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Transport Futures Limited
7 Glen Road, Kelburn
Wellington 6012
New Zealand

Mobile: 021 139 4438
Phone: 04 475 7730   

 

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Cost Benefit Analysis

  • Cost benefit analysis is an important technique used to establish   'value for money' and is typically applied to the detailed review of transport packages and proposals. 

Establishing economic value

Internationally, comprehensive cost benefit analysis increasingly aims to reflect ‘total economic value’, including all measurable costs and benefits, including:

  • Direct costs: capital and operational costs
  • Revenues: tolls, fares and other revenue sources
  • Externalities, including: emissions, health, pollutants, congestion, agglomeration, noise and severance
  • Consumer surplus: residual value not captured by revenues
  • Option values: option and non-use values

It is important to make cost benefit analysis as comprehensive as possible, but this is not all that needs to happen in the decision-making process.  This is because, even if the cost benefit analysis does succeed in representing total economic value, it cannot be used to represent all societal values and therefore consideration of non-monetised factors is required.

Importance of sensitivity testing

It is often appropriate to undertake sensitivity testing during cost benefit analysis, for example, to establish the potential variation in benefits in the event of different future scenarios, such as:

  • Significant variations in future fuel costs.
  • Operation of the future transport system under different pricing and charging regimes.
  • The achievement of aspirational policies and strategies (as opposed to 'business as usual' assumptions.

Note: Other value for money techniques may also be appropriate (depending on circumstances) such as cost effectiveness benchmarking, business case (financial) analysis and/or economic impact assessment.

Appraisal > Cost Benefit Analysis