Why Benefit-cost analyses matter less and how it can be improved for
decision making in the transport sector – Experiences from the Norwegian
National Transport Plan 2010 -2019.
Jan A. Martinsen1, James Odeck 1,2 and Anne Kjerkreit1
1
2
The Norwegian Public Roads Administration, Po Box 8142, 0033 Oslo-N
The Norwegian University of Science and Technology, N-7491 Trondheim-N
Email: [email protected]
Abstract
This paper examines the planning processes of long term transport plans in the context of
Norway to reveal factors that may hinder Benefit Cost Analyses (BCA) as an appropriate tool
for decision making. The objective is to explain why BCA matter less for decision making
and to suggest improvements that can be made to make BCA more useful as a tool for
decision making. The case study is that of the Norwegian National Transport Plan (NTP) for
period 2010-2019 which was approved by the Parliament in the autumn of 2009. We find
that: (i) BCA is mandatory for all projects being assessed for investments but there is no
clear-cut demand that they should be used in decision making; this means that decision
makers are not obliged to use BCA in their decision making (ii) The BCA conducted includes
important factor that are necessary for decision making but are short for distributional impacts
that decision makers care so much about; hence decision tend to deviate from the principals of
BCA, (iii) The decision making process undergoes several stages from the Public Roads
Administration to the Ministry of Transport and Communication and finally to the Parliament
for debate and sanctioning. This means that the different actors may have different priorities
and hence, the use of BCA should not be expected and finally, (iii) the decision makers at
various stages do not fully understand the workings of BCA and therefore BCA is of less
relevance as compared to other objectives. Finally, this paper gives recommendation on how
the use of BCA in decision making can be improved.
© Association for European Transport and contributors 2010
1. Introduction
Transportation researchers, economists and planners have for along time advocated the use of
Benefit - Cost Analysis (BCA) as a tool to assist in decision-making. In a BCA, the economic
advantages (benefits) and the disadvantages (costs) of a project are quantified and measured
in monetary terms. The economic worthiness of a project is determined by calculating the Net
Present Value (NPV) defined as the difference between discounted value of benefit and costs.
If NPV of a project is positive, then that project is deemed economically worthwhile. To rank
projects against each other, the Benefit-Cost Ratio (BCR) defined as the projects NPV divided
by its costs financed through government funding is used. Projects with high BCR are ranked
highest. The advocacy for the use of BCA for evaluating the merits of transportation projects
or portfolios of projects is so immense that virtually all western European countries and the
United States have formalized BCA as tool for evaluating transportation projects.
Despite the planners’ advocacy of BCA as an appropriate tool to assist in decisionmaking and despite the fact that BCA tools are formalized in the transport sectors, a question
that is constantly raised is: does BCA results matter for the decisions that are made and, are
the existing BCA tools used at all in the planning processes? Several authors have attempted
to answer this question and their answers are unanimous; BCA per se plays an insignificant
role for the decisions that are made; see for instance Odeck (1996) Fridstrøm (1997), Nelthorp
and Mackie (2000) and Odeck (2010). The approach used by these authors has been to
regress the observed choices on a set of explanatory variables including BCA components
such as NPV and BCR. While this growing literature has shed light on the use of BCA in
decision making, little focus has been on the planning processes in order to assess or address
factors that may hinder the use BCA in decision making. Investigating the planning process
with respect to e.g., who makes the decisions at different stages and whether BCA is
mandatory or not, is a prerequisite for understanding why BCA may or may not play a role in
decision making.
This paper therefore has the objective of supplementing the existing literature by
examining the planning processes to reveal factors that may hinder BCA to be an appropriate
tool for decision making. The objectives are to explain why BCA matter less for decision
making by studying the decision process rather than analyzing the choices made based on
some statistical methods and, to suggest improvements that can be made to make BCA more
useful as a tool for decision making. The case study is that of the Norwegian National
Transport Plan (NTP) for the period 2010-2019 that was approved by the Parliament in the
autumn of 2009. Consequently, the paper examines: (i) the extent to which BCA is
demanded and emphasized in the planning process and the extent to which those demands are
binding for decision makers, (ii) the extent to which BCA that are conducted accommodates
important factors that renders it useful as a tool for decision making, (iii) the extent to which
the many stages of decision making with different actors distorts or even circumvent the use
of BCA, and finally, (iv) the extent to which the decision makers comprehend the workings
of BCA as a useful tool for decision making.
