A systematic process for calculating and comparing gains (benefits) and costs of projects, decisions and policies is the Cost-Benefit Analysis (CBA), which is used world-wide and is the official assessment tool for investments financed by EU funds, in order:
- to determine if it is a sound investment (justification / feasibility);
- to see how it compares with alternative projects (ranking / priority assignment).
Since there is a long history of evaluation of major transport projects such as motorways and railways, CBA may also be a helpful tool to demonstrate cycling potential. A CBA on cycling should follow the same methodology as regular CBAs. Therefore, here we first give a short introduction on how this method is used for other infrastructure than cycling, such as road infrastructure for cars. The methodology of the CBA for infrastructure has developed more and more towards Social Cost Benefit Analysis, including ‘soft’ factors besides ‘hard’ effects reflected by real behaviour and real economic value.
Social Cost Benefit Analyses (SCBA) are used in many western countries as an evaluation tool for infrastructure projects ex ante (Mouter et al., 2013). Making a SCBA gives insight to policymakers and the public into the costs and benefits of an infrastructure project or several alternatives. Not only are the simple costs of building a road, bridge or rail track included but also the ‘soft costs’ such as damage to nature, pollution and accidents. On the benefit side a SCBA calculates the gains of a certain infrastructure project to society in terms of welfare. These benefits stem from all kind of aspects such as travel time gains, better accessibility, safer traffic environment and agglomeration effects.
In the academic spheres as well as in public policy the Societal Cost Benefit Analysis can count on some critics as well (Beukers et al, 2012). Those critics mainly focus on the problems of quantifying ‘soft’ factors due to an infrastructure project, such as effects on nature. However, translating these soft factors into money makes it possible to involve them into the analysis so that a decision is far better justified.
An important methodological issue when performing a CBA is the type of data in terms of revealed or stated preferences. Revealed Preference (RP) shows the real effect of a certain investment or project on consumer behaviour. It is the preference of people shown by hard data on their actual behaviour. For the many effects we want to include in CBA’s it is not easy (or impossible) to get data on revealed preferences. The value of nature or biodiversity in the case of building a road near a forest for instance, cannot be measured out of real consumer behaviour. In these cases we can ask people how much they think this piece of nature or biodiversity is worth. This is called Stated Preference (SP).
In summary, a CBA attempts to measure the positive or negative consequences of a project, which may include:
- Effects on users or participants;
- Effects on non-users or non-participants;
- Externality effects;
- Option value or other social benefits.
From the Dutch experience with cost benefit analysis of cycling investments, we derive that the following roadmap would be best followed when performing such a CBA.
- Problem Analysis
Why is investment in cycling necessary? What problem will it solve? It could be that cyclists don’t have a safe place on a certain street and therefore suffer from many accidents. Or because of the absence of cycling infrastructure cycling numbers are low and thereby pollution of other transport modes is higher than desirable.
- Formulating alternatives
Probably there are several solutions to think of. To stay with the example of low cycling numbers caused by the absence of cycling infrastructure, we could think of building such infrastructure. But cycling promotion would be an alternative investing less money. A cost benefit analysis provides the tool to compare such alternatives in terms of societal and economical costs and benefits besides the plain costs.
- Zero alternative (reference)
Here we define the future situation without the intervention. In the end we compare all alternatives from step 2 with this situation. In this way it is possible to tell the relative costs and benefits compared to the same reference situation.
- Naming effects
In the next phase we make a list of effects we expect to happen as a result of the formulated alternatives. To do so, we look at the long list in section 2, where we defined all possible effects of private investment in cycling.
- Scope of effects
The quantitative data collected in this report is then used to determine parameters for all affects. For example, we found average numbers for days cycled per year in the HEAT example. Combined with the length of a new designed bike path and expected number of users we can calculate the extra kilometres cycled due to the construction of the path. Many of these parameters may be location specific.
- Monetised effects
For all the effects, it is possible to calculate the effects in euros. With parameters on traffic accidents and the value of preventing a deadly victim of an accident for example, we can calculate the societal benefits of building a safer cycling path which means less victims in traffic accidents.
- Making costs and benefits comparable
In order to make alternatives comparable we transfer all costs and benefits to Net Present Values (NPV). An overview of all NPV’s for different alternatives is very useful in the decision making process of weighing different interventions such as constructing a new bike path versus a cycling promotion campaign.
- Sensitivity analysis
In the last step we ‘play’ with some parameters to give insight in the effect of specific parts of a measure. You could think of changing the length of bicycle paths to be constructed or the sum of money invested in a promotion campaign.
- Use as a basis for decision making
In the end, the results of the CBA are to be used as a basis for decision-making. It is important of course to use the results in the most effective way. In many cases this includes the ‘buying in’ of the decision makers. They must understand the method and analysis and ideally adopt it. In general this means that the decision makers should participate in the analysis, so they really get a good sense of the costs and benefits of the projects.
Please contact the partners below with any queries, especially on scientific projects you would like to execute a Cost Benefit analyses on.
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