2.3 Benefits

Types of benefit

Three types of benefit (or disbenefit) are considered in economic evaluations of transport projects:

• Benefits with monetary values derived from the marketplace, eg, vehicle operating costs and the value of work travel time
• Benefits that have been given a standard monetary value, eg, the statistical value of human life, the value of non-work travel time, the comfort value gained from sealing unsealed roads, the frustration reduction benefit from passing opportunities and the carbon dioxide reduction benefit
• Benefits that have not been given a standard monetary value, either because it is inappropriate or it has not been possible to establish a standard value, eg, cultural, visual or ecological impact.

Benefits of transport projectsmay accrue to both transport users and other parties. Disbenefits are treated as negative benefits.

Assignment of benefit value

Market-based monetary values for the major land transport benefits are provided in this manual. Appendix A8 provides standard monetary values for several external impacts.

There are various techniques that allow economic values to be assigned to benefits, eg, willingness to pay, avoidance or mitigation costs. Where benefits that do not have monetary values in this manual are considered likely to be significant, it may be desirable to undertake such an analysis.

Where no monetary value is available, the benefits should be described and where possible quantified, and also reported as an input into Land transport NZ's funding allocation process (refer to chapter 6 of Land Transport NZ's Programme and funding manual).

Level of data collection and analysis

Generally, all project benefits should be included in the economic analysis. In some cases there are practical limits to the amount of time and energy that can or should be spent in gathering information and calculating total project benefits. If a particular parameter is likely to contribute only a small amount of the total projects benefits, it is unwise to spend significant effort in obtaining this information and the use of the default values contained in appendix A2 may be appropriate. Projects should be considered on a case-by-case basis to determine the appropriate level of data collection and analysis to apply.

Primary benefits

The primary benefits used in economic efficiency evaluation of land transport projects are listed below showing the type of project in which they are normally taken account of.

Primary benefits table

Secondary benefits

The benefits of traffic congestion reduction and improved trip reliability are accounted for by adjusting the primary benefits

• Travel time cost savings
• Vehicle operating cost savings
• Carbon dioxide reduction benefits

Combined benefits

In some simplified procedures, benefit values consisting of combinations of primary benefits are used to simplify the calculations.

National strategic factors

When evaluating projects it is expected that most, and in many cases all, of the benefits will relate to the monetised and non-monetised impacts described in this section and 2.5. However, despite the wide range of factors currently taken into account, there may also be certain national strategic factors that should be included in the analysis, particularly for large projects.

National strategic factors are defined as national benefits that are valued by transport users or communities, but are not included elsewhere in the procedures in this manual. National strategic factors may be incorporated as benefits in the evaluation of a project where they:

• will have a material impact on a project's importance
• comprise national economic benefits
• have not already been counted in the core analysis
• would likely be valued in a 'normal' market.
• The criteria for assessing national strategic factors and their valuation are discussed in more detail in appendix A10.

National strategic factors currently recognised by Land Transport NZ for road projects are described in section 3.5 of this volume. National strategic factors for transport demand management projects are identified in section 3.8 of volume 2 and for transport services proposals in section 7.6 of volume 2.

Other national strategic factor categories may be added to the list over time (particularly where project promoters can show that transport users are willing to pay for a benefit not included in the current procedures), as long as they can be shown to meet the criteria above. Land Transport NZ will consider other potential instances of national strategic factors on a case-by-case basis.

Economies of scale

In some rare situations, it is possible that increased economic activity within an area resulting from a transport improvement may give rise to economies of scale and, therefore, additional economic efficiency improvements. If these efficiency improvements can be clearly identified, they can also be included as benefits in the analysis.

If economies of scale are considered, care must be taken to ensure:

• only the efficiency gain as a result of the economies of scale is included as an additional benefit
• there are no diseconomies of scale created in other areas as a result of transferred economic activity
• there is a clear connection between the efficiency gain and the project being evaluated.

Business benefits

Benefits to businesses are economic transfers rather than national economic benefits and are therefore not included in the economic efficiency calculation. However, they may be quantified and reported as part of the funding allocation process where appropriate - refer to chapter 6 of Land Transport NZ's Programme and funding manual. This is particularly relevant to transport demand management projects

Double counting of benefits

The standard benefits listed in this manual generally constitute the total economic impact of improved levels of service, accessibility or safety. Certain external impacts of projects, such as increased land values, may arise because of the improved level of service and accessibility to nearby areas. These impacts shall be excluded from the evaluation because including them would be double counting.

For example, it would be double counting to claim increased land values as additional benefits if these benefits are merely a capitalisation of road-user benefits. In the case of a TDM project, it would be double counting to include 'saved energy' benefits, vehicle operating costs savings and travel time savings in the same evaluation.

Disbenefits during implementation/construction

Disbenefits considered in the economic evaluation may be restricted to travel time delays only, and do not need to include vehicle operating costs, accident cost, noise, dust, etc.

Where the project/option is offline and the disruption is minimal, there is no need to incorporate the disbenefits in the economic evaluation. Where the impact of disruption is material then the disbenefits of the project/option need to be included in the evaluation.

The impact should be determined through sensitivity analysis, eg. a preliminary estimate of the disbenefits to adjust the BCR. If the adjusted BCR remains within its funding profile level (low, medium, or high), then there is no need to undertake a detailed evaluation of the disbenefits, provided the difference between the BCRs is less than 10%. However, if the adjusted BCR falls to a lower profile level, which could impact the project's priority or funding source, then a detailed evaluation of the disbenefits needs to be undertaken. If the adjusted BCR falls more than 10%, regardless of the funding profile level, then a detailed evaluation should be considered.

Seek guidance from Land Transport NZ if there is any doubt whether or not disbenefits should be taken into account for a particular project.

Equity impacts

The cost benefit analysis methods described in this manual do not directly deal with the incidence of benefits and costs on different sections of the public. Cost benefit analysis only indicates those projects with the largest resource gains per dollars of expenditure, irrespective of whether benefits and costs are evenly distributed or whether costs fall more heavily on some sections of society while benefits accrue mainly to others.

Equity refers to how the benefits and costs of transport projects are distributed across population groups. There are four types of equity related to transport:

• egalitarianism - treating everybody the same, regardless of who they are
• horizontal equity - whether benefits, disbenefits, (including externalities) and costs are applied equally to people and groups in comparable condition
• vertical equity with respect to income - whether lower-income people bear a larger portion of the impacts
• vertical equity with regard to mobility needs and abilities - whether transport systems adequately serve people who are transport disadvantaged.

Methods to disaggregate impacts among socioeconomic groups or geographical areas include:

• spatially based analysis that uses spatial units, such as traffic-analysis zones or census tracts that can be classified by characteristic (income, predominate minority, etc)
• spatial disaggregation, where a geographical information system raster module is used to disaggregate socioeconomic data and impact data to grid cells
• micro-simulation that uses a set of actual or synthetic individuals or households that represent the population.

An analysis of the distribution of benefits and costs among different groups of people is not required for the economic efficiency evaluation of the project. However, reporting of the distribution of benefits and costs, particularly where they relate to the needs of the transport disadvantaged, is part of the funding allocation process.