Business Case Manual Volume 2: Guidance
August 2021 This version of the Business Case Guidance ('The Guidance') was released in 2021. Read the Guidance, and review past business cases here: http://www.metrolinx.com/en/regionalplanning/projectevaluation/ benefitscases/benefits_case_analyses.aspx Send your comments and questions by email to: businesscase@metrolinx.com Business Case Manual Volume 2: Guidance
August 2021 Metrolinx has a mandate to The two documents are: advance an integrated multi-modal transportation network in the Greater Toronto and Hamilton Area Business Case Manual (GTHA). Strong evidence-based Volume 1: Overview decision-making is a key contributor provides a concise summary of the overall business case to the design, selection and approach used by Metrolinx to help stakeholders, decision- delivery of transport investments. makers, and the public The Metrolinx Business Case interpret business cases. Business Case Manual Guidance has been developed Volume 2: Guidance as a key component of an overall This document provides detailed information on how approach to evidence-based to lead the development of a business case and outlines the decision-making. This guidance key business areas with the provides a robust approach for expertise to support or review specific content. This document assessing the benefits, costs, and also lays out the analytical methods and parameters to impacts of a range of potential support the development transportation investments. of business case content.
Two documents have been prepared to describe the purpose of business cases and how to develop consistent and comparable business cases for a range of potential transport investments. Foreword
Transportation investment is a key part The Guidance will ensure information of the Government of Ontario’s plan on a transportation investment’s to strengthen the province’s prosperity strategic objectives, costs, impacts and competitive edge globally. and implementation is available and In support of these investments, Metrolinx presented in a consistent and clear has a mandate to deliver transportation manner over its lifecycle. Business cases investments that support a higher are updated as the project progresses – a quality of life, a more prosperous typical lifecycle includes idea inception, economy and a healthier environment. options analysis, optimization of a preferred option, final option definition, This document - Business Case Manual and finally a post-implementation Volume 2: Guidance (referred to as the or post-in service review. As a result, Guidance) will help to deliver on this the Guidance has the potential to mandate. It draws on procedures used generate tremendous value – a more in international jurisdictions recognized robust analysis that is more effectively for advancing high performing embedded within more decisions to transportation infrastructure and provides yield better results from the billions of a foundation for confident local, regional dollars being invested in infrastructure. and Provincial decision-making. This Guidance document is a platform for inter-departmental collaboration and a resource for improved analysis. It is a living document that will evolve with the state of transportation analysis, research and business processes and supports more efficient, evidence-based decision-making.
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Contents
1. Business Case Manual Volume 2: 5. Economic Case
Guidance Overview Introduction 81 Introduction 3 Developing an Economic Case 82 The Purpose of a Business Case 6 Purpose of Economic Appraisal 82 Business Case Key Considerations for Principles and Concepts 10 Developing an Economic Case 83 The Business Case Economic Appraisal Using Development Process 16 Benefit Cost Analysis 83 Post In-Service Business Sensitivity Analysis 87 Case Considerations 21 Optimism Bias 90 Roles and Responsibilities 23 Economic Case Narrative Structure 99 Economic Case Core Content 101 2. The Case for Change Conducting Economic Analysis 102 Introduction 27 Introduction and Assumptions 102 Developing the Costs 102 Problem Statement Chapter 28 User Impacts 106 External Impacts 129 3. Investment Options Wellbeing Impacts 131 Introduction 47 Environmental Impacts 136 Developing an Productivity Impacts due to Investment Options Chapter 48 Agglomeration Economies 146 Option Development and Land Value and Development 160 the Business Case Lifecycle 49 Economic Analysis Summary 163 Option Development Guidance 52 CBA Adjustments 166 Conventional and Expanded BCA 169 4. Strategic Case Economic Case Parameter Summary 170
Introduction 69 Developing a Strategic Case 70 Conducting Strategic Analysis 71
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6. Financial Case
Introduction 174 Developing a Financial Case Analysis 175 Financial Case Structure 175 Financial Appraisal Techniques 175 Conducting Financial Analysis 178 Capital Costs 179 Operating and Maintenance Costs 181 Revenue Impacts 182 Labour Force Requirements 182 Funding Sources 183 Analysis Summary 183
7. Deliverability and Operations Case
Introduction 188 Developing Deliverability and Operations Case 190 Conducting Deliverability and Operations Analysis 191 Project Delivery 192 Operations and Maintenance Plan 196 Procurement Plan 200 Analysis Summary 204
8. Business Case Summary
Overview 207 Introduction and Executive Summary 208
Glossary 209
Acknowledgements 212
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Table of Acronyms
BAU Business as Usual BCA Benefit Cost Analysis BCR Benefit Cost Ratio BF Build Finance BRT Bus Rapid Transit C Cost CAC Criteria Air Contaminant CAD Canadian Dollar CM Construction Management
CO² Carbon Dioxide
CO²e Carbon Dioxide Equivalent CPI Consumer Price Index D&O Deliverability / Operations DALYs Disability-Adjusted Life Years DBB Design-bid-build DBF Design-build finance DBFM Design-build-finance-maintain DBFOM Design-build-finance-operate-maintain GDP Gross Domestic Product GDV Gross Development Value GGH Greater Golden Horseshoe GGHM Greater Golden Horseshoe Model GHG Greenhouse Gases GTHA Greater Toronto and Hamilton Area HB Health Benefit HEAT Health Economic Assessment Tool IRR Internal Rate of Return IO Infrastructure Ontario KPI Key Performance Indicator kWh Kilowatt Hour LRT Light Rail Transit MND Mobile Network Data
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MPIP Major Public Infrastructure Project MTO Ministry of Transportation (Ontario) NPV Net Present Value NOx Nitrogen Oxide O&M Operations and Maintenance OD Origin Destination OECD Organization for Economic Co-operation and Development P3 Public Private Partnership PBP Pay Back Period PM Particulate Matter PVB Present Value of Benefits PVC Present Value of Costs R/C Ratio Operating Cost Recovery Ratio ROH Rule of a Half ROI Return on Investment RTP Regional Transportation Plan SCC Social Cost of Carbon SMART Specific, Measurable, Achievable, Realistic, Time-Related
SO² Sulphur Dioxide TPAP Transit Project Assessment Process TTS Transportation Tomorrow Survey USRC Union Station Rail Corridor VfM Value for Money VKT Vehicle Kilometres Travelled VOC Volatile Organic Compound WEI Wider Economic Impact WHO World Health Organization
IX 1
Business Case Manual Volume 2: Guidance Overview
Chapter 1 : Guidance Overview
How is the chapter structured?
Section Content
Includes a summary of document structure and Introduction information on how to use the Guidance
The Purpose of a Includes an overview of what a business case is and its Business Case purpose within broader decision-making processes
Business Case Principles Provides an overview of key principles, terminology, and concepts to support managers in understanding and Concepts the business case development process
The Business Case Provides a summary of the business case lifecycle, Development Process including the different stages of analysis
Provides a summary of roles and responsibilities Roles and Responsibilities for developing a business case
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Introduction
A business case is a generic term for As a result, the business case should a collection of evidence assembled remain a ‘living document’ throughout in a logical and coherent way, which the investment lifecycle, receiving explains the contribution of a proposed updates as the investment advances. investment or project to organizational This ensures decisions are based on objectives. In the Metrolinx context, evidence and strengthens accountability business cases are prepared to to the public and shareholders. provide timely information on potential investments to inform decision-making How to use Business Case and support investment optimization Manual Volume 2: Guidance as the investment advances through The Guidance should be followed to planning, design, delivery and operation. develop all Metrolinx business cases. Introducing Business Case Guidance The Guidance is composed of eight chapters, which have been This Guidance explains the steps and developed to provide managers, content required to complete a Metrolinx analysts, and stakeholders with step business case for any type of investment by step instructions to complete (including: projects and policies). It each chapter of a business case. describes the approach and techniques required by project managers and analysts Each chapter should be followed and to develop a robust business case. reviewed when conducting analysis and preparing the business case Every investment is unique, and while document. For any support on this this Guidance aims to provide a standard Guidance and clarification of inputs and approach that will be applicable to parameters please contact Metrolinx all types of investments, the business at: [email protected] case development team will need to exercise discretion and professional judgment while completing each business case. Ultimately, business case development is a continuous process of update and review that is intended to identify and optimize high potential investments. Project managers should therefore always aim to ensure that information contained in business cases is useful and comprehensive in so far as it is proportionate to the scale of the investment under consideration.
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Business Case Guidance Development and Evolution Business Case Guidance development Under exceptional conditions – such is an ongoing process focused on: as significant changes in economic or • Defining approaches to assess benefits, regional growth outlook an interim costs, risks, and delivery requirements Guidance update may be issued. • Defining values and parameters All business cases completed between used to estimate benefits and costs 2021-2022 must make use of this Guidance. In 2022, an updated version The 2021 version of Metrolinx’s Business of the Guidance will be prepared with Case Guidance is the product of ongoing revised parameters and values as well research and collaboration with regional as new best practice as relevant to partners and an international peer review transportation investment analysis in panel to develop robust tools to assess the Greater Golden Horseshoe (GGH). potential transportation investments. Metrolinx will continue to refine this Guidance based on emergent research and practice in peer jurisdictions. This refinement cycle, at a maximum, will be conducted on a five-year basis aligned with the Canadian census period. This time frame has been used because the census is used to: • Directly derive numerous business case parameters used to estimate benefits; and • Refine other models and forecasting tools use in regional transportation planning.
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Chapter 1 (this chapter) introduces key Chapter 5 describes the Economic Case principles, concepts and governance chapter of the business case. This looks at processes to guide the project manager the impacts of the project on social welfare, throughout the business case lifecycle. including travel impacts and wider impacts. This chapter addresses the fact that each business case will be unique and will rely on the project manager (and supervisor) understanding the intentions underlying the design of the business Chapter 6 describes the Financial case when using their professional Case chapter of the business case judgment to complete the business case. and estimates the overall financial impact of the investment.
Chapter 2 describes the process used to set out the Case for Change Chapter 7 describes the Delivery and for an investment based on existing Operations Case chapter of the business conditions, future conditions, and a case. This chapter is concerned with logical linkage between a problem and/ how implementable each option is as or opportunity and a proposed general well as how it will be operated over its transport investment that can respond lifecycle. Key questions include project to the problem and/or opportunity management capacity, risks, stakeholders, and realize benefits to the region. . construction phasing, and approvals.
Chapter 8 provides high-level Chapter 3 describes the development guidance on how to develop the of options to be tested in a business chapters of the business case that are case and a high-level description typically finished last: Introduction, of the expected impacts. Summary, and Executive Summary.
Chapter 4 describes the Strategic Case chapter of the business case, what content is required and how it can be created. Long range forecasting is also a component of the Strategic Case where relevant.
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The Purpose of a Business Case
A business case is a comprehensive Business Case Structure collection of evidence and analysis that sets out the rationale for why a problem A business case should include eight or opportunity should be addressed chapters (as described in Figure 1.1) – and what the core requirements are including framing material (introduction, for addressing it. Business cases problem definition, and option provide evidence to decision-makers, development), a four-case evaluation stakeholders, and the public as a crucial that includes two cases that speak to part of transparent and evidence-based the rationale for pursuing an investment decision-making processes. Broadly (Strategic Case and Economic Case) speaking, business cases should define and two that speak to the requirements a problem or opportunity and make the for successful implementation of case (including strategic fit, benefits, the investment (Financial Case and and costs) for Metrolinx to deliver one or Deliverability and Operations Case), and more potential investments to address it. a conclusion section that summarizes the investment's overall performance. A business case with each of these chapters follows best practice in investment evaluation. The Guidance provides a structured approach to defining the problem, generating options, and Metrolinx Business Case vs. completing the four chapter analysis. Benefits Case Analysis A business case is a collection of evidence assembled into four chapters or cases – Strategic, Financial, Economic, Deliverability/Operations – that explains the rationale for pursuing an investment. It is an evolution of the previous Metrolinx Benefits Case Analysis reports used between 2008 and 2015 for large transit projects, capturing additional economic impacts as well as strategic and delivery/operations evidence.
6 Business Case Manual Volume 2: Guidance Chapter 1 : Guidance Overview
Figure 1.1: The business case Introduction (V2 Chapter 1) structure mapped against the Provides an overview of the business case chapters in Business Case Manual Volume 2: The Case for Change (V2 Chapter 2) Guidance (V2) Sets out a problem and/or opportunity , the benefits of addressing it (at a high-level), and types of solutions that can realize these benefits
Investment Options (V2 Chapter 3) Sets out a defensible set of options to be tested against the benefits and outcomes in Chapter 3
Strategic Case (V2 Chapter 4) Economic Case (V2 Chapter 5)
How does the investment achieve What is the investment's overall strategic goals and objectives? value to society? • Determines the value of addressing a problem or • Assesses the economic costs and benefits of the opportunity based on regional proposal to individuals and society as a whole, development goals, plans, and policies and spans the entire investment's lifecycle • Options are evaluated against objectives that • Uses standard economic analysis to tell a clear narrative of how the investment can detail the investment's benefits, costs, address the problem or opportunity along with and risks in economic terms potential risks to investment performance • Establishes ‘what the benefit to • Establishes ‘why’ an investment should society’ is in economic terms be pursued from a strategic lens
Financial Case (V2 Chapter 6) Deliverability and Operations Case (V2 Chapter 7) What are the financial implications of delivering the investment? What risks and requirements must be considered • Assesses the overall financial impact of the for delivering and operating the investment? proposal, its funding arrangements and technical • Provides evidence on the overall accounting issues, and financial value for money viability of one or more options for • Focuses on capital, operating, and addressing the problem/opportunity revenue impacts and risks directly • May consider procurement strategies, related to the investment and indirectly deliverability risks, operating plans resulting from the investment and risks, or organizational risks • Establishes ‘how much the investment • Establishes ‘what is required to deliver will cost’ in financial terms and operate’ the investment
Business Case Summary (V2 Chapter 8) Provides a summary of the core findings from each chapter along with recommendations for future investment development. 7 7 Chapter 1 : Guidance Overview
Business Cases, Decision Making and Investment Planning Business cases provide evidence to Business case analysis is used by Metrolinx decision-makers, stakeholders, and the as a sound and established method public as a crucial part of transparent for evaluating potential transportation and evidence-based decision- investments in a comprehensive manner. making processes. They are used This type of analysis (determining which throughout any proposed investment’s investment has the highest potential for lifecycle, including planning, delivery, a specific problem and/or opportunity) management, and performance is different from analysis conducted monitoring in two major roles: to prioritize between high value and potential investments or ‘solutions’ • Appraisal: to assess potential identified within individual business investment options to address a cases. For example, once complete, specific problem and/or opportunity a set of business cases for different by presenting evidence on the range problems and/or opportunities may of costs, benefits, risks, and delivery be compared through a prioritization requirements in a clear and concise process to determine which ones manner. For example, a business case should be considered first for further may make the case for investment into a planning, analysis, and delivery. new rapid transit corridor and compare This process considers a range different modes or service patterns. of broader factors, including: • Evaluation: to compare the realized • Relative performance – what range of benefits and costs of an investment and benefits does each business case offer document key lessons learned during to the region relative to costs to deliver? investment delivery and operations. • Required capacity to deliver – what For example, after a rapid transit are the financial and organizational service has operated for five years, requirements to deliver the investments Metrolinx may develop a Post In-Service outlined in each business case? business case to determine the extent to which the investment’s performance • Risk profiles –what are the comparative is aligned with the full business case risks between the proposed that justified it. Evaluation is used investment in each business case? to identify opportunities to improve • Procurement – how procurement an investment once it is operational ready are the solutions proposed or augment on-going planning and in each business case? development of future investments. • Interdependencies – how dependent are the solutions proposed in each business case to other undelivered investments? These broader factors are important components of Provincial and municipal project-selection processes, but are outside the scope of this Guidance.
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External Advisors to the Business Case Process In addition to the peer review process used to develop this Guidance, Metrolinx will establish an external review process including: • A technical advisory panel to advise on business case development. • A peer review process for business cases where relevant subject matter experts that were not involved in the development of a business case are asked to review and provide comments and considerations for improvement. Metrolinx will convene the technical advisory panel and seek peer review on a regular basis for the scale of business cases under review.
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Business Case Principles and Concepts
Key Principles The following underlying principles should be taken into consideration in completing business case analysis:
Support robust decisions Business cases are intended to add confidence to decisions and lead to the avoidance of re-opening decisions; to align and support decision-making as much as possible and to minimize total effort expended on projects.
Objective and evidence-based Business cases should be free of bias and based on verifiable data, evidence and transparent assumptions.
Diverse information sources Business case analysis should include both quantitative and qualitative data, be integrated with other forms of analysis to support decision making.
Adaptable and scalable Individual business cases should be tailored to the size, expected level of impact, and risk of the investment.
Progressively elaborated Analysis should be updated at certain stages of an investment’s lifecycle as new, more robust, relevant material becomes available.
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Universal and consistent The same basic questions should be addressed by every business case, allowing the reader to easily locate information and enabling different business cases to be weighed against each other. Consistent standards periodically updated will be followed to ensure consistency.
Comprehensive and understandable Each business case includes all material factors relevant to a realistically complete evaluation and should be communicated using plain language.
Transparent Business cases should include sufficient detail to explain the basis of the business case evaluation.
Consider risk and business capacity Business cases should consider the key risks of an investment and the business capacity required to deliver it.
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Concepts The concepts defined below aim to provide project managers with an overall understanding of the structure and organization of the business case.
Investment This Guidance uses the term ‘investment’ to define an intentional change to the transportation system that is invested in by one or more government agencies. The term ‘option’ is used to refer to a specific investment under consideration and could include changes to the transport network’s regulations/ policies, traveller experience, operations, or infrastructure.
Economic Analysis
This Guidance defines Economic Analysis as an approach to determine the value of the impacts of an investment to the welfare of individuals and society as a whole, presented in real terms (example: reduced emissions, improved health, increased productivity).
Financial Analysis
This Guidance defines Financial Analysis as the consideration of the ongoing expenses and revenues incurred by parties funding, delivering or operating the option. Future year expenses and revenues should incorporate growth projections and be presented in nominal terms.
Business as Usual This Guidance defines ‘Business as Usual’ as the baseline against which options are compared where the investment has not occurred and existing business practices, committed plans and general trends continue into the future. Previously completed business cases may have used multiple terms to refer to this baseline – however, all future business cases should use consistent language using the term ‘business as usual’. This baseline defines the ‘future conditions’ that an investment scenario should be compared against. This should include:
• Funded and committed major changes to the transport network (example: a funded rapid transit line); • Minor changes to the transportation network (such as signal timing or frequencies on bus routes) based on changes to transport demand in future years; and • Land use, population, and employment assumptions that are informed by official plans, policies and market trends.
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Investment Grade Analysis Investment grade analysis refers to modelling, design, and option development work that is conducted to the highest level of detail. This work supports decisions for which a significant level of investment is required and typically applies built for purpose or modified for purpose models and specific designs for investment options, whereas earlier stages of analysis may use general tools and high-level designs.
Proportionality Proportionality of the evaluation process is important, to ensure best use of scarce resources in the evaluation process and in option development. Proportionality can be considered through three lenses: • The greater the cost of an investment, the greater level of detail and certainty is required for benefits and costs (a $50m station enhancement investment is not expected to have the same level of effort expended as a $5bn subway extension). • The elements that contribute more to the case for an investment should have greater effort expended than elements that contribute less (example: time savings are typically the largest element in the Economic Case and these should be more robustly scrutinized than auto accident savings). • The level of effort required to reduce uncertainty to an acceptable level, identifying and addressing known risks, and avoiding spurious accuracy in analysis.
Base vs. Real vs. Nominal Business cases present monetary figures differently depending $ on the case. For example, a capital cost figure may be different between the option definition section, the Economic Case, and the Financial Case. This is because each case is presenting costs for different purposes. The option definition section provides the base estimate for investment expenses independent of ‘how’ the money is spent (for example: spending capital costs over five years to deliver an investment). The Economic Case is concerned with the real value of costs in terms of a fixed evaluation year. These figures include a social discount rate and the effects of any value escalation (general price inflation is ignored) based on the timeline over which the expenditure is incurred. The Financial Case presents costs in nominal terms – meaning they are inflation adjusted. The Financial Case figures include general inflation, cost escalation, and a financial discount rate. These three types of costs are illustrated in Figure 1.2.
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Figure 1.2: Base vs. Real. Vs. Nominal
The business case uses Base costs 3 types of costs: $ The expected cost to provide an investment including capital and operating costs. $
Base costs, which are an estimate of the cost of the investment if the entire system was procured today, are used to scope the concepts.
Economic costs Financial costs (real costs) (nominal costs) Economic costs, which Investments require capital Investments require capital are used to understand and operating costs to be paid and operating costs to be paid the economic value of the throughout the project lifecycle. throughout the project lifecycle. investment to society in Economic costs reflect the Financial costs reflect the actual the Economic Case. real price of these costs based price in the year they are required. on the year they are incurred and a social discount rate. Because the purchasing power of money generally declines over time, The social discount rate reflects cost estimates need to be adjusted Financial costs, which are used a general 'time preference' for throughout the lifecycle to reflect to understand the financial cash value – value today is seen as the increase in money required to flow impacts of the investment more valuable than value in procure them compared to if they in the Financial Case. the future so over time costs were produced in the base year. and benefits are discounted.
Definitions
Inflation reflects the general increase in prices for goods and services over time.
Value escalation reflects the increase in prices for goods and services above the general increase in prices – for example, fleet may increase in price faster than other goods and services.
Nominal values, used in the Financial Case, reflect the expected cost of a good or service in the year of expenditure based on both inflation and escalation.
Real values, used in the Economic Case, reflect the value of the good or service based on escalation without general inflation.
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Business Case Guidance Principles
The following principles were used to develop this guidance:
• Business case analysis should be supported by a consistent set of standards which are periodically updated based on a review of best practices. • Review of best practices should be ongoing in nature however changes to standards should occur no more than once every two years. • Business case analysis will support the successful development and implementation of Metrolinx’s 2041 Regional Transportation Plan (RTP) and other plans and as such they should be consistent with such plans. • Business case standards should be communicated through the development and maintenance of a policy with supporting guidance, and business case training should be provided to staff in the support of good practice in the completion of business cases. • This Guidance was developed primarily for relatively large investments; however the principles and concepts can be applied to smaller investments.
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The Business Case Development Process
The development of a business case Ultimately, project managers must should commence once a problem or use their professional judgment in opportunity has been identified. It must consultation with senior management be able to inform decision-making at all as to how best to align the business stages of the investment’s development, case development process to the at all times considering the four cases relevant project approval processes – Strategic, Economic, Financial, and and manage the shifting emphasis in Deliverability/Operations – to a degree business case content development commensurate with the stage of throughout the lifecycle of the project. analysis and availability of evidence. The key content included in The business case will evolve as the each stage of the business case investment is developed and should be lifecycle is defined in Table 1.1. considered as a continuous process. Typically, the gateway for a potential Business Case and Project Lifecycles investment to enter the business case Four business case stages are required lifecycle is completion of a strategic throughout an investment's lifecycle: assessment. Most projects that have a strategic assessment will be included • Initial Business Case in the 2041 Regional Transportation • Preliminary Design Business Case Plan (RTP). Other projects that • Full Business Case emerge between regional planning phases may also be considered. • Post In-Service Business Case Early stages of business case development are typically focused on the Benefits Management Framework creation of sufficient evidence to select a Metrolinx's Benefits Management preferred option from a group of realistic Framework has been set out to options, with later stages focused on the improve the estimation, realization, optimization of the preferred option. and tracking of transportation As a result, a business case supports investment benefits. This framework investment development and enables includes a stage-gate process accountability through the documentation (shown in Figure 1.3) where of evidence used to inform decisions. investments are reviewed by How these stages are developed an Investment Panel composed varies on the nature of the project. of senior Metrolinx officials. Business case development based on Approval by the Investment Panel project stages and common gateways to progress through stage-gates will for projects under existing project be based on several factors, such as governance is illustrated in Figure 1.3. the business case, funding status, procurement or commercial issues, stakeholder and public input.
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Figure 1.3: Visualizing the Relationship between business case and Project Governance Lifecycles (stage-gate process)
The Benefits Management Framework includes the Business Case and Project Lifecycle Benefits management ensures that the initial benefits and value identified as the rationale for investing in a project are achieved through the project lifecycle. The process relies on the business case which serves as the evidence guiding decision-making. The framework includes stage-gates, approval points, and other accountability checks and balances.
1 Strategic Planning Initial Business Case Identifies problem statement and defines benefits that • The Initial Business Case the project needs to deliver. compares investment options and selects a preferred option for further refinement Preliminary Design 2 Feasibility and and design. Business Case Options Analysis • This business case is • The Preliminary Design Evaluates options and determines typically used to secure Business Case takes the a preferred option. Typical funding from the recommended option point at which funding for planning Province for planning of the Initial Business and preliminary design is secured. and preliminary design. Case and reviews different approaches to refine and optimize it. • This business case is 3 Preliminary Design typically used to secure Refines preferred option, further funding from the clarifying scope and cost. Typical Province for procurement point at which funding for and construction. procurement and construction is secured. • This stage of the business case lifecycle typically occurs in parallel with 4 Design & Procurement Full Business Case the Environmental Preparation Assessment process. • Full Business Case Develops project framework, confirms a specific option designs and requirements used (including benefits as the basis for procurement. realization, financing, and delivery plans) for procurement.
Full Business Case 5 Procurement • Updated (if required). Procures the project.
Post In-Service Business Case 6 Construction, Commissioning & Delivery • The Post In-Service Delivers and commissions the project. Business Case reviews the actual costs and performance of the investment after the asset has gone into 7 In Service service. This business After the asset is in service, case provides lessons monitors the benefits and costs learned and opportunities to identify opportunities for to enhance the services enhancements and lessons learned. being provided.
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Table 1.1: Business case lifecycle
Initial Preliminary Design Full Post In-Service
The Initial The Preliminary The Full Business The Post In- Business Case Design Business Case defines a Service Business reviews potential Case refines the specific option Case reviews the investments at preferred option (including benefits actual costs and a high-level that from the Initial realization, performance of respond to a Business Case and financing, and the investment. What is the problem and/ reviews different delivery plans) for purpose? or opportunity. approaches to procurement. This business develop or optimize case selects a it. This business case preferred option for leads to a single further refinement preferred option for and design. final development.
Part of detailed Part of the detailed Part of procurement Post delivery/ planning work. design process. and financial implementation Occurs in the Occurs during the planning. after the investment Feasibility Preliminary Design Occurs during is operational. Project lifecycle and Options stage, along with the Design and stage Analysis stage. the Transit Project Procurement Assessment Process. Preparation stage, This is prior to prior to RFP release. Procurement and Construction approval.
0-10% 10% 10-30% (with 100% Approximate updates as design (investment has level of design reaches 100%) been delivered)
Selection of a Selection of a Definition of a This review supports preferred option preferred option preferred option ongoing investment What does the for further design for detailed design, to allow for optimization business case and analysis. development, and procurement. and also support lead to? Environmental future business Assessment. case analysis for other projects.
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Business Case Chapter Development Across the Project Lifecycle At all stages of the business case lifecycle, all four cases are considered to a degree commensurate with the stage of evaluation and level of information available (as illustrated in Table 1.2 and Figure 1.4).
