5. Economic analysis procedure

5.1 Introduction

TBhC projects tend to result in small impacts to a large number of people. They are much more difficult to evaluate than conventional projects because the impact tends to be different for each participant, whereas - for example - with simple road projects most users tend to be attributed the same benefit. This leads to a conflict between procedures that accurately reflect all of the different individual responses to TBhC projects (but which may cost more to actually apply than the cost of the project being evaluated) and procedures that are cost effective to use but that may involve significant approximations and averaging of the effects on different participants.

The analysis procedures recommended in this guidance seek to strike an appropriate balance between these two criteria for most TBhC projects. More detailed, disaggregated analysis, possibly including the use of strategic transport models, may be considered for large scale TBhC projects.

5.2 Stages of analysis

Economic analysis of TBhC initiatives involves the following steps:

Define the type and scope of the TBhC initiative or package that is to be analysed (such as workplace travel plan, school travel plan, household and community based initiatives)
Separate out any 'hard' measures (such as cycling/walking infrastructure or public transport improvements) for separate analysis using relevant guidelines (see Section 1.3)
Identify the target population (such as all employees at a workplace/total population of an area to be covered by a TravelSmart household individualised marketing program)
Determine the costs of the proposal, including costs of any intended follow-up refresher program or ongoing support
Determine the expected level of diversion (the changes in mode shares)
Determine the number of diverted trips per day of each trip type – multiply target population (3) by diversion rate percentages (5) and average daily trips per person
Determine average trip lengths and any other trip changes by different modes
Obtain unit costs for each trip type. Use TBhC-specific unit values provided in this Part (or other standard values, provided that all perceived costs are excluded)
Determine average costs per trip for each trip type - combine average trip lengths (7) with unit costs (8) for each trip type
Determine total costs of each trip type – multiply number of diverted trips (6) by costs per trip (9) for each trip type, separately for the former and new modes
Determine the total perceived net benefits of mode changers
Determine total benefits per day – sum of average trip costs avoided (9) less average trip costs of new trips (10) plus mode changer perceived net benefits (11)
Calculate the annual TBhC benefits – multiply benefits per day (12) by an appropriate annualisation factor
Discount the costs and benefits over the period of analysis (a default analysis period of three years from completion of the initiative is suggested, unless it includes follow-up or ongoing expenditure)
Calculate benefit cost ratio and net present value
Conduct sensitivity tests if required

More details and guidance on the above steps is provided in the following sections. A worked example is provided in Appendix A.

5.3 Project definition

Poor project specification and ‘scope creep’ leading to cost overruns are common problems with public transport projects and other infrastructure projects. TBhC projects are less susceptible to cost overruns because they are relatively predictable. Also, they are scalable and less visible. This means that if unforeseen costs arise during implementation, the coverage of a program may be reduced to keep it within the approved budget without this impacting in a highly visible way on the overall project.

Nevertheless, any reductions in scope will change either the target population of a TBhC initiative or the effectiveness of the initiative, both of which will reduce the overall benefits - so it is important for projects to be well researched, scoped and costed.

Project appraisal normally requires the definition of a Base Case and a Project Case, with project costs and benefits being determined as the differences between these cases. This is simplified for TBhC projects as discussed in the following sections.

5.4 Project costs

Base Case costs will normally include capital and recurrent expenditures needed over the appraisal period in order to continue to provide either the existing services or a variant of these services that offers a similar service level and quality. The Project Case includes corresponding costs for the project scenario, with the project cost being calculated as the difference between the two cost streams. However, TBhC initiatives do not usually result in any savings of potential Base Case costs - so, for TBhC project appraisals, the TBhC initiative can be assumed to be independent of and additional to all other expenditure. The only difference between Base Case and Project Case costs is the cost of the TBhC initiative itself (including any budgeted future year costs such as future refresher/reinforcement exercises or costs of ongoing program support staff) and therefore the estimated cost of the TBhC initiative is used directly as the project cost in the appraisal.

TBhC project costs are likely to include:

Government department staff time for development and facilitation of programs
Production of information and education material
Personnel time and expenses (in-house or consultants) to deliver the program
Small-scale infrastructure or transport service changes

In some places, TBhC initiatives are jointly funded and promoted by state and local governments. Project costs should include the costs incurred by both levels of government.

