A decision as to whether to invest in a transport project requires many pieces of information to be condensed down to the core factors that will determine whether such an investment is appropriate or not. Typically part of this process is a cost benefit analysis (CBA) and part of this information reduction is to produce a benefit cost ratio (BCR). When the benefits of a candidate project are expected to vary if or when uncertain future transport projects are also delivered then one BCR will not suffice to summarise the value-add proposition of the investment. A range of BCRs most accurately describes the uncertain future when project interdependency exists.
This research report sets out a method to consistently and systematically develop a range of BCRs that can be used within the Waka Kotahi decision-making process when project benefit interdependency exists. The method is developed from a search of literature into project interdependency, programme formation and cost benefit analysis, from an investigation amongst colleagues of current practice and from a sketch model exercise where a 5-project transport model was developed to explore demand growth, congestion and re-routing effects. The method was then illustrated and tested on a cycleway programme in Christchurch, leading to further refinement and a recommended method to be used for New Zealand transport CBAs.
The practical issues raised by project interdependency are often uncertainty, scale and potentially bias. The benefit of a proposed transport project can increase if complementary future transport projects are also delivered or can decrease if future projects are competing, such as when an alternative route or mode is provided. In principle, the true marginal benefit of a candidate project can be measured by the decremental test, found by modelling all projects with and without the candidate project. In practice, it is often unknown whether future projects will actually be delivered, even when those projects sit within the long-term plans of government bodies. Hence a process is required to establish those future transport projects that are likely to create project interdependency, which can be many, to then estimate the scale of interdependency, which can require much modelling, and to finally present what may be a complex situation to decision makers in an efficient and transparent manner. Also the process is required to counter potential behavioural biases that can lead to competing projects being dismissed prematurely, or simply not searched for.
Two key components of the recommended method are to reduce the scale of the transport modelling for a large number of project permutations and to standardise the BCRs to be reported. The core steps within the method are to (1) to identify projects that are expected to be interdependent with the candidate project(s), (2) group projects for modelling and reporting purposes by the nature of their interdependence and by where they sit within the institutional planning process, (3) phase the modelling of future project scenarios in a manner to accumulate the information required and at the same time test whether further modelling would materially alter results and (4) report multiple BCRs in a format that shows the increasing uncertainty about each being attained, albeit the actual level of uncertainty may be unknown. The advantages of the method are that project interdependency is searched for and taken into account in a manner that is efficient and provides a transparent result to decision makers. The disadvantages of the method are the reliance on expert judgement at stages within the analysis and that the range of BCRs reported still do not fully capture the range of possibilities. It contextual as to whether the complexity introduced into the analysis is an advantage or disadvantage – it is definitely more work for analysts and more information for decision makers to take into account, and this will improve decision making. Improved decision making can only be an advantage. However, where projects already have a robust business case then the additional information from the interdependency analysis may offer little added value to decision making.
Full report:
BYETT, A., J.J. LAIRD, P. ROBERTS and J. FALCONER (2021) Cost–benefit appraisal methods for interrelated and interdependent projects/schemes. Waka Kotahi (NZ Transport Agency) Research Report RR 684. https://www.nzta.govt.nz/resources/research/reports/684/