The application of cost-benefit analysis to transport investment projects in Britain

This paper explains the need for the application of cost-benefit analysis to the evaluation of alternative projects for investment in the transport field and outlines briefly the historical development of the technique. The results of a comparative survey of a number of cost-benefit studies which have been carried out in Britain and some conclusions as to their thoroughness and comprehensiveness (or otherwise) are presented. The article concludes with a number of specific and detailed recommendations to remedy apparent methodological weaknesses. Six of these recommendations seem to merit particular attention:

1. The viewpoint of most studies should be extended so as to avoid confinement, for example, within an arbitrary local government boundary, and a wider range of “externalities” should be considered. Intangibles should be included explicitly in all such evaluation exercises.
2. The actual incidence of costs and benefits should be examined in order to indicate the directional impact of the project and its implications in terms of equity. The elimination of transfer payments and double-counting should be postponed until the latest possible stage in the evaluation.
3. Equity considerations should be investigated in any transportation plan, since most projects have considerable equity implications for particular areas or socio-economic groups.
4. Discounted cash flow techniques, which are still used only in a minority of transportation studies, should become standard practice. Most evaluations are based on a single-year rate of return, or at best on simple trend forecasting. More resources should be devoted to proper evaluation of alternative plans which give due importance to the cost and benefit streams through time.
5. Sensitivity analysis should be used in all transportation evaluations. Knowledge of the impact of different assignments, shadow prices, and discount rates are essential information for any decisionmaker.
6. Last, but not least, much greater communication should exist between analyst and decisionmaker than has existed in the past.