With workplace travel plans, some of the implementation costs are likely to be incurred by businesses. These do not need to be included in project costs in the economic appraisal as businesses are assumed to gain offsetting benefits that are also not included (and would be difficult for TBhC project proponents to estimate). It is assumed that the benefits that businesses obtain must at least equal, in some form or other, the investment that they make or they would not participate in the travel plan.

All costs should be included for school travel plans, regardless of whether schools are public or private, because all funding for these programs is either from government or fees paid by students, whose benefits are included in the CBA.

Public transport operating costs would need to be included as a cost if the increase in demand resulting from a TBhC project was sufficiently great to require the operation of additional services. It is assumed that for off-peak travel there is generally spare capacity to handle the likely mode changes to public transport resulting from TBhC projects and that there will be no additional public transport operating costs associated at off peak times. Some larger scale household-based projects may result in greater increases in public transport demand but these tend mostly to influence off-peak trips when spare capacity is greatest.

For peak period trips, it is considered that increases in patronage may lead to marginal increases in operating costs (given that existing services are at capacity in peak periods). Therefore, in principle, additional public transport operating costs should be included for new peak period public transport trips resulting from TBhC projects. However, it is considered that if the demand for public transport increases sufficiently to require additional public transport services, these would probably be subject to a separate economic assessment in accordance with the public transport component of the ATAP Guidelines. In this case, the additional public transport operating costs would be included as a cost in that separate analysis and should be ignored in the TBhC appraisal. If the increase in peak period public transport demand from the TBhC project is only small, the potential additional costs of any additional services could also be ignored^[1].

Existing public transport users could experience an increase in crowding costs if a TBhC initiative caused diversion to public transport in peak periods and public transport capacity was not increased. This would be a disbenefit for the TBhC initiative and, if significant, should be included as an additional per-kilometre cost for public transport in the unit values in Table 7.

In general, the costs of post-implementation monitoring should be excluded from the economic appraisal even though this might be a significant cost for TBhC projects and is likely to be included as part of funding requests. This is because monitoring is not specifically included in the costs of other types of projects and should not be an additional hurdle for TBhC projects. Rather, the additional monitoring costs should possibly be regarded the same as research and development or demonstration project expenditure.

5.5 Calculation of project benefits

Benefits are the total resource costs of the avoided private car trips minus the resource costs of the replacement trips on public transport and active transport. As explained in the previous sections, the resource cost changes are calculated by combining mode changer perceived net benefits, resource cost corrections for unperceived costs (and savings) and externalities.

Benefit values are calculated as a total annual benefit of the proposed TBhC project. The procedure for calculating this value is as follows.

5.5.1 Select diversion rates

Select the appropriate set of diversion rates for the type of TBhC project from the range of default diversion rates in Section 3 (or local evidence if this is more relevant and robust). These are a measure of the expected percentage point change in mode share from car as driver to other main modes that have been derived from past experience on similar projects. The diversion rates represent the differences between base case and project case travel behaviour resulting from the TBhC initiative.

5.5.2 Determine number of diverted trips

Determine the number of diverted trips per day for each trip type (see Section 3). Multiply the total target population for the TBhC initiative by the diversion rate for each mode and the estimated daily trips per person. Separate diverted trip totals need to be calculated for each 'from' mode - 'to' mode pair. For example:

Car driver to public transport
Car driver to cycling
Car driver to walking
Car passenger to public transport
Car passenger to cycling
Car passenger to walking.

5.5.3 Trip lengths

Benefits of TBhC projects also depend on the lengths of the car trips that are avoided and the lengths of the replacement trips on other modes. For most TBhC initiatives, the main effect is that trips are still made but they are made by a different mode following the TBhC intervention. The diversion rates in Section 3 are based on all avoided car as driver trips being replaced by trips on other modes (with trip lengths as in Table 9).

Table 9 provides default average trip lengths for different modes in different situations. These have been synthesised from Australia and New Zealand travel survey data for various size cities.

