What is Cost Benefit Analysis?

Cost-benefit analysis, sometimes called benefit-cost analysis (BCA) is a method for organising information to aid decisions about the allocation of resources. Its power as an analytical tool rests in two main features:

  • costs and benefits are expressed as far as possible in money terms and hence are directly comparable with one another; and
  • costs and benefits are valued in terms of the claims they make on and the gains they provide to the community as a whole, so the perspective is an economy wide one rather than that of any particular individual or interest group.

Cost-benefit analysis provides a robust method for evaluating the costs and benefits (including both market and non-market impacts) of a project or policy change in today’s dollars to society as a whole. The estimated net benefits (total benefits minus total costs), and any significant impacts that cannot be valued, are used to help decision-makers rank and assess options, and decide whether to implement them.

Cost-benefit analyses can provide guidance on the economic benefit of undertaking an investment in infrastructure e.g. transport infrastructure such as roads, rail, bridges etc; community facility or major projects. It also provides guidance on the extent of efficient allocation of resources in areas where no markets exist to provide this information ‘automatically’.

Cost-benefit analysis is useful in contexts where there are grounds for mistrusting the signals provided by market prices: for example, where inputs are underpriced relative to costs, or where outputs are overpriced.  Cost-benefit analysis is also helpful where, without any commercial transactions taking place, projects impose costs or benefits on third parties.   The method is also useful when a project is so large in scale that it is important to be fully aware of its wider economic effects.

The benefit cost assessments include a number of social and environmental benefits and costs where these can be valued, for example indicators of vehicle wear and tear incorporate the impact of finite resource use (i.e. oil supply). However there are a number of social and environmental aspects that cannot be valued due to:

  • Limited information about valuations of social and environmental benefits and costs; and
  • Insufficient research in the field to make authoritative assumptions as to the induced social and environmental benefit or cost associated with certain elements of the project.

To provide for the aspects not encompassed in the Benefit Cost Ratio (BCR), MacroPlan applies an assessment tool which attempts to separately identify, in a qualitative way, the full range of social and environmental costs and benefits. This applies a Triple Bottom Line assessment which has been developed to apply a rating to all benefits and costs that can be identified in a qualitative way, including where appropriate, through meetings, workshops and survey responses from stakeholders.

Triple Bottom Line analysis refers to a method of evaluating the level of accountability associated with a project at three levels – social, environmental, and economic. The Triple Bottom Line analysis method has become a widespread method of reporting against the three components (bottom lines) of economic, environmental, and social performance, and is directly tied to the concept and goal of sustainable development.

Triple bottom line reporting provides information that enables the level of sustainability associated with the project to be identified. The principles of triple-bottom line accountability are taken into consideration when developing the qualitative assessment and quantifying the economic benefits for the benefit cost assessments.

Application of Cost Benefit

Infrastructure projects where Cost Benefit Analysis is typically applied, include:

  • Road upgrade projects, e.g. bridge construction, road widening, new rail projects – heavy passenger and freight rail, and light rail;
  • Investment in new parklands – both active and passive spaces, and for environmental protection; and
  • New major projects, including residential projects to identify the potential economic benefits of investment in particular locations.

Other Government initiatives which can be subject of cost benefit assessment include regulatory change, including significant legislative change.

The range of application of Cost Benefit Analysis undertaken by MacroPlan encompasses projects with each of the features identified above.

MacroPlan Experience – Cost Benefit Studies

Adelaide Inner Ring Route – Benefit Cost Assessment  

MacroPlan was commissioned by Transport SA to undertake an economic assessment of the benefits and costs of establishing the Adelaide Better Roads – Inner City Ring Route.

This road project involved the establishment of a ring route along the southern, eastern and northern boundaries of the City of Adelaide.  The western link was proposed to utilise Port Road, East Terrace and Railway Terrace through a western bypass linking to South Road.  The Inner Ring Route strategy was devised by Transport SA to address a number of issues facing the City by maximising the potential of the surrounding road network.

