Assessment
Framework
Detailed Technical Guidance
January 2016
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
2
Contents
1.
Document Purpose
3
2.
Introduction
4
3.
Infrastructure Priority List
6
4.
Assessment Framework
8
5.
Economic Appraisal
18
6.
Stage 2 Template
21
7.
Stage 3 Template
23
8.
Stage 4 Business Case Template
26
9.
Stage 4 Template Part 1
27
10. Stage 4 Template Part 2
28
11. Stage 4 Template Part 3
42
12. Reporting and Documentation
44
13. Appendix A – Glossary
45
14. Appendix B – Tax Incentives
51
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
1. Document Purpose
This document provides detailed guidance for individuals and organisations who want to nominate potential
infrastructure solutions for inclusion on the Infrastructure Priority List (IPL).
The document comprises three main sections:
1.
A description of the IPL.
2.
A detailed description of the Assessment Framework, the process Infrastructure Australia (IA) uses to assess
potential infrastructure solutions for inclusion on the IPL.
3.
Detailed economic appraisal technical guidance, including references to appropriate standards and approaches.
This detailed guidelines document should be read in conjunction with the Assessment Framework Overview, the
Initiative and Project Prioritisation Process, and the associated templates which are designed to assist nominators in
making submissions. These documents can be found on the Infrastructure Australia website:
www.infrastructureaustralia.gov.au.
As with most appraisal guidelines, this document is a “living” document as it incorporates development of best practice
in the conduct of appraisals and feedback from users. It should be noted that this document currently reflects the
National Guidelines for Transport System Management (NGTSM) which was published in 2004 and 2006, refreshed in
2015, and is currently being updated. The revised guidelines from the second stage of NGTSM update are expected to
be published as the Australian Transport Assessment and Planning (ATAP) Guidelines in 2016. This Assessment
Framework will be updated when the NGTSM update is finalised.
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Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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2. Introduction
This section outlines Infrastructure Australia’s function and role,
and who can make submissions to Infrastructure Australia.
2.1. About Infrastructure Australia
IA is an independent statutory body with a mandate to prioritise and progress nationally significant infrastructure.
IA provides independent research and advice to all levels of government as well as investors and owners of
infrastructure on the projects and reforms Australia needs to support economic growth and quality of life, and to
materially improve national productivity across infrastructure sectors.
IA was established in July 2008 to provide advice to the Australian Government under the Infrastructure Australia Act
2008 (the Act).
In 2014, the Act was amended to give IA new powers, and to create an independent board with the right to appoint its
own Chief Executive Officer. The amended Act came into effect on 1 September 2014.
Under the Act, IA has responsibility to strategically audit Australia's nationally significant infrastructure, and develop
15 year rolling Infrastructure Plans that specify national and state level priorities.
2.2. Infrastructure Australia’s role
IA has a critical role in promoting best practice planning and decision-making; providing a clear national perspective,
improving the linkages between jurisdictions, and shifting decisions about infrastructure from a traditional ‘bottom-up’
project-by-project and jurisdiction-by-jurisdiction approach to a much broader, deeper ‘top down’ focus on national
objectives and priorities.
Importantly, IA seeks to work in collaboration from an early stage with nominators of potential infrastructure solutions
to assist them in defining infrastructure problems, and support them in developing initiatives, and ultimately business
cases, that address those problems.
2.3. Who can make submissions to Infrastructure Australia?
IA welcomes submissions from any individuals or organisations who want to nominate potential infrastructure solutions
for inclusion on the IPL. These submissions can be made at any time. IA encourages nominators to make early contact
with IA to discuss their submissions. This assists IA to advise and support nominators during the submission
development process.
Nominators of potential infrastructure solutions should use the IA templates embedded in the Assessment Framework
Overview document, and include all available supporting material, when making their submission. Project proponents
must include the full business case for the project, as well as any related studies and reports, in their submission to IA.
In the transport sector, a more detailed and expanded process, and guidance for infrastructure planning and assessment,
can be found in the National Guidelines for Transport System Management (NGTSM)1.
When preparing their submission to IA, public sector proponents who subsequently intend to seek Australian
Government funding for transport infrastructure projects should take into account the Australian Government’s
requirements. This can help minimise any subsequent duplication of information. Australian Government requirements
for submissions for Australian Government funded projects are detailed in the Notes on Administration for Land
Transport Infrastructure Projects 2014–15 to 2018–19. 2
Both public and private sector entities will have to demonstrate that the submission has been endorsed by their
governing Board or Executive.
1 http://ngtsmguidelines.com
2 http://investment.infrastructure.gov.au/funding/projects/
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Where private sector proponents are making a submission that involves or impacts on a state or territory government,
they should clearly demonstrate that they have the support of that state or territory government.
Initiatives and projects which have been positively assessed by the IA Board are included on the IPL, which can be
found at: http://infrastructureaustralia.gov.au/projects/infrastructure-priority-list.aspx.
IA publishes project evaluations on its website: http://infrastructureaustralia.gov.au/projects/project-assessments.aspx.
2.4. Where to make submissions
Details of submissions are available on the IA website at:
http://www.infrastructureaustralia.gov.au/priority_list/index.aspx.
Submissions should be lodged using IA’s online portal at
www.infrastructureaustralia.gov.au/infrastructure_priority_list.
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Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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3. Infrastructure Priority List
The IPL is a list of initiatives and projects which have been identified by IA as potential infrastructure solutions to
address nationally significant infrastructure problems and opportunities, including those identified in the 2015
Australian Infrastructure Audit (the Audit). Updates to the IPL will occur periodically, as required.
The IPL represents these potential infrastructure solutions at two different stages of development: initiatives and
projects.
Initiatives are potential infrastructure solutions for which a business case has not yet been completed. Initiatives are
identified through a collaborative process between nominators and IA, using the Audit and other relevant data as
evidence.
Projects are potential infrastructure solutions for which a full business case has completed and positively assessed by
the IA Board. Many projects are first identified as initiatives, and subsequently developed into full business cases.
Nominators for projects must have the technical and legal capacity to develop a full business case, and implement the
project. To differentiate these nominators from the nominators of initiatives, which can be any person or organisation,
nominators for projects are identified using the term “proponent”.
3.1. Criteria used by IA to assess submissions
IA formally assesses submissions at Stage 2 (initiative identification) and Stage 4 (business case assessment).
The Stage 2 assessment comprises:
■
Strategic fit: whether an initiative addresses identified evidence-based problems and opportunities of national
significance.3
The Stage 4 assessment comprises:
■
Strategic fit: whether a proposed project addresses identified evidence-based problems and opportunities of
national significance, and whether it is supported by state or territory governments that would be impacted by the
proposed project;
■
Economic, social and environmental value: a balanced, qualitative and quantitative view of a project’s value; and
■
Deliverability: an assessment of the risk inherent in delivering a project and the proposed measures to mitigate and
manage this risk.
Each submission is assessed by an IA assessor. This assessment is reviewed by the IA Assessment Panel, chaired by the
IA Chief Executive. The IA Chief Executive will then make a recommendation to the IA Board which makes the final
decision about the IA assessment.
3.2. Submissions to IA
In making assessments against these primary criteria, IA encourages submissions which:
■
Address strategic challenges, and /or nationally significant infrastructure problems. These are identified
collaboratively by IA and nominators in Stage 1 of the Assessment Framework.
■
Reflect any national strategies and reforms developed by IA;
■
Are part of a coherent, long-term strategy that adopts a network and / or system-wide view of infrastructure;
■
Utilise infrastructure planning and delivery ‘best practice’. Examples include demand management measures,
governance arrangements and whole-of-life asset management processes;
3
Nationally significant infrastructure is defined in the Infrastructure Australia Act 2008 to include infrastructure in which investment will materially
improve national productivity. In the context of the IPL, therefore, a problem or opportunity of national significance is an infrastructure problem or
opportunity which, when addressed, will result in a material improvement to national productivity.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
■
Clearly identifies and quantifies the problem and explains why solving that particular problem is being prioritised
against other potential problems (for example, by including broader analysis of network wide equity and
distributional issues);
■
Include a package of both reform and investment proposals. All capacity investment initiatives should demonstrate
why making more efficient use of the existing network, for example through regulatory or pricing reform, is not a
better solution; and
■
Are supported by comprehensive and robust evidence. This may include demand/price forecasting, capital and
operating cost estimates, and economic CBA.
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4. Assessment Framework
IA’s Assessment Framework is a structured, staged approach to problem identification and project development and
delivery. It is designed to be simple to use, applicable across sectors, and to align with sector-specific frameworks,
including the NGTSM in Australia (see http://ngtsmguidelines.com).
The NGTSM provides extensive supporting guidance for the planning and assessment of transport proposals (reforms,
initiatives and projects) and is endorsed by IA. IA advises proponents making transport submissions to IA to use the
NGTSM jointly with these IA guidelines. As outlined above, for transport infrastructure proposals where Australian
Government funding will subsequently be sought, proponents should take into account the “Notes on Administration for
Land Transport Infrastructure Projects 2014–15 to 2018–19”4.
The Assessment Framework supports a long-term, strategic approach to addressing Australia’s infrastructure
challenges. At all stages, the Assessment Framework is underpinned by a collaborative relationship between IA and
nominators of initiatives and projects.
The Assessment Framework is used to assess a range of submissions from nominators, including:
■
‘better use’ initiatives, designed to enhance the productivity of existing infrastructure;
■
‘new build’ capital plans;
■
a ‘program’ comprising a number of related initiatives;
■
policy reforms; and
■
strategic infrastructure planning initiatives.
The output of the Assessment Framework is a list of priority initiatives and projects which together make up the IPL.
4.1. Summary of Assessment Framework
The Assessment Framework comprises five sequential stages.
These stages have been developed based on a logical grouping of activities that occur during the development of a
project, and align with Gateway stages used by states and territories.
IA will advise and support proponents through the initiative and project development process, to ultimately deliver a
business case which is strategically sound and takes a comprehensive and balanced economic, social and environmental
perspective.
The five stages of the Assessment Framework are outlined below:
4 http://investment.infrastructure.gov.au/publications/administration/pdf/NoA_November_2014.pdf
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Figure 1: IA’s five-stage Assessment Framework
Together, the five stages outlined above bring together information on each proposal to enable IA’s consideration
against the three assessment components:
■
Strategic fit;
■
Economic, social and environmental value; and
■
Deliverability.
Table 1 overleaf summarises the assessment framework.
The remainder of the section describes the different stages of the framework in detail.
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Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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Table 1: Assessment Framework summary
Core criteria
Stage and purpose
IPL information
requirements
1.
Goal definition and problem identification

Identify problems or opportunities of national significance and assess their impact on jurisdiction goals and
objectives.

Provide supporting evidence, such as the Australian Infrastructure Audit, that supports the assessment of the
problem or opportunity of national significance.
Evidence that supports
the assessment of
problems or
opportunities of national
significance.
2.
Initiative Identification

Proposals in this category identify a nationally significant problem or opportunity, drawing data including the
Australian Infrastructure Audit.

Demonstrate that problems identified are a constraint on the achievement of stated goals

Demonstrate with data rich evidence that it is a priority to address the problem

Analyse the extent of problems and the root causes
Stage 2 template
completed
3.
Options Assessment

Develop a full range of possible options to solve the problem, including reform and Investment proposals (e.g.
reduce demand, improve productivity, increase supply)

There has been considerable work undertaken to develop and analyse potential options

Selection of the preferred option is justified through evidence
Stage 3 template
completed
Economic, social and environmental
value
The proposal addresses a problem or
opportunity of national significance.
The economic, social and environmental
value of the proposed solution is
compelling.
Deliverability - The delivery risk of the
proposal is considered acceptable, or
delivery risks can be sufficiently
mitigated. A plan is in place to realise the
benefits.
4.
Business Case Assessment

A robust cost benefit analysis has been undertaken

Probabilistic risk-based cost estimates have been used in cost benefit analysis and in the funding request

Financial model has been developed demonstrating the viability gap and exploring options for, and impact of,
different funding solutions

A robust delivery plan is in place including adequate cost and risk assessments to provide assurance that the
proposal will be delivered within budget

Where government funding is likely to be sought, analysis of scope for private funding is completed.

The risk based cost estimate, risk assessment, demand models and economic appraisal have been
independently reviewed.
Stage 4 template
completed (for projects)
In development*
5.
Benefits Realisation (in development)