Figure 1.4: Business case content across the business case lifecycle
Strategic
Economic
Financial
Deliverability and Operations
Level of detail and completion Initial Business Case Preliminary Design Business Case Full Business Case Post In-Service Business Case
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Table 1.2: Business case content across the business case lifecycle
Initial Preliminary Design Full Post In-Service
Define a core problem Update as required. Update as required. Update as required and and/or opportunity compare existing conditions to be addressed to those forecasted in previous by transportation stages of the business case. investment, the Context types of benefits this investment can realize, and a range of potential solutions
Define a set of Define specific Define a single Outline any differences between investment options refinements of option that is ‘as built’ and what was proposed based on variations the investment proposed for in the Full Business Case. Investment of the preferred selected in the Initial delivery. Options option in the strategic Business Case. business case.
Detailed review of Update based on how changes/refinements to Review annual and to date the strategic benefits the option may alter performance. Note where performance against strategic of addressing a performance increases or decreases and why. objectives to determine how the problem with a Update based on changes to base case, accurate the business case Strategic proposed investment risks to achieving strategic performance, was and what could be done Case or other project shaping factors. to improve performance. Data collection should be used where possible.
Appraisal of each Update based on changes to option Review annual and to date option including, at specification (runtimes, frequencies, performance against proxy a minimum: costs, reliability, costs). Note where performance indicators for economic user, external, and increases or decreases and why. benefits/costs to determine some wider benefits how accurate the business Economic Update based on changes to base case, risks (as relevant). to project achieving economic performance, case analysis was and what Case or other project shaping factors. could be done to improve performance. Data collection should be used where possible.
Appraisal of each Update based on Update based on Review actual costs to deliver option including, at a changes to option changes to option annual and to-date performance minimum: costs, direct specification and specification for all key financial metrics. revenue impacts, and emergent risks. and risks, and Review benefits of selected Financial indirect financial/ Review range of define financing financing program. Case revenue impacts. financing approaches approach. and their impact.
High-level appraisal Detailed review of Update risks Review risk management, of risks and specific delivery based on option governance structure, and implementation requirements specification. benefits realization plan. requirements. and risks. Review Detail final delivery of different approach, risk Deliverability procurement management and Operations programs and their plan, and benefits benefits/risks. realization plan.
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Post In-Service Business Case Considerations
All projects require a Post In- At the FBC stage of the Service Business Case (PIBC) to be project, one should: completed within two years from the • Identify key assumptions time the project is operational. that influence benefits The PIBC is the last stage in the project • Establish a governance structure: lifecycle. It is recommended for the PIBC management of scope changes to be undertaken by an independent party, which can act more objectively • Establish a reporting body/working in determining how the project was group: measurement of parameters implemented. This provides project such as ridership, GHG emissions, stakeholders the confidence to know revenue to be used in the PIBC analysis that the objectives of the project were • Establish grading criteria either missed or met successfully. for qualitative measures The purpose of this type of a business • Establish evaluation methods that will be case is to provide lessons learned and used for the PIBC – Cost-benefit analysis, identify opportunities to enhance the surveying, desktop research, site visits services being provided. The PIBC reviews the actual costs and performance of the investment two years after the The PIBC should document what was project is operational. The PIBC lists learned from the review, whether there the expected project outcomes as are actions required in order to get the specified in the Full Business Case beneficial results anticipated and list (FBC), reports on variances from the lessons learned, noting how the these outcomes and then provides performance of the project can influence recommendations and lessons learned. future projects, so that project teams can build on successes and avoid mishaps. For the purpose of the PIBC, it is important that the planning context and assumptions are well defined and documented early in the FBC stage to avoid misinterpretation of data and double counting during the post in-service evaluation. As best practice, project leads should incorporate (at the FBC stage) a plan for monitoring and evaluating project performance once in use. This will ensure that objectives are measurable and help identify how to evaluate key impacts of the measure(s).
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The following include key areas and Conclusions/Lessons Learned questions the PIBC must address: • What were some of the issues that arose during the execution of Strategic Case the project and how could they be avoided for the next project? • Project Strategic Outcomes: Did you achieve the goals of your project? Are • What went well, and what can problems being addressed? Did the be learned from this experience planned goals align with results? and applied to future projects? • Stakeholders: How satisfied are your stakeholders? Were user needs met? What effect did the project have on them? If there is dissatisfaction, why might that be and what can be done to resolve it? Financial Case • Cost: How much did the project end up costing? What are the costs involved in operating the project? • Revenues: Are costs aligned to project revenues? If this is not the case, how can cost estimates be improved next time (if applicable)?
Economic Case • Benefits: Did the project achieve the benefits projected, and if not, why and how can this be improved? What opportunities are there to increase benefits? Are there other changes you could apply to help maximize project benefits?
Deliverability and Operations Case • Did the project’s deliverables, schedule and budget all meet expectations, and if not, why? • Are your deliverables functioning as planned? Can the deliverables adjust to changes in the market? • Are there any issues that you foresee occurring in the future operations of the project that have yet to materialize? 22 Business Case Manual Volume 2: Guidance
Roles and Responsibilities
Responsibility for the Business Business Case Working Group Case Framework / Team Participants Metrolinx Planning Analytics is This assembly of an interdepartmental responsible for developing, managing, team should occur prior to finalizing and updating this Guidance. a problem statement, Business as Usual scenario, or the options Roles and Responsibilities in to be considered and organized developing a Business Case ensuring sufficient coverage of the Project managers should draw together a four cases within the business case: diverse group of staff with expertise in the Strategic, Economic, Financial, and problem or case material to be created. Deliverability and Operations. Departments directly impacted by the From the relevant departments typically investment or with direct experience responsible for specific corporate with the problem should also participate information, with detailed knowledge of in the working group. While the level of the problem or those that will be directly involvement of different participants can impacted by the investment should be vary during the lifecycle of the business identified by the Sponsor to assign staff case, all staff should be involved at the to the Business Case Working Group. A project kick-off meeting where roles, guide helping Sponsors identify relevant requirements, resources, and timelines directors is presented in Table 1.3. should be described at a high-level. This Guidance is intended to enable the Sponsor project manager to lead the development of the business case while collaborating The Sponsor is responsible for ensuring with other departments, who may provide an investment moves through the project data, review, or sign-off of elements of lifecycle (Figure 1.3) - including the the business case related to their area of completion of the Initial, Preliminary responsibility. However, for larger, more Design, Full, and Post In-Service complex investments, greater involvement Business Cases. To do so, the Sponsor from other departments may be required. will coordinate business case content The expected level of involvement development through a cross-department should be agreed to at an early stage team or working group that includes in the project (for example: following business units that have specific expertise the initial kick-off meeting) through relevant to the business case, or that consultation between departments. may be impacted by the investment.
23 Chapter 1 : Guidance Overview
Table 1.3: Business Case Working Group Roles and Responsibilities
Role/Case Primary Department Responsibility
• Realizing benefits, as described in the business case, throughout the project lifecycle • Recognizing the inception of an investment
Sponsors Office, Planning • Authorizing and championing business case activity and Development • Assembling a team to develop a business case Business Case Sponsorship • Meeting mandatory business case requirements as set out in the business case and supporting guidance • Gaining overall approval for the business case
• Supervising planning analysis resources, Planning and Development business tools and techniques to be applied units for long range plans, 5-year • Ensuring relevant plans and policies are plan and ridership forecasts considered in relation to options Others: Relevant business planning and individual business • Quality control of ridership forecasts and Strategic unit strategy representatives associated travel behaviour impacts • Sign-off of the Strategic Case
• Supervising economic analysis resources, tools and techniques to be applied • Ensuring comprehensiveness of impact Planning and Development – analysis and appropriate level of detail (for typically Planning Analytics staff example: order of magnitude/uncertainty.) Economic • Quality control and presentation of case • Sign-off of the Economic Case
Finance business units responsible for • Supervising financial analysis resources, budgeting and accounting processes tools and techniques to be applied Others: business analysts, cost centre • Ensuring accuracy and quality control of experts from the relevant operating all financial figures presented in case Financial business units or cost estimators from the Capital Projects Groups • Sign-off of the Financial Case
Delivery Business Unit, including: • Supervising resources, tools, and Capital Projects Group, I&IT, techniques to be applied to the case Procurement (Finance), Realty (Planning and Development), Legal • Reasonableness of cost estimates, timeline, Operating Business Unit, including: construction/implementation phasing Deliverability and GO Transit, PRESTO, UP Express • Comprehensiveness of approval process and level of Operations Others: relevant business unit from detail provided for operating and stakeholder plans Strategic Communications, external • Sign-off of the Deliverability and Operations Case delivery partners (if required)
24 2
The Case for Change
What does the Problem Statement Chapter cover in a business case?
What is the role of Providing a robust summary of a problem and/or this chapter of the opportunity that should be addressed by investment business case? and the value the region could realize by addressing it.
What analysis is included Analysis of data, evidence, and policy that confirms the in the chapter? problem and/or opportunity should be considered further - including alignment with policies and plans, external and internal drivers for change, and comparative experience.
How is the guidance structured?
Section Content
Includes an overview of the section with a summary of the guidance’s Introduction structure to support the development of a robust problem statement
Sets out a framework to define problem and/or opportunity statement(s) focused on: • Providing a concise description of the problem or opportunity Defining the Problem • Defining factors internal and external to the transport and/or Opportunity network that drive the problem and/or opportunity • Articulating a value proposition that defines the benefits the region will realize by investing in this solution to address problem and/or opportunity
Provides an overview of the proposed general solution to address the problem and/or opportunity, including: • Articulating a general solution to the problem/opportunity Defining the Solution • Identifying relevant experience from the GTHA and other jurisdictions that have addressed a similar problem or opportunity using a similar solution • Defining a benefits framework to guide investment option development and evaluation Business Case Manual Volume 2: Guidance
Introduction
Overview Context Section Output This section is focused on providing Once complete, this section of the overall context for considering the a business case should: investment. The considerations included • Clearly state the problem and/or in this section are used to guide the opportunity that is being explored with development of options in Chapter 3 the business case and demonstrate Investment Options and their evaluation its importance (the case for change). in the Strategic, Economic, Financial, and Deliverability and Operations cases. • Define the problem and/or opportunity in the context of the This work should be completed at the GTHA’s transportation network and onset of the business case process plans or policies for urban, regional, and may be revisited as an investment and economic development. evolves. In the case of business cases completed over longer timeframes • Define the general approach(es) to (typically over one or more years), the investment (example: expand rapid context may change due to shifts in transit on a corridor) that are reviewed policy and transport programs. In the within the business case and the event of significant changes, the context benefits the region could realize by section may be revisited multiple times investing in the transportation network. over the course of an investment. Determining the case for change should be an iterative process as a business case develops. Consulting core stakeholder groups is an important step in this process.
27 Chapter 2 : The Case for Change
Developing the Problem Statement Chapter
This chapter includes three sections: Problem Statement Section 1 • An introduction to the chapter outlining its structure and key content (Section 1) Introduction • Developing a robust understanding The introduction section should provide of the problem and/or an overview of the background for opportunity (Section 2) addressing the investment and provide an overview of the problem or opportunity • Articulating a solution and how and vision development process. it realizes values and benefits to the region by addressing the problem or opportunity Each context section should include the core content outlined in Table 2.1. The process used to develop this section is visualized in Figure 2.1.
Table 2.1: Core Content for a Problem Statement Chapter
Section Sub-sections Requirements
1. Introduction
What is the Problem and/or Opportunity Provides a concise definition of a problem and/or opportunity and where did to be addressed by investment in the transportation network 2. Define the Problem it originate? and/or Opportunity What is driving Defines the key issues that underpin the Problem or the problem and/opportunity Opportunity?
How does addressing the Sets out a vision for the outcomes and benefits problem and/or that the region will realize if the problem opportunity benefit and/or opportunity is addressed the region?
What changes to 3. Define the the transportation Sets out high-level actions that can be taken to Proposed Solution network could change the transportation network to realize benefits address this problem by addressing the problem and/or opportunity and/or opportunity?
What experience is there in addressing Identifies relevant experience addressing similar problems a similar problem and/or opportunities in the GTHA or in other jurisdictions or opportunity?
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Figure 2.1: Analysis to Develop a Problem Statement Chapter
Section 2: Define the Problem Section 3: Define the and/or Opportunity Proposed Solution Step 1: What is the problem Defines the problem and and/or opportunity? Connects the problem/opportunity provides basic framing to policies, plans and goals
Step 2: What is driving Step 5: What experience the problem is there in addressing and/opportunity? a similar problem Definition of or opportunity? Problem or Opportunity
Step 3: How does addressing Step 4: What changes to the problem and/or the transportation network opportunity could address this problem benefit the region? and/or opportunity?
29 Chapter 2 : The Case for Change
Problem Statement Section 2
Define the Problem and/or Opportunity Approach – Developing a Problem This section defines the case for and/or Opportunity Statement considering investment to address a The development of the problem or problem or opportunity. The core content opportunity statement should include in this section is a problem and/or the following considerations: opportunity statement (a concise summary • State the problem/opportunity. of the rationale to change an element of the GTHA's transport network) and • Clearly set out the circumstances supporting evidence in the form of ‘key leading to the consideration of drivers’ (transportation and external factors the problem/opportunity and that shape the problem or opportunity). the timescales for doing so. This section covers steps 1 and • Focus on underlying causes of 2 within the development of a the problem/opportunity first, Case for Change chapter. and symptoms second. • Identify the geographic extent of Step 1: What is the Problem and/or the problem/opportunity and which Opportunity and where did it originate? populations benefit from addressing it. A problem or opportunity statement is a • Clarify why the problem/opportunity concise summary of the case for change should be addressed. being considered in the business case. It describes the central issues that should • Describe the boundaries of the be addressed and, in most cases, should problem or opportunity - these be 'investment agnostic' - this means it boundaries should keep potential does not state that a specific investment investments from expanding is required. In other words, the problem beyond what is needed. or opportunity statement should not be that the region needs a specific transit investment or project, but instead focuses on central issues facing communities, institutions, or the region as a whole.
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Table 2.2: Problem or Opportunity Drivers Step 2: What is driving the Problem or Opportunity? Problem/Opportunity Driver Description A ‘key drivers’ framework is used to define and describe the issues that shape the problem or opportunity. This analysis • The transport network is defined as the components should consider a range of data and that make up the network, evidence sources to articulate both the and the resulting existence of the problem or opportunity traveller behaviour. and the impetus to address it. Two types • It includes: the state or condition of infrastructure, of drivers should be identified and clearly technology, and services, articulated as described in Table 2.2. Transport Network and how customers (Internal Drivers) Approach – Setting Out Key Drivers use the network. to the Problem or Opportunity • Analysis is conducted with Figure 2.2 (internal drivers) and Figure a consideration of existing and future conditions. 2.3 (external drivers) outline the types of issues that should be considered when conducting a key driver assessment. • External drivers are Tables 2.3 and 2.4 elaborate on the defined as the factors that influence or direct travel types of analysis that can be conducted behaviour and transport to support problem definition based infrastructure/technology. on key drivers. Each business case Drivers External to the • They include stakeholder may select different considerations for Transport Network input, government policies, review – the examples included in these (External Drivers) and economic activity, land tables are not mandatory, nor are they use, and demographics. an exhaustive list of all considerations.
31 Chapter 2 : The Case for Change
Figure 2.2: Key Factors for Internal Drivers
Transport Network
Transport Travel Service Transport Infrastructure and Technology behaviour Provision
• Traveller • The state of • The state of infrastructure is a key driver behaviour provided service of transit system performance describes how is a key driver • As infrastructure, including rolling stock, right of way, and the transport of transit system operation and maintenance facilities change over time, network is used performance they impact the performance of the transport network and can be a • This factor strong indicator • Over time, new technologies become available that considers
Descriptions of key challenges support the development and use of transport network operational and opportunities issues associated • These can include changes in customer facing technologies with providing (example: ticketing, travel tools) or types of rolling stock transport or physical infrastructure (example: electric vehicles)
• Congestion • Changes in • Need for replacement, decommissioning, resulting from reliability repair, or upgrade of assets travel demand • Changes in • Availability of new technology to support • Underutilized runtimes service provision or traveller satisfaction services • Changes in • Opportunity to reduce costs of provision
Examples • Unbalanced operating costs by updating rolling stock modes split in the options corridors, cities, or regions
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Figure 2.3: Key Factors for External Drivers
Drivers External to the Transport Network
Economic Activity, Government Stakeholder Land Use, and Policy Input Demographics
• Government policies • Economic activity, land • Stakeholder input can can call for specific use, and changing call for or recommend projects or changes to demographics impact a course of action be addressed within the the number and type to plan, design, and transport system or across of trips taken implement transport many systems/sectors services and policies • Plans for economic • Additionally, policies development or land use
Descriptions may change priorities changes may also be the or funding regimes key drivers for a transport for transport problem/opportunity
• Government policy calling • Change in density or • Feedback on for new infrastructure, land use patterns service quality service, or technology • Changing economic • Feedback on availability • Changes in transport patterns (recession, of services funding policy increased productivity) • Plans to support economic
Examples • Changes in broader development or land policies (example: new use changes along a equity legislation) specific corridor or within urban area
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Table 2.3: Key Internal Drivers to the Transport Network
Driver Analysis Approach Potential Information Sources
• Transportation Tomorrow • Describe the problem or opportunity in terms Survey (TTS) Data of how travellers use the transport system • Greater Golden Horseshoe • Quantify travel demand related to the problem or opportunity Model (GGHM) Travel behaviour • Discuss symptoms and root causes of travel • Corridor counts or other behaviour related to the problem or opportunity specific travel data
• Describe the state of transport service and how it connects to the problem or opportunity
• Quantify service provision/performance factors related • Corridor data to the problem or opportunity (example: reliability, Transport Service frequency, provided capacity, travel time, costs) • Service plans Provision • Discuss symptoms and root causes of poor/positive performance related to the problem or opportunity
• Summary of new • Describe the quality of the infrastructure or technology performance technology related to the problem or opportunity • State of good repair, operations, • Quantify key issues related to not pursuing the problem or maintenance reports Transport or opportunity (example: cost of business as usual, risks) Infrastructure and • Past studies or business • Discuss symptoms and root cause of the Technology cases related to the issue as it pertains to infrastructure infrastructure or technology
Table 2.4: Key External Drivers to the Transport Network
Driver Analysis Approach Potential Information Sources
• Describe the problem or opportunity in terms of how • Policies and announcements government policy relates to the transport network • Reports, internal memos, • Describe changes in Metrolinx or Government past business cases Government Policy of Ontario policy that specify a problem or opportunity that should be addressed • Budgets
• Describe the economic, land use, or demographic conditions that are aligned with addressing the problem or opportunity • Corridor data, Economic Activity, • Describe desired economic or land use outcomes that Government statistics Land Use, and are aligned to addressing the problem or opportunity Demographics
• Policies, press releases, plans • Reports, internal memos, • Identify stakeholders who are implicated past business cases in the problem or opportunity Stakeholder Input • Feedback on Government policy
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Problem Statement Section 3 Step 3: What is the benefit of addressing the problem and/or opportunity and Define the Proposed Solution what happens if it is not addressed? This section of the Case for Change This step of the Case for Change chapter chapter outlines a benefits framework that establishes the types of benefits the region connects the benefits of addressing the can expect to realize by addressing the problem and/or opportunity (grouped problem and/or opportunity. This is called into outcome areas) to specific actions – or a ‘value proposition’ and in most cases solutions – that can be taken to change it should be solution agnostic. Solutions the GTHA’s transportation network to are means to realize the ends defined in realize these benefits. Once complete, the proposition by way of realizing the this benefits framework will serve as a benefits of addressing the problem and/ ‘roadmap’ (which illustrates the overall or opportunity (for example: making logic of a potential investment) that will progress towards the 2041 RTP vision). In be used to develop specific investment other words, the proposition describes the options from the 'actions' (Chapter 3: reason to identify an investment option but Investment Options) and evaluate them should not presuppose a specific solution. through the Strategic, Economic, Financial, A strong value proposition should and Deliverability and Operations outline both a vision statement and a Cases based on the inputs, outputs, and set of outcomes and benefits that can outcomes that each investment should be realized for the region. In addition, be analyzed against (Chapters 4-7). this section should also articulate how This benefits framework takes a standard the vision and outcomes align with form inspired by logic models used in specific regional goals or policies. project, infrastructure, and economic Approach – Defining the vision statement development planning and is illustrated in Figure 2.5. This framework is intended The proposition should be a focused to streamline investment development statement on the relation of the and evaluation by explicitly linking problem or opportunity to the 2041 a problem and/or opportunity to a RTP vision. It should also be: set of actions (or solutions) that can • Concise – provide one to two cohesive address it, while also articulating sentences around a major idea. the benefits realized by addressing the problem and/or opportunity. • Aspirational – inspires and requires exceptional efforts and resources Each step in Section 3 of the Case for while being achievable. Change chapter outlines how to address the elements of this framework in the • Focused on outcomes – do not point Case for Change chapter, beginning towards a specific option or solution with outcomes and benefits. but rather focuses on key outcomes or impacts that are realized by addressing the problem or opportunity. • Clear/simple – easy to understand and free of technical jargon.
35 Chapter 2 : The Case for Change
Figure 2.5: Metrolinx Business Case Benefits Framework
Outcomes Outputs Actions (means) Inputs Outcomes The direct The core Resources required represent the value measurable results changes to the to deliver the a transportation from delivering transportation investment investment can the investment network realize for the region.
Outcomes are used Outputs are used in Actions are defined Defined in Chapter to communicate the to estimate benefits generally in Chapter 2 3 and used in the high-level positive throughout the (definition of the types Economic Case changes the investment business case of actions that will (Chapter 5), the Role in can realize in Chapter address the problem Financial Case (Chapter business 2 and to quantify and and/or opportunity) 6), and Deliverability case qualify the benefits of and specifically in and Operations an investment in the Chapter 3 (defining a Case (Chapter 7) to Strategic Case (Chapter set of investments and determine the costs 4) and the Economic how they change the and requirements to Case (Chapter 5) transport network) deliver an investment
Outcomes are sorted Specific targets that Infrastructure, policy, Costs to deliver, into four themes or relate general actions customer experience, operate, and maintain Areas of outcome areas: to the realization of and service changes organizational focus in • Transportation benefits and outcomes capacity, staffing, supporting works business • Quality of Life cases • Economic and Regional Development • Environmental Sustainability
Each investment Example outputs Example actions Example inputs include: should realize benefits include: include: • Capital Costs within one or more of • Change in ridership • Add new service • Operating Costs these outcome areas • Change in automobile • Make services faster • Full time equivalents Example benefits vehicle kilometres • Provide new stations required over the travelled (VKT) include: • Provide more capacity course of the project • Customer service • Transportation – • Changes to customer metrics increased network experience Examples resilience • Quality of life – increased physical activity • Economic and Regional Development – increased connectivity to jobs • Environmental Sustainability – reduced emissions
Regional planning Procurement Capital and investment Communicating investment benefits specifications planning Public and stakeholder engagement Output based design Other Uses specifications Public and stakeholder engagement
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What is required in the business case? Outcomes vs. Benefits A clear vision statement should be Outcomes can be considered as goals provided for the project alongside or high-level value propositions for the a narrative of the key issues from how transportation investment supports the key driver review section that regional growth and policy. In business were considered in developing it. cases they are not assessed directly. Instead investment performance is Approach – Setting out assessed based on the benefits realized Outcomes and Benefits by individual travelers, communities, The second element of the value whole cities, specific stakeholder groups, proposition is setting out the benefits or the region as a whole. Each business of addressing the problem and/ case should identify specific benefits or opportunity based on outcomes. within each outcome area to illustrate Metrolinx business cases focus the case for change. For example, a on four key outcome areas: transportation benefit of addressing • Transportation fare integration opportunity may be attracting and retaining new passengers • Quality of Life through improved travel experience. • Economic Development Benefits can be considered as specific • Environmental Sustainability objectives within each outcome area for how the investment will support Not all business cases will address all the outcome. Benefits generally four outcome areas, but each business provide specific targets that if achieved case should focus on at least one of will contribute to the outcome and these outcomes. A set of outcomes, aid in realizing the vision. In other benefits, and key performance indicators words, while goals relate to the “big is shown in Table 4.2 in the Strategic Case picture” or desired end-result, benefits Guidance (Chapter 4 of this document). provide the specificity necessary to This table can be used to outline the evaluate and design investments. potential benefits of addressing the problem and/or opportunity in this chapter. Additional guidance is provided below for setting out benefits.
37 Chapter 2 : The Case for Change
Setting Benefits To support option development and evaluation, benefits must be stated as precisely as possible, which in turn allows them to be associated with specific outputs against which the investment can subsequently be monitored. A useful tool to set out benefits is to follow the SMART approach. SMART is a mnemonic acronym giving criteria to guide the setting of clear objectives in any investment – because benefits are a form of objective this framework is applicable. Table 2.6 defines the application of the five (5) criteria required to set meaningful objectives according to the SMART approach.
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Table 2.6: Using the SMART Objectives Approach to Define Benefits
SMART Approach Definition and Application Criteria
The objective should target one specific and relevant area or item for improvement under the broader goal. The objective needs to be specific about the result, not the way it is achieved. This criterion stresses the need for clear and unambiguous objectives. An objective is specific if the six following questions can be answered: • What should be accomplished with this objective?
Specific • Why should this objective be pursued (specific reason and purpose)? • Who is involved? • Where is this objective applied? • What are the requirements and constraints linked to this objective?
The objective should quantify or suggest an indicator of progress. In other words, it is essential to define objectives and outputs against which the project can be monitored. Measuring progress toward the attainment of the goal helps to reassess the effort required to stay on track and reach Measurable it. With measurable objectives there is evidence that can prove a goal is achieved. Quantifiable indicators are preferred and less ambiguous.
The objective should be achievable rather than extreme. Achievable objectives should specify who is responsible for implementing it and identify from which partners or stakeholders buy-in is desirable. Achievable
The objective should state realistically achievable outcomes and results given the available resources and constraints. While setting up objectives, it is important to determine the ways they can come true. Setting realistic objectives considering the constraints helps to Realistic identify the resources required and financial capacity to reach them.
The objective should specify when the result(s) can or should be achieved in order to allocate the required resources during that period. Without a realistic deadline, an objective cannot be measurable. Time-Related
39 Chapter 2 : The Case for Change
What is required in the business case? Approach – Connecting the Value Proposition to Regional Analysts should provide a narrative and Stakeholder Plans that addresses the following: Supporting material should be provided • The outcomes that will be realized alongside the value proposition (vision by addressing the problem and/ and set of outcomes and benefits), or opportunity and the specific including direct linkages to Metrolinx’s benefits that the region will realize 2041 RTP (including if the proposed – this should answer the question investment is already discussed in the “how will the region benefit if the RTP or aligns with the RTP's priority vision statement is achieved?” actions and strategies) and the plans • Logical linkages between the problem and policies of relevant stakeholders. and potential outcomes and benefits. Stakeholders include technical • What happens across these outcome stakeholders, who may shape the areas if the problem and/or opportunity planning, delivery, and operation of an is not addressed (example: transport investment, along with those who may networks will become more congested, be impacted by investment outcomes limiting regional growth opportunities). or delivery. Stakeholders may include: • Municipal governments • Municipal service providers • Provincial government agencies • Federal government agencies • Non-profit organizations • Businesses • Communities or specific populations
What is required in the business case? The RTP, investments, policies, and plans should be reviewed to identify their relationship to the problem or opportunity or solution. The relationship of stakeholder plans/policies to the problem or opportunity or solution should be defined as one of three types, as illustrated in Table 2.7. This review can be summarized using the template in Table 2.8. If addressing the problem and/or opportunity will achieve partner goals or policies, they should be noted using this template and an accompanying narrative.