Table 9: Default average trip lengths (km)
	Large cities (pop ≤ 1 million)			Other cities (pop ≤ 1 million)
	Peak	Peak	Off peak	Peak	Peak	Off peak
	To/from CBD	Other destination	All destinations	To/from CBD	Other destination	All destinations
*Commuting*
car driver	14.0	12.5	11.0	12.0	12.0	7.5
car passenger	13.0	11.5	10.0	11.0	11.0	7.5
public transport	18.0	17.0	15.0	13.0	13.0	9.0
cycle	7.0	7.0	5.0	5.0	5.0	4.5
walk	2.0	2.0	2.0	2.0	2.0	2.0

*Other trips*
car driver	10.0	10.0	8.0	10.0	10.0	7.5
car passenger	9.0	9.0	7.5	9.0	9.0	7.5
public transport	12.0	12.0	11.0	10.0	10.0	8.5
cycle	5.0	5.0	4.5	5.0	5.0	4.5
walk	2.0	2.0	2.0	2.0	2.0	2.0

*Primary school*
car driver
car passenger		4.0	4.0		4.0	4.0
public transport		11.5	11.5		10.0	10.0
cycle		2.0	2.0		2.0	2.0
walk		1.0	1.0		1.0	1.0

*Secondary school*
car driver		7.5	7.5		7.5	7.5
car passenger		7.5	7.5		7.5	7.5
public transport		11.5	11.5		11.5	11.5
cycle		3.0	3.0		3.0	3.0
walk		1.5	1.5		1.5	1.5

*Tertiary institution*
car driver		12.5	12.5		10.0	10.0
car passenger		11.0	11.0		10.0	10.0
public transport		17.0	17.0		12.0	12.0
cycle		4.0	4.0		4.0	4.0
walk		1.5	1.5		1.5	1.5

The values in this table are appropriate averages that will be convenient to use for most TBhC project appraisals. Analysts may substitute relevant trip lengths from local surveys if they consider these to be more robust and applicable for their TBhC initiative.

It would not be correct to base the benefit of car trips avoided on the average trip lengths for car as driver from Table 9 and then the cost or benefit of the additional trips by environmentally friendly mode on the average lengths for these modes. This would imply that a 14 km car as driver trip could be replaced by, say, a 7 km cycle trip. Therefore, the costs for car as driver trips are based on the average trip lengths of the modes that people divert to rather than the average for all car as driver trips. This recognises that walk and cycle trips are more likely to replace shorter car trips and, conversely, that long car trips are more likely to divert to public transport. The benefit of avoided car as driver trips reflects a weighted average of the trip lengths of the 'to' modes.

Some TBhC initiatives have a particular emphasis on reducing the number of car trips and the overall distance travelled by combining or 'chaining' some activities that were previously undertaken by separate trips or by eliminating the need to travel altogether (such as teleworking and teleconferencing). For these projects, it would be appropriate to include an additional 'no trip' category to the diversion rates in Section 3 and use the car as driver trip lengths for this 'to' mode in the 'from' mode weighted average trip length calculation. However, for most types of TBhC initiatives this will not be necessary and the diversion rates to other modes in Section 3 can be used without further adjustment.

5.5.4 Unit costs

Obtain unit costs (resource cost corrections and externalities) for each of the parameters shown in Table 7 for trips by:

Car driver
Car passenger
Public transport
Cycling
Walking.

Default unit costs can be obtained from Table 8. Note that some of these are a unit value per kilometre and some are a unit value per trip. Analysts may wish to substitute some values with locally specific estimates. These should be adjusted for the purposes of TBhC economic analysis as specified in Section 4.

5.5.5 Cost per trip

Combine the per kilometre and per trip costs (and benefits) from Table 8 and average trip lengths from Table 9 to calculate the cost per trip (unperceived costs and externalities) for each mode in each of the following situations (as relevant):

Peak and off-peak periods
Large cities and other cities (population less than one million)
To CBD or other destinations
For commuting, other, primary school, secondary school and tertiary education trip purposes.

The results of these calculations are the costs associated with an average trip by each mode in different time periods, locations and trip purposes, and they apply equally in the Base Case and the Project Case. Note that, as shown in Table 8, the per-kilometre and per trip costs include resource cost corrections and externalities (but not user-perceived costs).

Next calculate a weighted average cost per trip for each mode incorporating appropriate proportions of the unit costs for the different situations above. For example, the weighted average cost for car driver trips should reflect the proportions of travel behaviour change that occur in the peak and off-peak periods, which each have different unit costs. Similarly, the costs of public transport trips vary between the peak and off-peak.

