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The Basis for Decisions on UK Major Transport Projects
Chris Smith
UK Department for Transport
Overview of presentation
• Outline of the way transport is organised in the UK• Brief discussion of heavy rail• Brief outline of evolving UK policy framework & lessons
learned• Outline of steps in planning process for major projects• Overview of basis for decision making
– The New Approach To Appraisal (NATA)– Value for Money (VfM)
• Some details of particular importance• Future developments in methods• Lessons learned
Types of major projects
• The strategic road network– Responsibility of the Secretary of State for Transport– Managed by the Highways Agency (HA), part of the
Department for Transport (DfT)• The local road network and local public transport
– Responsibility of, and managed by local highway authorities (LAs)
– Major schemes usually DfT funded• Heavy rail network
– Largely privatised – Network Rail, train operating companies
– Significant element of funding from DfT
Heavy Rail
• Planning process is different from that for road and other public transport– Reflects the structure of the rail industry in UK– Operational and engineering considerations a major factor
• But there are many similarities– Project identification driven by wider land use planning
considerations– Projects appraised within the NATA framework– Modelling, cost benefit analysis, environmental assessment
processes generally consistent – variations reflect nature of rail– Ministerial decisions informed by VfM analysis – provides cross
modal consistency
• Differences not discussed in rest of presentation
UK Policy Framework
• An evolving process– 1998 Roads Review established HA’s Targetted Programme of
Improvements (TPI), Multi-Modal Studies (MMSs) and NATA– MMSs identified further projects to be added to TPI and, to a
limited extent, to local authority plans and for rail– First round Local Transport Plans (2000) identified LA major
projects– Ten Year Plan established 10 year funding package– 2004 ‘Future of Transport’ extended that to 2014-15– Regional funding allocations process introduced 2005
• for HA schemes of regional importance, • LA roads and pt – • aspiration to include regional rail
– Highlighted use of NATA and VfM in decision making and prioritisation
Planning process – to programme entry
• Problem identification– Regional planning process for HA, some LA– Local transport planning process for LA
• Review of possible options to provide a solution– HA/LA– Modelling, CBA, environmental assessment, stakeholder
involvement• Prioritisation within Regional Funding Allocation (RFA)
– Regional bodies• DfT VfM assessment, decision by Ministers on whether
project should enter programme– DfT officials, Ministers– For LA projects, acceptance of case for project, intention to
provide funding– For HA projects, conditional commitment to delivery
Project process – to Public Inquiry
• Detailed design– LA/HA, usually employing consultants – Further modelling, CBA, environmental assessment,
stakeholder involvement– Early contractor involvement (ECI) for HA
• Obtain legal powers– Usually involves a Public Inquiry– Independent inspectors – report to SoS– Objectors test technical case for scheme– Key driver for quality, robustness
Project process - to opening
• Decision by Ministers leading to implementation– For HA, SoS announces decision based on
Inspectors report– For LA, DfT re-examines business case, gives firm
committment to fund, subject to cost– Revised scheme appraisal
• Procurement and implementation– Risk of cost increases may still stop scheme– ECI reduces this risk and speeds up this step– Further appraisal may be needed– For LA schemes, full approval by DfT required before
construction begins
Basis for Decision Making
• For LA major projects, Business Case covers:– Strategic fit with local, regional and national objectives– Appraisal and value for money– Ability to deliver– Sound financial basis– Sound procurement strategy
• These are also key issues for HA major projects
Appraisal
• New Approach To Appraisal (NATA)– Study process
• problem• solutions• preferred option
– Appraisal summary info • Appraisal Summary Table (AST)• local objectives/problems• supporting analyses
The Appraisal Summary Table (AST)Option Description Problems Present Value of Costs to
Public Accounts £m
OBJECTIVE SUB-OBJECTIVE QUALITATIVE IMPACTS QUANTITATIVE ASSESSMENT ASSESSMENT
ENVIRONMENT Noise PVB £m
Local Air Quality Concs wtd for exposure
Greenhouse Gases tonnes of CO2
Landscape Score
Townscape Score
Heritage of Historic Resources Score
Biodiversity Score
Water Environment Score
Physical Fitness Score
Journey Ambience Score
SAFETY Accidents PVB £m
Security Score
ECONOMY Public Accounts Central Govt PVC, Local Govt PVC PVC £m
Business Users & Providers Users PVB, Providers PVB, Other PVB PVB £m
Consumer Users PVB £m
Reliability Score
Wider Economic Impacts Score
ACCESSIBILITY Option values PVB £m
Severance Score
Access to the Transport System
Score
INTEGRATION Transport Interchange Score
Land-Use Policy Score
Other Government Policies Score
The AST Described
• Five objectives, 23 sub-objectives – – Aim to cover 3 dimensions of sustainability: economic,
environmental & social
• Impacts assessed qualitatively, quantitatively &, where possible, in money terms
• Purpose– A concise summary of project impacts– To enable decision makers to assess overall value of
project
Value for Money (VfM)
• Decision makers not comfortable with judgmental assessment based on AST
• Concern externally that elements not valued were not given adequate weight