Assessment of whether benefits proposed in business case are being delivered.
In development
Strategic Fit
The initiative will address problems or
opportunities of national significance
that constrain the achievement of stated
goals.
The problems or opportunities are
identified and assessed using valid,
relevant data such as the Australian
Infrastructure Audit.
The economic, social and / or
environmental impacts of the problems
or opportunities are assessed as being
nationally significant.
* The guidance on benefits realisation is being developed by NGTSM as part of its review and updating process.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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4.2. Submission of Programs
IA encourages proponents to submit programs of related initiatives. Such programs will be assessed against the
Assessment Framework, considering the merits of the overall program. For individual proposals from the program to be
recommended for funding, a detailed cost benefit analysis and deliverability assessment must have been completed and
positively assessed by IA, and supported as a nationally significant infrastructure priority by the IA Board.
4.3. Maintaining Confidentiality
Many of the proposals made to IA have been submitted on a confidential basis. Feedback from jurisdictions has
indicated some uncertainty as to the treatment of material provided to IA. In addition, there have been calls for IA to
release more details about the initiatives it has recommended.
In order to ensure maximum transparency while protecting commercial confidences, all proponents are asked to indicate
which parts of their submission have been submitted to IA on a confidential basis and to provide a brief explanation of
the reasons for the request for confidentiality.
Information submitted confidentially will not be released or published by IA without the written consent of the
nominator or proponent.
4.4. Tax Incentives
Tax incentives to support private sector investment in nationally significant infrastructure were introduced on 19 August
2013. These incentives are relevant to submissions to IA. Please refer to Section 14 Appendix B – Tax Incentives of this
Guideline for further details.
4.5. Stage 1: Goal Definition and Problem Identification - Guidance
Stage 1 involves the identification, assessment and prioritisation of problems and opportunities of national significance.
These problems and opportunities of national significance are identified collaboratively between IA and proponents,
drawing on robust evidence. IA will primarily utilise evidence provided by the 2015 Australian Infrastructure Audit,
and welcomes other evidence from jurisdictions. IA and jurisdictions will develop a consensus-based list of nationally
significant problems that will provide a basis for future initiative identification.
There is no IA template to complete for this Stage; rather, jurisdictions are encouraged to prepare material, reports and
data for engagement and discussion with IA.
For each problem, IA and jurisdictions will consider the following components:
■
Problem identification:
‒ Which problems have a material impact on Australia’s productivity, today and in future?
■
Problem assessment:
‒ What are the impacts of the problem: economically, socially and environmentally? This assessment should
comprise valid quantitative data and qualitative information.
‒ What impact does this problem have on the relevant transport, energy, water or telecommunications network?
Are there any other wider, strategic impacts that the problem creates?
‒ Which stakeholders are impacted by the problem? Which stakeholders are not impacted by the problem?
‒ What is the geographical reach of the problem?
‒ When is the problem likely to be experienced? How does it change over time?
‒ What are the root causes of the problem? This should clearly distinguish causes of the problem, as opposed to
symptoms.
‒ Are these root causes expected to change over time?
‒ Are the root causes of the problem pervasive? Will they apply across a number of future scenarios?
This stage is critical in establishing a comprehensive understanding of the problem that will facilitate future options
identification and analysis.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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4.6. Stage 2: Initiative Identification - Guidance
Using the list of problems identified in Stage 1, nominators should identify initiatives to address these problems.
The focus of this stage is the assessment of the strategic fit of potential infrastructure priorities, providing a top-down
approach to ensure that solutions are guided by IA’s national focus. This options development should be conducted in a
logical, structured and comprehensive manner, with the aim of identifying innovative options across a ‘spectrum’ of
relevant criteria. Options should represent a range of reasonable alternatives (both conventional and unconventional) to
solve the problems.
IA supports the consideration of innovative, deliverable options that include both capital and non-capital solutions, as
well as supply- and demand-side solutions.5
As outlined in the Audit, IA notes that supply and demand-side reforms remain unfinished and would welcome the
careful consideration of such reforms from proponents. Reform options are likely to include:
Regulatory initiatives:
■
Changes to the way both infrastructure and infrastructure services markets are regulated from a competition
perspective, for example, changes to regulatory regimes, access regimes, market structures and frameworks;
■
Changes to the regulations surrounding markets: safety; environmental; technical standards; licensing; and
■
Changes to land use and development planning and control to provide a land use solution to infrastructure issues.
Governance initiatives:
■
Changes to administrative and institutional frameworks, such as project appraisal and selection processes, public
service delivery processes, approval processes, coordination and cooperation processes, assurance processes,
contractual provisions, and funding agreements.
Better use initiatives:
■
Technological innovations: intelligent active management systems (e.g. intelligent transport systems, predictive
asset condition monitoring systems, smartcards, smart metering) and product technical standards (e.g. energy
efficiency standards);
■
Influencing behaviours through information: workplace practices, workplace travel planning; information labelling
for energy and water intensive products; and
■
Economic pricing and charging – the introduction of full economic pricing of energy and water sectors; for
instance, time of day pricing for transport and energy; full cost recovery pricing for water.
A key element of this stage is the consideration of how individual initiatives and options can be packaged together – or
better coordinated - for a more efficient and effective outcome.
Figure 2: Model for Considering Reform and Investment Options
Regulatory reform

regulatory or
access regimes


5
Governance reform
Better Use reform
Capital Investment


active
management
systems

market structures
and frameworks
administrative and
institutional
frameworks
Programs of
projects from
across a network


intelligent
transport systems

safety and
environmental
standards
project appraisal and
selection processes

public service
delivery processes
approval processes

smartcards
Expansion of
existing
infrastructure

smart metering

New
infrastructure

licensing

land use and
planning controls

coordination
processes

contractual
provisions

funding agreements
Influencing behaviour:

economic
charging

demand
management
See, for example, Infrastructure Australia’s Report to the Council of Australian Governments, December 2008, p.8.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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IA will assess Stage 2 templates provided by nominators for the strategic fit of identified initiatives. IA will review
jurisdictional plans and strategies and consult directly with nominators to discuss and provide guidance on potential
initiatives of national significance.
Initiatives assessed by the IA Board as nationally significant priorities will be included on the IPL.
4.7. Stage 2: Initiative Identification - Process
Desired outcome: IA Board positively assesses an initiative that meets one or more jurisdiction or national problems.
Initiative is included in the IPL initiative list.
Process:
■
Nominators consider the problems and opportunities of national significance developed in Stage 1 above to identify
initiatives that address these challenges and problems.
■
Nominators complete Stage 2 Initiative Identification Template. In doing so, nominators will:
■
-
Identify problems and opportunities of national significance that would be addressed by a potential initiative,
and justify this assessment.
-
Outline the economic, social and environmental impacts of the problem or opportunity of national significance.
-
Provide other relevant data as available, such as the initiative’s strategic context, integration into the broader
system or network, interdependencies, an indication of potential funding sources (Federal, State, private sector)
and next steps.
-
If any options assessment has been completed, nominators can include this information; however, this is not
mandatory.
An IA Assessor reviews the submitted Initiative Identification Template and completes the relevant IA Assessor
Workbook. This requires assessment of:
-
Is the problem or opportunity nominated considered to be of national significance?
-
What are the economic, social and environmental impacts of the problem or opportunity?
-
Will the initiative address the problem identified?
-
Is there sufficient information about the initiative to justify this assessment?
■
IA Assessor requests any additional information from nominator to resolve any questions.
■
IA Assessor makes a recommendation to the IA Assessment Panel (IAAP).
■
IAAP considers the recommendation and advises the IA CEO, who makes a recommendation to the Board.
■
IA Board makes final determination.
■
Following the Board determination, the updated IPL is published on the IA website.
4.8. Stage 3: Options Assessment - Guidance
Once a number of initiatives have been identified in Stage 2, a structured process should be used to assess options for
implementation. Stage 3 should use a logical and objective assessment of the merits of each option, to move from a
longer list of potential options to a shorter list of potential solutions.
The process of excluding options should be structured, objective, and evidence-based. Options should not be ruled out
on the basis of political or presentational difficulties, or in any way which precludes genuine consideration of certain
options. Proponents should guard against biases during this process, particularly optimism bias and confirmation bias6.
Options should be ruled out only on the basis that they do not address the problem in an effective and efficient way.
The options considered should demonstrate how infrastructure development ‘best practice’ has been actively
considered. This includes consideration of projects from a network- and system-wide context. It includes whole-of-life
consideration of assets, and considers how technology can optimise performance, and how the private sector can best be
involved.
While not mandated, the following process is recommended:
1.
6
Step one: a quantitative multi criteria analysis (MCA) of the long list of initiatives / options, showing, at a high
level, each option’s impact on the goals, objectives and problems identified in Stage 1 of the overall Assessment
Optimism bias is the tendency to underestimate the risk of a negative event or outcome. Confirmation bias is the tendency to gather and analyse
information in a way that supports pre-existing opinions, leading to non-objective, sub-optimal decisions.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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Framework. Proponents should select appropriate criteria to conduct the MCA, and should recognise that the MCA
should act as a guide to support common-sense decision making, rather than being relied on as a ‘standalone’ final
output. Poorer-performing options should be excluded (capturing rationale for the exclusion), with the best
performing options progressing to step two:
2.
Step two is a rapid or high-level cost benefit analysis on the ‘short list’ of options from step one. In addition, a more
detailed multi criteria analysis should be conducted to identify any impacts not captured in the rapid economic
appraisal.
3.
Step three: the final short list of the best-performing options informs the development of the final business case in
Stage 3.
IA’s requirements for detailed economic appraisal are outlined in Section 5 below.
4.9. Stage 3: Options Assessment - Process
Nominators are strongly encouraged to engage with IA during and at the completion of Stage 3. This will ensure that IA
understands how proponents have developed a ‘shortlist’ of options, and how ‘best practice’ policy principles (see
Section 7) have been used to identify and shortlist these options.
As IA does not make a formal approval or rejection decision at this point, IA’s output from this stage is guidance and
advice to proponents about the options to be considered. This does not require IA Board approval.
Desired outcome: IA understands and supports the options being taken into Stage 4 by proponents.
Process:
■
Based on work completed in Stage 2, nominators conduct options identification and assessment process:
■
Identify long list of options to address identified problem.
-
Use multi-criterial analysis (MCA), or other robust and evidence-based processes, to reduce the long list to a
short list.
-
Conduct rapid CBA to reduce the short list to a final list of options to take into final business case.
■
Nominators complete Stage 3 Options Assessment Template.
■
IA Assessor reviews completed Stage 3 Options Assessment Template and completes Initiative Identification
section of the IA Assessor Workbook. This requires assessment of:
-
Are there substantial and material changes from the material provided in the Stage 2 template?
-
Has a comprehensive set of options been developed and assessed?
-
Has a robust process to move from a ‘long list’ to a ‘short list’ of options been completed?
-
Are the criteria used to refine the options list logical and consistent?
-
Has a rapid CBA of shortlisted options been undertaken to identify the preferred option for detailed economic
assessment?
-
Has the nominator fully justified why options have been excluded from continued consideration?
Given the refinement of options, will the option(s) being taken to final business case enable a thorough assessment of
the optimal means of addressing the identified jurisdiction or national problem(s)?
■
IA Assessor requests any additional information from proponent and discusses initiatives with proponent to resolve
any questions.
■
IA Assessor makes a recommendation to the IA Assessment Panel (IAAP).
■
IAAP considers the recommendation and advises the IA CEO.
■
The IA CEO, or delegate, advises the nominator of IA’s view.
While IA does not make a formal decision at Stage 3, it encourages nominators to demonstrate:
■
The options identified will address the identified jurisdiction and national problems.
■
A comprehensive set of options been developed and assessed.
■
They have used IA’s policy principles, and any other ‘best practice’ infrastructure development principles, during
the identification and refinement of options.
■
They have used a robust process to move from a ‘long list’ to a ‘short list’ of options.
■
They have used logical and consistent criteria to refine options.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
■
They have conducted a rapid CBA of shortlisted options to identify the preferred option(s) for detailed economic
assessment.
■
They have justified why some options have been excluded from continued consideration.
■
That the option(s) being taken to final business case will enable a thorough assessment of the optimal means of
addressing the identified problem(s).
4.10.
15
Stage 4: Business Case Assessment - Guidance
Stage 4 involves presentation of detailed analysis of the proponent’s 7 preferred option that is of sufficient detail to
understand and assess:
■
The strategic fit (the basis for which will already have been considered in Stages 1, 2 and 3).
■
Economic, social and environmental value – the proposal’s lifetime benefits should outweigh its lifetime costs (in
discounted terms or in present values); and
■
Deliverability – the proposal must have a clear and robust delivery and risk management plan to ensure its
successful realisation.
The Stage 4 submission should help IA determine:
■
The productivity gains that may be anticipated from each proposal;
■
Any complementary infrastructure required to maximise productivity gains from the proposals;
■
The timeframes for delivering the proposals.
All proposals should include a thorough and detailed economic CBA. This analysis should be of sufficient quality that it
can be used to allow IA to describe the productivity gains that may be anticipated from each proposal.
In preparing and presenting results of detailed economic appraisal, proponents must:
1.
Submit robust and objective cost benefit analysis which is supported by strong evidence. Full transparency of
the assumptions, parameters and values which are used in each cost benefit analysis is required. For key input data
that underpins the cost benefit analysis, such as demand or price forecasts, and capital and operational costs,
supporting evidence is also required. Independent verification of costs and benefits is required, to provide
confidence that the data is robust.
2.
Consider as many monetised economic benefits and costs as possible. IA requires proponents to monetise
impacts wherever possible, and to consider impacts on as many stakeholders as practicable, to gain an accurate,
community-wide perspective on the costs and benefits. IA is particularly interested to understand the magnitude
and longevity of benefits over the long term. Examples include:
‒ Productivity and economic impacts (e.g. reliability and travel time impacts, land use changes, and vehicle
operating cost savings),
‒ Impacts on individuals (e.g. accessibility and connectivity benefits; travel time impacts);
‒ Service improvement impacts;
‒ Health, safety and security impacts.
Wider economic benefits (WEBs) should also be considered where relevant. The Commonwealth Bureau of
Infrastructure, Transport and Regional Economics (BITRE) is undertaking work in the context of the NGTSM review to
develop detailed Australian guidelines by 2017. In the interim, proponents should apply the Transport Analysis
Guidance (WebTAG) approach, developed by the UK Government. The final economic analysis and BCR should be
presented with and without WEBs.
All benefits and costs included in the cost benefit analysis should be measured in terms of their economic effects or
resource impacts on the economy and not merely financial transfers between parties, or second round effects.
Furthermore, all impacts should be incremental; and should be directly associated with the initiative. Where possible,
social and environmental impacts should be quantified and monetised.
1.
Consider non-monetised benefits and costs. Where impacts cannot be robustly expressed in monetary units
(‘non-monetised’), IA will nevertheless incorporate them into the appraisal process, and requests proponents
provide supporting information on the scale of these impacts. This includes community (e.g. environmental and
social) and network impacts (e.g. wider network implications of the project).
2.
Consider both the overall efficiency of a proposal (the combined scale of benefits and costs), as well as its
equity and distributional impacts. Efficiency is determined by comparing the benefits and costs of a proposal – it
specifically addresses the question: “When all the benefits and costs are combined, will the proposal deliver net
7
By Stage 4, the nominator of the initiative becomes a proponent.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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benefits (i.e. benefits in excess of costs)?" Equity and distributional impacts relate to who bears the benefits and
costs. Thus, to aid its decision making, IA not only requires the benefit cost ratio as a measure of net benefit, but
also a breakdown of who is likely to bear the benefits and costs, and when.
3.
Consider issues of risk and uncertainty. IA is fully aware that the future cannot be predicted with certainty, and
that economic growth, individuals’ behaviour, oil prices, carbon prices and so on may vary over time. To ensure
that the appraisal process is robust to potential changes, IA requests a series of sensitivity tests of the demand
modelling and cost benefit analysis results.
IA requires all proponents to submit detailed appraisal information in support of all proposals. This should provide
complete transparency of data, assumptions, and methodologies used; comprehensive supporting evidence to justify
assumptions, including independent verification of demand forecasts and costings where possible; and a detailed picture
of the results of the appraisal.
Stage 4: Business Case Assessment – Process
4.11.
Desired outcome: IA Board positively assesses a project proposal and includes it on the IPL project list.
Process:
■
Proponents update Stage 2 and 3 templates with any revised information and complete Section 4 template.
■
Proponents develop final business case, applying appropriate economic approaches, conventions and assumptions.
This should include funding and delivery considerations and benefits realisation.
■
Proponents develop benefits measuring, monitoring and realisation approach.
■
Proponents complete Stage 4 Business Case Assessment Template.
■
Proponents gain appropriate Executive endorsement for their Business Case and completed Stage 4 template. For
public sector proponents, this will require the Business Case to be taken through a Jurisdiction Gateway process.
For project proponents which are not state or territory governments, this will require demonstration that the
submission is supported by state or territory governments that would be affected by the project.
■
Proponents send business case and completed Stage 4 template to IA.
■
IA reviews business cases and completed Stage 4 templates, and makes an assessment. The assessment will
include:
-
■
Are there substantial and material changes from the material provided in the Stage 2 and, if previously
submitted to IA, the Stage 3 template(s)?
i.
Determine whether the option identification and assessment process that led to the options explored in
the business case was robust, and that appropriate options were explored in the business case.
ii.
Determine whether the option proposed in the final Business Case will effectively meet the targeted
jurisdiction or national problem(s).
iii.
Determine whether the outcome of the CBA is overstated or understated.
iv.
Determine whether sufficient information has been provided.
v.
Determine whether the BCR is appropriate. For standard projects, this means it should be greater than
or equal to 1, but for some projects that have broader social, environmental or economic impacts that
are difficult to monetise, a BCR of less than 1 may still be acceptable.
vi.
Confirm that the demand forecast is robust and has been modelled and incorporated accurately in the
CBA.
vii.
Robustness of cost base, including capital and operating costs.
viii.
Appropriate general methodology for the sector, including inflation rate, time period, start and end
phasing, sensitivity analysis.
ix.
Robustness of base case.
x.
Proponent has considered funding and financing model, and if possible, elements of this model are in
place.
xi.
Business case outlines appropriate governance and processes in place to manage risk.
xii.
Benefits realisation has been actively considered, and an appropriate benefits measurement and
monitoring strategy proposed.
IA Assessor requests any additional information from proponent and discusses issues with proponent to resolve any
questions.
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■
IA Assessor makes a recommendation to the IA Assessment Panel for the project to be included on the IPL.
■
IAAP considers the recommendation and advises the IA CEO, who makes a recommendation to the Board
■
IA Board makes final decision.
■
IA updates the IPL as appropriate and, as soon as practicable after the end of each quarter, publishes a summary of
the proposal.
■
IA advises the proponent on next steps.
‘Must have’ requirements for an initiative to be upgraded to a project on the IPL following Stage 4:
■
Project will demonstrably address a problem of national significance, for example a problem identified in IA’s list
of jurisdiction and national problems.
■
Project business case is sufficiently compelling and evidence-based and that the benefits, costs and methodology is
robust.
■
The BCR is appropriate, given the project. For standard projects, this means it should be greater than 1, but for
some projects that have a broader social, environmental or economic impacts that are difficult to monetise, a BCR
of less than 1 may still be acceptable.
■
Approved by the IA Board.
‘Highly desirable’ features for an initiative to be upgraded to a project on the IPL following Stage 4:
■
Options that include best practice infrastructure development and / or IA’s policy principles have been actively
considered.
■
Proponent has considered funding and financing model and, if possible, elements of this model are in place.
■
Business case outlines appropriate governance and processes in place to manage risk.
■
Benefits realisation has been actively considered, and an appropriate benefits measurement and monitoring strategy
proposed.
4.12.
Stage 5: Benefits Realisation
IA’s specific approach to assessing the benefits realised by IA supported projects is currently being developed and will
be released by IA. The information that will be required to support benefits measurement, monitoring and realisation is
included in the Stage 5 templates.
It is expected that projects on the IPL will be the subject of a post-completion review (ex-post evaluation) when the
project has been implemented. At a minimum, the post-completion review should examine the following:
■
if the assumptions adopted in the CBA of the business case were appropriate; and
■
if the project delivered the works proposed in the business case; and
■
if the benefits have been realised as per the business case.
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5. Economic Appraisal
Technical Guidelines
This section outlines the role of the economic appraisals and appraisal methodology, and describes the guidelines for
conducting an economic appraisal for a project business case, and provides guidance on the submission templates.
5.1. Role of economic appraisal
IA will take a broad and balanced view of project value that includes economic, social and environmental factors.
Nominators and proponents should seek to monetise and quantify their analysis where possible, using appropriate
assumptions and parameters. In addition, IA will also actively consider qualitative assessments of project value as part
of a full CBA.
IA requires project proponents to complete a CBA. In doing so, proponents should:
■
Express costs and benefits as far as possible in monetary terms to allow direct comparison with one another;
■
Calculate results in ‘present value’ terms, allowing comparison of initiatives with costs and benefits that vary over
time; and
■
Define and value costs and benefits based on the impacts they have on the community as a whole.
■
Take the perspective of all stakeholders and impacted parties, rather than that of any particular individual or interest
group.
■
Utilise sector-specific, recognised guidance to determine appropriate parameters and assumptions to ensure
consistency in project and initiative submissions. For transport sector proponents, this is provided by the NGTSM
(see: http://ngtsmguidelines.com/). Furthermore, for road initiatives and projects, Austroads guidelines also provide
data for parameters and values. In some cases, it is advisable to consult state and territory Treasury and state
agency guidelines.
Nominators and proponents should clearly distinguish between economic appraisal and financial appraisals in applying
CBA techniques. Economic appraisals determine the net impacts of a project to the economy and society as a whole. In
contrast, financial appraisal is used to determine the commercial viability (profitability) of a project from a proponent’s
and/or operator’s perspective.
IA will work collaboratively with proponents to guide them in preparing CBA and present the key results and
assumptions.
5.2. Appraisal Methodology
Proper estimation of the economic, social and environmental value of the initiative depends on the correct use of the
methodology and parameter values. Therefore, the methodology used to conduct appraisal will affect the economic,
social and environmental value of the initiative. Therefore, for each initiative, a detailed report of the economic
methodology used, including all parameters and values used, assumptions and algorithms should be provided. IA has
developed a MS Excel template for project proponents to complete providing this information. There is also additional
guidance embedded within the templates available online.
5.3. Economic appraisal guidelines
In undertaking a detailed CBA, proponents may wish to refer to the following guidance for such appraisals:
5.3.1
■
General
Department of Finance and Administration, ‘Handbook of CBA’, January 2006, which outlines the key concepts of
cost benefit analysis and examines how to value costs and benefits, and is applicable across sectors and forms of
investment, available at: http://www.finance.gov.au/publications/financecirculars/2006/docs/Handbook_of_CB_analysis.pdf
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European Commission, ‘Guide to CBA of investment projects, 2008, which outlines project analysis approaches by
sector, explains approaches for telecommunication infrastructure investments (Section 3.3.4), , available at:
http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/guide2008_en.pdf
5.3.2
Transport
■
The NGTSM; see: http://ngtsmguidelines.com/. This explains the process and appraisal methodology.
■
For transport parameter values, see http://ngtsmguidelines.com/parameter-values/road-transport/.
■
Austroad’s Guide to Project Evaluation: Part 4 – Project Evaluation Data (30 June 2010) also provides estimates
of road user unit costs. However, please note that Austroad’s will be superceded by the revised NGTSM when they
are published in 2015.
■
For Wider Economic Benefits (WEBs), see https://www.gov.uk/transport-analysis-guidance-webtag. Note that this
will be replaced by guidance to be issued by the Bureau of Infrastructure, Transport and Regional Economics
(BITRE) within the Department of Infrastructure and Regional Development once this is completed. This is part of
the review undertaken by NGTSM.
■
Some states/territories may also have guidelines available with location-specific parameters and values for benefit
estimation.
5.3.3
■
Communications
The World Bank provides guidelines for cost benefit analysis of telecommunications projects in developing
countries: Economic and Development Resource Centre, ‘Guidelines for the economic analysis of
telecommunications projects’, September 1997, available at:
http://www.ictregulationtoolkit.org/en/toolkit/docs/Document/3531.
An example of a recent cost benefit analysis in the communications sector is available at the link below:
■
A cost benefit analysis of broadband in Europe is presented in ESA Communications, ‘Technical assistance in
bridging the “digital divide”: A cost benefit analysis for broadband connectivity in Europe’, October 2004,
available at: http://telecom.esa.int/telecom/www/object/index.cfm?fobjectid=16563.
5.3.4
Energy
■
Australian Energy Regulator, ‘Final: Regulatory investment test for transmission application guidelines’, June
2010, which provides guidance on the operation and application of the regulatory investment test for transmission
(the RIT-T) to proponents on the approach to cost benefit analysis for transmission investments submitted to the
regulator, available at: publication, available at: http://www.aer.gov.au/sites/default/files/Final%20RITT%20application%20guidelines%20-%2029%20June%202010.pdf;
■
The regulatory investment test for transmission application guidelines include guidance and worked examples on
the estimation of a range of market and non-market benefits including variable operating costs, voluntary load
curtailment, involuntary load shedding, costs to other parties, timing of transmission investment, network losses,
ancillary services costs, competition benefits and option value;
■
The Productivity Commission review of the electricity network regulatory framework provides useful background
on the structure and performance of the national electricity market However, the regime will evolve over time, so
the most recent Australian Energy Regulator guidelines should be considered the primary reference. See
Productivity Commission, Electricity Network Regulatory Framework – Inquiry Report, Chapter 17, available at:
http://www.pc.gov.au/projects/inquiry/electricity/report;
■
Australian Energy Regulator, Final decision: Regulatory investment test for distribution and application
guidelines, August 2013, which provides guidance on the operation and application of the regulatory investment
test for distribution (the RIT-D) to proponents on the approach to cost benefit analysis for distribution investments
submitted to the regulator, available at: publication., available at:
http://www.aer.gov.au/sites/default/files/AER%20-%20Final%20decision%20-%20RITD%20and%20application%20guidelines%20-%2023%20August%202013.pdf;
■
Guidance on cost benefit analysis to prioritise energy projects as part of the European Union’s Energy
Infrastructure Package has been developed by THINK, ‘Topic 10: Cost benefit analysis in the context of the energy
infrastructure package’, January 2013, available at:
http://www.eui.eu/Projects/THINK/Documents/Thinktopic/THINKTopic10.pdf. See also, European Network of
Transmission System Operators for Electricity, ‘Guideline for cost benefit analysis of grid development projects’,
December 2012; and
■
Some states/territories may also have guidelines available that may assist development of a cost benefit analysis in
the energy sector, for example:
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‒ Western Australian regulatory test guidelines are provided by the Economic Regulation Authority, Guideline
for Application of the Regulatory Test, February 2008, available at:
http://www.erawa.com.au/cproot/6414/2/20080222%20Guideline%20for%20Application%20of%20the%20Re
gulatory%20Test.pdf.
Examples of estimates of the value of electricity to consumers and the benefits of electricity investment include:
■
The market price cap as determined by the Australian Energy Market Commission. See, for example, Australian
Energy Market Commission, Review of Compensation Arrangements following an Administered Price, Market
Price Cap or Market Price Floor, May 2013;
■
The value of customer reliability used by the Australian Energy Market Operator. See, for example, Australian
Energy Market Operator, National Value of Customer Reliability, available at:
http://www.aemo.com.au/Electricity/Policies-and-Procedures/Planning/National-Value-of-Customer-ReliabilityVCR: and
■
D Biggar, ‘Calculating competition benefits: a two town example’, Appendix D to the Australian Competition and
Consumer Commission, Decision of the review of the regulatory test for network augmentations, August 2004,
p 99.
5.3.5
Water
An example of a recent cost benefit analysis and two approaches to benefit valuation in the water sector are available
below:
■
Tasmanian Irrigation, An Innovation Strategy for Tasmania: Focus on Food Bowl Concept Tranche Two Irrigation
Scheme Funding Submission to Infrastructure Australia, 2012, available at:
http://www.tasmanianirrigation.com.au/uploads/docs/Tasmanian_Irrigation_Infrastructure_Australia_Submission__August_2012_(Main_Submission_-_Low_Quality).pdf. This weighs up construction and operating costs of new
irrigation infrastructure against the additional farm profitability unlocked from crops based on the new and more
reliable water supply;
■
Hensher, D, Shore, N, and K Train, ‘Water Supply Security and Willingness to Pay to Avoid Drought Restrictions’,
The Economic Record, Vol. 82, No. 256, March 2006, 56–66, available at:
http://elsa.berkeley.edu/~train/HensherShoreTrain.pdf. This assesses Canberra households’ and businesses’
willingness to pay to avoid drought water restrictions, using stated choice experiments. It enables the assessment of
benefits associated with the provision of new or more reliable water supply; and
■
Rolfe, John and Windle, Jill, ‘Valuing protection of the Great Barrier Reef with choice modelling by management
policy options’, Centre for Environmental Management, CQUniversity, Rockhampton, Q.4702, 54th Annual
Australian Agricultural and Resource Economics Society Conference, 10-12th February 2010, Adelaide, available
at: http://ageconsearch.umn.edu/bitstream/59153/2/Rolfe,%20John.pdf. This paper presents results of choice
modelling used to determine the value for improvements in the health of the Great Barrier Reef.
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6. Stage 2 Template
Guidance
The Stage 2 Template of IA’s Assessment Framework is intended to capture information on an initiative’s strategic fit
in the context of collaboratively-identified problems and opportunities of national significance.
IA recognises this is at an early stage of a project’s development. The emphasis at this stage should be about
demonstrating comprehensive understanding of a problem or opportunity and its root causes, and a thorough analysis of
how any initiative will address this. Where possible, nominators should include any relevant supporting information.
6.1. Section 1: Location of Initiative
Nominators should indicate the proposed initiative on a map, and briefly describe location.
6.2. Section 2: Problem or opportunity addressed
Nominators should briefly describe the initiative, including how it will address problems and opportunities of national
significance.
Where nominators have identified a problem or opportunity that they believe is of national significance, but has not
been discussed with IA or included in IA’s list of nationally significant problems / opportunities, they should highlight
this. In these cases, nominators should provide comprehensive information and data that support why they believe a
problem or opportunity is of national significance. IA will follow up with the nominator to understand this more fully.
For problems and opportunities of national significance (whether collaboratively agreed with IA or not), nominators
should:
■
Identify the problem / opportunity
■
Assess the problem / opportunity
■
Analyse the problem / opportunity
If possible, nominators should include any relevant data or more detailed reports that support the problem identification,
assessment and analysis.
6.3. Section 3: Initiative description
Nominators should clearly describe how the initiative will address the problem / opportunity, articulating the direct and
indirect effects of delivering the initiative. This should include:
■
The outcomes and benefits that the initiative seeks to achieve, including how the proposed initiatives will deliver
these outcomes and benefits.
■
The infrastructure outputs, changes or enablers that will achieve these outcomes:
-
Highlight the ‘better use’ of existing infrastructure; and
Highlight where new infrastructure would be required.
■
Other non-infrastructure outputs, changes or enablers that will achieve these outcomes.
■
How the initiative aligns with jurisdiction plans or strategies, including any references where relevant.
■
How the initiative fits into the broader system or network.
■
Any key dependencies of the initiative; i.e. are there any other initiatives or projects that are required in order for
this to be successful, or will the implementation of this initiative allow other parts of the network to operate more
efficiently?
Please provide any additional relevant information, case studies or data that have been used to support the consideration
of these initiatives.
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Nominators are requested to make an assessment of the expected effectiveness of an initiative in addressing the problem
/ opportunity of national significance.
6.4. Section 4: Development stage
Nominators should describe the current stage of development of the initiative, and outline any planning, feasibility,
business case, environmental assessment or economic appraisal studies and Gateway reviews / approvals that may have
been completed. IA notes that at this early stage, these are not all expected to have been undertaken.
Please include / attach any such information or output documents with your submission.
6.5. Section 5: Next Steps
Nominators should describe the next activities planned to progress the initiative; when will these commence, and when
are they due to be completed.
