Stephane Larocque – Consulting Practice Leader,Impact Infrastructure

A D E C I S I O N M A K I N G F R A M E W O R K F O R S U S TA I N A B L E I N F R A S T R U C T U R E D E V E L O P M E N T

1 S T I N T E R N AT I O N A L C O N F E R E N C E O N T R A N S P O R T & H E A LT H

July 7th, 2015

2

ECONOMIC EVALUATION OF INFRASTRUCTURE PROJECTS

Financial Analysis (FA): An assessment of the impact of an option on the decision-making organization's own financial costs and revenues.

Life-Cycle Cost Analysis(LCCA): A process for evaluating the total economic cost of an asset by analyzing initial costs and discounted future expenditures, such as operations, maintenance, and repair over the service life of the asset. Does not account for benefits.

Cost Effectiveness Analysis (CEA): An assessment of the costs of alternative options, which all achieve the same objective. The costs need not be restricted to purely financial. The costs are framed as a ratio to a parameter.

Multi-Criteria Analysis (MCA): Establishes preferences between options by reference to an explicit set of objectives that the decision-making body has identified, and for which it has established measurable criteria to assess the extent to which the objectives have been achieved. Quantitative, not monetary.

Cost-Benefit Analysis (CBA): An assessment of alternative options, which quantifies in monetary terms as many of the costs and benefits of a proposal as feasible, including items for which the market does not provide a satisfactory measure of economic value.

CO M M O N T Y P E S O F F O R M A L D EC I S I O N F R A M E WO R K S

3

T R I P L E B OT TO M L I N E A N A LYS I S

Triple Bottom Line Analysis promotes decision-making armed with relevant information from a variety of PERSPECTIVES:• Includes Financial, Social and Environmental Impacts; • Considers costs and benefits based on multiple criteria; • Addresses multiple, conflicting objectives; • Provides clear, defensible, well-documented results; • Identifies key risks; and • Incorporates uncertainty in costs and benefits.

Sustainable development is typically defined as the pattern of development that “meets the needs of the present without compromising the ability of future generations to meet their own needs”

4

S U S TA I N A B L E R E T U R N O N I N V E S T M E N T A N A LYS I S

SROI combines best-practices in CBA, financial analysis, and LCCA methodologies, augmented by:• Accounting for uncertainty using state-of-the-art risk analysis

techniques

SROIEconomic Social Environmental

“Triple Bottom Line Business Case”

5

6

SROI FRAMEWORK OVERVIEW

7

S U S TA I N A B L E R E T U R N O N I N V E S T M E N T ( S R O I ) :T R I P L E B OT TO M L I N E VA LUAT I O N F R A M E W O R K• Monetary valuation of Triple

Bottom Line• Best economics methods• Proven method in multiple

contexts• Applicable for program,

project level decisions• Accounts for Risk and

Uncertainty

Systematic process for calculating and comparing benefits and costs of a project to justify an investment or compare projects. The SROI process accounts for a project’s triple bottom line – its full range of financial, environmental, and social impacts.

8

T H E T R I P L E B OT TO M L I N E F R A M E WO R K

SROI adds to traditional financial analysis the monetized value of non-cash benefits and externalities

9

M O N E T I Z I N G S O C I A L A N D E N V I R O N M E N TA L I M PA C T S DATA S O U R C E S F O R S O C I A L CO S T O F C A R B O N ( C O 2 )

• Includes (but not limited to): • Changes in net agricultural productivity;• Human health impacts;• Property damage from increased flood

risk; and• The value of ecosystem services due to

climate change• 163 peer-reviewed values of the Social

Cost of Carbon collected by HDR (1991-2013)

• Range of values addresses the large degree of uncertainty found within and among CO2 estimation studies

10

M O N E T I Z I N G S O C I A L A N D E N V I R O N M E N TA L I M PA C T SS O C I A L C O S T O F G R E E N H O U S E G A S E S

Greenhouse Gases Expected Mean Value

Probability Distribution

$/Metric Ton (2014 $)

Source

Carbon Dioxide Median $40.46 IWGSCC (2013)CO2 Low $14.79 Nordhaus (2008)

High $118.94 Stern Review (2006)

Methane Median $849.60CH4 Low $310.67

High $2,497.67

Nitrous Oxide Median $12,541.78N20 Low $4,586.03

High $36,870.42

$49.26

$1,034.46

$15,270.60

11

Need to Automate & Standardize

12

T H E S R O I P R O C E S S I S C O M P L E X

• Probabilistic Assessment: Establishing Ranges for Inputs and Produce Risk-Adjusted Outcomes

Monte Carlo Analysis: repeated random sampling to compute or iterate the project cost or schedule many times using input values selected at random from the probability distributions of possible costs or durations, to calculate a distribution of possible total project cost or outcomes.

13

CASE STUDY 1: Capital Metro

Austin, Texas - USA

AU S T I N C A P M E T R OA LT E R N AT I V E S A N A LY Z E D

14

AU S T I N C A P I TA L M E T R OI M PA C T S M O N E T I Z E D

15

AU S T I N C A P M E T R OR E S U LT S

16

F R E E B U S I N E S S C A S E E VA LUATO R E XC E L B A S E D A N D F U L LY D O C U M E N T E D

17

18

Introducing AutoCASE

19

CASE STUDY 2: New York City Transit

New York, New York - USA

D E M O O F AU TO C A S E M O N E T I Z E D T B L S O F T WA R EN E W YO R K C I T Y T R A N S I T C A S E S T U DY

20

NYCT Mother Clara Hale Bus Depot – Harlem, New York•Comprehensive business case on the green roof and related features associated with a $262 million bus depot •Cloud based AutoCASE software used to evaluate the green roof • Prove automated cost benefit and risk analysis as a substitute for expensive

custom studies • Calculates present day financial + social + environmental returns in dollar

units allocated across five different stakeholders groups. •This sustainable project was more expensive from a financial perspective, however, the social and environmental benefits made up for that extra cost.