40 Business Case Manual Volume 2: Guidance
Table 2.7: Relating the Problem or Opportunity to Stakeholders
Relationship What should the business to problem/ Description Example case do? opportunity
The problem/ Problem or Opportunity Clarify how the plan opportunity is is related to or addressed or policy defines the directly mentioned in stakeholder plans, Synergistic problem/opportunity in a municipality’s policies, or preferences Approach official plan
Clarify the extent to which the program or The problem/ projects will address the Challenge/opportunity opportunity is directly problem/opportunity is currently being mentioned in a and identify gaps addressed by one municipality’s official between existing Rationalization or more stakeholder plan and they are performance and the Approach projects or programs implementing key desired outcomes programs to address it for the 2041 RTP goals/objectives
Project proponent interests and stakeholder Clarify the types of Addressing a problem interests are divergent. negative impacts that may cause problems Pursuing the challenge/ are to be expected in other locations or opportunity may Divergent and how they may disturb quality of life adversely impact the Approach be mitigated for stakeholders stakeholder or hinder their plans or policies
Table 2.8: Stakeholder Review Template
Organization strategy, policy Link to Problem/ Stakeholder Relationship Type(s) or plan Opportunity
Title of the strategy, policy Name Brief explanation Define relationship or plan. Brief description
41 Chapter 2 : The Case for Change
Step 4: What changes to the transportation connects to an environmental network realize these benefits? benefit of reduced emissions). This step identifies a set of actions – or changes to the transportation network - that address the problem and/or What are actions, outputs, opportunity. These solutions should not and inputs? refer to a specific investment (example: a BRT with a frequency of eight buses per Actions are changes that hour - which is the focus of Chapter 3), characterize the solution and but instead refer to key changes in the should be mapped out considering transport network that could address the four major components of problem and/or opportunity (example: the transport network: provide faster service on a parallel • Rules, Regulation and Policies corridor to unlock development and • Travel Behaviour reduce crowding). Analysts may refer back • Transport Services to the problem statement drivers to refine • Transport Infrastructure/Technology scoping and differentiate investments. The goal of this exercise is to illustrate Each action can be thought how transportation changes can benefit of as a ‘lever’ that can be the region while Chapter 3 will focus on used to achieve meaningful specific investment options that make use change against the problem or of these actions identified in this chapter. opportunity, and should be: Approach – Defining the Solution • Action Oriented – refer to a specific change that addresses A high-level solution should be defined the problem or opportunity based on actions, outputs, and inputs. • Descriptive – clearly define These are defined at a high-level in the change based on specific this chapter. The focus of this step components of the transport network is to ensure that Chapter 2 includes a complete benefits framework that • Problem or Opportunity Oriented – directly linked to demonstrates to the reader that: the problem or opportunity • There are actions that can be taken to Outputs are the measurable realize the benefits and outcomes. changes to the transportation • The inputs required to deliver the network that an action will lead actions (example: capital investment) to. For example, an action of are logically understood. providing a new station could lead to a reduction in auto trips. • There are measurable performance outputs that connect a benefit to Inputs are measurable requirements the action (for example: an action to deliver an action. They include of improving bus service could monetary inputs and organizational result in an output of decreased capacity to deliver, such as staffing. automobile use, which in turn
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What is required in the business case? Step 5: What experience is there in addressing a similar This stage of the business case should problem or opportunity? provide a general ‘solution’ to the problem and/or opportunity that is defined as a Step 5 is a supplement to Step 4 of set of actions, inputs, and outputs that this process and may not be used in are directly linked to the problem and/ all business cases. Where possible, or opportunity and the set of benefits experience from within the GTHA or from and outcomes defined in Step 4. other jurisdictions may provide insight into ways to address the problem and/ In an initial business case, these or opportunity or provide justification considerations (actions, inputs, outputs) for exploring a solution in Chapters may be defined generally and are 3-7. When relevant, this section of likely solution agnostic. However, the business case should provide a in later stages of the business case summary of experience within the GTHA lifecycle, these considerations may and from other jurisdictions related be better defined and thought out as to the problem and/or opportunity. a preferred solution is developed. Approach – Identifying The content developed in this section will Relevant Experience be expanded upon in future chapters: Past experience can be useful to • Performance standards for actions understand how to scope, design, plan, will be developed during option and evaluate potential investment options definition, design, and evaluation that are aligned with the problem and/or (example: this chapter could say opportunity. For example, if a problem is ‘action – expand transit service in managing congestion on a subway line, western Toronto’, while Chapter 3 experience from other jurisdictions may will define different approaches to reveal a wide array of solutions to reduce delivering this change for review congestion. Alternatively, experience such as ‘Increase bus frequency to from delivering new transport investment eight buses per hour on all routes’). within the GTHA may also be relevant • Estimates for inputs, such as cost for understanding an effective way to estimates, will be developed during advance a problem and/or opportunity. the scoping of specific options Finally, a review of other investments can (example: this chapter could say ‘input provide useful benchmarking for scoping – capital investment’, while Chapter investments and conducting evaluation 3 would say ‘capital investment in in later chapters of the business case. a bus garage of $100 million’). • Estimates for outputs, such as forecasted ridership changes, will also be developed during option definition (example: this chapter could say ‘decrease automobile vehicle kilometres travelled (VKT)’ while the next chapters will define the quantity each option reduces auto VKT and then estimate benefits from this output). 43 Chapter 2 : The Case for Change
What is included in the business case? Table 2.9: Potential Sources for Investment Experience Investments from the GTHA or elsewhere Database / that are relevant to the problem and/ Description Journal or opportunity should be explained with a brief overview including the key North American research performance metrics and logic that Transportation and practitioner journal demonstrate their connection to the Research Board and resource for transit and problem and/or opportunity under transportation agencies. consideration in the business case. For example, if peak fares were used Published and peer- Association reviewed papers on to manage demand, this section of for European transportation topics the business case should articulate Transport and innovation, how they contribute to alleviating focused on Europe. crowding. Potential sources of relevant experiences are noted in Table 2.9. Canadian Canadian research forum Transportation into transportation topics. Questions the analyst should consider Research Forum when reviewing other experiences include:
• What was used to address the Canadian Comprehensive collection of problem and how successful was it? Urban Transit transit reference materials Association • What key performance benchmarks were recorded and are they relevant for the GTHA? • What was the context (based on the jurisdiction’s governance, transport network, economy/land use, and geography) and how is it similar to or different from the GTHA?
44 3
Investment Options
What does the investment options chapter cover in a business case?
What is the role of Providing a set of defensible investment options for this chapter in the review in the four chapter of the business case business case?
What factors are Options should be scoped to support the four included in the analysis? chapter evaluation, including: costs, impacts to the network and customers, relevant engineering design or policy development, and core dependencies
How is evidence This section should provide relevant details on the summarized and scoping process and the set of alternatives put communicated? forward for analysis in the Strategic, Economic, Financial, and Deliverability and Operations cases
How is the guidance structured?
Section Content
Includes an overview of the section with a summary of the Introduction guidance’s structure to support the development of a long list of potential options that is narrowed down to a short list
Developing an Investment Options Provides an overview of the structure of the Investment Options Chapter Chapter
Includes guidance for developing the key Option Development content of the options chapter: Guidance • Option development • Option refinement Business Case Manual Volume 2: Guidance
Introduction
Overview Section Output This chapter is concerned with providing This section provides a short list of relevant scoping for a set of defensible defensible options for consideration options. This scoping section may and evaluation in the Strategic, vary depending on the problem or Economic, Financial, and Deliverability opportunity under consideration, but will and Operations Cases. These options typically include content to reflect the are developed to respond to the two stages of investment option design context section of the business case. and planning as shown in Figure 3.1: • Option Development – content that explains how options were generated to meet the actions and outcomes specified in Chapter 2. • Option Definition– content that explains the specific options put forward for evaluation in the business case.
Figure 3.1: Option Development Process
Option Development Option Definition
Set out a long list of options that illustrates Define a specific set of investment the range of potential approaches to options (or option in the Full Business addressing the problem or opportunity Case) for review in chapters 4-7
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Developing an Investment Options Chapter
This chapter should communicate both a robust option development process and a set of options for review to stakeholders and decision makers. The focus of this chapter is to ensure that the option development process (shown in Figure 3.1) is documented and that the core options proposed for evaluation are well scoped and defined. Core design work content should be included in an appendix or accompanying work paper. When complete, the Investment Options chapter should include four sections (described in Table 3.1).
Table 3.1: Core Content Required to Complete an Investment Options Chapter
Section Sub-sections Description
A summary of the chapter's structure 1. Introduction N/A and guiding assumptions
Option Development Summarizes the approach used to design/ Process develop options considered in the business case 2. Option Development Outline the sifting process used to Option Review develop a short list of options
For each option define: • Impact on customers (including 3. Option Subsection per option base level demand change) Definition • Costs and design assumptions • Interdependencies
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Option Development and the Business Case Lifecycle A business case must evaluate more • For a Full Business Case, there should than one option that could address the be only one option examined that is problem or opportunity being studied. identical to that planned to be invested in, allowing for the business case What is considered an “option” varies to provide sufficient detail to make over the business case lifecycle. Figure the evidence ‘investment-grade.’ 3.2 outlines the types of options that should be considered and developed • For a Post In-Service Business Case, during the business case process. the delivered option is outlined, and examines the variations Each stage of the business case life from the Full Business Case. cycle requires a different degree of specificity in options. In general: As the business case process continues, options will become more focused and, • For an Initial Business Case, options in many cases, will be variations on a should focus on different options common theme (example: different with one or more investment types types of fare by distance structures with identified in the strategic business specific pricing approaches). Figure 3.2 case. For example, each option provides for an example of a sufficient on a major transit intervention variety of options presented for an Initial should consider a major change Business Case. Table 3.2 provides further in alignment or technology. guidance on the level of definition that • For a Preliminary Design Business each option should be scoped to by Case, options considered should stage of the business case lifecycle. be considered ‘sub-options’ of the best performing option(s) from the Initial Business Case. These options should be similar in most major respects in terms of the service or infrastructure concept and order of magnitude costs, benefits and timeline to implement.
Figure 3.2: Illustration of Appropriate Options over the Business Case Lifecycle
Problem or Initial BC Preliminary Full BC Post In- Opportunity Design BC Service BC Definition
What are the General Preferred range of options Option 1 Variation 1 Option Delivered that can address (scoped and Option (may the problem or procured) vary as built or opportunity? delivered from General the preferred Option 2 Variation 2 option)
General Option 3 Variation 3
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Problem or Initial BC Preliminary Full BC Post In- Opportunity Design BC Service BC Definition
Framework Example: Bus Improvements
What are the Increase AM Increase AM range of options peak period peak period Detailed Delivered that can improve bus frequency bus frequency scoping of Option (may quality of service by 4 buses benefits, vary as built or on a specific per hour procurement delivered from corridor? plan, and the preferred impacts option) on finance, operations, workforce, Optimize Increase AM schedule, services in peak period safety, and bus frequency environment. the area by 2 buses per hour
Introduce Increase AM peak off peak peak period pricing bus frequency by 6 buses per hour
Framework Example: Rapid Transit
What are the Full rapid Corridor Detailed Delivered range of options transit BRT wide curb scoping of Option (may that can provide running BRT benefits and vary as built or expanded travel with express procurement delivered from capacity on a service plan for BRT the preferred given corridor? pattern option)
Corridor wide centre- Improved running BRT Priority Bus with express service pattern
Enhanced existing service levels with some priority and off bus ticketing
These options are carried While these options or variants are not explored in forward for further further business cases, key elements of them may be refinement and delivery bundled into the options that are advanced during the following stages of the business case lifecycle
Note: each stage may advance more than one Due to emergent considerations, options option for further consideration. Within each stage, that are not progressed at an earlier stage option development typically includes significant may be reconsidered or reintroduced iteration of analysis and reporting to ensure a robust later in the project lifecycle. development process. In many cases, evaluation and development may occur simultaneously. 50 Business Case Manual Volume 2: Guidance
Table 3.2: Level of Detail Required for Option Development Throughout the Business Case Lifecycle
Level of Design Inputs (cost required Actions Performance Assumptions capacity to deliver) (changes to the Objectives transport network)
Initial 0-10% Inputs should be Actions should be Performance Major guiding Business Potential defined at a high defined generally objectives should assumptions Case Concepts – a set level throughout (example: be defined should be of investment the option introduce a new generally (example: outlined for concepts that development service rapid the new rapid transit each option represent process and use transit service on system is faster than mutually exclusive ranges where the corridor) existing bus service) ways to address possible to reflect the problem or uncertainty opportunity
Preliminary 10% Inputs should Actions should Performance Assumptions that Design Comparator represent a best be defined objectives should have the highest Business Concepts – a set estimate and a specifically across be defined in influence on Case of preliminary narrowed range the range of sub ranges based on option inputs, designs of potential options (example: what is achievable action, and illustrating costs based on provide a new for the specific performance multiple ways to preliminary design high frequency investment in objectives should deliver a single BRT on the order to ‘right size’ be detailed overarching corridor that is performance to option identified either side or maximize benefits in the IBC centre running) relative to costs
Full 10%-30% Inputs required Specific changes These performance Detailed Business Reference to deliver the to the transport objectives are used assumptions Case Design Concept investment should network should to set procurement related to all – a representative be developed be defined requirements and inputs, actions, concept used through detailed should be specific and performance to advance design and and achievable objectives procurement and analysis based on best should be clearly confirm expected available evidence communicated benefits, costs, (example: deliver requirements to a service with 20 deliver and risks articulated buses, a capacity of 2,400 passengers per hour per direction, and an end to end runtime of 40 minutes)
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Option Development Guidance
This part of the guidance outlines Option Definition key concepts and ideas to be used to Options may include changes to complete each part of the Investment policy, an improvement to traveller Options Chapter. This includes a experience, operational changes, or a new description of how option development infrastructure project (as shown in Figure varies over the business case lifecycle, 3.3) or a combination of these changes. along with specific guidance for each The process may vary depending on the section of the Investment Options chapter. nature of the problem or opportunity. However, all cases should establish: Investment Options Section 1 • Origins of option (example: past Introduction studies, plans, or stakeholders) The introduction section of the options • Interdependencies or potential chapter should introduce the reader conflicts with existing and/or planned to the core content of the chapter changes to the transport network and the option development process. • Clarifying ‘how’ the option is Key assumptions and issues should expected to address the problem be identified and articulated. and/or opportunity by setting out how it triggers the actions Investment Options Section 2 discussed in Chapter 2
Option Development The option development section describes how options were generated for the business case. Its length may vary between business cases and vary across the business case lifecycle. This sub-section is intended to ensure the business case demonstrates a transparent and accountable process was used to identify potential options to address the problem or opportunity. This subsection should describe the process used to develop a long list of options and sift down to a short list. However, the actual long list and sifting process do not need to be included in the main business case document, and may be discussed in an appendix or separate discussion paper.
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Figure 3.3: Project Types
Policy Travel Experience Operations Major Infrastructure
Projects that change Projects that augment Projects that change Projects that expand rules and regulations traveller experience operating plans for the transport network shaping the delivery – including any component of through delivering of transport services improvements the transport network new infrastructure in the GTHA to customer information, comfort, Example: new Example: new Example: new and safety express service subway line integrated fare structure Example: new wayfinding and trip planning app
Developing a Long List The long list of options is used in the Factors to consider when developing initial business case and may be revisited options that the project manager can during option design refinement in later use to stimulate discussion with the stages of the business case lifecycle. working group / team include: This process ensures that options are • Changes – enhancements sufficiently differentiated and cover compared to the base. enough breadth to enable any other options not explicitly investigated • Timing – deferring or bringing to be considered ‘sub-options.’ forward implementation dates. • Scope – cutting back on full implementation. • Standards – enhancing or reducing specification. • Synergy – in combination with other projects some options may perform particularly well or, alternatively, simultaneous implementation at a site could create problems. Business cases can help identify the opportunities for synergy. • Consensus – reflect the preferences of stakeholders and likely public support. • Reputation – corporate image and the value of company-wide or corporation-wide consistency.
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Moving from the Long List to the Short List Figure 3.4: Sample Screening Framework For problems and/or opportunities with a long list of potential options a screening Will the option make N process may be used to ensure that a meaningful progress only options that are expected to have towards the vision? a significant strategic impact and are Removed from further Y financially and technically feasible are consideration evaluated and further refined or scoped. This process is outlined in Figure 3.4. Is the option deliverable N To ensure the number of options financially and technically feasible? selected for a business case is N manageable, creating a matrix/table Y showing the analysis of a long list of options against a variety of criteria Is the option likely to can be useful in developing a short Is the option a top performing N enhance a new top list. To increase the robustness of stand-alone option? performing option or the shortlisting, the project manager could it be combined should ensure the correct stakeholder with other ideas groups are involved in the process. Y to form a new top performing option?
Y Consider as an individual option or bundle with Consider bundling other options with other options
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Investment Options Section 4
Option Definition Options that are selected for evaluation This process may vary depending and included on the short list must be on the type of option, but typically refined and scoped in a consistent manner will include definition of: to allow for evaluation in chapters 4-7 • Impacts on customers and of the business case. Options should be communities – including changes to defined with five considerations in mind: customer experience and corresponding 1. Demonstrating that a increase in ridership, drawing upon workable solution exists. modelling where appropriate. 2. Setting performance objectives for • Option design and design the actions or changes the option will assumptions – including engineering make to the transportation network or policy development to a stage appropriate for the business case. Design 3. Estimating required inputs may consider the physical layout of a 4. Estimating outputs to be desired change to the network or the key used in benefit analysis changes that a new policy will require to 5. Defining the Business as Usual be successful. Option design should revisit (BAU) scenarios and how the interdependencies or conflicts and also proposed option(s) is different consider responsibilities for planning, implementing, and operating the option and what the required capacity will be. • Costing – including capital, operating, and renewal cost for the option. Costs may be developed on a project by project basis, but all adhere to a similar and robust set of estimation guidelines. • Business as Usual and Interdependencies – outlining how the option changes the transportation network compared to the BAU transportation network and how the option may impact or be impacted by other investments. Each business case should include base information across these three considerations along with proposed delivery timelines. This information is considered the ‘core evidence’ that is evaluated within the four cases (strategic, economic, financial, deliverability and operations).
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Impact on Customers: Forecasting Short-Medium Term (1-10 years) Option Performance Ridership Forecasting Predicting the future impacts of an For investments related to changes investment is a key aspect of the business in ridership in the short term, a case process. This involves qualitative direct demand approach may be reasoning to outline the ‘logic’ of how an most appropriate for the scale of option will benefit or impact customers, the investment. Direct demand uses along with the use of forecasting tools changes in travel costs (out-of-pocket, (where relevant) to determine how these perceived costs) and changes in journey customer impacts will impact use of the characteristics (travel time, travel comfort, transport network. Qualitative analysis of travel time reliability) to forecast how customer experience should be presented existing levels of demand are expected clearly, outlining how customers will make to change. Using this approach is best for use of the investment and how the design projects on specific routes or corridors can be optimized to meet customer needs. with established demand patterns.
Short Term (1-5 years) Long Term (15+ years) Ridership Business Strategies Forecasting For investments related to shorter For longer term ridership forecasting, term investments, forecasts should be several transportation demand models drawn from historical trends and take have been developed in the GTHA to into account existing planned actions take into account changes in land use listed in the 5-year Metrolinx Strategic patterns and the transportation network Plan (for example: the base case). The to more accurately estimate ridership forecasted impact of the investment on over a longer horizon. These models these existing trends should draw either are also useful for forecasting network from examples of similar experiences at effects of investments that direct demand Metrolinx or elsewhere, or be conducted approaches do not easily capture. using ranges to give a sense of what the impact would be at different impact For short-medium term and long term levels (for example: very small percentage ridership forecasting, a ridership ramp change vs. very large percentage change). up period should be applied to reflect the delayed response in ridership uptake (Table 3.3). A project is assumed to reach its full ridership potential by the fourth year of operation.
Table 3.3: Ridership Ramp-Up
Year 1 Year 2 Year 3 Year 4
60% 75% 90% 100%
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Long Term Forecasting Using the Role of Transportation Greater Golden Horseshoe Model V4 Demand Models
This section provides high level Business cases require a robust guidance on the use and application of evidence base on future impacts of an modelling tools, including Metrolinx’s investment. As a result, modelling – or core network modelling tool the Greater forecasting – travel demand typically Golden Horseshoe Model Version forms a core input to the design and 4 (GGHMv4), comparable models, evaluation of transit Investments. and other modelling approaches Models can be used for a range of (example: elasticity based frameworks, purposes throughout the business unimodal models). This guidance is: case lifecycle, including estimating: • Intended to support sponsors, business • Potential ridership and case analysts, and project managers in revenue changes; understanding the role of modelling • Benefits arising from the project in business case development; and (example: user benefits and external • Not intended to act as a detailed benefits from changes in travel times, modelling manual or methodology. vehicle kilometres travelled.); and The section includes: • Sensitivity tests, which assess how a change in input variables • The Role of Transportation Demand changes model outputs and overall Models – a summary of how demand investment performance. models are used in business cases; Models may also be used to inform • Transportation Demand Model the optimization of project definitions Background – a high-level summary (example: stop location, stopping of the key principles for demand patterns, vehicle capacities, frequencies). modelling, including the types When applying models, analysts should: of models that may be used and choice model structures; • Be clear on time periods and units of forecasts, modes and • Applying Transportation Demand applicable year; and Models to Business Case Analysis – key considerations for making • Consider making use of aggregate use of demand models when statistics as well, which are useful to developing business cases; and provide overview of forecasts and impacts, when reviewing model runs. • Model Deep Dive: GGHMv4 – high level guidance and considerations for making use of the regional transportation demand model when developing business cases.
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Transportation Demand Model Background
Model Types with weightings applied to non-vehicle time to reflect preference for riding For the purpose of business case in-vehicle (typically walk/wait value at development, Metrolinx considers two 2-3 times in-vehicle time (IVT)); and types of transportation demand models: • Cost can be included in assignment, • Network models – 4-stage, activity although typically restricted to based, tour based, multi-modal, land higher level only (mode choice, use inputs required, representation distribution) only and not applied to of auto/transit/AT networks lower levels of the model structure. • Direct demand models/unimodal Importantly, most demand models have models – single mode models that are an implicit assumption – behavioural either elasticity or econometric based relationships are fixed through time and typically rely on comprehensive in a given model. This can present a records on modal demand over time challenge for new modes/services (such Modelling can also encompass as car sharing or transportation network operational modelling (such as for traffic companies) and changing preferences/ operations at intersections or of fixed influences by exogenous factors (new track rail systems) – as these tools play technology – phones/apps, car ownership project specific roles, they are not the costs, softer intangibles – improved focus of this section of the guidance. bike networks improving safety/urban In both approaches the following realm improvements, more broader key principles are used: perceptions changed through media, and other behavioural considerations). • Models reflect time and cost of This assumption is a key reason why all travel for different transportation business case modelling should consider options or modes; sensitivity tests on model inputs (such as • Demand is split into zone systems auto operating costs) to determine how (geographic, external or ‘point’ zones, changes in behavioural model inputs such as PnR / station zones) and could impact investment performance. typically, total volume of trips, time of travel, and demand patterns are fixed (although some models may aim to capture induced demand); • Assignment determines the best paths through the network for each trip; • Journey time is a core element of assignment algorithm – car times will reflect congestion, transit times include walk/wait at stop/interchange points,
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Choice Model Structure For a simple two way (binary) choice, the model produces a choice proportion A central feature of multi-modal models curve as shown below in Figure 3.5. Where is the choice model. Based on the the generalized times are equal, the zero- network travel times and costs between difference results in an 50% share to both. zones, the choice model forecasts As one alternative becomes faster (say by how demand is split between the 5 minutes), the proportion increases (to alternatives (such as auto and transit). near 80% in this example); conversely, the Most models use the logit function: proportion of the other alternative falls. λGT P = e- The use of logit models should be Σ e-λGT informed by three key characteristics. Where: • Firstly, the curve is asymptotic to the 0% and 100% proportions, meaning P = the proportion forecast all alternatives will be allocated a for that alternative (small) proportion, irrespective of how GT = the generalized time of travel unattractive they may be. In some between zones (time and the time cases, this may result in a material equivalent of any monetary cost proportion of overall demand for incurred, such as transit fare, with a given alternative coming from a time being perceived time) very large number of ODs with very low demand; however, in practice, λ = the scaling parameter, which governs such demand is not realistic. In such the sensitivity to GT differences. cases, the model can be modified to ignore very small proportions (say less than 5%), with demand allocated to the valid alternatives.
Figure 3.5: Impact of Generalized Time Differences on Mode Split in a Choice Model
100%
80%
60%
Proportion 40%
20%
λ= -0.25 λ= -0.5 -15 -10 -5 0 5 10 15 Generalised time difference
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• Secondly, the model is based on to derive an overall perceived average. generalized time differences, meaning This value is not a simple weighted changes in time should be considered average (which would fall somewhere in relative terms. In practice, a in the range of generalized times), but given generalized time difference rather reflects the perception of true will produce different trip changes generalized costs that gives rise to the depending on the trip duration: a 10 logit curve in the first place. The logit minute difference will have a material curve, used with tangible measures difference to a 20 minute journey, of time and cost, reflects the variance whereas on a three hour journey the of behaviour and perception of all impact will be less significant. The value travellers, with some not choosing the of λ is typically estimated to provide ‘best’ option (e.g., some people will still the best fit across the set of observed choose a rail option of 100 minutes over journeys, and consequently, the fit is a car option of 80 minutes, even though poorer for trips at the margins of the the latter is rationally the best option). trip length range. In such cases, this Those travellers choose the other options can result in under and over allocating since they perceive it to be the ‘best’ to the best alternative for short and option and hence lower than the rational long trips respectively. It is possible best option in some way. The logsum to estimate a decay function for λ function therefore captures this and to correct for this potential issue. produces an overall generalized time that will always be less than the lowest • Finally, given the use of generalized generalized time used in the logit model. times to forecast the demand split by alternatives, the logsum function This is illustrated in Figure 3.6 below, which is the log of the denominator of where car has a constant 45 minute GT the logit function, can be employed and the transit GT varies between 30 and 60 minutes; the logsum is always less than the lowest GT (but close to the lowest GT when the alternative is materially higher). Figure 3.6: Logsum Estimation of Generalized Time
120% 70
60 100%
50 80%
40 60% 30 Proportion 40% Transit share, = -0.25 20 Generalised time λ Transit share, λ= -0.5 20% 10 Car GT Transit GT Logsum GT -15 -10 -5 0 5 10 15 Generalised time difference
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Role of Transportation Demand Models Business cases make use of a focused set The GGHMv4 should be used for of model outputs to generate evidence all Metrolinx business cases unless as input into the four evaluation cases. a strong case can be made that Three key types of outputs an analyst a direct demand model is more should extract by geographic origin and appropriate. In these situations, the destination pairs and time of day (at a direct demand model should: minimum, peak and off-peak) are: • Have clear documentation on • Demand (which can be used assumptions and inputs; to generate revenue); • Make use of modelling factors and • Change in generalized time considerations drawn from the for all modes; and GGHMv4 (including those documented • Change in vehicle kilometres in Economic Case) wherever possible travelled (VKT), kilometres walked, and providing rationale for any areas and kilometres cycled. where different factors are used; When extracting these outputs, • Draw upon international analysts should conduct a robust best practice; and sense checking process before using • Be peer reviewed both by internal outputs in the business case. This Metrolinx staff and independent process can confirm benefits and experts from the field of research also support the development of a or practice as appropriate for the narrative for the Strategic and Economic project (for example, a direct demand Cases. Key considerations are: model for a large investment may • Distribution of time savings by band require more substantive peer (example: frequency distribution review than a smaller investment). of time savings by trip demand); If GGHMv4 is used to study a transit • Average benefit per user; intervention, a base year project simulation should be done to inform • Sector analysis of distribution a project-specific ridership growth of benefits (for example: what rate. If a direct demand model is used benefits are in project corridor instead, a generic ridership growth rate and are any off corridor?); and should be derived using a generic prject • Mode shift sensibility (in other simulation. This ridership growth rate is words, does mode shift occur used to interpolate ridership and project where it is expected?). benefits to the project opening year, as well as extrapolate ridership and project Evaluation is typically conducted at the benefits beyond the forecast year. main mode level – auto, transit, walk/ bike (if active transportation only). In the absence of a ridership growth rate, As a result, some business cases may 2% can be used as a generic assumption require analysts to combine/aggregate for ridership growth in the GTHA. sub-modes (for example: GGHMv4 has 5 transit modes – the analyst may need to combine them using logsum times/costs to a single transit mode).