The rest of the paper is organized as follows. Section 2 is a brief literature review;
Section 3 examines the planning and the decision-making process in the context of the
Norwegian road sector to reveal what role BCA plays in the process. It further describes what
actually took place in the planning process of NTP 2010-2019. Section 4 addresses the factors
that are included in BCA and that can make it useful for decision; Section 5 addresses the
decision makers understanding of BCA and, Section 6 ask the question of what determines
prioritization if BCA does not and is based on interviews with top government officials
© Association for European Transport and contributors 2010
concerned with planning. In Sections 3-6 we draw conclusions under each section.
conclusion is offered section 7.
Finally a
2. Literature review
There are few ex-post studies on investment decisions by policy makers in the
transport sector. Perhaps the first and most notable one is by McFadden (1975, 1976), who
studied the rules underlying freeway route selection by state divisions of highways of the
United States.
As a follow-up to McFadden (1975, 1976), Nilsson (1991) conducted a study of the
ranking of road schemes using Swedish data. He searched for evidence on the relationship
between observed ranking and a set of explanatory variables that includes benefit-cost ratio, a
dummy variable for system effects and a dummy variable to indicate whether the scheme
involved a local, national or European road. He did not find a statistically significant
explanation for decisions made at the national level. At the county level, he found a model
that had some power in explaining the ranking order of the decisions made. Nilsson’s study
triggered a set of related studies in Scandinavia, where impact assessment has traditionally
been conducted to assist in decision-making. Odeck (1991 and 1996) explored the priorities
for road investments in Norway, with particular emphasis on the use of benefit-cost calculus.
He tested whether the observed rankings of the Regional Road Agencies are explained and/or
positively influenced by the benefit-cost ratio. Second, based on a questionnaire survey, he
analysed the tradeoffs made by Regional Road Authorities between an economic welfare
maximizing strategy and the observed strategy. He found the benefit-cost ratio to be a
significant explanatory variable in only four out of fifteen regions in the data set. Fridstrøm
and Elvik (1997) used the Norwegian data in an attempt to reveal the preferences of decision
makers within the Norwegian Public Roads Administration. They used a rank order
multinomial logit model with various explanatory variables, among them costs and benefits in
different forms. They found that cost and benefits are of only marginal importance for project
prioritisation and that smaller projects are preferred to larger ones.
Acknowledging these previous findings, Nyborg (1998) took a different approach to
investigating the impact of benefit-cost analysis on decision-making. She interviewed the
Norwegian members of parliament, the actual decision makers, about their use of benefit-cost
analysis in their political decision making with regards to road investment plans. She found
that most respondents found benefit-cost analysis useful as a screening device for projects
requiring closer political attention, but few seemed to use it for ranking projects. Based on
interviews of politicians in the parliament about the National Transport Plan 2006 - 2015
Ravlum and Sørensen(2005) also showed that BCA did not influence decisions significantly.
The interviews also showed that there is little understanding of the working of BCA and that
the BCA results are distrusted.
Nellthorp and Mackie (2000) reviewed UK data on roads to explore decision-making
patterns. Their data set was composed of not only the impacts that BCA captures but also
impacts not measurable in monetary terms. Using a binary logit model, they tested a variety of
model formulations to find which explained the observed ranking the best. Their findings
showed that a model with variables such as noise, landscape, heritage, reliability and
regeneration was the best in explaining the decisions that were made. These findings are
interesting in the sense that they show that decision makers consider not only BCA but also
other factors that are not valued in monetary terms. This, in turn, suggests that the decision
© Association for European Transport and contributors 2010
maker may use subjective judgement in combining BCA and non-monetised impacts in
his/her decision-making.
The most recent study on this topic area is that of Odeck (2010). Using information
contained in the impact assessment sheet for individual projects, he attempted to reveal the
preference of decision makers with respect to road investment projects to be included in the
Norwegian National Transport Plan (NTP) for the period 2002–2011. He found that most of
the variables determining decisions are actually included in the traditional benefit-cost
analyses, except that the decision maker takes account of them in non-monetary units rather
than in a composite benefit-cost ratio or net present value. His results supported other
previous studies to the extent that a benefit-cost analysis per se does not matter in decisionmaking, but its components matter in a non-monetised form.