• VfM aims to combine all impacts in systematic manner
• Leads to standard VfM categories• VFM analysis carried out by DfT, based on
AST
VfM – the details
• Value for money categories– High - where benefits are at least double the costs – Medium - where benefits are between 1.5 and 2
times costs– Low - where benefits are between 1 and 1.5 times
costs– Poor - where benefits are less than costs
• Our stated policy is to generally fund, subject to affordability – most, if not all, projects with high vfm– some, but by no means all, projects with medium VfM– very few projects with low VfM– no projects with poor VfM
VfM – discussion
• VfM is NOT the same as a Benefit to Cost Ratio (BCR)
• Assessment of benefits and disbenefits includes the – Those transport benefits and costs usually included in
the BCR, – Combined with the best available evidence on
impacts that are difficult but tentatively possible to value, such as greenhouse gases (CO2), landscape
– And a judgemental assessment for impacts that can’t be valued, such as heritage, severance
Costs
• Cost increases are a key issue for DfT– Forward planning driven by the availability of funding– Cost increases cause difficulty for DfT financial
planning– Cost increases also reduce the VfM of projects
• So DfT have focussed increased attention on cost estimation, including– Quantified risk assessment (QRA)– Allowance for optimism bias (OB) – high at early
stages, reducing later– Aiming to keep overall costs (base estimate + QRA +
OB) fixed
Distributional issues
• Limited coverage within NATA– Through ‘willingness to pay’ approach to cost-
benefit analysis– As a supporting analysis
• Project process– Projects identified by regional and local
bodies– Regional bodies prioritise projects for funding
within regional funding allocation
Transport Economic Efficiency
Consumers ALL MODES ROAD BUS & COACH RAIL OTHER
User benefits TOTAL Private Cars and LGVs Passengers Passengers
Travel time
Vehicle operating costs
User charges
During Construction & Maintenance
NET CONSUMER BENEFITS (1)
BusinessUser benefits Goods Vehicles Business Cars & LGVs Passengers Freight Passengers
Travel time
Vehicle operating costs
User charges
During Construction & Maintenance
Subtotal (2)
Private sector provider impacts Freight Passengers
Revenue
Operating costs
Investment costs
Grant/subsidy
Subtotal (3)
Other business impacts
Developer contributions (4)
NET BUSINESS IMPACT (5) = (2) + (3) + (4)
TOTAL
Present Value of Transport EconomicEfficiency Benefits
(6) = (1) + (5)
Notes: Benefits appear as positive numbers, while costs appear as negative numbers.
All entries are discounted present values, in 1998 prices and values
Public Accounts table
ALL MODES ROAD BUS AND COACH RAIL OTHER
Local Government Funding TOTAL INFRASTRUCTURE
Revenue
Operating Costs
Investment Costs
Developer and Other Contributions
Grant/Subsidy Payments
NET IMPACT (7)
Central Government Funding
Revenue
Operating costs
Investment Costs
Developer and Other Contributions
Grant/Subsidy Payments
Indirect Tax Revenues
NET IMPACT (8)
TOTAL Present Value of Costs(PVC) (9) = (7) + (8)
Notes: Costs appear as positive numbers, while revenues and ‘Developer and Other Contributions' appear as negativenumbers. All entries are discounted present values, in 1998 prices and values
‘Willingness to pay’ in CBA
• Willingness to pay means that benefits to users include taxes, fares
• Must identify compensating impacts on– Transport providers – government
• For multi-modal studies, impacts by mode– could readily provide splits by purpose, income
groups (depending on model)
• Provides useful, if coarse, info on distributional impacts
Improving the process
• Overall process likely to change– To improve control of costs– To speed up delivery
• Closer integration of heavy rail, especially with respect to appraisal process
• Rolling programme of improvements in modelling and appraisal– Valuation of impacts– Reliability– Wider economic impacts
Valuation of environmental impacts
• Done for noise – guidance February, 2006• Global emissions nearly complete –
guidance within weeks?• Local air quality – need to sort out some
snags• Landscape – primary research initiated• Physical fitness – guidance drafted• Journey ambience – project specific:
crowding on rail, for example
Reliability
• Important for modelling and appraisal• Two key issues:
– Impact of schemes on reliability– Value for improvements in reliability
• Research in UK and Europe on both topics• Some progress in UK
– On appraisal of motorway and dual carriageways
– For urban networks - maybe
Wider economic benefits
• Work has focussed on market imperfections– Agglomeration– Imperfect competition– Increased employment and productivity
• Standard appraisal methods capture most economic benefits
• but wider economic benefits not always trivially small
• Positive benefits more likely than negative
Lessons learnedA good analytic framework
• Helps to separate strong projects from weak
• Reduces scope for benefits optimism
• Helps to defend project against critics
• Can be costly and time consuming (especially modelling)
• Need to identify ways of summarising information for decision makers
Lessons learnedImportance of consistency
• Encourages comparison across wider range of options– Across modes– Between different promoters (HA, LA)
• Ensures a more balanced approach to all projects
• Makes a complex process more transparent for decision makers and for stakeholders
Lessons learnedRobust cost estimates
• Essential for decision making
• And for managing the overall budget
• Important to allow for change as the project develops
• But not to allow costs to drift upwards