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Model Deep Dive: Greater Golden Model Time Periods Horseshoe Model V4 Modelled and assigned time periods Background are set out in Table 3.4. Of note, the main demand model considers five The GGHMv4 is the latest version of time periods and these are reflected in the GGHM family of models and was the auto assignment. However, transit released in 2015. It was developed for assignment is limited to the AM peak the MTO using 2011 TTS data, with the and a combined period covering forecast horizon typically being 2041. the entirety of the non-peak periods Unlike previous versions of the model, it (the PM peak is not assigned). represents a full 24-hour weekday period, enabling integrated peak and off-peak Table 3.4: Modelling Time Periods in the GGHMv4 modelling and analysis. While v3 was partially tour based, v4 uses population synthesis to model intermediate stops Hour Modelled period Auto Transit while making daily tours across all journey beginning assignment assignment purposes. The total number of zones is 12 am 3,484 in the 2041 RTP In-Delivery model 1 am network (representing all funded projects). Combined 2 am Deep night Average hour 17 hours (overnight) The network model covers the Greater 3 am off-peak Golden Horseshoe, including the 4 am GTHA, and beyond covering the 5 am Niagara Peninsula, through Waterloo 6 am region, to Barrie and Simcoe, and Peak 2 hours 7 am AM Peak Peak hour Peterborough in the east. Network (6:45-8:45) improvements from v3 include: 8 am • More detailed road network, with 9 am refined coding conventions; 10 am 11 am Combined • Transit routes derived from GTFS Midday Average hour 17 hours feeds (where available), with 12 am off-peak development of a 24-hr daily 1 pm network, enabling abstraction of 2 pm time period specific networks; 3 pm • Detailed transit station files, including 4 pm PM peak Peak hour Not assigned parking capacity and charging 5 pm regime, and walk times to platforms; 6 pm • Improved peak period transit 7 pm assignment algorithm to reflect 8 pm Combined capacity, crowding and reliability; and 9 pm Evening Average hour 17 hours off-peak • Disaggregate airport zoning and 10 pm a custom air passenger model. 11 pm
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Demand Matrices Key Considerations for Using the GGHMv4 in Business Case Analysis Demand matrices are used to generate key model outputs such When applying the GGHMv4, analysts as ridership and benefits. Demand should consider the following when split into matrices as follows: working with model outputs (including strengths, weaknesses, and key • Auto (10) – split by 1, 2 and 3+ influences on modelling outputs): occupancy, each having toll and no-toll versions, and 2 and 3+ also • The GGHMv4 is a large scale regional having HOV/no-HOV versions model, calibrated/validated at a regional level – results should be • Transit (5) – is split by the 5 mode robust for broad policy testing choice model modes of GO train, and material network changes. subway/LRT, express bus (essentially GO bus), rapid bus and local bus. • As the impact area/scale of the policy/ Note that GO train and subway/ project becomes smaller, the model will LRT are NOT true OD, rather they become less robust, both in absolute are station-station only; in addition, (in comparison with observed network express bus is a mix of true OD and demand/conditions) and relative park and ride site OD (see ‘other’ (model sensitivity) terms, and as a result below for access/egress matrices). model outputs should be reviewed to understand this and make post • Other (4) – including walk only, bike model adjustments if appropriate. only (walk and bike are not assigned), and two related to park and ride trips • The model can provide full demand (drive to and from stations, and zone response to infrastructure projects to station for non-drive access) – demand, boardings/alightings and associated stop-stop pattern Given the mix of true OD and leg and car demand changes. based matrices, care is needed to interpret demand impacts across the • The model can be used to review matrices to account for both omission and refine project definition (for and double counting of trips as well as example: transit service patterns mix of person and vehicle matrices. and headways), which allows for project optimization prior to conducting a final evaluation run. • The 2041 network uses the 2011 local bus network as a default (even for 2041), so analysts should review/ update as required for study specific requirements (especially in new development areas where there is currently no bus network).
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• Bus times use road times, with allowance to reflect stops – for bus projects this may mean modelled buses do not necessarily reflect planned route run times: • Auto network is link only, based on volume delay functions to estimate times: • Freeflow links (400 series) reflect associated capacity (1,800 vehicles/hour); suburban/urban network has capacity reduced to reflect intersection impacts (700-900 vehicles/hour). • No inclusion of specific intersection delays or capacity constraints, so in highly congested conditions, the model will likely underestimate network conditions/times. • Walk mode is allowed across entirety of road network (except 400 series), which can result in excessive (demand/length) walk trips where transit is sparse/non- existent (which is then a potential issue when project fills such gaps and may result in significant travel benefits). • Car impacts – model can provide forecasts for mode shift and associated attributes (change in traffic flows, veh/kms, speeds), which can then be used to evaluate external economic impacts as discussed in Chapter 5. Model information can be used in more detailed traffic analysis (intersection operation), preferably using model data to factor observed flows.
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Option Design and Cost Development There are three main components of a costing estimate: A range of design and cost estimation techniques may be used, depending • The Base Cost – The basic costs of the on the stage of the business case project option. These are estimated and the stage of design. Table 3.5 before incorporating risks and optimism outlines the level of detail expected bias. These costs should still reflect at each business case stage and a the expected real costs of projects. suitable technique to generate costs. • The Risk Adjustment – The risk Cost estimation should include adjustment process should the following components, at a incorporate all identifiable risks minimum as appropriate: into the project option. The process should quantify and monetize all - Project development and design possible risks, and incorporate - On-corridor infrastructure them into the risk-adjusted cost. - Off-corridor infrastructure • The Optimism Bias – Adjusting for - Customer facing project components optimism bias should be done after the risk adjustment process. This - Supporting costs (example: marketing) process incorporates the expected Cost development should consider long systematic bias into the cost estimate. range changes in key cost inputs, such Realized costs have been proven to be as cost of fuel, energy, and labour as systematically higher than the expected inputs into operating costs. In addition, budget – adjusting for optimism bias costing should also consider design accommodates that systematic bias. features included to prepare the project for long term changes or be retrofitted for major changes (example: designing with climate change in mind).
Table 3.5: Cost Estimation Techniques
Business Case Level of Design Sample Estimation Technique Description Lifecycle
Initial 0-10% Parametric Uses variable and fixed unit costs
Preliminary 10-30% Design Uses smallest appropriate Investment Grade or individual units comprised in Bottom up Estimates the option to estimate costs. Full 30%
Reviews actual capital costs Post In-Service N/A N/A and operating costs.
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Business as Usual and Interdependencies • Interdependencies – key factors in the transport network or other planned The business case should clearly investments that may be impacted articulate the assumed BAU scenario. by or impact the performance of the The BAU should be drawn from existing investment under consideration in commitments (for example: the in- the business case (example: fares delivery 2041 transit network or the 5-year will allow seamless use of multiple operating strategy) and established trends types of transit service or a new (for example: population and employment subway will integrate with another growth rates). All investment options planned rapid transit line). Some should be scoped based on how they interdependencies may be considered incrementally add to the transportation 'non-negotiable' core elements of network defined in the BAU. Investments the investment. For example, a transit are incremental to what exists today and program may be reliant on fare what is currently funded, committed, or integration or improved station access. in-delivery. The BAU should be articulated In these cases, interdependencies based on the same dimensions as should be clearly discussed in each the proposed investment (customer relevant evaluation chapter (Strategic, behaviour and costs). The BAU should be Economic, Financial, and Deliverability articulated within the business case using and Operations Case) based on their key transport metrics, such as level of impact on investment perfromance. growth in congestion or transit ridership. • Conflicts –potential issues that The final step in scoping explores the project will need to overcome the assumptions that support the if developed further (example: option’s inclusion in the analysis and its congested railway corridors that interdependencies, and conflicts with existing and future conditions or other limit further development). projects. These factors are defined as: • Assumptions – key considerations that are made in positioning the option as a potential solution to the problem/opportunity (example: assuming that land is available for purchase on a complicated alignment or that crowding will continue to be an issue on a transit corridor).
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Strategic Case What does the Strategic Case chapter cover in a business case?
What is the role of Rationale for pursuing an investment - details how this chapter in the the investment options contribute to public policy business case? goals as articulated in the Case for Change chapter
What factors are Strategic outcome and benefits that indicate how the investment will address the problem included in the analysis? statement and realize benefits to the region.
How is evidence The Strategic Case is used to articulate how each summarized and option can achieve public policies, goals, or plans communicated? through a concise but detailed strategic narrative.
How is the guidance structured?
Section Content
Includes an overview of the Strategic Case and Introduction what is included in the guidance
Developing a Outlines the structure every Strategic Case should follow Strategic Case
Provides detailed guidance for: • Setting out strategic narratives Strategic Case Analysis • Communicating strategic performance based on how each option performs against each benefit or objective • Developing a summary of strategic performance for each option Business Case Manual Volume 2: Guidance
Introduction
Overview Chapter Output The Strategic Case summarizes the The types of questions that the Strategic performance of each option against the Case will typically seek to answer include: strategic objectives to indicate if the • What strategic benefit is envisaged? investment supports addressing the problem or opportunity and the goals • How do options contribute of the 2041 RTP. Because evaluation to strategic objectives? varies depending on the types of options • What constitutes project success? and nature of the problem/opportunity and corresponding objectives, this section provides a general structure to be followed. Evaluation techniques may vary between objectives and business cases. However, every Strategic Case should set out a strategic narrative as it relates to the visions, outcomes, and benefits illustrated in Figure 4.1.
Figure 4.1: Strategic Case Evaluation Structure
Role in Evaluation: Generally discussed based on performance against the investment goals. Key Question: Does the option create meaningful progress towards the vision based Vision on progress towards strategic outcomes?
Role in Evaluation: Discussed based on comparing option performance against each of the benefits. Key Question: To what extent does the option realize Outcome Outcome Outcome strategic outcomes?
Role in Evaluation: Define the extent to which each Increasing Specificity ofEvaluation Increasing investment option can realize benefits to the region. Key Question: How do options perform against Benefit Benefit Benefit each benefit’s KPI(s)?
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Developing a Strategic Case
The Strategic Case should provide a detailed account of how each option supports the vision and goals. The core content required to complete a Strategic Case is outlined in Table 4.1.
Table 4.1: Core Content Required for a Strategic Case
Section Subsections Description
1. Introduction N/A Overview of chapter
Articulate how the option(s) perform against each benefit within each 2. Strategic Evaluation One subsection outcome area, with a narrative of how by Outcome Area per outcome performance against each benefit supports progress towards the outcome area
Identify key factors that lead to different performance between the options Option Comparison (Initial Business Case and Preliminary Design Business Case only)
Identify key risks and uncertainties that 3. Strategic Evaluation Risks and Uncertainty may limit the option from achieving the Summary performance noted in the evaluation
Recommendations Identify key recommendations for each option
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Conducting Strategic Analysis
Strategic Case Analysis over the Business Case This part of the guidance outlines how Lifecycle to conduct and structure a strategic analysis and complete the four sections required for a Strategic Case. Initial Business Case • Conduct a detailed analysis of each Strategic Case Section 1 option using quantified information and detailed rubrics for qualitative indicators Introduction • Provide descriptive narratives for each option, supported by evidence, The introduction section should outline for how each option supports the the structure of the Strategic Case strategic vision for the investment and provide the reader an overview of the key assumptions and processes used to conduct the evaluation.
Preliminary Design Business Case Strategic Case Section 2 • Update the analysis conducted in the Initial Business Case based on any changes to Evaluating Option investment specification or detailed design Contribution to Outcomes • Analytic tools may be updated to The Strategic Case evaluation should ensure all analysis and forecasting summarize performance against is commensurate with the level of specification and scale of the investment each strategic outcome that is relevant to the proposed investment and problem and/or opportunity it intends to address. However, because the vision and outcomes are Full Business Case broader ‘value propositions’ these • Update the analysis conducted in the are evaluated based on the ability Preliminary Design Business Case of each option to realize benefits based on any design refinements that contribute to outcome areas. • Analytic tools may be updated to ensure all analysis and forecasting is Instead, each option is evaluated against aligned with updates to investment benefits (as discussed in Figure 4.1) scope and specification that can be realized by addressing the problem and or opportunity). A typical outcome section should include: Post In-Service Business Case • Overview of the outcome • Review strategic narrative and compare estimated objective • Performance review of each option performance against collected data against each benefit with the • Develop a report on how much progress outcome area (multiple subsections) has been made for each goal and the vision with clear benchmarks
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Benefit Sub-sections Strategic benefits are used in the business The following list of criteria is case to understand how each option provided to guide the selection performs against the outcomes and of performance measures: vision defined in the context section. • Data availability – Current capacity Benefits are evaluated directly by to collect and provide data to setting out meaningful performance support a specific measure. measures. Each benefit may have one • Analytical capability – Capacity or more performance measures that are to analyze data to support a used to quantify or qualify the extent to specific measure and to forecast which an investment realizes benefits. performance or progress under Benefit performance is then used to various scenarios or strategies in infer overall performance against a order to compare future options. broader outcome, and the aggregate performance against outcomes is • Clarity – Degree to which a used to answer the question: does this measure provides meaningful option realize the investment vision? and easily understandable output and information. Within the business case, quantitative performance measures and qualitative • Specific –Degree to which a rubrics may be used. Performance measure provides meaningful measures should be concise, meaningful, information to the objective. and focused on measurable outputs. • Reporting value – The value of a measure can communicate effectively what is important and a priority to the public, politicians, and stakeholders. • Management value – Degree to which a measure can support accountability and other management and financial tools.
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Some objectives are not amenable to quantification. Objectives with qualitative performance measures should be evaluated using a rubric. A rubric is a tool that translates qualitative performance into a standard scale that allows for clear comparison between options. Rubrics should be developed to be: • Clear – avoid use of vague descriptions; • Consistent – the rubric should be consistently applied by all analysts; and • Objective – the rubric should not favour any particular option. Potential benefits against the four key strategic outcomes used in this guidance and Metrolinx business cases are outlined in Table 4.2. These benefits and performance measures are not an exhaustive list. Metrolinx has standardized the quantitative performance metrics to be reported in business cases. This was done to ensure consistent reporting among business cases, enable benchmarking of projects, and understand how various investments contribute to the long-term goals of the 2041 RTP. The standard performance measures are noted with an asterisk in Table 4.2. Summarizing Each Outcome Section: the strategic narrative Each outcome section should summarize the overall strategic narrative for the outcome and the 2041 RTP goal(s) it relates to based on how the option achieves each objective. A sample strategic narrative is outlined in Table 4.3.
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Table 4.2: Sample Benefits and Performance Measures by Strategic Outcome Outcomes
Outcome Example Benefits Example Performance Measures
• Total ridership • New Transit Users* Transit Ridership • Passengers per service km • Ratio of ridership growth to population growth • Peak period directional load factor
QUALITY OF LIFE • Travel time savings (measured in units of time)* Faster Travel Time • Average travel time on corridor
• Percent on-time arrival • Headway or frequency Travel Reliability • Distance or time between vehicle failures • Number of mechanical failures in a given period
• Average waiting time for transfers Network Connectivity • Number of multimodal connections on the network Transportation • Number of terminals served by two or more modes TRANSPORTATION • Average volume to capacity ratio* BENEFITS Comfort and Capacity • Peak period directional load factor • Level of service rating (best to worst)
Customer Information • Information availability at stations and through online or call centres
• Total revenue and revenue/operating cost ratio Network Resilience • Longevity of the investment (for example: how long and Sustainability until the investment becomes crowded) Outcomes • Network ability to manage and mitigate shocks or disruptions
• Distance to transit from communities served by investment* Access to Residential • Number of homes or people living within access distance to transit Areas • Level of connectivity to new residential developments ECONOMIC or areas targeted for revitalization PROSPERITY • Quality of connection to hospitals, universities, Access to Public Services, green spaces, and other cultural institutions Spaces, and Institutions • Number of hospitals, universities, green spaces, and QUALITY OF LIFEother cultural institutions accessible by transit
• Investment impact on urban realm Vibrant Public Spaces ENVIRONMENTALQuality of Life • Investment impact of heritage buildings SUSTAINABILITY • Number of trips using active modes Healthier Communities • Number of collisions or incidents resulting in injury or death • Criteria air contaminant emissions
• Transit accessibility for marginalized communities and travelers* Equity • Access to jobs for low income persons* TRANSPORTATION 74 BENEFITS
ECONOMIC PROSPERITY
ENVIRONMENTAL SUSTAINABILITY Outcomes
Outcomes
QUALITY OF LIFE
QUALITY OF LIFE
Business Case Manual Volume 2: Guidance TRANSPORTATION BENEFITS TRANSPORTATION Table 4.2: Sample BenefitsBENEFITS and Performance Measures by Strategic Outcome
Outcome Example Benefits Example Performance Measures
Connecting • Travel time for commuters on transit Commuters to Jobs • Number of jobs within access distance of transit*
Catalyzing Urban • Increased connectivity to areas planned for land ECONOMICLand Development use intensification or major development PROSPERITY • Level of connectivity between major employment hubs, Supporting Innovation academic institutions, and other centres of innovation Economic and Prosperity and Regional ECONOMIC • Level of connectivity between existing and Development planned or future employment hubs PROSPERITY Employment Creation • Input/output model estimates for jobs and GDP impacts from investment and Economic Impact ENVIRONMENTAL • Fuel or energy consumption by passenger vehicles Energy Use and SUSTAINABILITY• Number of auto vehicle trips reduced* Efficiency ENVIRONMENTAL• Percentage of fleet vehicles transitioned
SUSTAINABILITY• Natural land impacted by transport network Improved or Protected • Impact on protected areas (parks) Natural Environment Sustainable • Impact on agricultural land Environment
Reduced Emissions • GHG or CO2 emissions*
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Table 4.3: Sample Strategic Narrative per Option
Instructions Outcome and 2041 Benefit Actions Outputs/ Outcomes/ Overall Impact/Progress RTP Goal Objectives Measure Progress towards Towards 2041 RTP Vision Performance 2041 RTP goal
What is A statement of the A statement A summary of how A summary of A statement of A statement based included in outcome under of each the option realizes performance the extent to on synthesizing the table? consideration objective the benefit against each which objective all outcome/goal and how it performance performance performance (one contributes to the measure supports the per set of objectives 2041 RTP goal realization under each goal) of the goal
Example The project Benefit 1: Mechanism: draw 6,000 peak period Moderate improves service Transit demand south of Bloor passengers switch improvement quality, increases Crowding and east of Yonge to from Line 1 to in overall transit choice and Relief reduce crowding on Line the new subway crowding for ridership, increases 1 due to Line 2 transfers customers network flexibility Action: provide a travelling south and meets local new rapid transit of Bloor-Yonge Moderate progress and regional transit corridor between Station towards vision by travel needs for Line 2 and downtown reducing crowding on existing and new at Pape Station Yonge; however, the passengers option does not allow Benefit 2: Mechanism: draw Offers new journey Minimal for a significant mode Transit demand south of Bloor opportunities to improvement shift from auto to Network and east of Yonge to Line 2 passengers serve the downtown Efficiency reduce crowding on Line heading south, as core and does not 1 due to Line 2 transfers well as downtown build the transit core residents market compared Action: provide a to the status quo new rapid transit connecting to the corridor between eastern portion of Line 2 and downtown Line 2; however, at Pape Station there is not a significant change in mode split to downtown
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Strategic Case Section 3 Strategic Case Section 4
Evaluating Options Performance Strategic Case Summary Towards the Strategic Value Proposition The summary should clearly address: How an option performs against the • What are key factors that led to a value proposition should be summarized difference in performance between the concisely with an impact statement options for the overall Strategic Case? derived from the overall performance against each goal (which in turn is • What are key areas of uncertainty or informed by objective performance) as risks that may limit the option from noted in the preceding sections and their achieving its performance? How logic frameworks. This statement should: can these risks be managed? • Indicate the option’s overall • What are the strategic performance based on the recommendations for each option? outcomes and benefits. If useful, a summary table (as shown • Suggest the extent to which the in Table 4.4) should be developed option’s performance can realize to communicate the Strategic the value proposition and address Case in a concise manner. the problem or opportunity based on the logic framework summaries for each goal – and therefore contribute to the 2041 RTP vision. The structure shown in Table 4.3 can be used to articulate performance for each option.
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Table 4.4: Strategic Case Summary Template
Outcome Option 1 Option 2 Option 3 Option z
Key numeric indicator or Benefit 1 brief qualitative statement
Transportation Benefit 2
Benefit 3
Benefit 4 Quality of Life Benefit 5
Benefit 6 Economic Development Benefit 7
Benefit 8 Sustainable Environment Benefit 9
Overall Pros Brief summary of pros
Overall Cons Brief summary of cons
Statement on Overall Strategic Benefit recommendations based on strategic performance
Statement on level Key Strategic Risks and Dependencies of risk to strategic benefits realization
78 5
Economic Case What does the Economic Case chapter cover in a business case?
What is the role of Rationale for pursuing an investment – the Economic this chapter of the Case details the overall benefit of the investment to business case? society by using a standardized economic appraisal
What factors are Key Economic Metrics: included in the analysis? • Cost to deliver/operate • User impacts • External impacts • Wider impacts
How is evidence The Economic Case communicates the overall summarized and benefit to society of the investment based on: communicated? • Net present value = total benefits – total costs • Benefit cost ratio = total benefits/total costs
How is the guidance structured?
Section Content
Includes an overview of the Economic Case and a Introduction summary of what is included in the section
Provides instruction on: Developing an • Key Considerations for Developing an Economic Case Economic Case • Economic Appraisal Using Benefit Cost Analysis • Economic Case Analysis Over the Business Case Lifecycle
Provides detailed guidance for: • Assessing cost impacts of the investment • Assessing user impacts Economic Case Analysis • Assessing external impacts • Assessing wider impacts • Assessing land value and development impacts • Summarizing economic appraisal Business Case Manual Volume 2: Guidance
Introduction
Overview Guidance Structure The Economic Case is one of two chapters The Economic Case guidance is focused on the rationale for pursuing an composed of two sections: investment (the other being the Strategic • Developing an Economic Case – Case). While the Strategic Case evaluates a summary of the key requirements for options based on a project specific policy/ completing an Economic Case; and plan oriented evaluation framework, the Economic Case evaluates benefits and • Conducting an Economic Analysis – costs to articulate the overall benefit a summary of the analysis required to society (including travellers, people, to complete the Economic Case. firms, and government) of pursuing each investment option. Each Economic Case is completed using a similar set of economic appraisal tools and assumptions. Unlike the Financial Case, all analysis completed in this section uses real values and a social discount rate, as opposed to nominal values and a financial discount rate. Real values do not include the impact Economic Case vs. Financial Case of general inflation, but must consider real growth. A social discount rate reflects The Economic Case and Financial society’s value of time preference for Case both present information in consumption – a benefit or cost incurred dollar terms, but reflect different tomorrow may be less ‘valuable’ than the ways to understand investment same benefit or cost incurred today. impact. The Economic Case considers society-wide impacts The types of questions that the Economic and the resource costs to deliver Case will typically seek to answer include: an investment. In the Economic • What are the benefits and resource Case, impacts such as reducing costs associated with the investment user travel time, air pollution, or option(s) in real terms? car accidents are monetized as benefits. The Financial Case focuses • What is the overall impact to society, on the financial resources required as indicated by the Benefit Cost to implement the investment and Ratio (BCR) and Net Present Value the cash flow impact for Metrolinx (NPV) of the investment option(s)? or the agency responsible for • How sensitive is economic performance the investment. Each case uses to key assumptions used in option different assumptions and input definition and evaluation? parameters and care should be • Will the investment have an taken to differentiate the cases as impact upon productivity and the business case is completed. economic performance?