The review of these previous studies suggests that the decisions may have been based
on other reasons which are not perfectly captured by BCA or Impact assessments (IA). The
decision makers appear to incorporate other social or political constraints not included in
traditional BCA and IA, and they may have perceived the many factors provided to them to be
unimportant, unreliable or unappreciated. Note that most these studies have used statistical
methods to draw conclusions.
There is, however, one particular shortcoming with these previous studies that the
current paper investigates. Virtually no paper has investigated the planning processes in order
to assess or address factors that may hinder the use BCA in decision making.
3. The planning and the decision making process
In order to understand and improve the role that BCA plays in decision making, an
understanding of the planning and decision making process is necessary. Questions that need
to be addressed include who provides the planning guidelines, who conduct the planning, who
are the stake-holders of the process , who prioritize between maintenance, new investments
and other program areas, and who makes the final decision with respect to projects and
programs that are included in the portfolio. Since, our case study is the Norwegian National
Transport Plan 2010 -2019 (NTP 2010 -2019), it is perhaps better to give an account of its
formal process and how it leads to the selection of programs and projects to enter the
investment portfolio and, then account for what actually took .
It is the Ministry of Transport and Communication (in collaboration with the Ministry
of Fisheries and Coastal Affairs) that is responsible for conducting and producing the NTP.
The NTP is produced every four years and elaborates on how the Government intends to
prioritize resources within the transport sector over the next ten years. The NTP also
addresses other important policy issues. The aim of the NTP is to provide a super ordinate and
technical basis on which to make decisions. The National Transport Plan shall also ensure an
effective use of resources and strengthen the interaction between the various modes of
transport.
For the NTP 2010 -2019, the government transport policy objective was to provide an
effective, universally accessible, safe and environmentally friendly transport system that
covers the Norwegian society’s transport requirements and advances regional development.
The Government adopted the structure of objectives and performance management system as
shown in figure 1 below which should be the basis for the NTP.
© Association for European Transport and contributors 2010
Figure 1: The structure of the Transport policy objectives in the NTP 2010-2019
From the figure is becomes clear that the government had a multitude of objectives which
were not independent of each other and some of which are in conflict with others. This
observation is important, because, as will be pointed out later, it may create problems for the
use of BCA in selecting the most appropriate projects or programs for investments.
For Norway, the formal process of producing NTP 2010-2019 and the decision leading to
the selection of programs and projects that entered the NTP, can be summarised as follows:
© Association for European Transport and contributors 2010
(i)
The Ministry of Transport (MT) issued guidelines to the four transport authorities
(road, rail, air and sea) on the government’s transport policy objectives (confer
figure 1). A preliminary budget for each of the three sectors1 was also provided.
This budget is based on the country’s economic outlook and the sitting
governments’ objectives and priorities. Consequently, the budget for the road
sector measured as a percentage of the government’s total budget may fluctuate
from one planning period to the other.
(ii)
In the guidelines, the transport sectors are asked to describe how the provided
planning budgets are allocated between the following three basic undertakings: (1)
new road investments, (2) Operations and maintenance of existing infrastructure
and, (3) program specific investments e.g., traffic safety and universal design
programs and walking/cycling lanes.
(iii)
In the guidelines, the MT states that it considers BCA as central tool for decision
making. MT therefore, recommends that, within the given budget, a portfolio that
maximizes Net Present Value (NPV) should be presented. Further, the MT
demands that a ―recommended‖ portfolio be presented. In reality, the MT demands
two sets of portfolios but is not specific on what the ―recommended‖ portfolio
should be based on. However, the MT stated that the expected outturn of economic
benefits of both the ―recommended‖ portfolio and NPV based portfolio must be
presented.
(iv)
An important assumption in the MT’s guidelines is that projects that, according to
existing plans and that have been followed up in the succeeding government
budget for 2007 are assumed have been started up, should be considered as already
approved and must enter the list of recommended projects. Other important
conditions that the MT authorizes and that must be taken into account when
preparing the ―recommended‖ list include : (1) projects included in the
recommended portfolio had to conform to reduction of noise and pollution
according to limits set by the pollution law, (2) projects had to conform to
international and EU rules and regulations and, (iii) projects had to accommodate
the sitting governments declarations at the time of taking power and concerning
transport which were; increased emphasis on road transport especially with respect
to operations and maintenances, strengthening of the rail sector, strengthening of
public transport, increased traffic safety with focus on the zero vision and
increased focus to achieve environmental objectives.