Default assumptions for the proportions of travel behaviour change occurring in peak periods are:

Household/community initiatives - 15% peak
Workplace travel plans - 100% peak
School travel plans - 55% peak (assume all 'to school' trips are in peak, 'from school' trips are 10% in peak, 90% in off-peak)

The default assumption of 15 per cent of changed trips in household/community TBhC projects being in the peak period is based on overseas experience that most trip change is off-peak. Estimates from studies indicate a range of 0 – 20 per cent being peak trips. The assumption of 15 per cent peak trips also captures the fact that there are only 230 workdays per person.

5.5.6 Total unperceived costs and benefits for each trip typeJacquie Flintcroft

The costs per trip (resource cost corrections and externalities) from Section 5.5.5 are multiplied by the relevant number of diverted trips per day calculated in Section 5.5.2 to obtain total costs per day for each trip type. The total resource cost corrections and externalities of base case trips that are avoided in the project case (such as car driver trips) are a benefit. The total resource cost corrections and externalities of the diverted trips on the new modes in the project case are a cost (disbenefit), except for trips that have a negative cost, such as cycle and walking trips due to under-perceived health benefits, in which case the trips add to benefits.

5.5.7 Mode changer perceived net benefits

The mode changer perceived net benefit values for people changing from car driver/passenger to public transport and car driver/passenger to cycle/walk are then calculated based on the values in Table 7. The benefit per mode changer is determined by multiplying values from this table by the percentage point change from car to the relevant mode. These benefit values are then multiplied by the relevant number of trips to obtain the total mode changer perceived net benefits for each type of mode change.

5.5.8 Calculate total benefits per day

The total benefits per day are calculated as the total of avoided ‘from mode’ trip costs minus the total of ‘to mode’ trip costs plus the total mode changer perceived net benefits.

The diversion rates for car as driver are always a negative value (percentage point reduction) so when these are combined with the trip costs (which are always positive) the result is a negative value (saving) representing the benefit of avoided trips. Diversion rates for public transport, cycle, and walk are positive values so when these are combined with the cost of a trip the result is positive (a cost) if the additional trips involve net costs, or negative (a benefit) if the trips involve net benefits (such as due to the health benefits of cycling and walking).

5.5.9 Calculate total benefits per year

Multiply the total benefits per day by an appropriate annualisation factor to obtain the total benefits per year.

The following default days per year assumptions can be used unless different local evidence is available:

Household/community initiatives - 365 days
Workplace travel plans - 230 days
School travel plans - 190 days.

5.6 Appraisal period

TBhC appraisals reviewed in the preparation of these Guidelines used appraisal periods between one year and 30 years, with most using appraisal periods of five or 10 years. The appraisal period did not appear to be related to the total project cost but rather to consideration of the likely longevity of the TBhC impacts. It does seem appropriate that TBhC projects should generally use a shorter appraisal period than the standard periods of 30 or 50 years when they are mostly 'soft' measures that do not necessarily generate a permanent change.

A default appraisal period of three years from completion of the initial TBhC implementation (that is, including a three-year benefit stream) is considered appropriate for most TBhC projects. This reflects the experience that behaviour change benefits tend to fade after about three years if there is no further investment in reinforcement or ongoing support after the initial implementation.

A longer appraisal period, up to 10 years, may be considered if a proposed TBhC initiative includes an appropriate level of expenditure on reinforcement and ongoing support programs to maintain the benefits in future years.

If a TBhC initiative includes items of infrastructure that are expected to have a service life longer than 10 years, these should appraised separately in accordance with relevant guidelines.

5.7 Value for money measure

A benefit cost ratio and net present value are appropriate value for money measures for TBhC initiatives.

Project the first year benefits of the TBhC initiative as a uniform annual benefit over the appraisal period and discount the benefit stream to a present value using the standard discount rate. Calculate a present value of costs by discounting any future year implementation, reinforcement and ongoing maintenance costs and summing these together with the year 0 implementation costs.

The benefit cost ratio comprises:

Numerator – discounted net perceived and indirect benefits and disbenefits to all travel behaviour changers, other transport system users affected by the project, and all other external effects
Denominator – discounted costs of the TBhC project to the public sector (Commonwealth, State and other government entities, including local councils).

Calculate a net present value as the discounted benefits less the discounted costs.

[1] Care needs to be taken with TBhC projects that involve both 'hard' and 'soft' initiatives. It is possible for mode changer net benefits of the 'soft' TBhC initiatives to be double counted in the new user benefits of the 'hard' initiative (such as public transport infrastructure or service improvements).