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Developing an Economic Case
This section summarizes the underlying • determine which option out of a range narrative and structure of the of considered investments is the most Economic Case, along with the key economically sound for the GTHA. parameters and considerations that Central to this evaluation should be used in the analysis. are two key concepts: It includes: • Generalized Costs - used in transport • Purpose of Economic Appraisal demand models to represent the cost • Key Considerations for Developing of travel and allocate demand between an Economic Case the region's transportation services and modes. Each mode or service in the • Economic Appraisal Using GTHA has a cost composed of perceived Benefit Cost Analysis travel times and direct user costs (fares • Economic Case Narrative Structure or tolls), which determine if an individual will travel. Transport investments can • Different Approaches to Appraisal change demand by changing the • Economic Case Core Content generalized cost of transport – either by • Economic Case Analysis Over providing a new service or modifying the Business Case Lifecycle an existing one. When the generalized cost 'paid' by travellers decreases Purpose of Economic Appraisal beyond what they were willing to pay, From an economic point of view, they benefit (example: a traveller was transportation investment is justified willing to use transit when the trip when the investment meets an economic was 10 minutes - under an investment demand and realizes an economic or the trip is now 8 minutes, realizing a social surplus — for example, before 2 minute benefit to the user.) If the investment a transport system may be generalized cost increases, users behaving inefficiently and changes to the receive a disbenefit. Generalized cost system may generate benefits that exceed changes are captured in the Economic costs. The investment is therefore intended Case as ’user impacts’ and can be to correct inefficiencies by changing expressed in units of time or money. services, policies, or infrastructure. • Social Costs - each transport service The Economic Case is intended to has a social cost to society based on the illustrate how an investment realizes impacts it creates. Common transport benefits to society and the resource social costs include collisions resulting in costs required to do so. For the Initial property loss, injury, or death; emissions and Preliminary Design Business Cases, resulting in health impacts; and climate the Economic Case will review a range of change. Investments may change the potential alternative investment options overall social costs of the transport and compare their economic merits. system by reducing the overall social cost of travel in the GTHA (example: a new In a Metrolinx business case, subway attracts demand from a highway, Economic Appraisal is used to: reducing greenhouse gas emissions). • confirm that proposed investments have economic value; and
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Key Considerations for Economic Appraisal Using Developing an Economic Case Benefit Cost Analysis The Economic Case is developed using Economic Appraisal uses Benefit Cost models and estimates to understand Analysis (BCA) to quantify and monetize the overall economic potential for economic impacts for the purpose of the investment. As a result, this understanding and comparing projects and analysis includes significant risk and policies. This analysis is a partial equilibrium uncertainty. Throughout the business analysis that is focused only on the impacts case lifecycle, economic analysis and costs of the proposed investment should consider two approaches and its relationship to the transportation to manage risk and uncertainty: network and transportation demand. All other assumptions (example: land use, level Presenting Economic Values of demand) in this analysis remain static in Ranges (aside from change to base assumptions in At all business case stages sensitivity tests). Partial equilibrium analysis (Initial, Preliminary Design, also assumed that all costs will be spent Full), costs and impacts efficiently and benefits realized efficiently. should be estimated BCA allows Metrolinx to review a range of quantitatively using ranges alternatives under a consistent set of input that are narrowed as the assumptions to determine which option project progresses and the is strongest from an economic point of level of certainty increases. view. For an investment alternative to be Key Economic Risks and acceptable, it should have the highest Benefits Dependencies economic performance out of a set of reasonable mutually exclusive alternatives The narrative included within and also have overall positive economic each section of the Economic performance (sum of benefits exceed the Case should clearly identify sum of costs). BCA includes all impacts key risks and dependencies which have an effect on societal welfare that shape overall – not only the financial impacts. BCA investment performance. measures changes in welfare using an established set of economic methods, which are elaborated upon in the “Conducting Economic Analysis” section. BCA is commonly undertaken by public transportation agencies and other public institutions to estimate the economic value of a potential investment. Key principles for BCA include: • Discounting • Inflation • Business as Usual vs. Investment Case • Key BCA Metrics
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Discounting Inflation Discounting is a process to convert The general increase in prices over time benefits and costs that occur in is known as inflation, and is reflected in future years into present value. The the declining purchasing power of money discounting process reflects people’s over time. Canadian inflation is measured “time preference”, which is their widely- by the Consumer Price Index (CPI – a observed preference for consumption measure of inflation), with the Bank of today rather than in the future. People Canada policies targeting an inflation rate and firms typically value $10 received of 2% a year. Under conditions of inflation, today more highly than $10, received $1 today could not purchase what $1 in the future. This is due to a general, could purchase last year, and $1 in the widespread preference in the population,, future will purchase even less. When prices government, and private sector. In are given in ‘nominal’ terms, these are the Ontario, discount rates incorporate the actual or expected prices, at face value, opportunity cost of private capital, the cost of that good or service in that particular of government borrowing, and the social year. The ‘real’ prices of goods and rate of time preference. Risk premiums services are the prices after general price are not included in these discount rates. inflation has been removed. Economic Discounting is to be applied after prices BCA measures the expected changes have been adjusted to real terms. in the real prices of goods and services. As a result, prices given in nominal Discounting estimates the present terms must be converted to real terms value of a stream of benefits and costs before their use in the Economic Case. over the whole evaluation period. The present value is calculated by discounting each year’s benefits and costs, and Change in value of costs or benefits then summing all the benefits in each due to ‘escalation’ (the relative increase year. This can be represented by the in the value of a good or service following formula, where the ∑ symbol beyond the average increase captured represents the sum over the evaluation in the CPI) should be captured in the period from year 0 to year n and the ∏ Economic Case. Escalation should be symbol represents the product of (1 + considered when developing estimates over the range shown. This approach ri) for capital and operating costs. In the is summarized in Equation 5.1. absence of sufficient data to estimate escalation, an assumed rate of 1% Equation 5.1: Discounting Equation may be used until 30 years from the n y base year of project evaluation. PV = B / (1 + r ) ∑ y ∏ i y=0 i=base
PV : The Present Value B : The Benefit or Cost (C) Under Analysis r : Social Discount Rate
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Business as Usual vs. Investment Case Key BCA Metrics BCA considers a set of forecasted future The Economic Case includes multiple scenarios, scenarios with a proposed key output metrics from the BCA: The investment (investment case) and one benefit-cost ratio BCR( ), the Net Present without the project (business as usual). Value (NPV), and the Net Present Value Because the project exists in the future, divided by capital costs (NPV/k). These the impacts of the project must be isolated three metrics should be reported in the from other impacts that may result from economic account of the business case. general trends not related to the project. For instance, population growth in the Benefit Cost Ratio GTHA may lead to greater ridership irrespective of any project. To properly The Benefit Cost Ratio (BCR) is evaluate a project, all trends like this must calculated by dividing the present be accounted for. To do this, a “Business value of the total benefit by the as Usual” (BAU) case is created as a present value of the total cost. It is: reference point that includes future trends but not the impacts of the project. BCA PVB BCR = then examines the difference between PVC the BAU and the investment scenario, so the only differences between the future BCR : Benefit Cost Ratio scenarios should be due to the project. PVB : Present Value of Benefits – In most cases the only difference between The real, discounted value of the stream of benefits the future scenarios will be the specific PVC : Present Value of Costs – investment, but in some cases, especially The real, discounted value of the stream of costs large investments, consideration of how The placement of impacts into costs and the transit network will be reconfigured benefits is crucial for BCR calculation. to improve the efficiency of the network Considering that a positive benefit is required (for example: a rapid transit could be construed as a negative line replacing bus routes may warrant cost, and vice versa, an accounting reconfiguring the bus network). In this and reporting standard is required. case, it will be acceptable to change some parts of the network other than The present value of costs should only the main investment; however, all major include the operating, maintenance, network changes should be documented. and capital costs of the transport project If changes are made to the network aside without any indirect tax impacts on from the investment, impacts from the other parts of the government. This will network changes should be included in enable decision makers to understand the overall investment benefits and costs. the ‘value for money’ proposition of the investment within Metrolinx's budgetary constraints. If the BCR of an investment is greater than or equal to 1, it is considered economically viable.
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In rare cases, the calculated BCR of an investment could be negative. The use of BCRs and NPVs This can happen under one of in a business case the following circumstances: The BCR and NPV are both useful • The project generates negative benefits measures for determining the value • The project generates cost savings of an investment relative to its costs. Decision makers will review When a project generates negative both as evidence of economic benefits, "All Loss" should be reported performance. The BCR is useful instead of a negative BCR. for understanding how benefits - PVB compare to costs in relative terms, All Loss = while the NPV communicates PVC the total value of the investment When a project generates positive minus its costs. Both should be benefits, but there are also cost used to provide a robust picture savings generated over the life of of the investment’s performance. the project, "All Gain" should be reported instead of a negative BCR. NPV/Capital Costs PVB All Gain = The NPV/Capital Costs (or NPV / K ) is - PVC a third metric for projects which have Net Present Value a high capital cost budget, but still have considerable benefits per dollar The NPV is the total present value spend of a capital budget. As a third of all future benefits minus the total metric, it offers improved illustration present value of all future costs: of the benefits for different options.
NPV = PVB – PVC Return on Investment
The NPV is complementary to the BCR. Return on Investment (ROI) is equivalent It communicates value for money in an to the (PVB - PVC)/(PVC). It communicates alternative way by showing overall the the relative value of an investment's net benefit from the project in absolute benefits to the resources required to terms. It is important to consider both deliver it. A positive ROI indicates the the BCR and NPV in tandem when project's benefits exceed its costs. examining projects. It is common to focus on the BCR, but both are important. If Internal Rate of Return a project's NPV is greater than 0, it is considered economically beneficial. The Internal Rate of Return (IRR) reflects the discount rate at which the investment will have a NPV of 0. IRR can be useful for understanding the impact of the assumed discount rate on investment performance.
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Sensitivity Tests Projects should have analysis and time In total, five sensitivity tests are commitments commensurate with the recommended for medium scale scale of costs and benefits of the project. projects, as outlined in table 5.1. Sensitivity tests should be focused on Any additional sensitivities that are uncertainties that have a substantial project-specific are encouraged but impact on the business case, rather than are at the discretion of the project parameters which are uncertain but have lead and are not required. a marginal impact on the outcomes.
Small Scale Projects (<$50 million) Table 5.1: Sensitivity Tests for a Medium Scale Project Sensitivity analysis is not required Sensitivity Test Rate(s) for projects of this scale, but is encouraged for any parameters that have a low degree of clarity. VOT Growth Rate 0.75% (real)
Economic 2.5% (real) Medium Scale Projects ($50 Discount Rate million to $500 million) Ridership +/- 1% point from the base The low-end of medium scale projects Growth Rate ridership growth rate align with the definition of Major Public Infrastucture Projects (MPIP) by the Government of Ontario. MPIP's Operating Cost 0%, 3% for a 2% base, 2%, are defined as "projects with a total Growth Rate 3% for <2% base (real) cost equal to or in excess of $50M for expansion type projects, or $75M for rehabilitation type projects, and/ or demonstrates high risk of adverse effects on project objectives or a high degree of uncertainty regarding impacts on project’s scope, cost, or timing." Projects of this scale with economic impacts should perform sensitivity tests specified in Table 5.1. Optimism bias is not treated as a sensitivity at this stage, but instead is included in the base costs of the project. Wider Economic Impacts (WEIs) are also not to be conducted as a sensitivity test, but as part of the standard economic appraisal process.
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Large Scale Projects (>$500 million) Operating cost should have a low, medium, and high growth rate. For a Large scale projects require additional typical transit infrastructure project, these time and consideration for reporting on are set at 0%, 2%, and 3% respectively. results. These projects begin at $500 million, which is an approximation of The Monte Carlo tests required the scale at which investments requiring are summarized in Table 5.2. multi-year planning begin at Metrolinx. All costs and modelling assumptions For this scale of projects, the use of should be run through Monte Carlo Monte Carlo analysis is recommended analysis and reported as a range with an to account for uncertainties associated 80% confidence interval. In addition, the with land use and implementation probability that the project has positive costs. “High” and “Low” rates should net benefits (BCR >1) should be reported. represent an extreme that is theoretically possible, but is an unlikely outcome. Large scale projects should perform sensitivity tests specified in Table 5.3 to In addition to modelling the most likely determine the impact on the reported land use scenario, a “low” and a “high” ranges and probabilities described above. land use scenario should be modelled for the project. The low, medium, and For large scale projects greater than high estimates should be studied in a $1 billion analyzed using GGHM, the business case model with Monte Carlo impact of reduced auto operating costs functionality. Ridership growth rates should be studied, simulating a potentiall associated with each land use should uncertain future with automated vehicles. be used in the Monte Carlo Analysis. Expansion factors used to convert ridership and benefit forecasts for the peak period to annual impacts should also be based on the best available Monte Carlo Simulation information and include a standard Monte Carlo Simulation is a deviation for Monte Carlo analysis. computational method that uses Capital costs will be adjusted using an repeated random sampling to optimism bias uplift based on the level understand how variation in different of design, and will utilize appropriate variables can effect a modeled or standard deviations based on level of estimated outcome. For example, project design for purposes of Monte a cost estimate could draw from Carlo analysis. If a range of cost estimates a range of uncertainties for cost is provided, it can be used to better inputs to determine the likelihood determine the expected value for capital of investment costs being above costs in the Monte Carlo simulation. or below a threshold value.
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Table 5.2: Monte Carlo tests for Large Scale Projects
Monte Carlo Parameter Rate(s)
Land Use and “Low”, “Medium”, and Ridership “High” model runs Growth Rate
Determined by project Annualization characteristics; includes standard deviation
Include optimism bias with standard Capital Costs deviation; opportunity to include multiple costing estimates
Operating Costs 0%, 2%, 3% (real)
Table 5.3 Sensitivity Tests for a Large Scale Project
Sensitivity Test Rate(s)
VOT Growth Rate 0.75%
Economic 2.5% Discount Rate
Reduced fuel costs, Reduced Auto no parking costs, and Operating Costs vehicle access for all (For BCs >$1B)* users in the model
*This test is optional.
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Optimism Bias Table 5.4: Proposed business case requirements of Optimism Bias (OB) in Medium and Large Scale projects Optimism bias (OB) is one of three main components to cost estimates: Medium Scale Large Scale base cost, risk adjustment and (Capex $50-$500M) (Capex >$500M) optimism bias adjustment. OB is intended to address systematic biases in cost estimation. Realized costs have been shown to be • Capital Cost Adjustment = systematically higher than the planned Capital Cost + Optimism budget – adjusting for optimism bias Bias w/ Stdev using Monte • Capital Cost Adjustment = Carlo as range estimate accommodates this discrepancy. Capital Cost + Optimism Bias as a point estimate • OB included in • Optimism bias will be applied to the economic case only economic case for Medium and Large • OB included in economic case only • Not required to provide scale projects based on level of design capital cost without • Provides capital cost without OB as sensitivity test, • Metrolinx follows UK’s Department OB as sensitivity test line item this is reflected in the for Transport (DfT) guidance on • Additional sensitivity range estimate applying optimism bias rates to tests applied on top of • Additional sensitivity capital costs (excluding operating capital costs with OB tests applied on top of costs) based on percent design capital cost with OB completion, as outlined in Table 5.4, until local data becomes available. • Optimism bias will not alter or be included in Treasury Board Submissions or budgets; it is only intended for economic project appraisal in the Economic Case.
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Defining Optimism Bias Optimism bias refers to the tendency to 2) The ability to account for misestimate the outcomes of planned uncertain factors would mature over projects, by underestimating costs time, however cost overruns have and overestimating benefits, and has generally not improved over time been found to be a systematic and Thus, given the systematic observed persistent phenomenon amongst large phenomenon of optimism bias, 1 infrastructure projects. Misestimation project evaluations may adjust for can distort evaluations to be more optimism bias to better anticipate favourable than can likely be realized, true project performance. Optimism and international literature has found bias adjustment rates can be derived optimism bias as commonplace in through statistical analysis of historic underestimating project costs. project samples, where statistical In one of the most robust studies on clusters of project types are identified cost overruns of 258 megaprojects in 20 with an associated uplift percentage countries, Bent Flybjerg et al. (2004) found between estimated and actual costs.1 90% of rail projects were under costed, Given Metrolinx's current project 2 with an average cost over-run of 45%. evaluation practices closely align Reasons for optimism bias is with those of UK DfT, Metrolinx suggested to be partially caused by will follow UK DfT guidance on projects’ wider political-institutional optimism bias adjustment until a frameworks, with specific funding and more local factor is determined. incentive structures that promotes Not all leading transport jurisdictions the interests of actors, adherence to adjust for optimism bias. Of international budget, and rules and procedures to agencies surveyed, New Zealand 2 be conducive to cost overruns. and Australia maintain that, ideally, Traditional explanations have tried to increased accuracy from quantitative link cost-overruns to project uncertainty cost risk analysis (QCRA) can omit the rather than optimism bias. However, this need for optimism bias uplifts. DfT is found to be insufficient1, suggested by: guidance agrees, yet finds continued but diminished optimism bias in UK projects 1) A significantly skewed distribution despite improved QCRA1, suggesting in project samples towards cost improvements to QCRA remain. overruns whereas truly unexpected factors should produce non-skewed distributions (normal distribution);
1 Semtyaki, M. (2015). Cost Overruns on 1 Flyvbjerg, B. (2004). Procedures for Dealing Infrastructure Projects: Patterns, Causes, with Optimism Bias in Transport Planning. and Cures. IMFG Perspectives. The British Department for Transport. 2 Flyvbjerg, B. (2004). Procedures for Dealing 2 De Reyck et al. (2015). Optimism Bias Study: with Optimism Bias in Transport Planning. recommended adjustments to optimism The British Department for Transport. bias uplifts. UK Department of Transport
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Research on Optimism Bias Guidance Small vs. Large Scale Projects by UK Department for Transport (DfT) DfT guidance includes a significant Optimism bias inversely correlates with number of small projects used to inform design progression, with increased optimism bias guidelines for all project certainty of design decreasing cost scales. Some evidence exists suggesting overruns. Design completion is smaller scale projects exhibit less cost differentiated by progress through UK overruns1, but the distinction is not GRIP Stages (Guide to Rail Investment conclusive. The potential impact of Projects), a project governance mechanism relying on small scale projects are lower comparable to Metrolinx Stage Gate optimism biases applied to large projects. Process. However, DfT guidance does not present design percent completion per GRIP Stages, thus DfT optimism bias per GRIP stages are mapped to Metrolinx Stage Gates with defined percent design completions to relate optimism bias with design progressions. Capital Cost vs. Operating Cost Metrolinx only adjusts capital costs for optimism bias. Operating costs are not subject to an optimism bias adjustment.1 Using International Research A significant challenge for optimism bias studies in transport is a lack of major local transport projects. Metrolinx will reference available guidance from the UK with greater sample size of projects completed. Using UK guidance is not expected to be problematic at this time. Literature reviewed suggests insufficient evidence thus far that optimism bias is geography dependent; UK studies too have included international projects to supplement domestic samples. A local optimism bias may be developed as Metrolinx increases its project sample size.
1 Mott MacDonald. (2002). Review of Large 1 Mott MacDonald. (2002). Review of Large Public Procurement in the UK. HM Treasury Public Procurement in the UK. HM Treasury
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Application of Optimism Bias Small Scale Projects (<$50 million) The general rules of applying Small scale projects are not required to optimism bias are as follows: include an OB uplift at this time. Optimism Bias Uplift and Standard 1) Contingencies are applied either Deviation parameters based on Stage Gate 0-1 Stage Gate 2 Stage Gate 2 Stage Gate 3 based on a Quantitative Cost Risk Medium Scale Projects ($50 Level of Design Analysis (QCRA) or as percentage million to $500 million) Metrolinx Stage Gate / Business uplifts over capital costs. IBC PDBC PDBC FBC Medium scale projects will report costs Case Equivalents 2) OB uplifts are applied over and above as point estimates with an OB uplift contingency determined using the without standard deviation (stdev). Level of Design Completion 0-10% 11-20% 21-30% 31-100% methods described in Tables 5.5 and 5.6. OB 64% OB 18% OB 9% OB 4% OB Uplift and (Stdev) 3) OB uplifts are applied to capital Large Scale Projects (>$500 million) (Stdev 55%) (Stdev 15%) (Stdev 8%) (Stdev 3%) costs only, and the economic case only, using corresponding uplift adjustments Large scale projects will report costs as based on level of design (%), or an range estimates with an OB uplift and alternatively derived uplift to match stdev processed through a Monte Carlo or exceed DfT OB guidelines. simulation, with a standard deviation as a normal distribution on the OB. 4) Negative OB can result during Monte Optimism Bias Uplift and Standard Carlo simulation and is permitted, due Deviation application based on Stage Gate 0-1 Stage Gate 2 Stage Gate 2 Stage Gate 3 to the standard deviation used. This In tables 5.5 and 5.6, mean OB uplift is Level of Design represents the possibility of a project shown with OB stdev. OB uplift applied coming in cheaper than expected. is dependent on type of capital costing Metrolinx Stage Gate / Business IBC PDBC PDBC FBC Case/Level of Design Equivalents 0-10% 11-20% 21-30% 31-100% 5) Project appraisals may use OB supplied, and level of design completion. OB uplift percentages are based on uplifts different from DfT's OB uplifts QCRAMean* QCRAMean* QCRAMean* QCRAMean* as warranted by the project. DfT guidelines, with suggested stdevs Contingency Supported by QCRA (1+64%) (1+18%) (1+9%) (1+4%) modified from Flyvbjerg (2008). OB (Stdev 55%) (Stdev 15%) (Stdev 8%) (Stdev 3%) magnitudes decrease as percent design completion increases, corresponding OB uplift must to increased certainty of design. be adjusted to (Point (Point (Point account for the Estimate+% Estimate+% Estimate+% Note that stdev is not required for Absence of a QCRA contingency contingency contingency contingency (contingency is included as a % medium scale projects ($50-500M). uplift to derive uplift) * uplift) * uplift) * uplift on capital costs) OB uplift and (1+18%) (1+9%) (1+4%) Stdev to match (Stdev 15%) (Stdev 8%) (Stdev 3%) DfT guidelines.*
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Table 5.5: Optimism Bias and Standard Deviation Parameters by level of project design
Optimism Bias Uplift and Standard Deviation parameters based on Stage Gate 0-1 Stage Gate 2 Stage Gate 2 Stage Gate 3 Level of Design
Metrolinx Stage Gate / Business IBC PDBC PDBC FBC Case Equivalents
Level of Design Completion 0-10% 11-20% 21-30% 31-100%
OB 64% OB 18% OB 9% OB 4% OB Uplift and (Stdev) (Stdev 55%) (Stdev 15%) (Stdev 8%) (Stdev 3%)
Table 5.6: Application of Optimism Bias and Standard Devia- tion based on availability of a QCRA
Optimism Bias Uplift and Standard Deviation application based on Stage Gate 0-1 Stage Gate 2 Stage Gate 2 Stage Gate 3 Level of Design
Metrolinx Stage Gate / Business IBC PDBC PDBC FBC Case/Level of Design Equivalents 0-10% 11-20% 21-30% 31-100%
QCRAMean* QCRAMean* QCRAMean* QCRAMean* Contingency Supported by QCRA (1+64%) (1+18%) (1+9%) (1+4%) (Stdev 55%) (Stdev 15%) (Stdev 8%) (Stdev 3%)
OB uplift must be adjusted to (Point (Point (Point account for the Estimate+% Estimate+% Estimate+% Absence of a QCRA contingency contingency contingency contingency (contingency is included as a % uplift to derive uplift) * uplift) * uplift) * uplift on capital costs) OB uplift and (1+18%) (1+9%) (1+4%) Stdev to match (Stdev 15%) (Stdev 8%) (Stdev 3%) DfT guidelines.*
*Note - to adjust OB uplift and Stdev, given a contingency uplift is applied on capital costs, the following approach should be used:
Adjusted OB Uplift % = (1+Contingency Uplift %)/(1+Project Stage OB Uplift)-1 Adjusted Stdev = (0.38/0.44)*((1+ Project Stage Stdev)/(1+ Contingency Uplift %)-1), where;
Contingency Uplift % = determined by the Metrolinx Contingency Policy Project Stage OB Uplift = from Table 5.5 Project Stage Stdev = from Table 5.5
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Level of Design Completion At design completion >10%, DfT applies OB uplifts to the QCRA mean Recommended OB uplift should be estimate while other agencies including independent of project types as AFP or Metrolinx may not always conduct a DBB, but inversely correlate to design QCRA. The addition of a contingency completion. Business case types may uplift to the capital cost point estimate not fully indicate design completion, enhances the costing accuracy, partially which may vary even between costing achieving the function of a QCRA. components, and are thus not presented. Therefore, the OB uplift treatment is Types of Capital Cost Estimates similar to a QCRA mean estimate with 1) Contingency supported by a QCRA no contingnecy, and the uplift is applied on the point estimate with contingency. A QCRA enhances the accuracy in cost estimation relative to non-QCRA estimates. Standard Deviation of an OB Uplift However, QRCAs are predicated on risk The Stdev derived from Flyvbjerg (2008)1 registers that may remain pre-mature is based on international large-scale rail during early design stages. For this reason, projects which observed an optimism QCRAs may deliberately not be conducted bias of 44%, with standard deviation at minimal levels of design completion. of 38%. For DfT OB uplift adjustments, A conservative approach suggests an interim method is derived using the QCRAs at minimal design progression ratio of Stdev 38% / Mean 44% from produce no better results than non- Flyvbjerg (2008). DfT's research sample QCRA estimates. Based on this approach, contains mostly small-scale projects, the same OB uplift applied to a capital with a small Stdev. A more appropriate cost point estimates is also applied to a Stdev will be needed, and Metrolinx QCRA mean estimate at 0-10% design intends to conduct localized studies. completion. For design completion >10%, With the proposed standard deviation, the recommended practice is to match DfT negative optimism bias uplifts are guidelines when applying an OB uplift to possible. This is permitted, given projects the QCRA mean estimate as per Table 5.6. occasionally complete under-budget, 2) Absence of a QCRA and is reflected in the low probability of occurrence (~15% of OB uplifted cost At 0-10% design completion, DfT distribution, or ~5% of distribution when applies OB uplifts to the capital cost limited to 80% confidence interval). point estimate. However, other agencies including Metrolinx often apply a contingency uplift to their capital cost point estimates at this level of design completion. It is recommended that at this level of design, the difference in OB is added to the existing contingency uplift to match overall DfT guidelines.
1 Flyvbjerg, B. (2004). Procedures for Dealing with Optimism Bias in Transport Planning. The British Department for Transport. 95 Chapter 5 : Economic Case
Illustrative Example: Yonge Subway Extension The following analysis was conducted on the preferred option identified for the Yonge North Subway Extension (YNSE), during the Initial Business Case completed in 2013.1 In this illustrative example, treated as a Preliminary Design Business Case (PDBC) on the preferred option. The results of this analysis are used for illustrative purposes only, and are independent of any work on the Yonge North Subway Extension currently underway. The Yonge Subway Extension is a 7.4 km addition to the existing Line 1 Subway. The project extends from the current Finch Station terminal, in an underground alignment beneath Yonge Street, to a terminal at Richmond Hill Centre. The proposed methodology for including Optimism Bias, as outlined in the Guidance was utilized as follows: 1. Optimism bias was applied to infrastructure cost components in accordance with the level of design completion (Table 5.5), using the recommended application for capital cost estimates presented in the absence of a QCRA. 2. Tunnels were identified at a higher level of design completion, with a lower OB uplift applied. 3. YNSE is a ‘large-scale’ project (>$500 million), and optimism bias and stdev are processed through a Monte Carlo simulation with a normal distribution and unbounded lower limits, allowing for negative optimism bias.
1 http://www.metrolinx.com/en/regionalplanning/ projectevaluation/benefitscases/Benefits_Case- Yonge_North_Subway_Extension_2013.pdf 96 Business Case Manual Volume 2: Guidance
Table 5.7: Costing example, with optimism bias applied to select components of the capital cost according to level of design
Cost Point Optimism Bias Added Final Adjusted Cost, Line Item Estimate + Level of Design Completion (Uplift, Stdev) Expected Value ($) Contingency
Finch Modifications 67.3 M PDBC, Low (<20%) 18%, 15% 79.4 M
Cummer/Drewry Station 240.0 M PDBC, Low (<20%) 18%, 15% 283.2 M
Steeles Station 538.7 M PDBC, Low (<20%) 18%, 15% 635.7 M
Clark Station 204.8 M PDBC, Low (<20%) 18%, 15% 241.7 M
Langstaff Station 242.6 M PDBC, Low (<20%) 18%, 15% 286.3 M Richmond Hill Centre 320.3 M PDBC, Low (<20%) 18%, 15% 378.0 M Station Train Storage Facility 396.6 M PDBC, Low (<20%) 18%, 15% 468.0 M
Tunnels 754.1 M PDBC, Hi (<30%) 9%, 8% 822.0 M
Utilities/Traffic Control 100.0 M PDBC, Low (<20%) 18%, 15% 118.0 M
Systems 339.0 M PDBC, Low (<20%) 18%, 15% 400.0 M Results of the Monte Carlo Simulation:: Point estimate (w/ contingency): $5.65B With optimism bias applied to select components of capital costing: Pmean @ $6.5B , or $6.16B - $6.84B with 80% confidence Figure 5.1: Monte Carlo Simulation using data from Table 5.7:
0% per year, with 0.75% per A parameter used to escalate the Value of year (based on real growth Value of Time Growth Time across the investment lifecycle.. in GDP per capita) used as a sensitivity test based
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Standard Economic Case Parameters The standard parameters that should be used in the Economic Case are described in Table 5.8. Any variation to these parameters must be explicitly agreed upon during business case development, with a clear justification for the variation.