(v)
Based on the Ministry’s guidelines, all the four sectors collaborate and formulate
how the government objectives can be met within their respective sectors. , For
instance, the road sector may translate the government objectives to include
achieving a given standard (speed dimension, width of roadway, etc.) for all trunk
roads, reducing the level of accidents, reduction in the emission of CO2 from road
traffic, reducing the number of bottlenecks and so on. It must be admitted
however, that since the planning budgets supplied by MT are for individual
1
The air sector under the autonomy of AVINOR is self financed
© Association for European Transport and contributors 2010
sectors, each sectors more or less conducts its planning individually before
coordinating with each other.
(vi)
Each sector derives its ―recommended‖ set of projects by first including the
approved projects in the portfolio. The already approved projects are many and
take a large share of the provided planning budget. Secondly, each sector considers
the government stated objectives and select projects that best fulfil those
objectives. Here, no sector has a framework or a method of how this is done.
However, it is obvious that the projects that fulfil the government stated objectives
are not necessarily those that are most economically profitable. Further, the
process of selecting projects occurs through discussions with major stake-holders
such as the regional road authorities, municipal and county councils and branch
and industrial organisations; again the outcome is not necessarily in conformity to
the workings of BCA. For instance, bottle-neck projects may not be the most
socio-economically profitable projects but the transport industries that are the
major stake-holders may rank solving them highly.
(vii)
After the discussion process where the government objectives are taken account
of, the sectors sets up a recommended portfolio of projects and calculate their
expected economic outturn. All possible projects and programs are ranked
according to their socioeconomic outturns within the given budget in a
socioeconomic project portfolio and then both the portfolios were presented to the
MT. This is a part of the transport sectors joint NTP proposal to MT.
(viii) On receiving the documents, the MT evaluates them through discussions with
interest groups, transport sectors and ministries. The MT then prepares the final
transport plan which is then discussed in the parliamentary committee for
transport. The parliamentary committee prepares its report. The transport plan
together with the committees report is then tabled in the parliament. Normally, the
plan is sanction and becomes the governments plan for the transport sector in the
coming years. However, the budgets are approved on a year by year basis. If the
government stays in power, it generally will implement the plan according this
document.
A question that can be raised now is whether there are clear indications that the planning
process takes advantage of the workings of BCA. Our answer to this question leads to the
following preposition.
Conclusion 1: The planning process only partially adopts BCA and therefore BCA does not matter
significantly for the decisions that are made. BCA is mandatory for all projects being assessed for
investments, but there is no clear-cut demand that they should be used in decision making for
recommended projects; this means that decisions makers are not obliged to use BCA in their decision
making and they do not.
This preposition derives from the fact that the guidelines from MT for the planning do not
state clearly how BCA is to be used in the selection of the recommended portfolio of projects/
programs. Instead, the guidelines emphasize government objectives and do not even suggest
that BCA should be used to select those projects that best fulfill those objectives yet it is quite
possible to do so. It is promising though that the guidelines requires that an alternative
portfolio should build on the workings of BCA, however it is unclear how that portfolio is
© Association for European Transport and contributors 2010
used in the final decision making for the recommended portfolio. Thus, we are tempted to
conclude with respect to the planning process that, unless the guidelines emphasizes that the
selection of investment portfolio should build on BCA, BCA will seldom matter for the
decision that are made. This observation, to note, has not been made before in the literature.
Despite that formal guidelines are provided, most planning processes will in practice
adapt to the prevailing conditions that may be quite different from one NTP period to the next.
Below we give an account of what actually took place in the NTP 2010-2019 with respect to
the road sector:
1. The main decision makers were the Norwegian Public Roads Administration (NPRA)
and the Ministry of Transport and Communication.
2. The NPRA found that there was a large backlog in maintenance of roads, bridges and
tunnels. As consequence of this, a large share of the given planning budget was
proposed allocated to maintenance. Hence in the allocation of the given budget
between maintenance, new investments and specific programs, an increase in
maintenance was proposed. When allocation the remaining budget, the NPRA used
BCA; an increase in allocations to specific programs especially traffic safety was
found to give higher rate of return as compared to new investments as well specific
programs of, public transport, cycle/walk and environment.
3. As a consequence of 2 above, the budget share proposed allocated to new trunk road
investments was about half of the previous planning period.
4. Because there was a large mass of already approved projects, it was very difficult to
prioritize or discriminate between new investments at least for the first 4-year period
within the allocated planning budget.