Next steps include development of key documents such as options identification and assessment and internal reviews
processes such as Gateway reviews.
6.6. Section 6: Funding
If possible, nominators should describe which components of the initiative would potentially require Federal, State,
other government or private sector funding.
6.7. Section 7: Confidentiality
Nominators should indicate which parts of this template are provided to IA in confidence at this stage.
6.8. Sections 8-11: Additional information
If available, nominators are requested to provide the following information:
■
Options generation;
■
Timetable for completion or implementation;
■
Key risks or sensitivities; and
■
Other supporting data.
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7. Stage 3 Template
Guidance
The Stage 3 Template of IA’s Assessment Framework is intended to capture information on the options that have been
considered. These options should address the evidence-based problems and opportunities of national significance that
have been collaboratively identified at Stage 1 and Stage 2.
The emphasis at this stage is about demonstrating a comprehensive identification and assessment of all options,
including consideration of non-capital options such as making better use of existing infrastructure (see Section 5.3 for
examples of guiding principles).
Nominators are encouraged to take a creative and integrated approach to identifying options, and a structured and
reliable approach to assessing these options. Where possible, nominators should include any relevant supporting
information.
Following the completion of the Stage 3 template, nominators are strongly encouraged to engage with IA to discuss the
options presented prior to commencing work on the full business case.
7.1. Section 1: Option Generation – Long List
Nominators should describe the ‘long list’ of options they have considered to deliver the initiative. IA encourages
nominators to logically identify options across a ‘spectrum’, for example, identify and consider the option that would
deliver the greatest benefit (albeit at a high cost), the option that would deliver the minimally acceptable level of benefit
(at a relatively low cost)8, and a series of sensible options between these two ‘ends of the spectrum’.
IA recognises this can be a complex process, and encourages nominators to be comprehensive, structured, logical and
systematic in their identification of ‘long list’ options, and to be logical in selecting options to test.
In some cases, such as complex networks or large programs of relatively minor works, nominators should take a
structured approach to developing logical ‘packages’ of options. The full impact of options – such as on land use
changes – should be considered, as well as any direct impacts on infrastructure and infrastructure services.
Nominators should list and briefly describe each option considered.
7.2. Section 2: Option Assessment
Nominators should refine the long list to a short list. IA suggests the use of a multi-criteria analysis (MCA). In doing so,
nominators may select a range of criteria including those described in Section 7.5. below.
The analysis should include consideration of:
■
The extent to which each option addresses the problems / opportunities;
■
The timeframe over which the option is expected to address the problem / opportunity (i.e. the duration of time for
which benefits will be sustained);
■
Economic, social and environmental impacts;
■
Indicative capital and operational costs of the initiative; and delivery risk and challenges.
7.3. Section 3: Options Short List
Nominators should list and briefly describe the options that have been shortlisted, following the Options Assessment
exercise.
8
Typically referred to in a CBA as a “Do Minimum” option, which could form the Base Case comparator.
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7.4. Section 4: Selection of options for the business case
Nominators should briefly outline the approach taken to select options from the short list to take forward into the
business case for detailed assessment. This may include a rapid cost-benefit analysis.
Nominators should describe how they have developed a short list of options to be considered in detail during Stage 4 –
Business Case Stage.
IA suggests that nominators conduct a rapid Cost Benefit Analysis (CBA) on the options short list to identify options to
be taken into the Business Case.
A rapid CBA is a quick, cost-effective and relatively high-level means of identifying options to be taken into the
business case stage for detailed consideration.
The rapid CBA should:
■
Develop an initial assessment of each option’s monetised costs and benefits, providing insight into the estimated
economic, social and environmental value of each option;
■
Develop a high-level assessment of each option’s non-monetised cost and benefits;
■
Determine whether an option will address problems and opportunities of national significance; and
■
Identify any data gaps and requirements which will need to be addressed during business case development.
While the CBA is focused largely on quantifiable cost and benefits, some assessment of strategic fit and deliverability
should also be conducted, if possible.
7.5. Section 5: Options to be taken into business case
For each option to be taken into the final business case, nominators should describe the options using the criteria set out
below. Further additional data and information to support the summary of the options should be provided.
7.5.1
Effectiveness
The effectiveness criterion describes the degree to which the option will address the problem or opportunity of national
significance. Nominators should clearly explain and justify how the option will address each problem or opportunity.
An effectiveness assessment should be provided for each problem or opportunity of national significance that an option
is intended to address.
7.5.2
Duration
The duration criteria is an assessment of the longevity of an option; i.e. the amount of time that it is expected to address
a problem or opportunity of national significance. An option is defined as no longer addressing a problem if or when the
metrics that define that problem return to the levels experienced prior to the delivery of the option.
For example, constructing a new transport corridor can help ease congestion at critical locations. However, in some
cases, it may be that an option is initially highly effective, but high volumes of forecast growth mean that the expected
longevity of the option is relatively short.
Nominators should clearly explain and justify the expected duration, or longevity, of an option in addressing each
problem of national significance.
7.5.3
Deliverability
Nominators should describe expected deliverability of the option. The assessment should consider two elements:
i.
The unmitigated, or ‘innate’ risk of an option significantly exceeding its forecast cost or delivering
unacceptably inadequate benefits. This comprises the likelihood of a risk occurring and the impact of that risk.
ii.
The ability of that option to manage or mitigate that risk.
Nominators should clearly describe some of the key deliverability risks, and summarise the degree to which these can
be managed or mitigated. Further information can be found in this guidance in Stage 4 Template Part 3.
7.5.4
Adaptability
Nominators should describe the expected adaptability of the option to future scenarios.
Adaptability is defined as the ability of an initiative to continue to provide cost-effective, strategically-aligned benefits
under a range of future scenarios. It may also include the extent of ‘future-proofing’ provided by the option.
Nominators should consider a range of scenarios they believe appropriate. These should generally (but not always) be
scenarios that are beyond government control. Examples include:
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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Scenarios where future demand does not meet the modelled forecast demand.
■
Population growth being greater or lower than projected.
■
Potential changes in consumer behaviour, driven by technological advances.
■
A variety of macroeconomic changes, trends or shocks, such as changes in energy prices.
25
In addition, nominators should also consider whether the intended outcomes and benefits delivered by the option are
dependent upon other long-term projects, policies or reforms being delivered.
7.5.5
Estimated investment cost
Nominators should provide the forecast total investment cost in real terms (i.e. at current $). Where this has been
probabilistically assessed, nominators should use the P50 cost estimates and P90 estimates when available.
Nominators should provide a summary breakdown of the estimated investment cost for the option.
7.6. Development stage
Nominators should describe the current stage of development of the initiative, and outline any planning, feasibility,
business case, environmental assessment or economic appraisal studies and Gateway reviews / approvals that have been
completed.
Nominators should include / attach any such information or output documents with their submission.
7.7. Next steps
Nominators should outline the next activities that are planned to progress the initiative. These may include plans to
develop the full business case, and any review processes such as Gateway reviews.
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8. Stage 4 Business Case Template
Guidance Overview
Proponents wishing to make a submission to IA for a project to be included on the IPL should have completed a full
business case, and should complete the ‘Stage 4’ Business Case template. Proponents should have already completed
the Stage 2 – Initiative Identification and Stage 3 – Options Assessment templates, and submitted these to IA.
Amendments to the template formatting is acceptable, provided the order of questions within the template is
maintained. In providing responses, proponents may provide references to the appropriate page or section of the
Business Case or other reports.
Proponents should also include any relevant supporting information in their submission to IA. This should include as a
minimum:
■
The full business case;
■
IA’s Excel Template 4B, that captures key quantitative data.
■
Delivery options analysis (if it is not in the full business case);
■
High-level delivery schedule (if it is not in the full business case);
■
Risk assessment (if it is not in the full business case).
■
Full references to appropriate studies or reports that justify any parameters or assumptions used.
In addition, proponents are encouraged to include other relevant additional information such as:
■
Detailed modelling;
■
Any early-stage (e.g. scoping or concept design) plans or drawings;
■
Benefits realisation plans; and
■
Intended project and program governance.
Throughout this process, IA wishes to be pragmatic and collaborative, in order to make fair and objective assessments.
If proponents have any issues or questions about their submission, they should contact IA. The process might benefit
from discussions between IA and the proponent before the Stage 4 template is completed and submitted.
In completing the Stage 4 template, proponents may provide page references to the appropriate pages in the business
case, rather than copying out sections of the business case into the template.
Proponents should highlight any information they wish to remain confidential.
8.1. Private sector proposals: demonstrate support of relevant governments
Where private sector proponents are making a submission that involves or impacts on land, infrastructure or property
owned, operated or regulated by a state or territory government, or that requires appropriate planning approvals, they
should clearly demonstrate that they have the support of the relevant government.
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9. Stage 4 Template Part 1
Strategic Alignment Summary
The Strategic Alignment Summary draws on information and analysis provided in the Stage 2 and Stage 3 templates, to
demonstrate the degree to which the problem addresses problems and opportunities of national significance.
Proponents should reference information previously provided at Stage 2 or Stage 3, but should update this in the
template to reflect more detailed analysis and understanding.
Proponents should also complete the Strategic Alignment Summary table for the recommended project case, updating
information previously provided at Stage 3 with new insights from the Business Case.
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10. Stage 4 Template Part 2
Economic, social and environmental appraisal
10.1.
Section 1: Key Assumptions
In this section, proponents should provide IA with information about how the appraisal models have been developed,
and the economic assumptions and parameters used. A series of sector-specific questions are included in the relevant
templates.
The relevant templates for each Sector ask different questions that reflect the different approaches to modelling and
analysis in each sector.
10.1.1
Base Case
Generically, project appraisals compare the costs and benefits of doing something – the ‘Project Case’ (for example,
building infrastructure) – with a ‘Do Minimum’ Base Case (the situation that would have occurred without the
initiative).
Importantly, the ‘Do Minimum’ case is not the same as a “Do Nothing” case as it should include any known changes to
the infrastructure or service that will have occurred in the absence of the project case or any other investment options. It
is a modest cost option to maintain the existing level of service possible or to avoid further degradation in service levels.
It is therefore a ‘real world’ assessment of the future infrastructure and operations, making reasonable assumptions of
future changes; it does not assume that the infrastructure and operations of today continue ‘as is’. The base case should
specify:
■
The service(s) being delivered in the target region/area/jurisdiction, including identifying the users, providers,
service standards and pricing – currently and in the future over the appraisal period;
■
Current and future expected maintenance and minor capital works, capturing all assets/services in the network that
may impact the target region/area/jurisdiction. The probability of future works occurring should be considered: the
proponent should provide specific details and rationale explaining the inclusion or exclusion of all future projects
assumed in the base case. This is especially important if the project forms part of a larger network;
■
The main constraint or issue presented by the base case (e.g. lack of capacity, reliability issues, etc.);
■
Whether these assumptions have been independently verified or independently generated (e.g. in the
Communications sector - from submissions to the Australian Competition and Consumer Commission, the
Australian Communications and Media Authority, other government agencies, industry bodies or
national/international benchmarks).
Proponents should include key planning documents that inform the base case.
10.1.2
Project Case(s)
The project case(s) describe the scenarios in which infrastructure and operational changes have taken place.
Proponents should describe each project case, using the criteria included at Stage 3:
■
Effectiveness
■
Duration
■
Deliverability
■
Resilience
■
Estimated investment cost
■
Estimated annual operational costs
Where this information has already been provided at Stage 3, and if this information is current, proponents may refer IA
to the Stage 3 template.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
29
In addition, proponents should provide additional detail about each project case, as requested in the table. Proponents
should undertake option development using a broader approach to avoid a two-option comparison in the final CBA.
10.1.3
Demand Forecasting – Transport Sector guidance
Levels of demand are crucial to the economic, social and environmental value of infrastructure initiatives. IA needs to
understand the basis upon which demand estimates have been created. For each initiative, the following information
should therefore be provided:
■
A comprehensive list of the detailed assumptions which drive demand, including the rate of population growth,
employment growth, land use changes (see (3) below), private vehicle demand, public transport demand; and how
these change over the appraisal period;
■
The underlying justification for these assumptions and growth rates, particularly the expansion, annualisation and
extrapolation factors used and sensitivity testing of core assumptions such as Gross Domestic Product (GDP)
growth rates;
■
Detail of any changes in land use expected with the initiative such as residential densification or Transport
Orientated Developments (TODs), including any commitments to rezoning or other planning law changes which
would be necessary to facilitate those land use changes. Note that land use change may or may not be appropriate
for direct incorporation into the appraisal. It is suggested that the proponent should discuss this with IA before
undertaking modelling;
■
The approach used to forecast network demand and behavioural change – the nature of the analysis/modelling, an
explanation of the degree of external or independent scrutiny of the forecasts, and full details on how the model
forecasts ‘generated’ demand (see Section 10.1.4 below); and
■
A detailed disaggregation - by year, forecast period, scenario and user type - of the results of the demand
modelling, following the information requirements set out in IA’s templates.
Typically, this information will be contained in a detailed transport modelling report, which will have been prepared by
proponents for initiatives. Wherever possible, in addition to completing the templates, proponents must submit this
report and then provide page references to the key sections containing this information.
10.1.4
User Behaviour Changes/Induced Demand – Transport Sector guidance
For major transport projects, demand forecasts should account for the potential for an appropriate range of user
behaviour changes that can be expected with the project. For example, in the case of major road projects, it is not
sufficient to assume that the same number of peak period private vehicle trips will be present in the base case and
project case, i.e. that the only difference between the cases being that a proportion of users switch routes to take
advantage of improved speeds on the project route. This approach is known as a fixed matrix approach, and is
appropriate only for minor improvement projects.
Appraisals of major urban transport initiatives should adopt a variable origin - destination matrix that accounts for the
following sources of additional (induced) demand where measurable and appropriate: 9
■
Changing mode — e.g. public transport passengers switch to car because the improvement makes road travel more
attractive than bus or rail;
■
Making additional journeys — e.g. people are willing to make additional car journeys because of the improvement
in accessibility;
■
Changing destination — e.g. drivers decide to travel to more distant destinations because the improvement makes
the journey time acceptable;
■
Changing time of travel — e.g. drivers decide to travel in the peak period because the improvement reduces
journey times to an acceptable level; and
■
Relocated trip — e.g. people and businesses relocate to take advantage of the improvement and so make journeys
that are new to the area.
10.1.5
Demand Forecasting – Other Sector guidance
A key determinant of the benefits of an initiative tends to be the demand for that infrastructure. Therefore network and
infrastructure demand forecasts play a critical role in appraisal of initiatives. IA needs to understand the basis upon
which demand estimates have been created. Even when an initiative relates, for example, more to an improvement in
service quality than an increase in infrastructure capacity, this information will assist IA to understand the
scale/location/etc. of users benefitting and being otherwise impacted by a particular investment. For each initiative, the
following information should therefore be provided:
9
Victorian Auditor-General, 2011, Management of Major Road Projects, Report 2010-11:34
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
30
■
A comprehensive list of the detailed assumptions which drive demand, including the rate of population growth,
employment growth, technological change 10, number of households, number of businesses, the price of services 11,
price elasticity, take-up of services, changes in consumer preferences; and how these may change over the appraisal
period;
■
The magnitude and basis of probabilities assigned to uncertain events (e.g. technological change and level of
consumer demand – low, medium or high), and the basis for selecting the central scenario;
■
Detail of land use assumptions in the Base Case and with the initiative such as residential or employment
densification assumed in the demand modelling, including any commitments to rezoning or other planning law
changes which would be necessary to facilitate land use changes;
■
The methodology used to estimate demand – the nature of the demand model used and how ‘knock-on’ and wider
network effects are calculated; plus an explanation of the independence of forecasts and the degree of external or
independent scrutiny of the forecasts. This should include full details on how the model forecasts ‘generated’ ,
‘induced’ and ‘unmet’ demand;
■
The underlying justification for assumptions and growth rates and sensitivity testing of core economic and project
specific assumptions; and
■
A detailed disaggregation - by year, date and user type - of the results of the demand modelling.
10.1.6
Energy Sector Demand Modelling Reports
Wherever possible, in addition to completing the tables (included in the submission templates), proponents should
submit supporting energy demand modelling report(s) prepared to document future demand and then provide page
references to the key sections containing this information.
The following links provide national, state/territory and zone substation level electricity forecasting and planning
reports, which proponents are encouraged to consider/reference as the basis for developing project-specific
methodologies for demand and to align with current public information 12:
■
Australian Energy Market Operator, National Electricity Forecasting Reports, available at:
http://www.aemo.com.au/Electricity/Planning/Forecasting/National-Electricity-Forecasting-Report-2013;
■
Australian Energy Market Operator, Electricity Statement of Opportunities for the National Electricity Market,
available at: http://www.aemo.com.au/Electricity/Planning/Electricity-Statement-of-Opportunities;
■
Australian Energy Market Operator, Gas Statement of Opportunities, available at:
http://www.aemo.com.au/Gas/Planning/Gas-Statement-of-Opportunities;
■
Independent Market Operator, Electricity Statement of Opportunities, available at: http://www.imowa.com.au/soo;
■
Independent Market Operator, Gas Statement of Opportunities, available at: http://www.imowa.com.au/gsoo; and
■
Zone substation level demand forecasts are also published by all electricity distribution businesses annually and by
jurisdiction – for example Ausgrid’s Electricity System Development Review is available at
http://www.ausgrid.com.au/Common/Our-network/Network-regulation-andreports/~/media/Files/Network/Regulations%20and%20Reports/Ausgrid_ESDR_201213.pdf
10.1.7
Economic model parameters - costs and benefits
The CBA methodological framework involves a number of key assumptions including the discount rate, the appraisal
period and the Base Case.
IA will consider appraisals that have been prepared in accordance with Commonwealth, State and Territory guidelines.
Transport sector proponents should utilise the NGTSM (see: http://ngtsmguidelines.com/).
Assumptions and methodologies used in appraisals will be carefully scrutinised by IA to avoid the overstatement of
benefits or understatement of costs. Unrealistic or inappropriate assumptions will be discounted by IA in its review of
the business case.
10
For planned investments in enabling infrastructure, such as network infrastructure that increases transmission speeds, future technology should be
considered, analysed and explained. While it may be challenging to forecast future technology that is not yet in existence, proponents should attempt
to project future scenarios and changes in the market as much as possible to avoid overstating benefits specific to the proposed initiative.
11
The assumed price of services to be provided and the impact on demand will be important because many communications products have
commercial (or at least non-zero) prices. The methodology should detail assumed prices along with outlining how price assumptions are derived and
what impact they are expected to have on demand for the service(s).
12
While these forecasts do not include off grid demand, any forecasting undertaken would be expected to follow a similar approach as these reports.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
10.1.8
31
Reviews
IA requires submissions that are consistent, and have been objectively and independently verified. As a minimum,
proponent cost estimates and demand projections are required to have been independently reviewed and verified. It is
advisable that the entire business case has undergone independent review and assurance before submission to IA.
For public sector submissions, the business case should have progressed through the appropriate jurisdiction Gateway
processes prior to being submitted to IA.
When making a submission to IA, proponents should include a description of the assurance processes through which
their proposal has progressed.
10.1.9
Regulatory regime
Non-transport sector proponents should describe the regulatory regime under which the proposed infrastructure will
operate and be priced.
10.2.
10.2.1
Section 2: Cost Benefit Analysis (CBA)
Identification of Benefits and Costs
Whilst traditional ‘monetised’ CBA is at the core of the Stage 3 evaluation, IA will also consider other important
impacts, including Wider Economic Benefits, productivity, urban regeneration, local equity and distributional impacts.
Proponents should describe and assess as best as possible the distributional effects of the change as a result of the
initiative. An indication of the scale of those effects is also desirable at both a spatial and temporal level. The use of
maps, diagrams and charts is encouraged to help illustrate the scale of those effects.
10.2.2
Categories of Benefits and Costs
As far as practicable, all direct and indirect benefits and costs arising from an initiative should be considered and
included in the business case.
IA is prepared to consider a broad range of benefits in proponent business cases. Compelling supporting evidence for
these benefits have to be provided by the proponent, and details about the assumptions and methodology used to
calculate these benefits should be clearly stated.
Where possible, the costs and benefits should be monetised, but this may not always be possible; in such cases, a
qualitative analysis of the benefits and costs should be prepared. Ultimately, the submission should enable the impacts
of an initiative to be comprehensively understood.
In considering benefits and costs, proponents should guard against potential ‘double counting’ – that is, counting
fundamentally the same economic impact across two or more measures. Where proponents believe this may be an issue,
they should highlight this in their submission to IA.
Table 2 provides IA’s suggested categorisation of benefits and costs. Proponents do not have to follow this
categorisation, although this helps IA compare across business cases. Not all of these can be monetised; a list of benefits
and costs that are typically monetised in each sector (energy, telecommunications, transport and water) are included in
the tables following Table 2.
Table 2: Suggested categories of benefits and costs
Category
Type of Impact
Analysis
Impacts on
Proponents
Project Costs
The capital and ongoing project expenditure – i.e. operating
expenditure, maintenance costs, decommissioning or rehabilitation
costs. In addition, any residual asset values and asset disposal values.
Productivity
and economic
impacts
Business and
government
reliability impacts
The economic value of improvements in reliability (e.g. travel time
variability on the transport network) for business users.
Wider Economic
Benefits (WEBs)
Wider Economic Benefits, notably agglomeration benefits that flow
from businesses being brought closer together.
Land use changes
The benefits of changes in land use as a result of a project, notably the
productivity impact of greater density of populations and businesses,
and property value impacts.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Category
Impacts on
individuals
Community
impacts
Type of Impact
Analysis
Long term
employment
impacts
Brief description of the sustained increase in employment caused by
indirect effects of the operation of the asset, for instance employment
created by accessibility, reliability or productivity improvements
caused by the asset (i.e. it should not include employment in
construction phase). It should be noted that employment impacts are
not typical CBA inputs or outputs.
Business and
government travel
time impacts
Description of economic value of travel time benefits flowing to
businesses and government sector. For example, enhancements in
communications infrastructure that facilitates the use of virtual/video
conferencing and negates the need for actual travel.
Operating cost
savings
Reduced expenditure, for example, savings in operating, maintenance,
compliance and investment costs. Also the direct economic benefits of
reduced vehicle operating costs.
Capacity increase
Capacity increase enabling greater opportunity / access to
infrastructure services.
Resilience
Benefits likely to accrue from improved resilience to adverse events;
i.e. a lower probability or frequency of adverse events, a reduced
impact of adverse events and / or faster recovery following adverse
events.
Accessibility and
connectivity
benefits
Brief description of accessibility and connectivity improvements,
including data on the number of people affected, any induced demand
(i.e. arising from price/quality improvements) - For transport projects
data such as overall time savings in minutes (both changes in invehicle time and out-of-vehicle time), and improvement in journey
reliability. For telecommunications data such as speeds, coverage, etc.
Non-business
reliability impacts
The economic value of improvements in reliability (e.g. travel time
variability on the transport network or electricity network resilience)
for non-business users.
Non-business
traveller travel
time impacts
The economic value of reduction in travel time for non-business
travellers.
Service
improvement
impacts
The economic value of greater amenity of travel from improved
services and changes in crowding (i.e. on platform).
Health, safety and
security
Reduction in the number of accidents, deaths, security incidents - and
the associated economic benefits of that reduction.
Environmental
impacts
Description of any significant positive or negative environmental
impacts of the project in considering the merits of a project. This may
include air quality, carbon emissions, biodiversity and climate
adaptation issues.
Social impacts
Description of any significant positive or negative social impacts of the
project in considering the merits of a project. This may include
considerations of equity or the distribution of benefits (i.e. by income
groups or spatial/geographic spread), the groups/individuals impacted
as a result of the initiative (local community, infrastructure users only,
new or existing customers) and any other relevant social impacts.
Consequence
costs during
construction
Description of any costs incurred during construction, for example,
noise, delay, disrupted services, congestion, etc.
32
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Category
Type of Impact
Analysis
Network
impacts
Network
significance of
the Project
Commentary and data on the wider network implications of the project,
for example, broader network travel time savings.
Other
Avoided costs
Costs that would be incurred under a ‘do minimum’ option but which
are avoided in the option considered.
Other benefits
Include and justify other sources of benefit. Include assumptions,
supporting data.
33
As economic appraisal seeks to determine net benefits for society as a whole, purely financial transfer payments
between various individuals/firms are not included in economic cost benefit analysis to avoid double counting.
10.2.3
Monetised benefits and costs
The following tables provide a list of the potential costs and benefits that are generally monetised and included in a
CBA of a transport, communications, energy or water project.
User costs and benefits typically accrue to either consumers (e.g. consumer surplus or value/willingness to pay for
quality/service improvements) or producers (e.g. producer surplus or value of avoided capital, replacement,
maintenance, operating and compliance costs). However, there will also be costs and benefits accruing to external
households and businesses (e.g. costs of damage to the environment, reduction in visual and other amenity, or reduced
profits), which should be included.
Tables 3, 4, 5 and 6 below describe the typical benefit and cost items monetised in an appraisal for the energy,
telecommunications, transport and water sectors respectively.
Table 3: Typically monetised benefit and cost items: Energy
Typical benefit / cost items
Benefits / Costs to users and producers
Benefits / Costs on the broader community
Project costs:
Environmental

