Road cost-benefit studies prone to errors: BITRE

A BUREAU of Infrastructure, Transport and Regional Economics (BITRE) report has cast doubt on the effectiveness of cost-benefit analyses of road investment projects, saying the process is “prone to errors”.

A review of the cost-benefit analysis (CBA) of 12 case study projects on the National Land Transport Network worth more than $1 billion suggested the net present value (NPV) “was over-estimated by significant margins”.

It said this over-estimation was “largely caused by over-estimation of road-use benefits with errors in travel time cost-saving benefits”, and that “inaccurate traffic forecasts and methodology errors were mostly responsible for the over-estimated road-user benefits”.

The report, “Ex-post Economic Evaluation of National Road Investment Projects National Land Transport Network in 2005-07 and in 2014-16”, allowed that “assessment of a much larger sample of projects would be required before general conclusions can be drawn about the quality of past CBAs in each State”.

However, it said: “Available evidence suggests that there is much room for improvement in the quality of practical Australian road CBAs if they are to be used as an effective tool for option-ranking and project prioritisation”.

On analysing safety benefits, the report explicitly noted that crash information was below what is needed for proper decision-making.

“Crash analysis was hampered by lack of good data and analysis,” the authors said. “Until crash data and analysis are significantly improved, there may be a case for using model default rates for both the base and project cases, as these are subject to less uncertainty”.