5. The Ministry of Transport/the government accepted fully the NPRA recommendations
on how resources were to be used and increased the allocation to the road sector by 60
billion. This amount was allocated to new investments at a late stage in the NTP
process and was purely based on politics and not on BCA.
6. To note, the BCA based portfolio was only presented in appendix in the transport
sectors joint NTP proposal to MT and therefore it seemed as if that portfolio was not
considered seriously.
From the six points above, it becomes clear that the process this time round was very special
where there was no room to prioritize among projects and where the NPRA was the major
decision maker on a large share of the budget.
Conclusion 2: In the proposal from the NPRA, the BCA was used for allocating resources
between new investment and specific programs. However, it was not used for prioritization
between new investment projects. This was mainly because the budget allocated to new road
investments was rather small due to the already approved projects and the focus on road
maintenance and programs rather than new road investments.
© Association for European Transport and contributors 2010
4. Does BCA account for factors that make it useful for decision making?
Given the observations above to the effect that BCA is not emphazised in the planning
process and hence cannot be expected to matter for the final decision making that are made, a
second question to ask is: does the available framework for BCA include all or most factors
that are viewed by the government to matter for transport policy? If BCA fails to do this, then
it would be understandable why BCA does not matter for the decisions that are made. To
answer this question, a short review of the current BCA framework is required while
reflecting on how it takes account of government stated objectives.
The Norwegian framework for BCA is very much like those that are found in other
European countries, especially Great Britain, Sweden and Denmark. The framework includes
impacts that can be valued in monetary terms while those that cannot are assessed
qualitatively and subjectively, and then weighed subjectively against those that are monetized.
It must be admitted that how to aggregate and compare across projects is however difficult.
This difficulty is problematic when evaluating a large number of projects. The impacts that
are assessed in the Norwegian Framework are shown in the Figure 2 below.
Figure 2: Factors included in th Norwegian Benefit-Cost analysis
Benefactors
Impacts
Category
Transport users
Benefit for transport users
Monetized
Operators
Operator benefit
The government
Budget effects
Third parties
Traffic accidents
Noise and air pollution
Residual value
Cost of government funds
Landscape
Non-monetized
Community life and outdoor
life
Natural environment
Cultural heritage
Natural resources
From Figure 2, the monetized impacts are those that enter the NPV; if their net discounted
sum is positive then the project is economically profitable. Further, the non-monetized
impacts (NMI) are evaluated by planners qualitatively and weighed against the NPV. Now, by
subjective evaluation the NMI can be integrated into BCA by considering a project to be
economically profitable if NPV + NMI >0; this is still BCA! In this respect it would be false
to conclude that BCA does not consider the non-monetised impacts. What is needed are
logical arguments as to why NPV+NMI are positive or negative. Thus from Figure 2, it is
clear that the framework for BCA includes a great deal of impacts that should enable its use in
the prioritization of projects.
© Association for European Transport and contributors 2010
There are further arguments as to how BCA framework is useful even when the
overall government objectives are to be taken into account. For instance, take the case of
traffic safety as stated in Figure 1. In such a case, the BCA framework would proceed as
follows: choose the most profitable projects under the assumption of that they lead to
reduction or no increase in the accident rates. For reducing costs for the industries, the BCA
formulation would be to choose the most profitable projects under the assumption that they at
least increase time saving for industrial vehicle traffic which essentially are heavy vehicles.
The entire government objective can be included in one formulation; choose the most
profitable projects under the assumption that all the government stated objectives are fulfilled.
Naturally, this procedure may not work but it surely would elaborate to the decision makers
the magnitudes of socioeconomic gains or losses if specific objectives are to be met.
Currently, this type of information is lacking in the planning process and in the BCA
framework available.
There is however, one issue which decision makers are so concerned about and which
do not enter the BCA framework adequately; this is the distributional impacts. Further, there
are also beliefs that transport investments have a much wider economic impacts than those
included in BCA
The next question that arises is whether the BCA framework is structured to be
informative and flexible in the manner discussed above. The answer is unfortunately no.
Currently, the BCA framework is structured as if it only calculates the NPV and the
subsequent BCR with respect to the monetized impacts and there are no explanations to the
effect that the NPV can be maximized conditional on other objectives as those of the
government including distributional impacts. This leads to the second preposition as follows.