Capital and ongoing project expenditure, e.g.
operating expenditure, maintenance costs,
decommissioning costs


Residual asset values and asset disposal
values
Safety
User value (commercial and private consumers of
energy), e.g.:

Changes in values associated with environmental
externalities including greenhouse gases (e.g. CO2, CH4,
NOx)
Impacts related to safety improvements
Social/cultural

Impacts on aesthetics and visual amenity

Impact on cultural heritage, including Aboriginal sites of
importance or to historic buildings, sites and landscapes

Reliability

Timeliness

Consistency
Other

Other quality measures

Competition benefits taking into account the impact on
the bidding behaviour of generators who may have a
degree of market power

Consequential costs during construction (e.g. noise,
delay, congestion etc.).
Producer value (producers of energy), e.g. increased
surplus from:

Expenditure avoided, e.g. savings in
operating, maintenance, compliance and
investment costs

Increased energy revenues.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
34
Table 4: Typically monetised benefit and cost items: Telecommunications
Typical benefit / cost items
Benefits / Costs to users and producers
Benefits / Costs on the broader community
Project costs:
Environmental

Investment and ongoing project expenditure,
e.g. operating expenditure, maintenance costs,
decommissioning costs


Residual asset values and asset disposal
values
Social/cultural
User value (commercial and private consumers of
communications services), e.g.:
Changes in values associated with environmental
externalities, including greenhouse gases (e.g. CO2,
CH4, NOx)

Impacts on aesthetics and visual amenity

Reduced public health costs from improved access to
information

Impact on cultural heritage, including Aboriginal sites of
importance or to historic buildings, sites and landscapes

Reliability

Timeliness / speed

Consistency
Other

Other quality measures

Competition benefits taking into account the impact on
the bidding behaviour of competitors who may have a
degree of market power

Consequential costs during construction (e.g. noise,
delay, disrupted services, congestion etc.).
Producer value (producers of communications
services), e.g. increased surplus from:

Expenditure avoided, e.g. savings in
operating, maintenance, compliance and
investment costs

Increased communications service revenues.
Table 5: Typically monetised benefit and cost items: Transport
Typical benefit / cost items
Benefits / Costs to users and producers
Benefits / Costs on the broader community
Project costs:
Environmental

Investment and ongoing project expenditure, e.g.
operating expenditure, maintenance costs,
decommissioning costs


Residual asset values and asset disposal values
Changes in values associated with environmental externalities,
including noise and vibration, local air pollution, greenhouse
gases (e.g. CO2, CH4, NOx)
User value (commercial and private consumers of
communications services), e.g.:
Social/cultural:


Impacts on aesthetics and visual amenity
Timeliness / speed - Changes in travel times such as
in-vehicle time and out-of-vehicle time (e.g. wait,
access and transfer/boarding)

Impact on cultural heritage, including Aboriginal sites of
importance or to historic buildings, sites and landscapes

Reliability – Changes in unscheduled delays

Other quality measures - Changes in crowding
(rollingstock and platform) and amenity (e.g. station,
rollingstock)

Changes in vehicle operating costs (perceived and
unperceived)

Changes in health and physical fitness

Residual values
Producer value (producers of communications services),
e.g. increased surplus from:

Expenditure avoided, e.g. savings in operating,
maintenance, compliance and investment costs

Incremental farebox revenue
Safety and network

Changes in crash costs (internalised effects)

Road network decongestion
Other:

Competition benefits taking into account the impact on the
bidding behaviour of competitors who may have a degree

Consequential costs during construction (e.g. noise, delay,
congestion during, displaced economic activity etc.)
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
35
Table 6: Typically monetised benefit and cost items: Water
Typical benefit / cost items
Benefits / Costs to users and producers
Benefits / Costs on the broader community
Project costs:
Environmental

Investment and ongoing project expenditure,
e.g. operating expenditure, maintenance costs,
decommissioning costs

Residual asset values and asset disposal
values
User value (commercial and private consumers of
water), e.g.:

Values associated with changes in water quality and flow
in water systems resulting in changes to biodiversity,
decreased risk of water pollution incidents, increased
protection to aquatic species

Values associated with loss of soil, soil contamination,
and associated impacts on terrestrial biodiversity

Changes in values associated with emissions of
pollutants including greenhouse gases
Change in the risk of flooding to housing and other assets

Reliability

Timeliness


Consistency
Safety

Other quality measures
Producer value (producers of water), e.g. increased
surplus from:


Expenditure avoided, e.g. savings in
operating, maintenance, compliance and
investment costs

Impacts related to the safe consumptive use of water
(drinking, recreation and irrigation), e.g. risk of sewage
spill
Social/cultural

Impacts on aesthetics and visual amenity

Impact on cultural heritage including Aboriginal sites of
importance or to historic buildings, sites and landscapes
Increased water revenues.
Other