Table 5.8: Economic Parameters
Parameter Purpose Value
Over time, the value of a cost or benefit will decrease – Social Discount Rate as a result, a social discount rate is applied. The social 3.5% discount rate reflects society’s time preference for money.
In the absence of input specific guidance, growth in all inputs to the evaluation (example: user benefits) After 30 years from the base Growth Cap should be capped after 30 years from the base year year of project evaluation of project evaluation to reflect uncertainty.
Different evaluation periods are used for different 5 to 60 years (depending on Evaluation Period levels of investment and scales of options. project lifecycle/impacts)
All values should be discounted and escalated to a Dollar Value common year defined at the onset of the study, typically Real, year of evaluation this will be the year the evaluation takes place in.
All impacts in the economic case measured in the market price unit of account (mainly user impacts) Unit of Account Factor Cost should be adjusted to the factor cost unit of account to ensure consistency between costs and impacts..
A factor used to monetize changes in Value of Time generalized time to determine the overall $18.79 (2021 $) welfare benefit to transport network users.
0% per year, with 0.75% per A parameter used to escalate the Value of year (based on real growth Value of Time Growth Time across the investment lifecycle.. in GDP per capita) used as a sensitivity test based
*Note: Business case factors used in the Guidance have been updated in line with research and development into Economic Appraisal. Business cases completed prior to the release of this guidance may have used different values. As discussed in Chapter 1, the values in this Guidance should be used for all business cases complete beyond 2021 until the next Guidance update. 98 Business Case Manual Volume 2: Guidance
Economic Case Narrative Structure The Economic Case should This framework includes: communicate economic analysis in a • Costs – reflecting the resource logical and concise manner that: costs of the investment (typically • Shares quantitative evidence to divided into “capital” and illustrate the range of impacts; and “operating and maintenance”) • Develops an overall narrative on • Transportation User Impacts – costs, benefits, and impacts that can reflecting the benefits to travellers inform decision makers and project that are realized when the investment stakeholders on the economic changes the generalized cost of prospects of the investment. travel (example: the investment improves travel time and reliability) The logic based narrative (or logic framework) shown in Figure 5.2 is • External Impacts – analyzing the recommended as the basis for presenting benefits of reducing the social cost of and interpreting economic analysis. transport (example: the investment shifts travel demand off automobiles to transit, which typically has a lower social cost per passenger km travelled) • Wider Economic Impacts – analyzing how the investment in the transport network impacts economic activity (for example: triggering agglomeration benefits by reducing the generalized cost of travel between two major employment centres) Further information on how to conduct analysis for each of these types of economic evidence is presented in the Conducting Economic Analysis section.
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Figure 5.2: Economic Case - Inputs, Actions, and Outcomes Narrative Framework
Investment Inputs and Actions Costs: Costs are the key economic input required to deliver an investment. In the Economic Case, costs should represent all resource costs required to deliver the investment in real terms: • Capital costs: including initial spend and renewal costs for all infrastructure, rolling stock, and technology. • Operating costs: all costs required to operate the investment and provide day to day maintenance.
Investment in the transport network changes Investment in the transport network can reduce the the ‘generalized cost’ of travel for users, which ‘social cost’ of travel, which reduces the negative in turn impacts their travel behaviour. side-effects of transportation on society.
Transportation User Impacts from Reducing External Impacts from Reducing the the Generalized Cost of Travel Social Cost of Transportation Focus: Measuring how an investment’s mobility Focus: Measuring how an investment’s changes to improvements generate welfare benefits for travellers. the transport network reduce the cost to society. User benefits represent the direct benefits of the Each trip taken produces negative externalities to society investment to users of the transportation network. These such as emissions, transport related injuries or deaths benefits are typically monetized based on how different (car crashes), or congestion that takes an economic toll investments change the generalized cost of travellers. on society. This is called the ‘social cost’ of transportation. Typically, generalized cost is reduced by improving: External benefits can be realized in two ways: • Crowding. • Investments that reduce the social cost of existing trips (example: fleet replacement for lower • Amenity. emission vehicles or new station safety measures). • Accessibility. • Investments that encourage travellers to use a new mode/service with a lower social cost • Travel Speed. than their current travel mode (example: a • Reliability. fare strategy that shifts demand from cars to transit, a new efficient rapid transit line • Frequency. that shifts demand from cars to transit). Transportation user benefits are generated by: • Existing transit users whose generalized cost decreases due to the investment. • Travellers who change to the transit mode Investment in the transport network changes the improved/delivered by the investment ‘generalized cost’ of travel for users, which in turn impacts based on reductions to generalized cost. their travel behaviour. If travellers switch to a mode with a lower social cost, they generate external benefits.
As the ‘generalized cost’ of travel decreases, the Wider Economic Impacts investment can also change how people and firms interact within the regional economy. Focus: Measuring the benefit of the investment’s improved mobility to wider society. Transportation investments that change the cost of travel in the region can lead to wider economic impacts. Investment Output These impacts measure how the investment connects people and places to generate economic activity. Unlike the other two categories of impacts that focus on the Investment Outcome cost of transport to users and society, Wider Economic Impacts reflect the overall impact of mobility on society. These impacts include how reduced cost of travel affects economic activity, land use and spatial development, labour markets, and economic competition.
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Economic Case Core Content Table 5.9 outlines the key sections for an Economic Case
Table 5.9: Core Content for an Economic Case
Section Sub-sections Requirements
1. Introduction N/A Overview of chapter
Capital Costs Summary of capital cost impacts and cost drivers 2. Costs Operating Costs Summary of operating cost impacts and cost drivers
Summary of impacts to transit user and automobile 3. User Impacts User Impacts by Mode users (and active modes if relevant)
Wellbeing Impacts Summary of wellbeing impacts by type (health, safety) 4. External Impacts Environmental Impacts Summary of environmental impacts by type (GHG, air quality, noise)
Productivity Summary of productivity impacts 5. Wider Economic Imperfect Competition Summary of imperfect competition impacts Impacts Labour Markets Summary of labour market impacts
6. Land Sub-sections can Value and be set out at the Summary of land value and development impacts Development analyst’s discretion
Complete a key metric table showing present value of: costs, Economic Appraisal external impacts, user impacts, and wider economic impacts. Include Summary conventional (excluding wider economic impacts) and expanded (including wider economic impacts) key economic metrics
7. Economic Identify key factors that lead to different Option Comparison Analysis performance between the options Summary Identify key risks and uncertainties that may limit the option Risks and Uncertainty from achieving the performance noted in the evaluation
Recommendations Identify key recommendations for each option
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Conducting Economic Analysis
Economic Case Analysis Over the Business This section of the guidance provides Case Lifecycle direction and parameters for use in completing each part of the Economic Case. In general, each subsection Initial Business Case of the Economic Case should • Conduct an analysis of each option, including answer the following questions: modelling analysis and economic narratives • What are the costs, benefits, • Conduct sensitivity testing to understand or disbenefits incurred? the key performance drivers and level of uncertainty for each option • What are the key dependencies and risks associated with the investment and its estimated costs, benefits, and disbenefits?
Preliminary Design Business Case Economic Case Section 1 • Update the analysis conducted in the Initial Business Case based on any changes to Introduction and Assumptions investment specification or detailed design This subsection should frame the • Analytic tools (such as demand or Economic Case and confirm its overall benefit models) may be updated to ensure all analysis and forecasting content and structure. It should also state is commensurate with the level of the specific assumptions and parameters specification and scale of the investment used to conduct the analysis. Where these parameters differ from values used in this guidance, agreement must be made with the Metrolinx sponsor, with variations clearly noted in the Economic Case. Full Business Case
• Update the analysis conducted in the Economic Case Section 2 Preliminary Design Business Case based on any design refinements Costs • Analytic tools may be updated to ensure all analysis and forecasting Background is commensurate with the level of specification and scale of the investment The comparison of the costs incurred to deliver a transportation investment to the benefits accrued is central to the Economic Case.
Post In-Service Business Case • Review economic narrative and compare estimated performance against collected data
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Costs should be broken Capital Costs into two categories: Capital costs are fixed one time costs • Capital costs – including all costs incurred during the implementation to implement the option (with of the investment. All capital costs appropriate contingencies) and all should be estimated in the investment lifecycle or renewal costs incurred options section with consideration of over the working life of the option an appropriate contingency, and can to replace lifecycle expired assets include the categories outlined below: • Operating and Maintenance • Stations costs – all day to day costs to • Route infrastructure operate the investment and • Communications provide maintenance • Rolling stock These costs capture all new allocation of • Track value – or true resource costs – required to deliver a transport investment, meaning: • Software development • Power Supply • All costs considered should be above and beyond those considered • Signalling to be ‘Business as Usual’ • Land Acquisition Costs • Care should be taken to identify future • Legal Transaction Costs spending assumed in the ‘Business • Project Management Costs as Usual’ case, which should not be • Consulting Engineering Work included in the costs for the investment • Design Costs • Economic analysis is funding source • Project planning (including agnostic and should consider all costs public consultation and business carried to deliver the investment case development) The analyst should ensure sunk costs are • Lifecycle Renewal Costs (costs to not included in the appraisal. Sunk costs replace lifecycle expired assets) are costs that have already been paid. The analyst should outline the capital At the point of evaluation, only costs costs over the project lifecycle based on going forward should be included in the the social discount rate. A year-by-year cost equation. All costs that may have profile should be generated along with Parameter Rate(s) previously been paid (example: planning the present value of all capital costs. studies, feasibility reports) should not be Risk Free Bond 0.82% incorporated in the cost of the project. If the investment is assumed to mitigate Rate (real) In a Post In-Service Business Case, the committed and funded projects that actual resource costs of the project would otherwise be included in the Growth Rate (real) 2.80% should be included (which may vary from BAU scenario (example: a relief subway those in the Full Business Case). While mitigating the need to renovate and these costs have already been incurred/ expand Bloor-Yonge Station), these paid, they should not be considered as ‘reduced costs’ should be clearly noted. sunk costs at the Post In-Service Stage.
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Land Acquisition Costs In the Economic Case, costs associated with the acquisition of land are evaluated based on the opportunity cost of the land being occupied using the real, risk free bond rate as a proxy for the opportunity cost of the land. The risk-free bond rate is based on the real return on long-term government savings bonds. In the economic analysis, a fraction of the cost of land will accrue on an annual basis for as long as the land is occupied (typically, for the life of the project) and cannot be used for the purposes of any other intervention. The cost of land is assumed to grow annually in real terms for 30 years from the base year of project evaluation. The growth in the cost of land in real terms is derived by taking the average real annual dwelling growth rate in the GTHA using census data. The assumptions used in the derivation of an annual opportunity cost of land can be found in Table 5.10. The annual opportunity cost of land is calculated using the assumptions in Table 5.10 and equation 5.2.
Table 5.10: Opportunity cost of land parameters
Parameter Rate(s)
Risk Free Bond 0.82% Rate (real)
Growth Rate (real) 2.80%
Equation 5.2: Annual Opportunity Cost of Land
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Operating and Maintenance Costs Communicating Costs Once the transport investment is Costs in the Economic Case should operational, there will be some level be communicated in summary form of costs associated with operating and as shown in Table 5.11. Note - the maintaining it. The level of such costs level of detail used in the Economic will vary with the nature and scale of Case may vary by investment type, the investment, but can include: but a minimum two fields should be included: (1) capital and (2) operating • Staff – drivers, guards, station staff, and maintenance costs. The categories maintenance, management included in this template should be • Materials and supplies – replaced by line items that form the overall cleaning, maintenance, office capital or operating and maintenance • Energy – diesel, electricity, costs. This allows decision makers to or other fuel sources understand how different elements of the project drive resource costs. In broad terms, maintenance covers the day-to-day requirements to maintain Table 5.11: Summary of costs in categories service (for example: minor repairs, frequently recurring maintenance of Present value equipment or infrastructure). Lifecycle Cost Category ($ in year of renewal costs (included in Capital Costs) appraisal) are concerned more about material or complete replacement of assets (for Capital Costs category 1 example: track, signalling systems, bridges). Care should be taken to ensure Capital Costs Capital Costs category 2 that maintenance and lifecycle costs are clearly delineated to avoid both Capital Costs category 3 double counting and omission of costs. Operating Costs category 1 If the investment is assumed to mitigate Operating and or reduce operating costs below those in Maintenance Operating Costs category 2 the business as usual scenario (example: Costs introducing a more cost-effective bus Operating Costs category 3 fleet and maintenance facility) these reductions should be accounted for as Total Present Value of Costs a ‘cost reduction’ and clearly noted.
Note: All costs used in the Economic Case should include contingency and risk. Where appropriate, base costs (those without contingency and risk) can be included to illustrate the level of contingency applied, but not used in BCA. Contingency should be assessed based on the stage of design and type of project.
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Economic Case Section 3
User Impacts Overview Typically, the main impacts detailed Welfare benefits arising from transport in a business case for a transportation investments are primarily captured investment are those related to direct through the reduction in the perceived impacts on users – or travellers. User ‘cost’ of individuals’ journeys – such as impacts are determined by estimating a faster journey time, reduced level of the change in ‘generalized travel crowding, improved reliability or reduction cost’ for travellers. The generalized in wait time for transit. Since travel time cost of a journey includes a range of typically represents the largest element factors (travel time, reliability, amenity, of the ‘cost’ of a journey, ‘cost’ may be user costs, and crowding) that reflect defined in terms of ‘generalized journey the perceived journey time, and time’, with any financial costs (such as influence whether or not a traveller fares or fuel costs) converted into a chooses a given mode. Investments time equivalent using values-of-time. that improve these ‘factors’ are said to improve the welfare of travellers. User impacts are visualized in Figure 5.3. Figure 5.3: User Impacts from Transport Investment
Estimating User Impacts
Background • Waiting Time Individuals decide how to travel based • Access Time on their perception of the cost and • Reliability time associated with doing so. Twenty • In-Vehicle Time minutes spent standing on a crowded • Financial Costs train, for example, will be perceived (fares or vehicle ownership) to take significantly longer than sitting to users Cost on a relatively less crowded one. A highway journey with a predictable journey time will be perceived to be User costs User cost post faster than one with the same average before investment journey time but with significant day- investment to-day variability in journey time.
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What factors are included in User Impacts? Key values and inputs for measuring user impacts are listed in Table 5.12 with additional guidance following in subsequent subsections. A robust demand model will include all factors within the generalized cost equation for mode choice, and allow the analyst to estimate change in consumer surplus directly. The impact specific subsections allow analysts to ensure all analytic methodologies consider the full range of user impacts based on best available practice and evidence. There are two stages of user benefit calculation in the subsequent subsections: • Generalized journey time change benefits/disbenefits; and • Unperceived cost benefits/disbenefits.
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Table 5.12: Technical Guidance for Valuing User Impacts Based on Change in Generalized Cost or Time
Benefit Factor Description Estimation Process Category
Generalized Travel Time Change The overall change in travel time Typically estimated by Travel Time including in-vehicle, access, and transportation demand models. waiting time. Increased travel time is a disbenefit, while decreased travel time is a benefit.
Reliability How punctual the transport service Typically estimated in model by is. Reliability is the variability in applying a weighting to value of time: all elements of journey travel • A multiplier of 1.76 applied time. Improvements to reliability to the standard deviation are a benefit, while reduced of reliability (minutes). reliability is a disbenefit.
Crowding (transit) The level of crowding impacts Typically estimated in model by user perception of the service – converting into units of time either increased crowding is considered within the GGHMv4 model or through a disbenefit, while reduced the application of an equation that crowding is considered a benefit. is consistent with the GGHMv4.
Amenity (Service/ Improvements to amenity also Requires a suitable approach for Urban Realm deliver user benefits by reducing the investment under consideration, Quality, Station perceived impact/cost of travelling current guidance does not Area, and Quality through areas. This can include have parameters or specific of Design) improvements to streetscapes, estimation processes. facilities, stations, stops, or vehicles related to a transport trip. Improved amenity is a benefit, while decreased amenity is a disbenefit.
Change in The change in the average travel Typically estimated by transportation Congestion (usually time on the auto network should demand models by applying the captured as the be applied as an impact to users average change in travel time on the change in travel time remaining on the auto network auto network to remaining auto users. on the road network, and captured for interventions that sometimes used as significantly affect road capacity (e.g., OR only in special cases, a an approximation removal of a lane). In cases where decongestion value is used instead of auto generalized this cannot be calculated, and a based on a change in auto VKT travel time if project only marginally affects road in a specific time period: changes to reliability capacity, a congestion impact can and travel time be calculated instead using hours • Peak period: 0.01 hours/ cannot be estimated) per change in automobile VKT. A change in auto VKT. decrease in congestion is a benefit • Off-peak period: 0.00125 and an increase is a disbenefit. hours/ change in auto VKT.
User Costs The financial costs paid by users to Typically financial costs are a transfer make use of transport infrastructure. and are used for demand modelling and not for benefit estimation, except in the case of Resource Adjustments.
Unperceived Unperceived Auto Marginal costs related to owning Estimated at a rate of $0.10 per Travel Costs Operating Costs and using a vehicle that are not automobile VKT change. factored into day-to-day trip choices.
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Estimating User Impacts from Changes in Generalized Time Change in generalized time or cost can be calculated in two ways, as shown in Figure 5.4.
Figure 5.4: Two Approaches to Calculating Change in Generalized Time
Is the GGHMv4 used to calculate demand?
YES NO
Most core user benefits for a Metrolinx business Develop a methodology that is fit for purpose case are included as an output from the GGHM v4 and, where relevant, aligned with the GGHMv4 and a three step process should be followed: using the factors and approach defined in 1. Monetize the change in generalized time as this Guidance. This process should include all estimated by the GGHMv4 using the value benefits defined in Table 5.12 as appropriate. of time in this Guidance. This includes travel time, reliability, and crowding benefits. 2. Amenity values are not calculated in the GGHMv4 and must be estimated separately if relevant. 3. Monetize the change in auto travel time as estimated by the GGHM (applied only to remaining auto users) using the value of time in this Guidance. 4. Monetize unperceived auto operating costs using auto VKT.
If the GGHMv4 model is used to directly If the GGHMv4 is not used, then the estimate the change in generalized following user impact specific sub- time for transit users it will include sections should be followed to ensure all elements in Table 5.12 with the user benefits are calculated in a manner exception of unperceived user costs consistent with the GGHMv4. and amenity improvements, which may These sub sections include: be developed separately. The change in generalized time output from the • Generalized Travel Time change GGHMv4 can then be monetized by estimation and monetization multiplying it by the value of time. techniques for Transit Users The methodologies included for • Congestion Impacts in place of travel time, reliability, and crowding Auto Travel Time Impacts should be reviewed while conducting • Reliability the user impact analysis using the GGHMv4 - however, the methods • Crowding outlined in these sub-sections are • Amenity already applied by the GGHMv4 and • User costs will not need to be applied again during the economic analysis process. • Unperceived Costs Estimation
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Calculating Change in Equation 5.3: Change in Consumer Surplus Using Rule of a Half Generalized Journey Time Regardless of the demand model used, change in 1 change in generalized time or cost (or ∑ ∑ D0 + D1 C0 – C1 consumer surplus = 2 i j ( jkx jkx)( jkx jkx) change in consumer surplus) should be calculated in a disaggregate manner, considering changes in cost (C) and When the investment is either a new demand (D) by mode (x) between each mode or is likely to have significant origin (j) and destination (k). Generalized change in generalized cost or time, the time or cost changes should include rule of a half may not be an appropriate the factors represented in Table 5.4 tool to estimate benefits because the (travel time, reliability, crowding, inverse demand curve is unlikely to amenity, direct costs). Additional behave linearly (a linear curve is shown in guidance on each of these factors is Figure 5.5). In these instances, alternative presented in subsequent sub sections. estimation techniques (example: integration) should be considered. The change in consumer surplus can be estimated using the rule of a half as shown in Equation 5.3 (which shows the sum of rectangle D0, C0, and C1 with triangle C0D0, C1D0, C1D1). The rule of a half is typically applied to calculate the user benefits for new users – a description of the rule of a half is shown in Figure 5.5. Figure 5.5: Rule of a Half
Generalized 0 = Business as Usual Cost The first customer who would shift to 1 = Investment Case the new mode (point A) receives nearly the entire benefit C( 0-C1) because their 0 A willingness to pay is just below C 0 C The last customer who would shift to the new mode (point) B receives nearly zero benefit from C( 0-C1) B because their willingness to pay is 1 C 1 Benefits Benefits practically at price C to existing to new users users The rule of a half averages out this effect over all new riders to estimate benefits
Demand D0 D1
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Changes in Travel Time Travel time typically represents the largest component of the generalized journey time, with travel time reductions Construction Delays typically generating the largest benefits within transport business cases. Some transportation investments may impact travellers during Travel time includes several elements, construction. These impacts can all of which are perceived differently by be captured as delays or changes transport users. Different weightings are in travel time due to construction applied to each element to account for related impacts such as road or how, for example, time spent walking to lane closures. Modelling tools a transit stop is perceived differently to can be used for a high-level that spent on board a transit vehicle. approximation of impacts, while These values are outlined in Table 5.13. for major changes to the network appropriate simulation tools may be A two step process is used to estimate required for a robust estimation. user impacts from a change in travel time: For small projects or at the IBC Step 1 - Estimate New Travel Time stage, this analysis can be conducted Step 2 - Estimate Change in Travel Time based on assumed delays or impacts. For a PDBCs or FBCs, an Table 5.13: Inconvenience Factors, by Trip Purpose understanding of construction phasing should be developed Weighting provide a more precise impact. Travel Time If construction impacts are included Element Non-Business Business (including in the analysis, efforts should be commuting trips) made to also include the cost of mitigating them through new In-vehicle time 1.0 1.0 programs or policies (example: transport demand management Walk Time programs, construction phasing). (on level 2.0 2.0 In such a case, dis-benefits ground without crowding) may be partially or completely mitigated; however additional Wait Time 2.5 2.5 mitigation costs should still be included in the analysis. Mode Perception Factor 5 minute 5 minute Interchange* penalty penalty Bus/ Streetcar IVT 1
*Note: As with all time changes for new users which GO Rail IVT 0.85 are estimated using the rule of a half, interchange made by new users to transit is subject to the rule of Subway IVT 0.9 a half, or a 2.5 minute penalty.
Drive Access/ Egress IVT 2.48
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Travel Time Perception by Mode The perception of time spent travelling does not just vary by the different components of the journey as seen in Table 5.13, but it also varies by mode. Metrolinx applies travel time perception factors to GO Rail, Subway and Auto (access/egress time only). These mode-specific perception factors capture the comfort-related aspects and general preference for using certain modes over others and their values are outlined in Table 5.14. A direct application of the mode-specific perception factors involves multiplying the existing and new user passenger- minutes by the transit sub-mode with the perception factor for that sub-mode, resulting in perception-adjusted user impacts. The new perception-adjusted passenger minutes are then monetized using the standard equity VOT. For a mode-specific perception factor that is less than 1 – this will have the net effect of reducing benefits for that mode if there is a decrease in passenger minutes while also reducing disbenefits when there is an increase in passenger minutes.
The perception factors used in business case analysis going forward are summarized in Table 5.14 below.
Table 5.14: Travel Time Perception Factors, by mode
Mode Perception Factor
Bus/ Streetcar IVT 1
GO Rail IVT 0.85
Subway IVT 0.9
Drive Access/ Egress IVT 2.48
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Step 1: Estimate New Step 2: Estimate Change in Generalized Travel Time Generalized Travel Time The analyst should define the Time savings within transport business new travel times for each mode cases should always be based on the and origin destination (OD) pair generalized journey time, since that impacted by the investment. is the journey time that is perceived by individuals and best captures their Generalized travel times are calculated travel decisions. The change should by multiplying the relevant weighting consider the BAU vs. the investment by each element of the total travel scenario and apply the ROH. time and summing them. An example is outlined in Table 5.15. Individuals are expected to make decisions regarding their route or mode on the basis of the weighted travel time, and select the route that minimizes the weighted time rather than absolute travel time.
Table 5.15: Example of Estimation of Generalized Journey Time
Option 1 Option 2 Travel Time Element Weighting Option 1 (mins) (generalized Option 2 (mins) (generalized mins) mins)
In-vehicle Time (mass transit) 1.0 10.0 10.0 20.0 20.0
Walk Time 2.0 15.0 30.0 8.0 16.0
Wait Time 2.5 5.0 12.5 5.0 12.5
Interchange 1 interchange 5.0 5.0 5.0 5.0
Total Travel Time (absolute) 35.0 38.0
Total Travel Time (weighted) 57.5 53.5
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Reliability Equation 5.4: Change in Reliability Reliability reflects the unexpected variation in an individuals’ journey time (example: highway congestion, ij accidents or delays to transit services). ij Reliability can act as a major determinant of individuals’ route choices, since users where will typically prioritise a route with more certainty of arrival time than one which is often marginally faster, yet has a ij significant likelihood of being delayed. ij OECD (2009) reports that reliability benefits can be equivalent to 12-13% and of the transport user benefits, and • σ: The standard deviation of the trip's including reliability within the estimation reliability measured in minutes; of generalized journey time ensures it • i: The Origin; best reflects users’ travel experiences. • j: The Destination; There are two approaches to quantifying reliability, dependent on the mode • k: The Mode; and/or frequency of the transit service. • x: observed travel time; and Additional approaches may be used for • N: the number of observations. high-level reliability benefit estimation if these approaches are not feasible After the standard deviation has been within an early stage business case. estimated, the value of reliability – equivalent to the additional travel Approach A: Impact to Automobile and time perceived by users due to service High Frequency Transit Services reliability – can be estimated using (service headway is less than 15 minutes) Equation 5.5. This equation uses the Highway trips are made without consulting existing measure of reliability along a schedule, and based on a reasonable with an estimate of how the investment expectation of journey time, while frequent will improve reliability to estimate transit services tend to attract ‘turn-up- the overall reliability impact. and-go’ trips, where users do not check Equation 5.5: Reliability Impact the timetable in advance of travelling. Reliability should therefore be estimated using a ‘mean-variance’ approach. This approach calculates where RR is the reliability ratio (a unitless the standard deviation for journey weighting factor to convert a minute of times from average journey times for reliability impact into perceived time) – automobile trips or scheduled times this is assumed to equal 1.76. This factor and/or expected headways for transit. should be used for analysis outside This can be calculated using of the GGHMv4. The reliability impact the Equation 5.4. can be converted into dollar terms by multiplying it by a value of time.