Conclusion 3: The BCA framework available is fairly inclusive of factors that are important
for decision but are not structured adequately to be informative to policy makers. They lack
distributional impacts that decision makers care so much about. This is the major reason why
decision makers distrust in BCA. – Hence, one cannot expect the policy makers to use a tool
they do not understand fully.
Our suggestions from this preposition is that planners who understand the workings of BCA
should inform the decisions makers as well as the ministries responsible for designing the
guidelines on the possibilities that are inherent in BCA as an appropriate and useful tool for
decision making. But the most urgent need is that the planners within the sectors who
supposedly make and understand the BCA frameworks should make an effort to use it fully
when recommending projects.
5. Do the decision makers understand the workings of BCA?
A prerequisite for BCA to be applicable in decision making is that the decision makers must
understand and comprehend the workings of BCA. A question that emerges immediately is
who is the decision maker? In the transportation sector, there has over the decades been a
misunderstanding to the effect that the decision makers of transport policies are the politicians
(or parliamentarians), albeit because they are the ones who finally sanction projects and
allocate resources. As described in Section 3 however, there are several decision makers at
different levels who impact the outcome of resource allocation to the different objectives.
© Association for European Transport and contributors 2010
Further to note, the politicians generally sanction proposals or recommendations from the
ministries concerned who in turn rely on proposals from its sector units. These sector units
may also rely on suggestions from its units of planning and stake-holders. Thus, there is no
one particular more important decision maker than others in the whole planning process; all
are equally important hence, we discuss their understandings of the workings of BCA each in
turn. However, note that for the NTP 2010-2019, it was the NPRA and the Ministry of
Transport and Communication, who were the main decision makers.
Beginning from the lowest to the highest level, the first level of decision making are
the sectors of transport under the Ministry of Transport. These sectors are responsible for their
respective BCA frameworks and, in the planning process; they suggest investment portfolios
according to guidelines provided by the Ministry of Transport and communication. These
sectors are therefore expected to use the framework of BCA which they advocate in some way
when suggesting investment portfolios. So, the question is do they understand the workings of
BCA and find it useful for setting up investment plans? The answer is yes but not fully yes.
The sectors presents portifolis based on BCA and suggest ―recommended‖ portifolios
according to guidelines. However, if they fully understand the workings BCA, their
―recommended‖ portifolios would have been based on BCA subject to government policy
constraints (see how this can be done in Section 3). As it stands in their portfolios this does
not happen. An immediate suggestion is that these sectors should use their competence on
BCA fully in designing portifolios even when government policy constraints are given.
The next level of decision is the Ministry of Transport. In their guidelines for planning
they suggest the importance and usefulness of BCA but leave it out when recommended
portfolios are to be suggested. Here, there are doubts as to whether they fully understand the
workings of BCA beyond the presentation of NPV and BCR. There are reasons to believe
that unless the technicalities of BCA is understood such as doing BCA subject to constraints
on government policy objectives, the Ministry of Transport will not suggest BCA as a tool for
recommending investment portfolios; they would rather suggest a procedure that is edible for
political decision making which is different from BCA the way they know it. Thus, we
conclude that this level of decision making only partially understands the workings of BCA.
One, however, has to acknowledge that there is a high degree of interplay between expert
judgment and politics at the ministerial level and therefore it is difficult to distinguish who
actually do not understand the workings of BCA.
The final level of decision making is the parliament composed of politicians. Their
understanding of BCA cannot be judged in the planning process since investment portfolios
proposed to them are not on the basis of BCA. Instead, their understanding of BCA must be
based on interviews with them on how they consider BCA results in their evaluations. This
study did not interview them, but there are studies that have. For instance Sager and Ravlum
(2005) interviewed the Norwegian members of parliament over three planning periods about
their use of benefit-cost analysis in their political decision making with regards to road
investment plans. They found that most respondents found benefit-cost analysis useful as a
screening device for projects requiring closer political attention, but few seemed to use it for
ranking projects. Further, in discussions e.g., in the media about worthiness of projects, its
constantly being claimed by politicians that BCA leaves out several other important factors;
even in cases it does not. It is therefore doubtful as to whether the decision makers at this
comprehend the workings of BCA. Our doubts here are much bigger than those for the lower
planning levels. This brings us to our third preposition as follows.