10.3.
Consequential costs during construction (e.g. noise,
delay, congestion etc.).
Benefit Estimation Valuation
In order to quantify benefits specific to each initiative, such as those identified above, there may be a range of possible
approaches:
1.
Using market prices to measure economic benefits
Market prices, where they exist, provide a great deal of information concerning the magnitude of costs and benefits.
Market prices may be relevant as a signal of how much the community/businesses value the quantity or quality of the
infrastructure. In such situations, demand and price forecasts for the base case and project case with the initiative could
be made based on the available market information. These estimates could then be used to estimate consumer and
producer benefits from an initiative.
2.
Using non-market and non-use values to measure economic benefits
Often valuations are not directly observable in the market (e.g. the value of future technologies enabled by improved
quality of communications infrastructure). In such cases, a range of techniques are available to estimate aggregate
willingness to pay for particular services or outcomes that can be met through infrastructure investment. Non-market
valuation assessments can involve the collection of information about people’s preferences for alternative non-market
outcomes using the following approaches:
■
Revealed preference approaches – use market / historic data such as prices or the number of users of a service. By
isolating a specific characteristics and the change in price or users, it may be possible to estimate the value placed
on a particular characteristic. For example, higher prices paid for internet with faster download and upload speeds
could reveal information about the value of higher quality communications infrastructure
■
Stated preference approaches – which aim to simulate a hypothetical market or choice experiment for assessing
preferences for the provision of non-market goods and services.
3.
Other rapid non market valuation techniques
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
36
It is recognised that undertaking original research using revealed and stated preference methods can be costly and time
consuming. However, there are approaches that can be used to provide an indication of economic value, and enable
comparative assessments of options. The following discussion outlines some of these methods which lend themselves to
the task of rapidly placing monetary values on benefits:
■
Replacement-cost method - The cost of replacing an unpriced asset or service can be a useful measure of benefit.
For example, an area of parkland may be endangered by investment in infrastructure, but perhaps it could be
replaced, or an equivalent area provided. The cost of this replacement is a measure of the benefit of the parkland.
The key assumption is that the replacement costs can be calculated and that they are not greater than the value of
the asset which would otherwise be destroyed.
■
Interpretation of previous decisions - Occasionally, a decision to spend or save money in a similar situation
elsewhere can be interpreted to value a non-market benefit. The level of past expenditure to achieve similar benefit
characteristics, in similar situations, and in similar economic circumstances, it can be used as an estimate of the
value of a resource. When the similarities are strong, the method is useful in providing an indication of value. It is
advisable to exercise caution when using this method as the past may not be a reliable indicator of the future,
particularly, given the speed of technological development taking place in the infrastructure sector.
■
Transferring monetary unit values from other studies (Benefit Transfer) - Benefit Transfer is the process of taking
willingness to pay estimates from one context (the ‘study site’) and transferring it to another context (the ‘option
site’). It may be appropriate to transfer an average willingness to pay estimate from one primary study, transfer
willingness to pay estimates from many studies, or transfer a willingness to pay function. The first option is the
most practiced. In selecting the appropriate value for transfer from the literature, a good understanding of the
quality of the original study is required and the following criteria should be met to ensure that the original study
and the new context are similar enough to ensure a valid result:
‒
‒
‒
‒
Physical characteristics of the two sites should be similar;
Changes being valued in study should be similar;
Policy context should be similar; and
Cultural and socio-economic characteristics of the populations should be similar.
Where justified, IA generally supports use of the above techniques. Where market values are not available, full detail on
the rationale for the technique/parameters chosen and the prediction of the scale of the benefits relative to each specific
initiative would be required, so that IA can treat each case on its own merits.
10.4.
Cost Estimation
The investment and operational costs of initiatives play a fundamental role in determining their economic, social and
environmental value. It is therefore imperative that the capital expenditure and operating expenditure estimates used in
the economic appraisal are robust and consistent.
Therefore, proponents should detail full year by year costs for the lifetime of the initiative and present these as the P50
and P90 cost estimates13. In addition, the basis for those costs, including specialist engineering and operations reports,
should be provided. Furthermore, the P50 and P90 estimates should be based on detailed probabilistic cost estimates,
not by incorporating large generic contingencies . It should be noted that P50 and P90 estimates created by the inclusion
of large contingencies will not be considered as valid cost estimates.
In summary, IA supports the adoption of the following practices in estimating and presenting costs:
■
Capital expenditure (or ‘Capex’) estimates be presented separately from Operating expenditure (or ‘Opex’)
estimates
■
Capital and operating expenditure be estimated using a probabilistic risk based cost estimation process, where
possible; and
■
For transport infrastructure submissions for which Australian Government funding may subsequently be sought, it
is recommended that proponents follow the capital cost breakdown and escalation approach outlined in the Project
Cost Breakdown (PCB) template required by Department of Infrastructure and Regional Development (DIRD) 14.
Proponents should also consider preparing a PCB template and including it with their submission.
13 P50 and P90 are respectively the project costs, with sufficient contingency to provide a 50 and 90 per cent likelihood that these costs will not be
exceeded, noting that contingency is the component of a project’s cost in excess of the Project Base Estimate that accounts for, or reflects, risk.
Note that when properly undertaken a probabilistic cost estimate will provide costs at any required “P” figure as well as the mean of the cost
probability distribution.
14 PCB templates are available from the Department of Infrastructure and Regional Development, and the requirement for PCB templates appears in
the Notes on Administration for Land Transport Infrastructure Projects 2014–15 to 2018–19 available from:
http://investment.infrastructure.gov.au/publications/administration/
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
10.4.1
37
Parameter References
IA supports the use of available best practice and standard parameter values, such as the NGTSM in the transport sector
(see: http://ngtsmguidelines.com/parameter-values/road-transport/). Departures from standard practice and parameters
will not be accepted unless a clear case is made.
10.4.2
Discount Rates
The theory of discounting is to translate future costs and benefits to a common time unit, in order to compare costs and
benefits that accrue at different times and express them as an equivalent amount in today’s dollars. It is usual to
undertake cost benefit analysis in real terms. To discount real cashflows used in the economic appraisal, a real discount
rate should be used.
Discounting also allows the appropriate comparison of costs and benefits over different timescales between different
options and projects. For assessment purposes and comparability, IA requires appraisal summary results to be presented
for the following real discount rates:
■
4 per cent per annum;
■
7 per cent per annum (for the central case); and
■
10 per cent per annum.
This is in accordance with the majority of current national, state and territory guidelines on CBA. In cases where a
different real discount rate is used in an appraisal, the basis for doing so should be specified. It is suggested that
proponents should contact IA for specific advice in each case.
The debate on which discount rate should be used in CBA is ongoing, and there are a number of estimation methods in
existence. However, the 7 per cent proposed for the central case rate by IA (and sensitivity testing) is consistent with the
majority of current national, state and territory guidelines on CBA and is based on the opportunity cost of capital in the
market sector:
■
The Office of Best Practice Regulation’s cost benefit analysis guidelines (2013) require use of an annual real
discount rate of 7 per cent15.
■
The Productivity Commission published a research paper (2010) which proposed a real rate of 8 per cent based on
a rate of return to capital in the market sector16.
■
New South Wales Treasury’s guidelines for economic appraisal (2007) recommend applying a central real discount
rate of 7 per cent17.
■
The Victorian Department of Treasury and Finance (DTF) requires that a discount rate of 7 per cent real for
projects where benefits are more easily translated to monetary terms (e.g. public transport and road); however, the
DTF requests that it be consulted for commercial investments with similar risks as the private sector (which applies
a market rate of return and industry risk profile) 18.
■
Some jurisdictions do not specify central discount rates, but request that finance departments/treasuries be
consulted, e.g. the Queensland Government19.
Sensitivity testing of the options should be undertaken at real discount rates of both 4 and 10 per cent.
10.5.
Measures of Economic Worth
The outcomes of an economic appraisal or a CBA are conventionally presented as measures of economic worth for each
option, incremental to the Base Case. These include but are not limited to:
■
Net present value;
■
Benefit-cost ratio;
■
Net present value per dollar of capital investment; and
■
First year rate of return.
15 Commonwealth Office of Best Practice Regulation (2013) OBPR Guidance Note – CBA, available at:
http://www.dpmc.gov.au/deregulation/obpr/docs/CBA_guidance_note.pdf
16 Harrison, Mark (2010) Valuing the Future: the Social Discount Rate in CBA, Visiting Researcher Paper, Productivity Commission, Canberra,
available at: http://pc.gov.au/__data/assets/pdf_file/0012/96699/cost-benefit-discount.pdf
17 New South Wales Treasury (2007), NSW Government Guidelines for Economic Appraisal: Policy and Guidelines Paper, tpp 07-5 available at:
http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0016/7414/tpp07-5.pdf
18 Victorian Department of Treasury and Finance (2013), Economic Evaluation for Business Cases, Technical guidelines, August 2013, available at:
http://www.dtf.vic.gov.au/Investment-Planning-and-Evaluation/Understanding-investment-planning-and-review/What-are-the-investment-lifecycleand-high-value-high-risk-guidelines
19 Queensland Government, Project Assurance Framework Cost Benefit Analysis http://www.treasury.qld.gov.au/projects-queensland/policyframework/project-assurance-framework/paf-cost-benefit-analysis.pdf
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10.5.1
38
Net Present Value
The net present value (NPV) is the difference between the present value (PV) of benefits and the present value of costs.
It should be calculated using the following formula:
NPV = PV of benefits – PV of costs
The NPV should be presented in real values (constant prices) in the current year, generally expressed in $ millions. A
positive NPV indicates that the project has economic merit.
10.5.2
Benefit-Cost Ratio
The benefit-cost ratio (BCR) could be calculated in a number of ways.
Consistent with the majority of the state and territory guidelines, IA recommends the use of the following formula:
BCR = Benefits* / (Investment costs + Net increase in Operating costs)**
* generally represented by the PV of total benefits
**generally represented by the PV of total costs
The benefit and cost measures above are incremental to the Base Case and discounted over the evaluation period (i.e.
present values).
A BCR equal to or greater than 1:1 for the central case indicates that the project has economic merit (i.e. the present
value of benefits exceeds the present value of costs) and is used to rank projects in a budget constrained environment.
Proponents should use costs at the P90 level.
10.5.3
Net present value per dollar of capital investment
The NPV per dollar of capital investment (NPVI) is a measure of the overall economic return of a project in relation to
its requirement for initial capital expenditure and is used where there is a constraint on the availability of capital funds.
It is defined as the net present value divided by present value of the investment costs:
NPVI = NPV / PV of investment costs*.
*generally represented by the PV of capital expenditure
NPVI is also used to rank projects in a budget constrained environment as it measures the total benefit received for each
dollar of capital expenditure incurred.
10.5.4
First Year Rate of Return
The first year rate of return (FYRR) is a measure of the value delivered by a project in its first year of operation. It can
provide insight into whether a project’s intended date of operation is early, late or appropriate.
A FYRR below the discount rate suggests the project could be delayed in order to deliver optimal value; conversely an
FYRR significantly greater than the discount rate suggests that it may be worth delivering earlier, if possible. FYRR is
calculated as:
FYRR = First Year net benefits / discounted total cost*
*generally represented as the PV of capital expenditure
10.5.5
Appraisal Period and Residual Values
Appraisals of significant infrastructure should typically be conducted using a thirty (30) year timeframe. This timeframe
is measured from the first year in which the benefits of the initiative accrue.
In cases where a different appraisal period is used (such as a telecommunications initiative with a shorter asset life), the
proponent should specify the basis for doing so, and contact IA for specific advice.
For infrastructure assets with a life of more than 30 years, a residual value should be included, where appropriate. There
are two potential methodological approaches: first, for the residual value to be calculated using an approach which
estimates the Net Present Value of the future benefit stream provided by the asset (to the end of the asset life); second,
more traditional approaches based on straight line depreciation of asset values. IA is receptive to both approaches.
However, if the future benefit stream approach is used, it is advisable that sensitivity testing be undertaken using the
traditional approach.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
10.6.
39
Section C: Non-Monetised Benefits and Costs
A cost benefit analysis should identify all direct costs and benefits (i.e. those directly attributable to the project) and
quantify these where possible. Where it is not possible to fully quantify direct costs and benefits of the project, these
should be discussed qualitatively and/or supported by available quantitative data. As discussed above, non-monetised
benefits identified for the appraisal should align with a CBA framework and demonstrate a clear link to the project.
Non-monetised benefits and costs should also be assessed on an incremental change basis (as per monetised benefits
and costs). That is, the non-monetised benefits and costs of each option should be compared with the Base Case.
The following summarises the non-monetised benefit and cost categories that are relevant to the determination of net
benefits of an initiative:
■
Social impacts;
■
Cultural impacts;
■
Visual amenity / landscape;
■
Biodiversity; and
■
Heritage impacts.
Any non-monetised benefits/costs identified should be discussed after the monetised CBA results in the templates.
10.7.
10.7.1
Benefits and Costs in the Transport Sector
Appraisal Techniques in the Transport Sector
Appraisal methodology techniques are subject to constant development, both in Australia and worldwide, reflecting a
welcome emphasis on improving the understanding of an initiative’s total costs and benefits. However, it is important to
achieve an appropriate balance between, on the one hand, the desire to be as comprehensive as possible, and on the
other hand, maintaining the methodological rigour of the appraisal process. Proponents wishing to make submissions in
the transport sector are expected to have used relevant guidance in the NGSTM; see: http://ngtsmguidelines.com/.
In all cases, IA will consider additional benefits/costs arising from methodological developments (e.g. WEBs) separate
to the traditional and widely accepted benefit/cost analysis, and treating each case on its merits. The results should be
presented separately in the documentation.
10.7.2
Social capital, health and other benefits of Active Transport initiatives
IA believes that Active Transport initiatives (walking and cycling) can make a significant impact on Australia’s
transport problems. It also believes that Active Transport initiatives should be subject to the same analytical rigour as
other infrastructure initiatives.
IA is also aware of a set of impacts commonly associated with such initiatives, such as social capital and health
benefits, that are less commonly included in traditional appraisals. However, the methodology underpinning their
assessment is in development. Therefore, where justified, such benefits should be included in submissions, with full
detail on the rationale for the parameters chosen and the prediction of the scale of the benefits, so that IA can treat each
case on its merits.
10.7.3
Outline of Approach to the Monetisation of Wider Economic Benefits
Where appropriate, IA will consider wider economic benefits (WEBs), such as agglomeration effects, for particular
types of initiatives. In general, these are the benefits derived from face to face contact, information exchange and
networking only available to industries working close to each other.
WEBs are improvements in economic welfare that are acknowledged, but which have not been typically captured, in
traditional CBA. Importantly, WEBs are not the same as the economic benefits determined by CGE (computable
general equilibrium) or input – output models. WEBs can be disaggregated into a number of specific sources of benefit.
The most significant is agglomeration, the notion that similar firms are drawn towards to the same location since
‘proximity generates positive externality’. 20
While it is recognised that the quantification of these wider benefits is still in development, both in Australia and
internationally, IA believes the correct interpretation and accurate calculation of WEBs (using the most suitable data
available) can add texture to the decision making process for certain initiatives.
As part of updating NGTSM, the Commonwealth Bureau of Infrastructure, Transport and Regional Economics
(BITRE) is undertaking work to develop detailed Australian guidelines by 2017 as part of the future NGTSM. In the
Head, Ries, Swenson, 1995, ‘Agglomeration benefits and location choice: Evidence from Japanese manufacturing investment in the United States’,
Journal of International Economics, 38, pp. 223-247.
20
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
40
interim, proponents may use principles outlined in current BITRE guidance 21 (see
http://bitre.gov.au/publications/2015/cr_002.aspx). They may also apply the Transport Analysis Guidance (WebTAG)
approach, developed by the UK Government (see https://www.gov.uk/transport-analysis-guidance-webtag).
It should also be noted that some state and territory jurisdictions have developed guidance on the treatment of WEBs in
recent years, for example, in the Transport for NSW guidelines (2015)22. While the national guidelines on WEBs are
being refreshed, proponents should also consult the relevant state and territory guidelines. In quantifying WEBs, it is
advisable that the proponent discusses with IA the guidelines they have reviewed and which one it intends to follow.
In particular, it is crucial to acknowledge that:
■
Only certain initiatives, addressing a specific set of economic fundamentals, will generate WEBs;
■
Significant WEBs will only be found in initiatives with strong traditional benefits, since WEBs require high levels
of behaviour change, e.g. strong demand for the new asset
■
Some initiatives may have negative WEBs that need to be deducted from the positive WEBs; and
■
The availability of Australian specific data needed to calculate WEBs is currently sub-optimal.
It is recommended that any proponent seeking to calculate WEBs consults with IA to discuss the justification for
inclusion of wider economic benefits on the economic theory and applicability of this to the initiative’s strategic
objectives and impacts upon the transport and labour market.
The quantitative analysis should follow the latest guidance and use well informed assumptions about the most
appropriate, initiative specific data. Applying a broad percentage uplift to the results of the traditional appraisal does not
provide any additional or meaningful information for IA to consider in the decision making process.
Further guidance on WEBs published by the United Kingdom Department of Transport is available:
■
General guidance on wider economic benefits is included at the UK Department of Transport site:
http://www.dft.gov.uk/pgr/economics/rdg/webia/
■
Specific technical guidance on the calculation of wider economic benefits is in the UK Department of Transport
document titled, Transport, Wider Economic Benefits and Impacts son GDP, June 2006, and The Wider Impacts
Sub – Objective, April 2009, available at the following site:
http://www.dft.gov.uk/webtag/webdocuments/doc_index.htm.
10.7.4
Urban consolidation benefits and Transit Oriented Development (TOD)
Transport projects can have significant land use impacts that are not easily captured in traditional cost benefit analysis.
For example, metro style trains are often considered to be 'city shaping' because they influence where people choose to
live and where businesses choose to locate on a larger scale over time. Similarly, major roads and intermodal terminals
influence where industry and warehousing occurs.
There is increasing interest in assessing the benefits/costs of different land use outcomes. These benefits/costs may arise
in addition to the time savings and other impacts currently captured in an appraisal. In particular, the cost of providing
public utilities, such as water, electricity and gas, to less dense urban areas as compared to denser areas has been the
subject of considerable recent research.
Three possible urban consolidation benefits may be considered in addition to typical transport user benefits 23:
■
Urban consolidation resource savings - The higher cost of providing infrastructure services, such as water,
electricity and gas, to less dense urban environment as compared to denser environments has been the subject of
considerable recent research. IA believes the correct interpretation and accurate calculation of infrastructure cost
savings, using the most suitable data available can add texture to the decision making process for certain initiatives.
Further guidance for estimating benefits associated with avoiding infrastructure costs from unlocking new housing
developments is available at: https://www.gov.uk/government/publications/webtag-tag-unit-a2-3-transportappraisal-in-the-context-of-dependent-development.
■
Urban consolidation transport benefits – Households clustered more tightly around trip destinations may take
shorter trips and make more use of walking, cycling and public transport, while more spread out land uses can be
associated with longer trips and car use (though causality is debated).24 Therefore, by changing land use, a project
can change transport patterns and external costs (pollution, crash costs, etc.) of the total transport task. These
21 Bureau of Infrastructure, Transport and Regional Economics, 2015, Developing productivity elasticities for estimating WEBs in Australia –
Scoping Study.
22 NSW Government (Transport for New South Wales), Principles and Guidelines for Economic Appraisal of Transport Investment and Initiatives,
2015, March.
23 Typical transport user benefits should be based on fixed land use scenarios only (using the Base Case land use in the Project Case).
24 See, for example Brandes, U, et al. (2010), “Land use and driving: The role compact development can play in reducing greenhouse gas emissions Evidence from three studies,” Urban Land Institute, and Ewing, R. and Cervero, R. (2010), “Travel and the built environment: A meta-analysis”,
Journal of the American Planning Association, 76(3), pp. 265–294.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
41
second round effects can be isolated, and potentially attributed as benefits (or disbenefits) of a transport project.
This would require robust analysis of the land use changes expected, as well as separate demand model forecasts
that compare the Project Case with and without the forecast land use changes reflected.
■
Gains from housing or business relocation - A third potential benefit may be considered where a transport project
triggers land use changes. While the previous urban consolidation benefits focus on the external savings made, this
category considers the benefits realised by the household or business that may choose to relocate if a transport
project is introduced. The housing and business location decision is a complex one, involving financial dimensions
(e.g. property prices) and travel dimensions (ranging from day-to-day commute costs to occasional travel to
friends/relatives or business associates), so it is difficult to directly relate the marginal changes in transport
outcomes from a transport initiative to the net benefits received by households in a way that does not double count
benefits captured elsewhere. To date, IA has not seen analysis of this third benefit undertaken, and would require
considerable demonstration of the approach and theory for consideration of such benefits.
Therefore, treating each case on its own merits, IA may separately consider urban consolidation benefits in addition to
the benefits captured in a traditional CBA. In estimating these benefits, proponents should be mindful of potential
double counting (e.g. if the travel time savings are already captured).
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
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11. Stage 4 Template Part 3
Deliverability
11.1.
Section 1: Delivery Strategy and Operations Strategy
This section requires the proponents to describe how the project is intended to be delivered, following the results of
proponents’ delivery options analysis; for example, Design and Construct, Public-Private Partnership (PPP) or more
innovative models, such as Alliances.
Any details about the delivery strategy that are still under consideration or being tested (e.g. through market
engagement), this should be made clear in the submission.
Proponents should also describe the proposed owner, operator and maintainer of the final infrastructure, including the
rationale for this proposal, and any activities that are planned to validate this proposed model.
11.2.
Section 2: Funding and Financing
In this section, proponents should describe the means by which the project is intended to be funded, and financed,
including the rationale for this proposal.
11.3.
Section 3: Unmitigated Project Risk
In this section, proponents should describe the outcomes of risk assessments conducted on the project. This seeks to
understand the major ‘innate’ risks of the project before any risk management or mitigation strategies are applied. It is
expected that these risks will be of a higher-level or strategic nature that impacts on the entire project, and may not
necessarily be applied in the more detailed, item-by-item probabilistic cost estimates conducted to inform the CBA.
Proponents should describe the process by which they have identified and quantified these risks. IA does not mandate
an approach, but expects that the risks identified will have been assessed and quantified based on the likelihood, or
probability of the risk occurring and the impact that that risk will have on the project, were it to eventuate.
Any current issues that the project is facing should also be highlighted in this section.
A number of risk categories have been highlighted in the template; these are suggestions only and are non-exhaustive.
In addition, the interdependencies of the project with other current or planned projects should be described, including
the timing and any key issues with these projects. Interdependencies may include ‘outbound’ dependencies (i.e. other
projects are dependent upon all or part of the proposed project), and ‘inbound’ dependencies (i.e. the proposed project is
dependent upon all or part of other projects).
11.4.
Section 4: Risk Management and Mitigation
Having described the ‘innate’ risk of the project above, the proponents should describe in this section how they intend
to manage risk across the project.
This should describe, at a high level, risk ownership and governance, processes and protocols, and outline whether these
are currently in place or proposed.
In addition, proponents should explicitly describe whether and how staging of components of the projects has been
considered, in order to mitigate risk, and the results of this consideration.
11.5.
Section 5: Benefits Realisation
IA is adopting a ‘whole of life’ view of infrastructure, including an assessment of whether the infrastructure delivered
the outcomes and benefits intended. These post-delivery assessments are to be conducted by IA and will include
benefits realisation as a key component. Over time, IA will analyse and comment on common elements that prevent
project benefits from being realised.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
43
Proponents should include information that articulates:
■
What the major benefits of the project will be. For each of these major benefits, include the benefits profile over a
30 year period in the accompanying Excel Stage 4B template. Each benefit profile should accurately express the
practical, ‘real world’ benefit that is expected to be realised, rather than monetising these benefits. For example,
benefits may include the number of additional trains or vehicles per hour in a location; or the additional volume of
water, energy or data provided per period in a location;
■
Describe how these benefits will be measured and monitored;
■
Describe the benefits realisation strategy: how will the benefits be actively managed and realised? Who will be
accountable for this? What are the key risks with delivering the benefit?
■
Please include the costs associated with benefits realisation.
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12. Reporting and Documentation
12.1.
Reporting and Documentation
The results of the appraisal need to form a central element of the business case for each initiative submitted to IA. The
appraisal needs to comply with this guide. Proponents need to provide IA with:
■
Completed templates;
■
Full Business Cases; and
■
Where available, a series of supporting documentation, including:
‒ A detailed, independent, report setting out predicted demand and the basis/drivers for any changes in demand;
‒ A detailed, independent specialist cost estimation report, which reports costs at both the P50 and P90 level; and
‒ A detailed report of the economic appraisal methodology, including a full explanation of all the assumptions
and parameters used, and the sensitivity tests applied.
12.2.
Sensitivity Testing
Sensitivity testing of the CBA is a key element of risk assessment. The purpose of the sensitivity analysis is to
acknowledge that there is always a degree of uncertainty and ultimately risk surrounding an initiative and to test the
impact of changes in the assumption on the measures of economic worth.
Typically there are four sources of uncertainty surrounding an initiative:
1.
Investment costs;
2.
Construction duration and therefore opening date;
3.
Operating (including maintenance) costs; and
4.
Under and over estimation of the benefits (typically demand for the service).
A risk assessment should be undertaken to estimate the typical variations around these inputs with the sensitivity testing
undertaken based on the variations. In addition, the sensitivity tests should include:
■
Changes in global oil prices;
■
Fluctuations in carbon prices;
■
Different population growth/decline scenarios;
■
Changes in prices of alternatives products and services (e.g. mobile broadband for communications initiatives);
■
Fluctuations in prices of inputs;
■
Different demand and bidding scenarios (e.g. high, medium, low projections and competitive versus strategic
bidding); and
■
Other key relevant scenarios e.g. flooding probability scenarios, if flooding was flagged as key risk for the
initiative.
It would be helpful if the proponents could use sensitivity analysis to test some combined scenarios, for example, 20%
increase in total costs and 20% decrease in benefits.
12.3.
The Use of Computable General Equilibrium (CGE) Models
The outputs of computable general equilibrium (CGE) models do not usually play a role in CBA. CGE models focus on
‘economic activity impacts’, which are not a measure of efficiency effects.
It is usually not necessary to undertake CGE modelling for IA submissions unless the proponent believes that the
project will have a significant impact on the national economy at a macroeconomic level.
IA will primarily use CBA data for measuring the benefits of an initiative and is unlikely to consider CGE benefits as
additive or complementary to CBA benefits.
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
13. Appendix A – Glossary
Key Terms
Term
Definition
Adjusted benefit– cost
analysis
The adjusted CBA technique is a hybrid of the CBA and multi-criteria analysis
techniques. It produces an alternative ranking of initiatives with objectives given
different weights from the weights implicit in standard CBAs. Adjusted CBA retains
the dollar measuring rod of standard CBA. The relative significance of particular
benefits and costs is altered by adjusting them, using subjectively determined weights.
Appraisal
The process of determining impacts and overall merit of a proposed initiative, including
the presentation of relevant information for consideration by the decision-maker.
Appraisal period
In a CBA, the number of years following completion of construction over which the
benefits and costs of an initiative are assessed. A default value of 30 years is generally
used for transport initiatives.
Assessment
A generic term referring to the quantitative and qualitative analysis of data to produce
information to aid decision-making.
Assessment
Framework
IA’s approach to infrastructure planning that provides structure during the
identification, analysis, appraisal and selection of initiatives and projects. The
Assessment Framework comprises the following five stages:

Stage 1 - Problem Identification

Stage 2 - Initiative Identification

Stage 3 - Options Assessment

Stage 4 - Business Case Assessment

Stage 5 - Benefits Realisation
Base Case
A CBA is a comparison between two or more alternative states of the world – e.g. the
Base Case and the Project Case. The Base Case is the state of the world without (i.e. in
the absence of) the proposed initiative. The Project Case is generally the state of the
world with the proposed initiative. However, it might be appropriate to include other
options in the CBA for comparison (e.g. alternative routes or alternative modes).
Base year
The year to which all values are discounted when determining a present value.
Benefit–cost ratio
(BCR)
Ratio of the present value of economic benefits to the present value of economic costs
of a proposed initiative. Indicator of the economic merit of a proposed initiative
presented at the completion of CBA. Commonly used to aid comparison of initiatives
competing for limited funds.
Business Case
A document that brings together the results of all the assessments of a proposed
initiative. It is the formal means of presenting information about a proposal to aid
decision-making. It includes all information needed to support a decision to proceed
with the proposal and to secure necessary approvals from the relevant government
agency.
45
Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Term
Definition
Cost-Benefit Analysis
(CBA)
An economic analysis technique for assessing the economic merit of a proposed
initiative by assessing the benefits, costs and net benefits to society of the initiative.
Aims to value benefits and costs in monetary terms wherever possible and provide a
summary indication of the net benefit.
Demand forecasting
Estimating demand in a particular year or over a particular period.
Depreciation
The amount that an asset reduces in value due to wear and tear, or environmental
factors. Specifically, it could be defined as:
-
Economic depreciation: A decline in the value of an asset
over time due to general wear and tear or obsolescence.
-
Financial depreciation: The allocation of the cost of an asset
over a period of time for accounting and tax purposes.
In an economic appraisal (using cost-benefit analysis), residual values are sometimes
estimated based on the effects of economic depreciation.
Discount rate
The interest rate at which future values are discounted to the present and vice versa to
account for the observation that a dollar tomorrow is worth less than a dollar today (i.e.
the time value of money).
Discounted cash flow
(DCF)
An analytical technique for converting a monetary impact at one point in time to a
monetary impact at another so as to allow for the time value of money; the family of
project performance measures (including IRR and NPV) are based on the foregoing
technique.
Discounting
The process of converting money values that occur in different years to a common year.
This is done to convert the dollars in each year to present value dollars.
Distributional effect
A change (positive or negative) in the economic welfare of a group of individuals or
firms caused by an initiative.
Economic efficiency
A measure of the extent to which economic gains (referred to as increases in social
welfare) have been or could be achieved. Economic efficiency is improved whenever
the gainers from a change could compensate the losers out of their gains and still have
some gain left over. Maximum economic efficiency is said to be obtained when no
further changes of this type are possible, i.e. there are no unexploited opportunities to
improve everybody’s welfare.
Economic impact
analysis
A form of economic analysis aimed at establishing the effect that an initiative will have
on the structure of the economy, or on the economic welfare of groups of people or
firms. Usually expressed in terms of employment and income effects, broken down by
economic sector and/or region.
Economic warrant
An initiative is warranted on economic grounds if the present value of benefits exceeds
present value of costs and first-year rate of return exceeds discount rate. These values
and rates are calculated as part of an economic or benefit–cost analysis.
Elasticity
A mathematical measure used in economics to describe the strength of a causal
relationship between two variables. It measures the responsiveness of the dependent
variable to the changes in the independent variable (e.g. the price elasticity of demand).
An elasticity value can be interpreted as the percentage change in the dependent
variable in response to a one per cent change in the independent variable.
Escalation index
A number by which a base-year real price must be multiplied in order to obtain the real
price in the year of the index.
External cost
Cost imposed on third parties, including time lost from delays, accident risks and
environmental impacts (valued at resource costs where applicable). The cost of an
externality.
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Infrastructure Australia Assessment Framework - Detailed Technical Guidance
Term
Definition
Externality
An effect that one party has on another that is not transmitted through market
transactions. An example is noise pollution from vehicles: those operating the vehicles
disturb other parties such as nearby residents, but a market transaction between these
parties is absent.
Financial analysis
The evaluation of the benefits and costs, measured in cash-flow terms, to a single entity
(i.e. not the community or the economy).
Financial cost
The cash-flow expenses incurred by purchasing resources through markets at market
prices.
First-year rate of
return (FYRR)
Benefits minus operating costs in the first full year of operation of an initiative, divided
by the present value of the investment costs, expressed as a percentage. The first-year
rate of return is used to determine the optimum timing of initiatives
Impact
A generic term to any specific effect of an initiative. Impacts can be positive (a benefit)
or negative (a cost).
Incremental BCR
Ratio of the present value of increase in benefit to the increase in investment cost that
results from switching from one option to the adjacent, more expensive option. The
incremental BCR is used to choose between different options for a particular initiative,
having different levels of investment cost.
Infrastructure
Civil engineering structures that have been built to facilitate the movement of people
and/or goods for various social and business reasons.
Infrastructure
operating costs
The costs of providing the infrastructure after the initiative has commenced operation,
e.g. maintenance, administration and operating costs of a facility.
Infrastructure targets
Quantity and standard of infrastructure that is desired at some future time.
Infrastructure Priority
List (IPL)
The IPL is a list of initiatives and projects which have been identified by IA as potential
infrastructure solutions to address nationally significant infrastructure problems and
opportunities, including those identified in the 2015 Australian Infrastructure Audit. It
is a ‘living’ statement of where IA believes governments, the community and the
private sector can best focus their infrastructure efforts.
Initiative
Potential infrastructure solutions IA for which a business case has not yet been
completed. Initiatives are identified through a collaborative process between
nominators and IA, using the Australian Infrastructure Audit and other data as
evidence.
Internal rate of return
(IRR)
The discount rate that makes the net present value equal to zero. IRR must be greater
than or equal to the discount rate for an initiative to be economically justified. The
discount rate is therefore also known as the hurdle rate.
Investment costs
The costs of providing the infrastructure before the initiative has commenced operation,
e.g. planning and design, site surveying, site preparation, investigation, data collection
and analysis, legal costs, administrative costs, land acquisition, construction costs,
consequential works, construction externalities.
However, in some cases, investment costs can recur throughout the appraisal period
(e.g. asset replacement or renewal costs). For a CBA, these should all be expressed in
economic cost terms (also known as resource costs).
Jurisdiction
An Australian government.
Jurisdiction problem
An evidence-based problem of national significance that applies within a particular
jurisdiction. Working in collaboration, these problems are identified by IA and the
states and territories.
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Term
Definition
Maintenance
Incremental work to restore infrastructure to an earlier condition or to slow the rate of
deterioration. Distinct from construction and upgrading.
Multi-criteria analysis
(MCA)
A systematic tool to assist in decision-making where the impact of an initiative is
assessed across a range of criteria. CBA could be considered as a form of MCA, where
the aim is to monetise as many benefits and costs as possible without double-counting.
However, the development of business cases often requires both a MCA and a CBA to
be undertaken.
Mutually exclusive
In the CBA context, the term is used to refer to options where choice to adopt one
option precludes adoption of all the other options.
Net Present Value
(NPV)
The combined discounted present value of one or more streams of benefits and costs
over the appraisal period. The term ‘net’ denotes that the NPV is calculated as present
value of benefits minus the present value of costs.
National problem
An evidence-based problem of national significance that applies across States or
Territories. These problems are identified by IA and Jurisdictions, working in
collaboration.
Network
Collection of routes that provide interconnected pathways between multiple locations
for similar traffics. Can be multi-modal (typically comprising several uni-modal
networks) or uni-modal.
Network assessment
Assessment of a whole network using data collection and analysis. Provides
information to support development of network and corridor or area strategies.
Nominal prices
A value or price at a given time. Nominal prices rise with inflation. In contrast, real
prices are prices after the effect of inflation has been removed.
Nominator
An individual, private sector organisation or jurisdiction that submits an initiative to IA.
Non-infrastructure
options/solutions
Initiatives that make better use of existing infrastructure and avoid the need for large
capital expenditures. Also referred to as reform or non-investment options/solutions.
Opportunity cost
The value forgone by society from using a resource in its next best alternative use.
Synonymous with resource cost and social cost.
Option
Alternative possible solution to a problem, including base case options such as do
nothing or do minimum.
Option value
The value that consumers place on being able to keep an option available, even though
they may never in fact choose it. For instance, habitual air travellers may be willing to
subsidise a competing train service in order to be in a position to use it if the need
arises.
Options assessment
The assessment of alternative options for solving an identified problem.
Payback period
The period required for an initiative’s net recurrent benefits to equal its initial
investment cost.
Performance target
Level of performance outcome / objective that is sought for a specific defined
performance indicator.
Planning horizon
The year, or time period, into the future at which a planning exercise is focused. Long
term planning can range from 30 to 50 year horizons, while at the other end of the scale
short-term planning may be focused on a 1-3 year time frame.
Price year
The price year is the year in which the prevailing prices are used in the analysis for the
valuation of impacts.
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Term
Definition
Private cost
Cost incurred by an individual user or service provider. Private costs are valued at
money prices, where applicable and may include user costs but exclude external costs
imposed on others.
Problem
An evidence-based reason for action that results from a gap between an actual and a
desired outcome. Problems are informed by IA’s Australian Infrastructure Audit, and
by IA in collaboration with jurisdictions, to identify jurisdiction problems and national
problems.
Producer surplus
Producer surplus is the difference between the price at which a producer is willing to
supply a particular good or service and the price the producer actually receives.
Project
Potential infrastructure solutions for which a full business case has been completed and
positively assessed by the IA Board.
Program
Suite of related initiatives to be delivered within a specified time frame and sequence.
Proposal
The submission of a project business case by a proponent to IA at stage 4 of IA’s
assessment framework.
Proponent
A private sector organisation or jurisdiction that submits a project proposal to IA in the
form of a final business case. To be a proponent, the organisation must be capable of
delivering that proposal.
Public-private
partnership (PPP)
An infrastructure project delivery model involving both the private and public sectors.
Real prices
Prices that have been adjusted to remove effects of inflation. They must be stated for a
specific Base Year, e.g. 2012 dollars.
Residual value
The value of an asset at the end of the appraisal period. They are used in CBA
calculations involving long-lived assets whose life extends beyond the end of the
appraisal period.
Resource cost
Opportunity cost to society as a whole. Synonymous with opportunity cost and social
cost. Reflects market prices where there is an absence of market failure. Where market
failure exists, appropriate adjustments are required to estimate the true resource cost.
Risk
A state in which the number of possible future events exceeds the number of events that
will actually occur, and some measure of probability can be attached to them (Bannock
et al 2003, p. 338).
Sensitivity analysis
Changing a variable, or a number of variables, in a model or analysis to discover how it
affects the output or results.
Social cost
Opportunity cost to society as a whole. Synonymous with opportunity cost and resource
cost. Reflects market prices where there is an absence of market failure. Where market
failure exists, appropriate adjustments are required to estimate the true resource cost.
Strategic challenge
One of ten strategic issues that are, or will be faced by Australia. These are outlined in
the 2015 Australian Infrastructure Audit.
Strategic planning
High-level planning involving fundamental direction-setting decisions.
Narrows down the types of options that will be pursued. Involves consideration of
present and future environments. Asks questions such as: ‘Are we doing the right
thing?’ ‘What are the most important issues to respond to?’ and ‘How should we
respond?’ Balances many competing considerations including value judgements,
subjective assessments and political considerations. Involves iteration, stakeholder
consultation and analysis.
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Term
Definition
Sunk cost
A cost that cannot be retrieved by resale in the market. More specifically, a sunk asset
is one which, once constructed, has no value in any alternative use. Bridges and railway
tunnels are typically sunk assets. Sunk costs incurred in the past should be excluded
from a CBA.
Sustainability
Development that meets the needs of the present without compromising the ability of
future generations to meet their own needs.
User costs
Costs incurred by a transport user in addition to the money price − waiting time, time in
transit, unreliability, damage to freight, passenger discomfort, additional costs to
complete the door-to-door journey. Quality attributes such as time and reliability need
to be expressed in dollar terms based on user valuations.
Willingness-to-pay
(WTP)
The maximum amount a consumer is willing to pay for a given quantity of a particular
good or service (rather than go without it). Total value that consumers place on a given
quantity of a good or service. It is measured as the total area under the demand curve up
to given quantity.
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51
14. Appendix B – Tax Incentives
Tax incentives to support private sector investment in nationally significant infrastructure were introduced on 19 August
2013.
Under the tax provisions, an infrastructure project that is designated by the IA Chief Executive Officer as a ‘designated
infrastructure project’ is entitled to:
■
Uplift tax losses by the long-term government bond rate;
■
Carry forward tax losses and claim bad debt deductions even where that entity does not satisfy the continuity of
ownership and same business tests for companies and equivalent tests for trusts.
The intent of these tax provisions is to ensure that investors are not discouraged from investing in infrastructure because
of the reduction in the present value of losses over time, and to increase the likelihood that the losses can be used to
offset future earnings and benefit investors in the project, whether these are the original investors or are new investors
in the project.
Consistent with the objective of supporting private investment in nationally significant infrastructure, a key requirement
for a project to be eligible for consideration for designation is that the project must first have achieved ‘Project’ status
on IA’s IPL.
Projects can only be designated if the total capital expenditure of all designated projects (including provisionally
designated projects) would not exceed $25 billion.
Applications for the designation itself are subject to separate guidance which are listed at
www.infrastructureaustralia.gov.au. Applications are subject to an application fee.
Infrastructure Australia Assessment Framework
Detailed Technical Guidance
Infrastructure Australia
GPO Box 5417 Sydney 2001 Australia
T +61 2 8114 1900
F +61 2 8114 1932
E [email protected]
W infrastructureaustralia.gov.au