Identified benefits included reduced traffic in key CBD streets, enhancing the environment to establish an urban village within the CBD with additional housing encouraged to develop in the central area with reduced infrastructure costs compared with fringe greenfields development – once off construction cost saving of $8.2 million and ongoing maintenance cost savings of up to $28,000 per annum in 2032. Induced increase in tourism expenditure is assumed from tourists extending the length of stay by a day (without overnight stay) both interstate and international visitors to South Australia. A substantial net benefit derived from a once off increase in property values attributable to cable undergrounding estimated to be in the order of $2,735,800 spread across the identified properties.

The report identified total direct benefits of $6,099,032 and indirect benefits of $94,308,698 with direct costs of $49,136,051 and indirect costs of $917,957.  This results in a Benefit Cost Ratio – 2.01:1

Potential development opportunities which complement the benefits afforded to the establishment of the Inner Ring Road included potential employment, development and capacity for major events.


Pride of Place Program Assessment

MacroPlan was been commissioned by the Victorian Department of infrastructure (DOI) to assess the range of benefits and costs associated with the Pride of Place program.  The Pride of Place program contributes funding to Local Government for projects that assist economic development in suburban, rural and regional centres across Victoria. It supports community efforts to attract investment through streetscape and other local improvement projects that enhance the interface between the public and private spaces, respecting the natural environment.  The intention of the Program was to provide seed funding to encourage investment by property owners and businesses in suburban, rural and regional centres to facilitate local expenditure by residents and attract more visitors to their area.

The review assessed projects in Metropolitan Melbourne – Sandringham and Frankston – and regional Victoria – Golden Plains Shire, Warragul, Echuca, Beechworth and Lakes Entrance.  The table below identifies the outcomes of the assessment.

For CBA

An extensive consultation process was undertaken with key stake holders for all the projects to analyse the range of the benefits and costs associated with the projects that cannot be assigned a value.  From the results of the Benefit Cost analysis, the Pride of Place program on average delivers an economic return of 2.99:1 – for every dollar contributed to the projects has returned approximately $3 to the economy. The seven case studies demonstrate the significant economic return to the State, which is in the order of $4,114,911 (based on all funding sources).


NSW Public Libraries Cost Benefit Analysis  

MacroPlan was commissioned by the State Library of New South Wales to explore, establish, analyse and document the costs and benefits of outsourcing public library services, (namely acquisitions, cataloguing and processing) in a variety of contexts relevant to the New South Wales (NSW) public library network. An informed comparison between outsourcing, in house provision and a combination of these collection management models was also developed as part of the project.  MacroPlan’s report established a benefit cost framework that identified the quantitative and qualitative benefits and costs of outsourcing.


NSRF Application Colac CBD and Entrances Project

MacroPlan undertook a cost benefit study of a proposed upgrade of the Princes Highway environs at the eastern entry to and through the Central Business District of Colac providing a significantly improved amenity and accessibility for vehicle movement, pedestrian and cycle movement around the CBD.  The CBA forms part of Councils application for funding to the National Stronger Regions Funding.


Logan City Council Active Transport Project: Economic Cost Benefit Assessment

MacroPlan undertook a cost benefit study of a proposed cycle path linking Woodridge Rail Station with the Council Administration Centre to assist Council in obtaining National Stronger Regions Funding for project providing safe cycle assess (including a new safe road crossing for cyclists) to key Community facilities .


SA Planning Reform Recommendations Cost Benefit Assessment and Legislation Cost Benefit Assessment

MacroPlan undertook a cost benefit assessment of the proposed reforms to urban planning administration in South Australia, assessing the costs, and outcomes of key reform initiatives as part of the State Government’s consideration of the reform package proposed by an independent Expert Panel following a two year community engagement process. Based on the flow of benefits and costs in this analysis, a Net Present Value (NPV) of benefits has been calculated for the 8-year period to the 2021-22 financial year. This presents a NPV of some $435 million with the implementation of all key planning reforms, equating to a Benefit-Cost Ratio (BCR) of 21:1.

In addition to the Planning Reform Recommendations, MacroPlan undertook a cost benefit assessment of the proposed legislative changes to urban planning administration in South Australia, assessing the costs, and outcomes of key reform initiatives as part of the State Government’s Regulatory Impact Statement.  Cost Benefit analysis revealed the Government’s preferred Option 1: ‘generated $2.3 billion of benefits to the economy over a 20 year time frame’.


About MacroPlan:
MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact us today to discuss your property research requirements.