Summary ...143 I Introduction ...147 II Description of the Nagambie Bypass project ...149 III Review of ex-ante CBAs ...151 IV Methodological issues in ex-post evaluation ...153 Traffic demand analysis ...153 Road user cost estimation ...154 Project cost estimation ...160 Residual values ...163 FYRR ...163 Externalities ...164 Discount rate ...164 V Reconstruction of the ex-ante CBA ...165 VI Ex-post economic evaluation ...167 E1 – Correcting spreadsheet errors ...167 E2 – Road length and width adjustments ...168 E3 – Extending the length of evaluation period ...169 E4 – Updating project costs and maintenance ...169 E5 – Revising traffic forecasts ...170
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VII Lessons learnt ...177 CBA reporting ...177 Review of ex-ante CBAs ...177 Traffic allocation ...177 Road condition and maintenance ...177 Residual values ...178 FYRR ...178 References (additional) ...179
List of tables
Table 1 Ex-ante CBA results from VicRoads PPRs ...152 Table 2 Traffic assumptions ...154 Table 3 Example of EVAL4 input variables for a duplication project ...159 Table 4 Ex-ante road section specifications ...159 Table 5 Ex-post road section specifications ...160 Table 6 Cost estimates for Nagambie Bypass ($m in 2009 prices and % above
base estimate) ...161 Table 7 Ex-ante first year rate of return @ 4% ...163 Table 8 Correcting spreadsheet errors (E1) ...168 Table 9 Adjusting road length and width (E2)...168 Table 10 Extension of evaluation period (E3) ...169 Table 11 Update of project costs (E4) ...170 Table 12 Revising traffic forecasts (E5) ...170 Table 13 Traffic split (E6) ...172 Table 14 Updating base case accident rate (E7) ...172 Table 15 Inclusion of residual values (E8) ...173 Table 16 Discount rate sensitivity test at 7% (E9) ...174
List of figures
Figure E.1 Sources of variations in NPV ...144 Figure 1 Proposed Nagambie Bypass ...150 Figure 2 Traffic forecasts on the Goulburn Valley Highway ...154 Figure 3 Annual stream of total road user benefits ...155 Figure 4 Base and project road sections ...157 Figure 5 Bypass road section condition ...158 Figure 6 Comparison of project cost estimates ($m in 2009 prices) ...161 Figure 7 Ex-ante first year rate of return @ 4% ...164 Figure 8 VOC as a function of operating speed for a road condition NRM = 40 ...171 Figure 9 Sources of variations in NPV ...175
The Bureau of Infrastructure, Transport and Regional Economics (BITRE) has undertaken a second round of ex-post cost-benefit analyses (CBA) on National Land Transport Network road investment projects. These assess the economic performance of the projects and check the accuracy of ex-ante cost-benefit analyses undertaken for them. The Nagambie Bypass project was one of five case studies included in the second round of ex-post economic evaluations.
It was undertaken by BITRE in consultation with the Roads Corporation of Victoria (VicRoads).
The Nagambie Bypass project involved building a freeway-standard bypass to the east of Nagambie. It comprised two sections: the northern section (duplication of 3.5km of the Goulburn Valley Highway between Kirwans Bridge–Longwood Road and Moss Road) and the main section (construction of a two carriageway 13.5km bypass road from Mitchellstown Road to Kirwans Bridge–Longwood Road). Construction commenced in December 2009 with the northern duplication completed in mid–2011 and the main bypass in April 2013. The project was budgeted to cost $222m (outturn) but the actual cost was $170m (outturn), $52m lower.
In the ex-post analysis, a number of adjustments were made to the ex-ante CBA including:
E1. correcting spreadsheet errors E2. correcting the road length and width E3. extending the evaluation period E4. updating project and maintenance costs E5. revising traffic forecasts
E6. correcting the bypass traffic proportion E7. updating the accident rate.
Net present value (NPV) was used to show the project’s economic performance. The components of the variation in NPV are illustrated in figure E.1. The net variation in NPV was estimated at
$29.8m. Updates to project and maintenance costs (E4) had the largest impact, causing NPV to improve by $35.1m. The second largest adjustment was the update of traffic forecasts (E5) with
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These updates led to a decrease in NPV. As expected, inclusion of the residual value (E8) increased NPV.
Figure E.1 Sources of variations in NPV
Note: EA = Ex-ante CBA.
Key lessons learnt from this case study include:
• CBA reporting. Figures quoted in project proposal report (PPR) were inconsistent with those contained in the attached CBA summary tables. There was no separate CBA report for the project, making the CBA review difficult. PPRs for large projects should be accompanied with a separate CBA report that details inputs and methodology with a discussion of results for transparency.
• CBA review. There were some simple spreadsheet errors that had significant impacts. These could have been detected by plotting annual benefit and cost streams in a review process.
Most other mistakes were caused by human input error, which could have been discovered and avoided by cross checking data entry.
• Inconsistencies in CBA results were seen across the PPRs conducted over time. These variations in results should have been explained in the PPRs. New PPRs or CBAs should include an update summary where significant changes from the previous version are explained.
• Better estimation of traffic allocation. For any bypass project, allocation of traffic between the existing and new road is critically important. While the assumption of a 100% allocation of traffic to the bypass was convenient from modeling perspective, it was unrealistic and should not have been accepted. In future, more effort should be made to justify the assumed split in traffic between the base case road and bypass road.
Appendix B.4 • Summary
• The significance of road condition and maintenance on road user benefits. Assumptions on road condition and maintenance schedule can have significant impact on road user costs particularly, on vehicle operating costs. The sharp fall and subsequent decline of net benefits for the project in later years was due to the effect of road condition on road user costs modelled in EVAL4. This result has not been born out in other case studies. Consensus on the effects of road condition on road user costs is required to ensure CBAs across road projects are comparable.
• Residual value. The ex-ante CBA did not feature any RV for the project. RVs should be included in CBAs where asset lives extend well beyond the analysis period.
This case study forms part of BITRE’s second round of ex-post cost-benefit analysis (CBA) of road investment projects on the National Land Transport Network. The case study was implemented by BITRE in consultation with VicRoads.
The objectives of this case study are to:
• assess the economic performance of the project
• check the accuracy of ex-ante CBA predictions
• explain differences (if any) in results between the ex-ante and ex-post CBAs
• draw lessons from the case study to improve future CBAs.
This case study provides a more detailed review of issues surrounding project cost estimation compared to other case studies. The review was based on readily available information. More thorough investigation would be needed to gain a full understanding of issues associated with cost estimation.
The following section provides an overview of the Nagambie Bypass project. Section 3 reviews the ex-ante CBA analyses undertaken by VicRoads. Methodological issues for the ex-post evaluation are discussed in section 4. Section 5 reconstructs the ex-ante analysis using the original spreadsheets from VicRoads, and section 6 presents ex-post evaluation results. Lessons learnt are discussed in the final section.