transport impacts • Simultaneity in the opening of transport investments Definition of counterfactual Institutional memory loss Indirect effects take time to feed into land use and the economy Majority of benefits still occur in the future (there is a need to forecast) Needs a monitoring programme

  15. EX POST CBA • 2A – Utility of ex post CBA? • 2B – Ex post CBA as tool for impact evaluation

  16. Is ex post CBA an appropriate tool for impact evaluation? 2B Pros • Focuses on direct impacts and externalities • Monitoring programme is more straight forward than alternative ex post methods • Gives a single indicator of a project’s worth that avoids double counting Cons • CBA output may not align with policy objectives Alternatives • Suffer from the same challenges and requirements, and may be more difficult to undertake

  17. Part 2: Ex post CBA - Questions 2A – Utility of ex post CBA? • Potential benefits and costs of an ex post evaluation framework in your country? • Do you think that such a framework would be financially viable? 2B – Ex post CBA as tool for impact evaluation • Timing of ex post evaluation? • Is ex post CBA a good methodology to capture relevant impacts? • Should it be complemented or replaced by other methodologies?

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