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Approach B: Low Frequency Services Data Requirements (service headway is every 15 Estimation of reliability benefits will minutes or greater) require journey time data over an Reliability should be estimated using extended period which allows the a ‘mean-lateness’ approach which variability in journey times to be calculates the average delay of transit quantified. Observations should be services against scheduled arrival times recorded for specific periods (such using Equation 5.6. In this equation the as the weekday morning peak) which change in expected delay represents correspond to the periods used for the understanding of the current delay transport modelling underpinning the for low frequency services compared assessment of changes in travel time. to the improvement to expected The requirement for data across extended delay due to the investment. periods (at least 100 observations) is likely Equation 5.6: Lateness Impact to require data from alterative or non- traditional data sources, such as mobile network data (MND) or operations data from bus and/or rapid transit services. • Where LM is the lateness multiplier (the unitless relative weighting of delay compared to reliability impacts) applied to RR and ED is the expected delay (the mean delay experienced by transit services relative to the timetable measured in minutes). • The lateness impact can be converted into a monetized value by multiplying it by a value of time. The lateness modifier is currently under review and development. When service improvements change a transit service from ‘low’ to ‘high’ frequency, the reliability metrics should be measured with the ‘mean lateness’ approach. This will allow for consistency between measurements in the pre- and post- intervention scenarios.
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Crowding Crowding represents the discomfort to Consequently, crowding multipliers transit users of travelling in crowded can vary significantly by traveller conditions or being required to stand. It and trip characteristics. can act as a key driver of route choice, Approach – Calculate Crowding whereby individuals travel via an alternative route or a different mode (such If the GGHMv4 is used, the crowding as car) due to high-levels of crowding. factors within the model already Penalties can be included within the account for crowding in the change estimation of generalized travel time in generalized time. Otherwise, a to reflect the negative perceptions of formula consistent with calculating crowding on individuals’ journeys. crowding in the GGHMv4 should be applied as shown in Equation 5.7. Crowding impacts are typically quantified by multiplying the travel time spent Equation 5.7: Calculating crowding impacts travelling under crowded conditions (for seated and standing passengers respectively) with a multiplier to represent the discomfort associated with doing so. Passengers perceive crowding differently based on a range of factors, including: where • Their experience with transit, with less
regular users or those who typically • Vt = transit segment volume; travel by automobile more sensitive • C = transit segment capacity; to travelling in crowded conditions. t • Nseat = number of seated passengers; • Their mode, with some modes (e.g. = number of standing passengers; conventional bus) likely to be more • Nstand = IVT weights under ideal associated and better designed for • γ1, γ2 standing passengers than others. conditions for seated (1.0) and standing (1.4) passengers; • Time-of-day and location, with = additional IVT weights at passengers travelling at peak • α1, α2 times to/from downtown areas full capacity for seated (0.1) and predisposed to crowding on a daily standing (0.2) passengers; and basis, and are conditioned to expect = curves for seated (1.4) • β1, β2 to travel in crowded conditions, and standing (3.4) passengers. in contrast to off-peak users. The level of crowding, should be • Time spent / distance travelled, with estimated for each service under an users more sensitive to crowding investment scenario and in the BAU, with the longer they are exposed to it. Crowding Factors applied to travel time spent on crowded services for both cases.
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Journey Amenity Illustrative Example of Amenity Analysis using Best Practice Journey amenity includes many factors relating to service quality and comfort not Extensive research has been undertaken quantified through journey time, reliability into how amenity improvements are or crowding. They relate to ‘softer’ valued by passengers in different factors which impact on perceptions geographies, which may be applied to of travel, such as the cleanliness of Metrolinx appraisals where appropriate. transit services, provision of information Table 5.16 outlines a set of ambiance and wayfinding, improved pedestrian factors developed by Wardman (2014) walkways or bicycle paths, or the in an international context, which may be security of station stops and services. suitable for business case development. Such factors have traditionally been These values are shown for illustrative difficult to quantify or monetise, yet form purposes only to outline how amenity of an important aspect of the travelling facility or vehicle can significantly impact the experience and an individual's modal perceived generalized cost of a journey. choice, and form an important aspect of the generalized travel time. They are typically applied as multipliers to the travel time of the relevant segment of the journey, or alternatively as a Table 5.16: Ambience Factors Summary3 constant change to the generalized travel time (in minutes per journey). Constant/ Suggested Ambience improvements can be Ambience Modifier Factor assessed individually, or collectively where a package of measures is Waiting in intended to increase the overall Crowded Modifier 2.5 - 4.0 quality of a mode or transit line. Conditions
Journey amenity constants or multipliers Walking in to apply to changes in generalized travel Crowded Modifier 2.0 - 3.5 costs for appraising transport investments Conditions will be developed for the GTHA. On-Vehicle Constant < 1 minute Information
Off-Vehicle Constant < 1 minute Information
3 Wardman M. (2014), Valuing Convenience in Public Transport
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Change in Auto Travel Time/Decongestion Similar to transit users, automobile travel Note for highway investments: time changes should be calculated based It should be noted that highway on changes to overall perceived travel investments within urban areas time on an origin destination (OD) basis. will typically be justified on the Typically, a transit investment (such as an basis of reducing congestion by improved rail line, or a new subway) will adding new highway capacity not directly impact the costs and times (such as additional lanes or grade- for automobile travel. Instead, changes separated intersections), which to automobile generalized cost or time increases the speed of all traffic, will be associated with ‘decongestion’, rather than reducing the number which occurs when travellers chose of vehicles on the highway. to use transit instead of driving. The reverse effect – travellers driving more Since they do not reduce due to an investment is also possible. highway traffic, the impact of the investment on reduced congestion For most projects evaluated using the is captured within the transport GGHMv4, the impact to auto users can be user benefits, and valuing the calculated directly through the model by time savings to transport users. looking at the average change in travel Such investments do not have time on the auto network. These impacts external decongestion benefits, may be positive (reduced average travel as highway users do not benefit time) or negative (e.g., increased travel 4 Constant/ Suggested from a reduction in highway trips. Ambience time due to a lane being removed). In Modifier Factor instances where these changes may not Waiting in be readily calculated, for instance if the Crowded Modifier 2.5 - 4.0 project is evaluated outside of GGHM, Conditions the impact to automobile travellers can be estimated through an approach based Walking in on change in congestion as measured by Crowded Modifier 2.0 - 3.5 Conditions a reduction in auto VKT. This approach should only be used if the demand model On-Vehicle is unable to estimate automobile user Constant < 1 minute Information surplus adequately or if the project does not significantly affect road capacity, and Off-Vehicle Constant < 1 minute care should be taken to avoid double Information counting (e.g., the model outputs changes in travel time for the automobile network and, incorrectly, the analyst 4 Where a highway investment attracts additional traffic, there is potential for also calculated impacts due to changes decongestion disbenefits if new trips in congestion). Only one approach extend outside the modelled area, since should be used. This alternative VKT- this generates additional vehicle-km, and in effect acts to worsen congestion outside based approach is not suitable in cases of the immediate area of influence. where a project significantly affects road capacity (e.g., a project replaces a lane).
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Impact due to Change in Congestion Change in congestion captures the impact to highway users, which The travel time for automobile users is occur through two mechanisms: heavily shaped by congestion, which refers to where traffic flow is no longer • Changes in journey times, as free-flowing, with the presence of other congestion decreases highways vehicles resulting in additional journey may offer improved travel times for all highway users. Congestion times – as congestion increases, can be considered a user impact since so too may travel time. each highway user makes the decision • Changes in vehicle operating costs, to travel along a particular route based as cars are typically most efficient on the journey time they experience at approximately 90 km/h, and in doing so, irrespective of the wider are especially inefficient in stop- impact to other highway users. start traffic conditions – therefore, If a transport intervention results in changes that increase congestion highway users along a congested may increase operating costs, while route switching to transit or active changes that decrease congestion modes, this will generate benefits for may lower operating costs. the remaining highway users, who benefit from decongestion and a faster journey time. However, if an investment increases congestion, all travellers on the road network may have a disbenefit from increased travel time. Congestion therefore represents an additional ‘cost’ for all highway users. Each individual‘s decision to drive in congested conditions increases the journey time of others, leading to reduced leisure time and longer commutes, together with additional costs for businesses who now take longer to make freight deliveries or travel to meetings.
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Approach – Using Reduced Automobile Vehicle-Kilometre Travelled to Estimate Congestion This approach focuses on estimates The decongestion benefit should be of changes to VKT to determine quantified by multiplying the change the impact to automobile users. in automobile VKT travelled by the Automobile VKT change when: factors in Table 5.17 and the VoT. • An investment shifts demand from the auto network (decongestion) to other Table 5.17: Congestion Impacts by Period of Travel modes or discourages trip making; or Value • An investment shifts demand to Period auto (increasing congestion) or (hours/VKT reduced) induces more automobile trips. Peak 0.01 The analyst should note this approach is an alternative to capturing travel time Off-Peak 0.00125 savings on the auto network through GGHM and is only applicable with a relatively static automobile network in Note: Metrolinx is currently working on the BAU and investment cases. If the deriving more accurate decongestion investment has significant impacts on factors through the V4 of the Greater the automobile network (for example: Golden Horseshoe Model which is adding new lanes, or taking lanes capable of directly extracting the away for an LRT project) then the number of hours saved on roads from GGHM should be used instead. a reduction in VKT by time period.
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User Costs While fares and user costs are a transfer payment, they are not perceived as one User costs refer to the Financial Costs when a user makes a choice. In order to of travel incurred by transport users. close the transit fare transfer between These costs are included as a user the user and the provider, an adjustment impact because they are perceived must be made in the BCA by adding by users and influence their choice the transit fare change as an impact in of mode. There are also unperceived the numerator of the BCR. This impact costs, which are discussed in this should be based on the incremental section as a potential user impact. change in revenue to transit providers. Direct costs include: The resource cost required to deliver the • Transit – cost of fares or tickets transit intervention should be captured in the denominator of the BCR. • Automobiles – fuel costs, tolls, and (per mile) vehicle maintenance In assessing if a resource adjustment is required, it is imperative to ensure Direct costs are perceived by travellers, a common and robust approach to and influence their choice of whether to benefit and cost estimation is used. travel and the attractiveness of a specific This includes ensuring that the forecast mode. They should be considered in demand be consistent with the level of the appraisal analysis if relevant to transport capacity provided, along with the investment's expected impact. the associated capital and operating Step 1: Calculate Transit costs. For example, if the forecasted User Cost Changes demand for the investment exceeds the scoped capacity, operating costs Direct public transport costs include the should be revised. Conversely, costs value of fare charged to customers and should also be revisited if the demand is will influence mode choice. Analysts lower than expected and lower resource should consider the change in fare as costs can be applied to reduce the it pertains to mode shift and traveller scoped capacity. This will ensure that decision making within Step 2 - Transit the incremental revenue captured as a User Cost Resource Adjustment. resource adjustment is balanced out by Step 2: Transit User Cost changes in the resource cost of delivery. Resource Adjustment Note - if the GGHMv4 model is used User costs are included in the user to estimate benefits, fares are included generalized time or cost function as in a user's utility function for transit travellers perceive the monetary cost and a resource adjustment is required. of travel when making decisions. An incremental fare revenue resource Therefore, the consumer surplus adjustments is also required if other direct- calculation will include transit fares paid. demand models are used that consider fare in their generalized cost elasticity used to estimate changes in demand.
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Step 3: Calculate Vehicle Operating Direct Vehicle Costs Change Cost Changes for Auto Users When Travel Speed Changes Change in vehicle operating costs Fuel costs form the largest element of the apply to investments where drivers are direct costs of automobile travel. These expected to see a significant change can be estimated through equation 5.8: in distance or speed of travel. There Equation 5.8: Fuel cost are two approaches for estimating direct vehicle operating costs: • ‘Bottom-up’ – estimating the total operating cost by estimating the fuel consumption from vehicle where speed, distance and vehicle type • L = fuel cost, expressed in • ‘Top-down’ – estimating the operating litres per kilometre; cost using a unit rate approach • v = average speed in The first approach (bottom-up) should be kilometres per hour; and used where investments are expected to • a, b, c, d are parameters defined result in a significant change in the volume for each vehicle category. or (in particular) speed of traffic, such as major highway investments. Changes For cars, the following parameters in vehicle speed, such as additional are appropriate: lanes or grade-separated intersections, • a = 1.11932 would be expected to result in significant changes in vehicle operating costs which • b = 0.04400 should be captured within the estimation • c = -0.00008 of generalized travel cost within the • d = 0.00002 appraisal. The second approach should be used where changes in vehicle flows Per-kilometre values for maintenance and and/or speeds are minor, such as where a tires can be derived from the Canadian transit or active travel investment results Automobile Association, at $0.05 for in modal shift away from automobile. maintenance and $0.02 for tire costs. Note - these benefits are only realized Direct Vehicle Costs Change When by drivers who continue to drive after Travel Speed Change is Negligible an investment. Travellers who switch Where changes in vehicle speeds are from automobile to transit or other negligible, there is unlikely to be a change modes do not realize these benefits. in the (per user) generalized cost of travel by automobile. In this case, fuel consumption can also be estimated using the unit rate of $0.12 per km, sourced from the Canadian Automobile Association. By multiplying these costs by the distance of the trip in kilometres, the direct cost can be calculated and included within the overall generalized travel cost for the trip in question. 122 Business Case Manual Volume 2: Guidance
Unperceived User Costs Unperceived costs - or costs that are Unperceived Auto Operating Costs not modelled - refer to those which are Unperceived auto operating costs per ‘hidden’ or ‘sunk’ with respect to each trip, km are estimated at $0.10 (2021$). such as the cost of insurance or vehicle depreciation. Non-business travellers BCA is concerned with capturing the are assumed not to consider these costs marginal costs and benefits that a when making an individual trip, as they transportation investment can realize are largely unaffected by small changes in and as a result costs that do not directly vehicle mileage. Therefore, unperceived vary with vehicle usage (including: costs should not be included within the insurance, licensing, and financing) estimation of generalized travel time. are excluded. This leaves depreciation as the only unperceived cost used in However, in certain circumstances a BCA. Metrolinx recommends capturing reduction in unperceived costs can be only the distance-based vehicle realised as a benefit, such as where depreciation cost saving of $0.10/km. an individual switches mode from This $0.10/km is equal to approximatively automobile to transit for their commute 40% of the total depreciation over an extended period. Here, they costs of $0.23/km as estimated in will likely benefit from a reduction in CAA's Cost of Driving Manual. insurance and depreciation caused by an annual significant reduction in highway kilometres, or will no longer require a private vehicle at all.
Additional benefits can therefore be included where this occurs as a ‘windfall’, outside of the measure of generalized travel cost. This should be included separately within the assessment of investment benefits, and not captured within the reduction in generalized travel cost associated with a transport intervention.
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Reporting User Impacts Each relevant direct transportation User Impacts should be clearly user impact should be individually communicated with: reported and a brief description of the • A narrative outlining how specific impact and underlying assumptions elements of the investment (actions should be provided. Any risks or taken) lead to user impacts (example: uncertainty in estimating the impact investment in a faster rail link leading should be clearly articulated. to travel time savings). This narrative should articulate key elements of the investment that drive overall performance as well as key factors that lead to differentiation between options. • A summary table outlining the user impacts by mode for each option (example shown in Table 5.18). Note: not all investments will realize all types of user impacts, nor will all analysis be able to estimate each benefit category individually.
Table 5.18: Communicating Present Value of User Impacts
User Type Impact Type Option 1
Travel Time
Reliability
Transit Crowding
Amenity
Direct Costs
Travel Time
Reliability
Automobile* Crowding
Amenity
Direct Costs
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User Impact Estimation Examples The following pages provide examples of how to conduct user benefit estimation for a range of different transit projects.
General User Impacts Template
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing (BAU transit GJT – Converting Transit New transit GJT) x user impacts Existing Users to the Factor Cost UOA using a downward adjustment of (1+13%)
New ½ x (Average Converting Transit (BAU transit GJT – weighted fare user impacts New transit GJT) * New Users x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto (BAU auto GJT – (BAU fuel cost – New fuel cost) x Converting New auto GJT) x Existing Users Existing Users + ½ x (BAU user impacts + ½ x (BAU auto GJT – fuel cost – New fuel cost) * to the Factor New auto GJT) * Change in Users + Change in Cost UOA using Change in Users Auto VKT x Unperceived Auto a downward Operating Cost rate per VKT adjustment OR of (1+13%) OR (Peak Decongestion Factor x Change in Peak Auto VKT) + Change in Auto VKT x (Off Peak Decongestion Factor Unperceived Auto Operating x Change in Off Peak Auto VKT) Cost rate per VKT (where there are negligible changes to network routings and hence fuel costs) *Note: IFTA is the indirect fuel tax adjustment and AOCTA is the auto operating cost tax adjustment, described in more detail on pages 166-168.
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Case Study 1: Increased bus service (speed, reliability, and frequency improvements)
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing (BAU GJT – New GJT) Converting Transit x Existing Users user impacts to the Factor Cost UOA using a downward adjustment of (1+13%)
New ½ (Average Converting Transit x (BAU Transit GJT – New weighted fare user impacts Transit GJT) * New Users x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto (Peak Decongestion Factor x Change in Auto VKT x Converting Change in Peak Auto VKT) + Unperceived Auto Operating user impacts (Off Peak Decongestion Factor Cost rate per VKT to the Factor x Change in Off Peak Auto VKT) Cost UOA using a downward adjustment of (1+13%)
Case Study 2: Reduction in Fares
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing n/a Converting Transit user impacts to the Factor Cost UOA using a downward adjustment of (1+13%)
New n/a (Average Converting Transit weighted fare user impacts x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto As a fares reduction is As a fares reduction is Converting likely to have widespread, likely to have widespread, user impacts but modest impacts: but modest impacts: to the Factor Cost UOA using (Peak Decongestion Factor x Change in Auto VKT x a downward Change in Peak Auto VKT) + Unperceived Auto Operating adjustment (Off Peak Decongestion Factor Cost rate per VKT of (1+13%) x Change in Off Peak Auto VKT)
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Case Study 3: A Reduction In Fares with Increased Bus Service
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing (BAU GJT – New GJT) Converting Transit x Existing Users user impacts to the Factor Cost UOA using a downward adjustment of (1+13%)
New ½ x (BAU Transit GJT – New (Average Converting Transit Transit GJT) * New Users weighted fare user impacts x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto Unless the impact is material: Unless the impact is material: Converting (Peak Decongestion Factor x user impacts Change in Auto VKT x Change in Peak Auto VKT) + to the Factor Unperceived Auto Operating (Off Peak Decongestion Factor Cost UOA using Cost rate per VKT x Change in Off Peak Auto VKT) a downward adjustment of (1+13%)
Case Study 4: A New BRT System (speed, reliability, and frequency improvements) that Removed a General Purpose Auto Lane (speed and capacity disbenefits)
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing (BAU transit GJT – New transit Converting Transit GJT) x Existing Users user impacts to the Factor Cost UOA using a downward adjustment of (1+13%)
New ½ x (BAU transit GJT – New (Average Converting Transit transit GJT) * New Users weighted fare user impacts x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto (BAU auto GJT – New auto (BAU fuel cost – New fuel Converting GJT) x Existing Users + ½ x cost) x Existing Users + ½ user impacts (BAU auto GJT – New auto x (BAU fuel cost – New fuel to the Factor GJT) * Change in Users cost) * Change in Users Cost UOA using a downward + adjustment Change in Auto VKT x of (1+13%) Unperceived Auto Operating Cost rate per VKT 127 Chapter 5 : Economic Case
Case Study 5: Delivering a New Subway Line
User Type Generalized Journey Time Direct User Costs Resource Other Adjustment Considerations
Existing (BAU transit GJT – New transit Converting Transit GJT) x Existing Users user impacts to the Factor Cost UOA using a downward adjustment of (1+13%)
New ½ x (BAU transit GJT – New (Average Converting Transit transit GJT) * New Users weighted fare user impacts x New Users) to the Factor + (VKT * IFTA) + Cost UOA using (VKT * AOCTA) a downward adjustment of (1+13%)
Auto (BAU auto GJT – New auto (BAU fuel cost – New fuel Converting GJT) x Existing Users + ½ x cost) x Existing Users + ½ user impacts (BAU auto GJT – New auto x (BAU fuel cost – New fuel to the Factor GJT) * Change in Users cost) * Change in Users Cost UOA using a downward + adjustment Change in Auto VKT x of (1+13%) Unperceived Auto Operating Cost rate per VKT
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Economic Case Section 2
External Impacts This subsection articulates the impacts This section of the Economic Case of the investment on the external costs therefore focuses on how investments can: of travel. This refers to the broader social • Reduce the social costs of existing cost of users’ travel choices, which capture modes without behaviour change the wider costs to society of transport use – improve an existing mode such that are not borne by the transport user. that its social costs decrease (such Every trip carries a social cost, which as introducing new energy-efficient varies dependent on the mode and buses with reduced emissions) type of trip being made. Each mode • Encourage shift to a new or existing has different social costs based on a mode with lower social costs per variety of factors such as vehicle design, trip – invest in services such that fuel source, right of way, or level of travellers change away from modes congestion. Transport investments with high social costs (such as often aim to reduce the social cost of reduced transit fares which attract travel, and thereby reduce the negative passengers from single-occupancy impacts of travel on wider society. cars to transit, or a new walking route which encourages active travel). These two types of investment are shown in Figure 5.6. Figure 5.6: Reducing the Social Cost of Travel
Cost to society of a Passenger km travelled on a corridor
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Types of External Benefit There are several different social impacts of transport which can be reduced by transport investment. These include: wellbeing and environmental impacts as shown in Table 5.19
Table 5.19: External Impacts Parameters
Category Impact Description Value (2021 $)
Value is delivered per new km of travel on active modes. This Health Benefits includes switching entirely from $4.08/km walked (Active Travel) automobile to biking/walking or $1.83/km cycled to new feeder trips (example: bike Wellbeing to a train station) being made.
Value is based on foregone $0.09/auto VKT reduction Road Safety accidents resulting in Benefits (note: this value reduces death or injury. at a rate of 5.3% per year)
Change in GHG emissions Green House should be estimated based on Gas (GHG) travel behaviour. This includes $0.01/auto VKT reduction Emissions estimating new emissions from or bespoke analysis (Global new services and also reduced Warming) emissions from mode shift.
Change in air quality emissions Environment should be estimated based on Local Air Quality travel behaviour. This includes $0.002/auto VKT reduction (CACs such as estimating new emissions from or bespoke analysis NOx, PMs) new services and also reduced emissions from mode shift.
Change in noise may Noise Under development be monetized.
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Wellbeing Impacts Wellbeing refers to the impact of Appraisal of health benefits is most transport on the health and happiness of appropriate where an investment is wider society. Transport can impact on a intended to have significant impact persons’ wellbeing via two mechanisms: on the level of physical activity. Health benefits are anticipated to form a • Encouraging healthy lifestyles (such significant proportion of the benefits as where a transport investment where an investment is focused on encourages active travel such walking and/or cycling facilities. as walking and cycling). The benefits of walking and cycling in the • Reducing accidents (such as where context of the Greater Toronto region are a road safety investment reduces the set out in a 2012 report by Toronto Public number of accidents, or people change Health.5 The range of benefits includes: from a ‘less’ to a ‘more’ safe mode of transport, such as private car to train). • Increased lifespan (mortality); Health impacts • Improved quality of life due to reduced likelihood of disease/reduction in Overview years spent with disease (morbidity); Different transport modes involve and/ • Oncreased economic output or encourage different levels of physical due to reduced absenteeism activity, which is associated with a range (productivity); and of positive health outcomes. Improved transit, for example, will encourage people • Reduced direct medical costs. to walk and cycle more in accessing The value of health benefits in this transit stops, relative to a car-dependent guidance considers the impacts lifestyle. Better walking and cycling listed above in aggregate. infrastructure will encourage active travel trips, which, by their nature, require more physical activity than other modes. The quantity of health benefits arising from a transport investment is dependent on: • The base level of physical activity of the users of the investment; • The age of users and subsequently their relative risk of mortality; and • The uplift in physical activity resulting from the investment.
5 Toronto Public Health, (April 2012) Road to Health: Improving Walking and Cycling in Toronto. 131 Chapter 5 : Economic Case
Benefits Appraisal Health benefits are dependent on two key variables, which should be forecasted and estimated using a methodology proportionate to the value of the investment and anticipated value of health benefits: • Number of trips by active modes; and • Trip distance. Parameters for use in the appraisal of health benefits are set out in Table 5.20. The following steps should be applied to calculate the annual health impacts of the investment. Where necessary steps 1-3 can be applied to individual sub-sets of users or OD pairs and summed together to get total annual health benefits.
Table 5.20: Health Impact Appraisal Parameters
Parameter Value Notes Source
Walking Health Benefit (HB) $4.08/km walked (2021$) Metrolinx Research
Cycling Health Benefit (HB) $1.83/km cycled (2021$) Metrolinx Research
Average walking speed 5.3 km/h Used to adjust from travel Kahlmeier time to trip et al. (2017) 4 Average cycling speed 14 km/h distance where necessary
Can be adjusted on Time needed to obtain full Kahlmeier 5 years an investment annual health impacts (year A) et al. (2017) 4 specific basis where justified
6 Kahlmeier, S et al. (2017). Health economic assessment tool (HEAT) for walking and for cycling - Methods and user guide on physical activity, air pollution, injuries and carbon impact assessments, World Health Organisation Regional Office for Europe. 132 Business Case Manual Volume 2: Guidance
Step 1: Step 2: Estimate the number of trips in the Estimate the mean trip distance reference and comparison cases For larger investments, trip numbers Mean trip distances must be calculated may be outputs of a transport model. to determine the value of increased Where no model data exists, census active travel. Means should be reflective journey to work data, the Transportation of the annual mean. Where seasonal Tomorrow Survey, other population variations are anticipated these should be level datasets, surveys and counts from accounted for. Similar sources as in step 1 other similar investments can be used and knowledge of the distances between to inform assumptions. Dependent on origins and destinations served by the the size of the investment it may be route can be used in this calculation. If appropriate to solicit investment-specific change in travel time is the only known data. Health benefits are applicable to variable, the values in Table 5.20 can habitual behaviours only, e.g. commuting be used to convert into kilometres. and regular leisure activities. Walking and cycling activity is not evenly distributed across Toronto, this should This methodology is not applicable be considered when applying regional to one-off events and/or one- or national data to a local investment. off user types e.g. tourists. Trip numbers in the comparison case (do-something scenario) must be reduced to account for users who: Note: In reality, the value of health benefits accrued follows a non-linear • Have been reassigned from the same dose-response curve with the per activity on a different route; or kilometer health benefit decaying as • Are substituting active travel for trip lengths increase. Therefore, the other types of physical activity value of benefits is capped for long undertaken in the reference case. trips. Where long trip distances are anticipated they should be capped at 41km/week/user for walkers and 104km/week/user for cyclists4. Mean trip distances used in the calculation should be adjusted to ensure all considered trip lengths fall below these caps, applying reasonable assumptions for trip frequency.
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Step 3: Calculate value of annual health impacts Equation 5.9 applies the parameters in Table 5.20 to provide an annual health Note: Care should also be taken impact value to be taken forward in the when applying this approach to investment appraisal. These equations populations who have an above should be applied separately for average level of physical activity, walking and cycling. Due to uptake time the health benefit values assume a involved in reaching the full potential base level of activity which includes of an investment, the full annual benefit a mix of sedentary, inactive and should only be applied from ‘year A’, active users. The approach is as specified in Table 5.20. For the years also less reliable where applied preceding ‘year A’ the annual benefit to children and elderly people. should be prorated evenly back to Research and data informing the zero. Equation 5.9 shows an approach health benefit values is based on to calculate annual health impact. adult populations and samples.