Conclusion 4: Decisions makers at all levels understand the basics of BCA. However, the
possible use of BCA as tool that aid in designing policies under certain constraints is not fully
© Association for European Transport and contributors 2010
understood even at the lowest level of decision making. For this reasons, BCA is seldom used
by decision makers at all levels for designing programs.
6. If not BCA, what actually determines the decisions that are made?
While examining the planning process we made an attempt to clarify how projects that
entered the investment portfolio were determined. Because the guidelines were unclear as to
how projects were to be prioritized, we interviewed a selected group of top government
officials that were directly involved in the planning process. Two central questions were
asked regarding the use of BCA as follows: (1) why was BCA used to a lesser extent in the
planning process? (2) How was BCA used and (3) is there any potential for increasing the use
of BCA?
Regarding the first question the most common response that came from the top officials were:
i.
ii.
iii.
iv.
v.
vi.
vii.
BCA does not include or treat important impacts adequately e.g., the impacts for
the industries and distributional impacts
Several important projects, e.g., upgrading of tunnels and bridges, are not
adequately assessed through BCA.
BCA conducted showed that many important projects were not socio-economically
profitable and that could not be true!
Sectors of transport are judged according to goal achievements; the results of BCA
do not necessarily conform to goal achievements.
Priorities were given to conjoined projects and not single projects; BCA does not
take account of this adequately.
The wish to have wide enough roads with two lanes was prioritized. In Norway,
there many too narrow roads that do not allow vehicles to meet without stopping
or slowing down.
Already approved projects had to be included in the list irrespective of their
economic merits.
These views from the top officials verify some of the observation made earlier e.g., there
seem to be a mistrust to the BCA framework and that there is lack of understanding of how
BCA can be tailored for specific planning purposes.
On the next question regarding the how BCA was used if at all, the most common
responses were that (i) BCA was used to judge the distribution of funds between maintenance
new road investments and program areas, (ii) However, for new road investments, BCA could
not be used because the analysis did not adequately show the benefit for the industries and
distributional impacts. These views again verify earlier observations to the effect that the
workings of BCA are not fully understood but with one interesting additional observation;
after all, BCA was used to allocate funds between programme areas and new investements.
The maintenance budget was increased at the expense of investments as huge backlogs were
found. There was also a belief that this was profitable although no BCA methodology was
used to support this. At the same time the budget for small investments (walking- and cycling
schemes, traffic safety schemes etc) was increased at the expense of larger investments
because these were found to be more profitable and to fulfil the objectives better.
© Association for European Transport and contributors 2010
Finally the question concerning the potentials for using BCA produced the following
general response among all officials: BCA cannot be used to derive the final investment
strategy but are useful for illustrating what is foregone if not followed. It seems as if the
officials are sceptical about relying fully on BCA.
The interview discussed above and responses received lead to a fourth preposition:
Conclusion 5: For BCA to be a tool useful for selecting projects, the top officials concerned with
planning need a thorough and in depth understanding of the possibilities that the BCA can offer.
This preposition originates for the simple reason that the responses were based on the lack of
knowledge on how BCA can be tailored to solve the issues that are claimed not to be solvable
within BCA as also noted earlier. The decision makers need to be explained that using BCA
as a tool for selecting projects does not necessarily mean that only the projects with the
highest benefit-cost ratio should be recommended. Using BCA given constraints on
objectives to be met is a fruitful input to decisions where both profitability and superior policy
objectives are taken into account
7. Concluding remarks and suggestions
a. The decisions makers should be presented with alternative
strategies/portifolios Presenting only one strategy in the transport sectors joint
NTP proposal to MT is not meaningful as it does not show what could be
achieved had the funds been used differently.
b. There is a need for an optimization procedure that can combine project impacts
and government objectives to produce an indicator that can be used for
constructing different strategies for fund allocations
c. Efforts should be made to increase the understanding of BCA among decision
makers at all levels. Lack of knowledge on the workings of BCA should not
be a barrier for its use. Further, there need not be a conflict between goal
achievements and BCA; to the contrary they both can be constructed to take
account of each other.
d. BCA should be further developed to take account of more factors, especcially
those that the decision makers care so much about. These include wider
economic impacts and impacts of increased/reduced maintenance and
operations.
e. Presentation of BCA results should be transparent and easy to understand.
f. Finally, whatever the recommendation that are made, they should be verifiable.
That is, if a project is ranked high, they should be a logical explanation as to
why this is so.
© Association for European Transport and contributors 2010
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© Association for European Transport and contributors 2010