2.9 Benefit cost ratios
- 2.1 Overview
- 2.2 Social cost benefit analysis and financial analysis
- 2.3 Benefits
- 2.4 External impacts
- 2.5 Costs
- 2.6 Present value and discounting
- 2.7 Time frame
- 2.8 Do minimum and benefit and cost differentials
- 2.9 Benefit cost ratios
- 2.10 Incremental cost benefit analysis
- 2.11 First-year rate of return
- 2.12 Uncertainty and risk
- 2.13 Alternatives and options
- 2.14 Packages
- 2.15 Transport models
- 2.16 Other inputs to funding allocation process
- 2.17 References
2.9 Benefit cost ratios
Introduction
The benefit cost ratio (BCR) of a project is the present value (PV) of net benefits divided by the PV of net costs. A project is regarded as economic or worthy of execution if the PV of its benefits is greater than the PV of its costs, ie, a project is economic if the BCR is greater than 1.0.
National benefit cost ratio
Land Transport NZ uses the national benefit cost ratio (BCRN) as a measure of economic efficiency from a national perspective.
In its basic form, BCRN is defined as:
where:
national economic benefits = net direct and indirect benefits and disbenefits to all affected transport users plus all other monetised impacts.
government costs = net costs to Land Transport NZ and approved organisations.
Note: Where an external service provider is involved, the net costs to government include the 'funding gap' that is paid by local and central government to the service provider so that the service is financially viable to the service provider.
BCRN applies equally to TDM projects, transport services and road infrastructure projects. It indicates whether it is in the national interest to do the project from an economic efficiency perspective.
Government benefit cost ratio
Land Transport NZ also uses a government benefit cost ratio (BCRG) which indicates the monetised benefits obtained for the government expenditure (value for money from a central and local government perspective).
BCRG is defined as:
where:
national economic benefits = net direct and indirect benefits and disbenefits to all affected transport users plus all other monetised impacts.
government costs = net costs to Land Transport NZ and approved organisations.
Note: Where an external service provider is involved, the net costs to government include the 'funding gap' that is paid by local and central government to the service provider so that the service is financially viable to the service provider.
BCRG is equal to BCRN where there is no service provider or non-government contribution.
BCR rounding
The BCR shall be rounded to one decimal place if the ratio is below 10 and to whole numbers if the ratio is above 10.