Equation 5.9: Annual Health Impact
Where:
• Vhealth is the health benefit for the relevant active mode from Table 5.20
• distanceC mean is the mean trip distance in the comparison (do- something) case in kilometres
• distanceref mean is the mean trip distance in the reference case in kilometres
• tripsC is the number of annual trips in the investment case, adjusted for reassignment from other routes and substitution for other types of physical activity
• tripsref is the number of annual trips in the BAU
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Road Safety Benefits
Overview Approach – Estimate Change in the Social Cost of Accidents Road safety benefits occur where an intervention reduces the number of Where an investment is anticipated vehicle collisions. Collisions occur across to significantly impact traffic volumes all transport modes, and changes to the the likelihood of a collision is also risk of being involved in a collision has an impacted. This impact is calculated impact on both users and non-users (wider based on the change in VKT between society). Road safety impacts include: the reference and comparison cases. • Pain, grief and suffering The change in VKT should be multiplied by a suitable unit rate for vehicle • Lost economic output (due to collisions using the values in Table 5.21. death or injury and delay to other road users due to disruption) • Medical costs • Property damage • Police costs Table 5.21: Accident Costs ($ per km) • Insurance administration Vehicle Type Value (2019$) • Legal and court costs This guidance provides a road safety $0.09/auto VKT reduction methodology where a rate is applied to Car (note: reduced by the change in auto VKT induced by the 5.3% per year) investment. This is suitable for investments where the focus is not on road safety but significant changes in VKT are anticipated.
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Environmental Impacts Greenhouse Gas Impacts Environmental impacts refer to the broad Overview cost of transport on local surroundings Greenhouse gas (GHG) emissions, and the Earth’s atmosphere. This includes: such as carbon dioxide, are the main • The impacts of greenhouse gas contributor to global warming, and emissions from different types of regarded as a major challenge for the transport on the Earth’s atmosphere, global community. GHG emissions which have been demonstrated contribute towards an overall warming to cause climate change. of the Earth’s climate system, which has been proven to result in rising sea levels, • The impacts of vehicle usage changes in rainfall and precipitation, and emissions on local air quality and more extreme weather events, all of (such as NOx or PM10s, or tire which impose major costs on society. particulates) which have negative health impacts for local people. Changes in emissions are regarded as external welfare impacts, since their • The impacts of noise generated impacts are felt across Canada and the by cars and transit vehicles world, and not confined to transport users. on their surroundings. Transportation – including automobile, public transit and freight – is responsible for 24% of Canada’s GHG emissions.7 It is therefore essential that the impacts of transport investments on GHG emissions is included within the transport appraisal consistently and transparently. Transport appraisal aims to capture the whole-life change in GHG emissions, including: • Vehicle and transit operating emissions (such as those caused from burning fuel whilst driving); and • Emissions caused from construction and decommission of transport infrastructure (such as those included during the construction of a new highway bridge).
7 Greenhouse gas emissions by Canadian economic sector (https://www.canada.ca/ en/environment-climate-change/services/ environmental-indicators/greenhouse-gas- emissions/canadian-economic-sector.html) 136 Business Case Manual Volume 2: Guidance
Social Cost of Carbon GHGs impose a social cost, based on Table 5.22 outlines the social their contributions to climate change. value of carbon to be used for Environment and Climate Change Canada estimating external impacts. uses a Social Cost of Carbon (SCC) approach to value the negative impacts of GHG emissions of the Earth’s climate. It is a monetary measure of the global damage expected from climate change from the emissions of an additional tonne of carbon dioxide (CO2) in the atmosphere in a given year.8 This is intended to allow GHG emissions to be valued within cost- 8 Archived Content: Technical Update to Environment and Climate Change Canada's Social Cost of benefit analysis, with the goal of providing Greenhouse Gas Estimates (http://ec.gc.ca/cc/ informed analysis to decision makers. default.asp?lang=En&n=BE705779-1#SCC-Sec1)
Table 5.22: Social Cost of Carbon Emissions
C$ 2012 per C$ 2013 per C$ 2014 per C$ 2015 per C$ 2016 per C$ 2017 per C$ 2018 per C$ 2019 per Year tonne CO2 tonne CO2 tonne CO2 tonne CO2 tonne CO2 tonne CO2 tonne CO2 tonne CO2
Cumulative 1.000 1.016 1.036 1.027 1.034 1.06 1.08 1.094 Inflator Annual Inflation 1.6% 1.9% -0.8% 0.6% 2.5% 1.9% 1.3%
2010 34.1 34.7 35.3 35.0 35.3 36.1 36.8 37.3
2013 37.4 38.0 38.7 38.4 38.7 39.6 40.4 40.9
2015 39.6 40.3 41.0 40.7 40.9 42.0 42.8 43.3
2016 40.7 41.4 42.2 41.8 42.1 43.1 44.0 44.5
2020 45.1 45.8 46.7 46.3 46.6 47.8 48.7 49.3
2025 49.8 50.6 51.6 51.2 51.5 52.8 53.8 54.5
2030 54.5 55.4 56.4 56.0 56.3 57.8 58.9 59.6
2035 59.6 60.6 61.7 61.2 61.6 63.2 64.4 65.2
2040 64.7 65.8 67.0 66.5 66.9 68.6 69.9 70.8
2045 69.7 70.8 72.2 71.6 72.1 73.9 75.3 76.3
2050 74.8 76.0 77.5 76.9 77.3 79.3 80.8 81.8
Source: Environment Canada (2012 Social Cost of Carbon); CANSIM Table 380-0102 (inflation factors); Ministry of Transpor- tation, Transportation Economics Office (2017). Note: 2019 inflation assumed annual inflation between 2012 to 2018.
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Emission Benefit Calculation Step 2: Estimate the Impact on Greenhouse Gas Emissions Changes in GHG emissions should be estimated for transport projects as follows: GHG emissions for each scenario can be estimated from the fuel / electricity Step 1: Estimate the Change consumption by multiplying by the fuel in Energy Consumption consumption by the quantity of carbon GHG emissions from transportation dioxide equivalent (CO2e) emissions can be assumed to be proportionate estimated to be released from one to the number of litres of fuel or the litre of fuel burnt / kWh consumed number of (kWh) of electricity used. and the total distance travelled. Fuel and electricity usage should be From these two steps, the total GHG estimated for the investment and BAU emissions for the investment and BAU scenarios using Equation 5.10: scenarios can be determined. The Equation 5.10: Change in Energy Consumption investment scenario GHG impacts should be calculated based on: • Emissions due to the investment (example: the emissions to operate a new subway, or reduced emissions due to procurement of where more energy efficient buses). • L = fuel consumption (expressed • Emissions changes due to travellers in litres per kilometre); changing mode (example: • v = average speed (km/hr); and choosing transit instead of auto). and are parameters defined • a, b, c d Equation 5.11: Change in GHG Emissions for each vehicle category. Change in new emissions from changes in emissions from For cars, the following GHG emissions = ( the investment ) + ( the existing network ) parameters are appropriate: • a = 1.11932 Example: change in emissions from • b = 0.04400 Change in new emissions from travellers switching from GHG emissions = ( subway extension ) + ( auto to transit, which is ) • c = -0.00008 typically negative • d = 0.00002 Figures for rail or bus investments should be derived from local evidence. Care should be taken to develop a robust estimate reduced emissions due to investment that improve fuel or energy efficiency (example: fleet replacement) or ensuring the new emissions from a new transport service are captured (example: a subway extension will require more operating electricity and therefore will lead to more emissions from transit). 138 Business Case Manual Volume 2: Guidance
Step 3: Estimate the Monetary Social Cost of Air Quality Value of the GHG impacts Table 5.23 outlines the recommended The total welfare impact of the change in values for the estimation of the external GHG emissions can then be calculated, cost of transport emissions in Canadian based on applying an appropriate dollars per tonne, by pollutant. social cost of carbon to the change These values are informed by Health in total GHG emissions between the Canada’s Air Quality Benefits Assessment investment and BAU scenarios. Tool (AQBAT)9 model to estimate the This calculation should ideally be impact of poor air quality on health undertaken for all modelled years, outcomes, calculated from local air but as a minimum once for the quality and population data and the investment and BAU scenarios. application of established relationships (or Concentration Response Functions) Air Quality Impacts between specific pollutants and adverse Overview health impacts. Each health impact Many emissions from vehicle engines is valued within AQBAT, endorsed (including automobile, bus, truck by Health Canada, and can therefore and transit) are damaging to human be used to estimate the total impact health, and have been linked to of poor air quality of the health of breathing difficulties such as asthma, Canadians by province. It also includes heart disease and cancer. These the negative impacts of air pollution pollutants – known as CACs – include: on reduced crop yields (determined by agricultural modelling) and reduced • Carbon Monoxide (CO) visibility / increased haze (determined through stated preference research). • Nitrogen Oxide (NOx) From this, the total costs of transport- • Sulphur Dioxide (SO2) related emissions on a per tonne • Volatile organic compounds (VOCs) basis, as outlined in Table 5.23, can be • Particulate matter finer than estimated. This provides an indication
10 microns (PM10s) of the benefits of reducing air pollution for any transport-related activity. • Particulate matter finer than These figures should be assumed to 2.5 microns (PM s) 2.5 increase in line with GDP per capita. Poor air quality impacts those living or working in close proximity to transport infrastructure. Since impacts are not perceived by transport users, they represent an external impact, and the benefits from improved air quality can be considered as welfare benefits to wider society.
9 AQBAT, developed by Judek and Stieb, is a computer simulation tool designed to estimate the human health and welfare benefits or damages associated with changes in Canada’s ambient air quality.
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Table 5.23: Unit Costs for CACs in Ontario Approach – Local Air Quality Benefits Calculation Value (2021$/tonne) Where investments are expected to lead to significant changes in local air quality PM 2.5 $37,007 (such as significant changes in traffic flows within an urban area), the values SO $8,292 2 provided in Table 5.23 can be used to estimate the air quality impact. This will NO $7,553 x require, as a minimum, an estimate of the change in tailpipe emissions, although VOC $1,113 for larger investments should involve bespoke air quality models which better Source: Marbek Consulting, 2007 capture the volume and type of emissions (costs uplifted to $2021) and how they are expected to disperse. Where the impact on local air quality is expected to be limited, an approach based on the change in vehicle kilometres should be adopted. This should multiply the change in vehicle kilometres expected per year by $0.002 (2021$) to estimate the air quality impact.10 Equation 5.12 illustrates how to calculate the change in CAC emissions. Equation 5.12: Change in CAC Emissions
Change in new emissions from changes in emissions from CAC emissions = ( the investment ) + ( the existing network )
Example: change in emissions from Change in new emissions from travellers switching from CAC emissions = ( subway extension ) + ( auto to transit, which is ) typically negative
10 This figure is informed by Marbek Consulting (2007)
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International Best Practice for Noise Impacts Estimating the Social Cost of Noise Overview Research into the social cost of noise arising Exposure to noise can have negative from transportation is at an early stage. UK effects on individuals’ health, wellbeing Department for Transport WebTAG guidance and productivity. Research by the World forms one of the most comprehensive Health Organisation (2011) highlighted sets of guidance to date, and quantifies how exposure to environmental the social impacts of changing noise noise can increase the risk of heart levels from highway, rail and air traffic for disease, hypertension, stroke, cognitive several health and amenity impacts. impairments in children, sleep disturbance These are presented in Table 5.24, and tinnitus, as well as representing a in £ 2010 prices per household per year, significant annoyance to those affected. for a change in noise level from highway It estimated that at least 1 million healthy traffic from <45dB (negligible) to 76dB life years are lost every year from traffic- (equivalent to a freeway 50ft away). related noise in Western Europe. Noise impacts are felt by those living Table 5.24: Social Cost of Increasing Noise from <45dC to 76dB Per Household Impacted or working in close proximity to transport infrastructure, and since they Reference Illustrative are not directly felt by transport users, Noise Value (2010 Canadian Value impact they are considered as externalities. GBP) (2019$ CAD) Benefits from reduced exposure Amenity to noise largely accrue from: £35.11 $66.80 (annoyance) • Improved health – valued through the reduction in Disability- Direct AMI £12.76 $24.30 Adjusted Life Years (DALYs); Stroke £2.41 $4.60 • improved amenity – valued through improved sleep disturbance and Dementia £3.63 $6.95 reduced annoyance; and Sleep £49.52 $94.15 • improved productivity – arising Disturbance from a healthier workforce and reduced distraction, fatigue These values are informed by World and disturbance at work. Health Organisation research (WHO, 2011) into the health impacts of environmental noise, and places a value of £60,000 on a Quality-Adjusted Life Year. Values are assumed in WebTAG to increase over time in line with real GDP per capita. This approach is shown for illustrative purposes. Note: illustrative values have converted the UK value to Canadian Dollars based on the 2010 average exchange rate.
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Noise Benefit Calculations Noise impacts are typically difficult Research by the WHO (2011) provides to quantify, as they require bespoke evidence of the impact of changes in noise modelling or analysis to estimate noise on these health outcomes. This is based levels from forecast traffic flows or transit on the evidence-based probability of an operations on local households. This individual experiencing these outcomes, will require a proportionate approach since the impact of noise on an individual to be undertaken, often as part of an is subjective, and not all individuals will investment‘s Environmental Assessment. experience the same adverse health impact at a given level of noise. These Qualitative approach figures can be used to estimate the For investments which are expected change on the number of DALYs lost or to have negligible impacts on noise, gained, which can then be quantified. or smaller investments where a full Currently, values for the social cost of appraisal would not be appropriate, a noise ($/dB reduction) in the GTHA qualitative assessment can be used. For have not been developed. Business example, an active travel intervention cases should discuss noise impacts which increases walking and cycling where relevant (in particular at the use, resulting in a minor mode shift Preliminary Design and Full Business from automobile, could be expected to Case stages when Environmental have a small positive impact on noise Assessment data may be available)/ levels along the corridor affected. Communicating External Impacts Quantitative approach External Impacts should be Where investments result in significant clearly communicated with: noise impacts, such as new highway or rail corridor which results in a significant • A narrative outlining how specific (>1dB) change to the noise experienced elements of the investment (actions by households, a full quantitative taken) lead to external impacts approach can be adopted. This assigns (example: investment in a faster rail link a monetary value for each 1dB change leading to users switching to rail instead in the noise level experienced by a of auto, leading to GHG savings). This household for amenity (annoyance), narrative should articulate key elements acute myocardial infarction, dementia, of the investment that drive overall stroke, and sleep disturbance. There is performance as well as key factors that currently no accepted methodology for lead to differentiation between options. appraising other noise impacts (such • A summary table outlining the external as productivity at work impacts). impacts by mode for each option This requires the change in noise levels (example shown in Table 5.25, all values or dB ‘bands’ over the surrounding should be presented in present value area to be explicitly modelled, which terms for the year of the appraisal). is only likely to be proportionate for a small number of investments.
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Table 5.25 illustrates how external Because WEIs can speak to issues beyond impacts can be communicated. transport, they can have an appeal to a wider array of decision makers and Table 5.25: Communicating Present Value of External stakeholders. As a result, WEIs are Impacts becoming an increasingly prominent component of transport evaluation. (Present Impact Type Impact year $) How to Consider WEIs in Health Economic Appraisal Wellbeing WEIs have emerged as a key part Safety of Economic Appraisal in other jurisdictions. They are considered as Greenhouse gases 'second order' impacts of transport investment and are positioned as Environment Air Quality a form of expanded appraisal or sensitivity test. WEIs should always Noise be presented as an additional analysis with assumptions and methods clearly illustrated. Within the emergent Economic Case Economic Case Section 5 guidance, WEIs should estimated if Wider Economic Impacts they are relevant to the proposed investment (not all investments This section of the Economic Case focuses will be expected to realize WEIs). on articulating how the investment will lead to Wider Economic Impacts (WEIs) in the region. Each transport investment has Introducing Wider Economic Impacts the opportunity to offer benefits to society beyond those afforded to travellers (user Traditional BCA captures the benefits impacts) and those realized by reducing of transport investment which accrue the social cost of travel (external impacts). to transport users, largely through changes in generalized journey times. New mobility investments can improve Under perfect market conditions, accessibility to work, leisure, customers these will capture the entire economic and suppliers, which in turn can trigger impacts of a transport intervention. new economic activity. WEI analysis is focused on the follow on economic impacts of the investment – not the specific user or external benefits discussed previously in this guidance. WEI analysis should be conducted carefully to avoid double counting with user and external benefits.
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WEIs occur as a result of ‘distortions’ • Taxation effects – Economic agents or ‘market failures’ within local (businesses and households) make economies, such as: decisions about how much to supply and demand on the basis of the private • Imperfect Competition – Perfect costs and benefits (which in turn competition is primarily a theoretical determine wages and profits). Taxation construct, with a particular market that may, therefore, distort the incentives enjoys the highest level of competition of businesses and households (generally measured by the ability and thereby affect the competitive to price discriminate) considered to market equilibrium. For example, in be perfectly competitive. In reality, the market for labour, employment distance and transportation costs taxes may reduce the returns to work confer localized monopoly rents: and therefore limit the quantity of if you are the only store in a town labour that households are willing to you can afford to charge higher supply. In the general economy this prices than you would if there were may result in inefficiently low levels competitors nearby. If transportation of production and investment. investment increases accessibility, this will reduce the ability of businesses Such distortions mean that changes in to charge monopoly or above-market generalized travel costs do not capture prices, and hence generate WEIs. the entire economic impact of transport interventions, and there are additional • Non-constant Returns to Scale and WEIs to consider. If these WEIs are the Presence of External Effects – If to be included, the business case production of a good or service is should provide supporting evidence assumed to have constant returns to for the existence of these distortions scale, an increase in inputs always yields as relevant to the investment. The a similar increase in output. When an range of WEIs considered in project increase in inputs yields a greater than appraisal are noted in Table 5.26. proportional increase in output then the output increase might be due to technology or due to external effects. However, ample evidence suggests that external effects are widespread and that under some conditions the constant returns assumption is not valid. For example, organizing production in a dense setting with extensive interplay between firms and workers is shown to yield higher productivity through mechanisms defined below. To the degree transportation investments can accommodate greater concentration of economic activity they can facilitate some degree of increasing returns to scale.
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Table 5.26: Wider Economic Impacts
Wider Economic Description Examples Impact Category
Productivity Agglomeration refers to the tendency for firms One part of a region has a high number (Agglomeration and workers to benefit from proximity. Transport of high tech jobs. A second part of the and Clustering) investments reduce the cost/time to travel region is known for its financial sector. between locations, which in turn improves the Currently the travel time between ‘effective’ or perceived density of a region. As these two locations is an impediment proximity over time and space increases, there to economic development. is an allowance for improved choice of inputs in production; greater exchange of information The rail line between the locations between workers and firms, and faster learning is improved, reducing the travel from increased face-to-face contact. These factors time substantially. As a result in turn can lead to more productive firms. these two industries have greater collaboration potential and agglomeration benefits are realized.
Imperfect Imperfect competition results in higher prices for A transport network or geographical Competition specific goods or services. Transport investment feature (example: a lack of a rail link or can improve competition by connecting a topographical barrier such as a river) new markets or reducing the cost of travel artificially separates two parts of the region within existing markets leading to increased that are otherwise close together. Over accessibility and choice for consumers. time this barrier leads to two separate functional economic areas which are likely to be less efficient than if there was free movement across the barrier and direct competition between the firms.
Labour Markets Transport investments can expand the ‘commute The commute between some communities shed’, which is the amount of employees that and the downtown core may take can reach a destination in a given time frame. too long for residents. A transport This has benefits to both employees and employers: investment reduces the travel time to these communities from the core, • Employees have access to a wider range of which adds the residents to the core’s employment opportunities outside of their ‘commute shed.’ As a result, the core has current location and may consider relocating greater access to potential employees. to a new location based on the new commute options provided by the investment, taking up more productive opportunities that better match their skill set or, in some cases, choosing to enter the labour market. • Employers have access to a deeper and larger pool of labour with more diverse skills.
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Productivity Impacts due to Agglomeration Economies Background Such factors are argued to account for Broadly, agglomeration benefits refer the tendency for larger, denser cities to to the productivity gains resulting be more productive than smaller ones. from firms being located close to one OECD research of productivity per capita another typically, but not exclusively, within developed nations indicates within urban areas. Key to the concept that, typically, a doubling of city size of agglomeration is the notion that increases productivity by 2% - 5%.11 businesses and resources can take Even if firms do not interact with others advantage of a number of efficiencies nearby, or make use of new transport by being located within close proximity infrastructure, all firms benefit from the to one another – either physically, or productivity advantages of being located through good transport connectivity. ‘closer’ to one another. Agglomeration Agglomeration benefits arise through: impacts are an economic externality, • additional competition amongst firms in that while firms make decisions and suppliers, both for their labour of where to locate based on what and their products, which places represents the most efficient decision additional incentives on firms to be for themselves, their decision to locate more productive and innovative; in proximity to others benefits all firms by increasing the density of economic • better access to larger, thicker activity – and hence productivity per labour markets, resulting in an capita – within the local area. increased ability to better match people to jobs and fill vacancies with specific skills requirement; • greater specialization and division of labour, enhanced economies of scale, and increased opportunities for firms and workers to specialise and innovate; and • access to larger customer markets, increased ‘knowledge spillovers’, and the consequent exchange of ideas.
11 “The Metropolitan Century”, OECD (2015) Cited from https://www.citymetric.com/ business/cities-productivity-proportional- their-size-unless-theyre-british-782
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Theories of agglomeration Agglomeration economies are broadly ‘Urbanization’ (or Jacobian) economies, regarded as occurring through two by contrast, arise when the size of the city mechanisms external to the firm: itself leads to an increase in productivity. localisation and urbanisation economies. Firms which locate in urban centres In his Principles of Economics (1920), benefit from the common resources Marshall first described the role of (such as roads, buildings and power agglomeration in increasing the supply) and large labour pool found productivity of an industry, region or in the city, regardless of which sector economy due to factors outside the they are in. Moreover, through the control of individual firms. Marshall’s work preponderance of potential customers, focused on the so-called ‘localisation’ urbanization economies allow firms (or Marshallian) economies, in which an which serve niche markets (example: increase in the size of an industry in a city specialist financial services in Toronto to leads to an increase in the productivity of a operate at a scale that would be unviable particular activity within the same industry. in other more disperse locations). For example, the high concentration Urbanization and localization economies of life sciences firms within Toronto can be experienced at the same time. exemplifies industrial localization. Despite Diversity and scale of markets are crucial the significantly higher wages and rent to urbanization economies, whereas associated with an urban location, life specialization and density of specific sciences firms continue to locate due to sectors within an economic cluster the additional benefit they receive due are key to localization economies. to their proximity to a high-skilled pool Agglomeration elasticities do not typically of labour, their clients and customers. distinguish between the two effects and provide a combined estimate for both urbanization and localization impacts.
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Static and dynamic clustering Transport investment can increase Provided the transport investment leads to agglomeration – and hence generate time savings, the static first-order effects additional productivity impacts – through will always lead to a productivity gain both localization and urbanization effects. and a WEI. Whether this is significant, the These can occur through two mechanisms: transport user benefits and investment • Static clustering (also referred to as costs – and should hence be considered in ‘first-order’ or ‘productivity’) impacts an appraisal – is a function of the nature of occur as transport investment, in the transport investment and the affected effect, brings firms, people and places area. They will typically be significant where: closer together by reducing the travel • investments result in a significant change times between them. The ease of in the accessibility of an area (through making a journey within the cluster is changes in generalized travel costs); improved which can, in turn, facilitate • the area subject to the transport additional economic interactions. improvement is urban in nature, Static clustering occurs through: and home to dense concentrations • Sharing common resources of economic activity; and • Increased scale and specialization • journeys which benefit from accessibility • Knowledge spill-overs improvements are short in nature (Rice et al12 estimate that agglomeration • Dynamic clustering (also referred to benefits tail off sharply from journeys as ‘second-order’ or ‘employment beyond 45 minutes' drive time). and investment’) effects refer to the subsequent effects that attract more Second-order effects can further increase productive resources – such as firms agglomeration (by increasing the number or labour – into the local economy. of workers and firms in the cities) which In contrast to static clustering, the may, in turn, trigger further dynamic quantity or density of activity (or clustering. However, part of this effect can economic mass) in each place changes. be relocation of economic activity from Dynamic clustering operates through: other non or less-affected areas, who suffer from disbenefits from a reduced • Attracting high-skilled workers concentration of economic activity. The net to the affected area effect is the sum of gains and losses, which • Incentivizing local people to is context-specific and a function of both invest in education and skills the investment and the socio-economic and industrial make-up of the affected areas. • Stimulating business investment Second-order effects are typically only associated with larger, more transformational transport infrastructure, which generate sufficiently large changes in accessibility to encourage the displacement of economic activity.
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Quantifying agglomeration Parameters and Methodology Overview Agglomeration, or productivity impacts, Agglomeration impacts are estimated are calculated using data from previous by applying an elasticity of productivity stages of economic analysis and with respect to effective density at a transportation demand forecasting. zonal level, which is then multiplied by It is assumed that agglomeration the average GDP per worker in each impacts will be estimated using a industry to calculate the productivity zone-based transportation demand impact which accrues to that industry. model (such as the GGHMv4). This is then multiplied by employment to estimate the total zonal value of the Analysts will require the following data: productivity impact, with the productivity • Employment (broken into goods impacts for each industry and zone producing and services producing summed to give the overall agglomeration industries) at a disaggregate zonal level impact. The values in Table 5.27 are (such as Transportation Analysis Zones used for this estimation process in the GGHMv4) for the forecast year. • Minimum generalized journey Table 5.27: Agglomeration Appraisal Parameters time between all zones (or origin- destination pairs) by mode including Agglomeration private and public transit (which Type Elasticity Decay Parameter (Rho) (Alpha) includes all transit modes). • Level of demand by trip purpose Economy 0.046 1.8 between all zones (or origin-destination Goods- pairs) by mode. The trip purposes producing 0.104 1.8 considered should be commuting industries (home-based work) and business Services- (work-based other) categories. producing 0.03 1.9 • Assumed GDP per worker. industries • Assumed GPD per worker growth rate. • Agglomeration elasticities and decay parameters by industry. The general process for calculating agglomeration is described in subsequent sections, and includes: • Step 1- Calculating Generalized Journey Cost between Each Zone. • Step 2 – Estimating Effective Density for Each Zone. • Step 3 – Estimating Productivity Impact. • Step 4 – Integrating Productivity Impacts into the Economic Case
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Step 1: Estimate the Average and TAZ C with 500 jobs that is 90 Generalized Travel Cost minutes away. TAZ C is 90 minutes Firstly, the average generalized cost away from TAZ A and will have a of travel (weighted across all journey significantly lower contribution to TAZ purposes p) between each area i and area A’s effective density than TAZ B. The j should be estimated using the equation: decay parameter is used to capture this non-linear relationship between Equation 5.13: Estimating Average Generalized Travel Costtravel cost and effective density. Effective density should be estimated using equation 5.14:
Equation 5.14: Estimate Effective Density This calculation should be undertaken for each scenario S and forecast year f, and for modes (m) auto and transit. The generalized cost and number of trips data should be provided by GGHMv4 Equation 5.14 will calculate the effective model runs or an appropriate transport density for all zones i, undertaken for demand model, for the Business as each scenario S, economic sector k Usual and investment scenarios. and forecast year f. The process for applying this equation includes: Areas i and j should be at TAZ level or at a spatial scale that allows the change in • For each individual TAZ, the analyst generalized cost to be robustly captured, will calculate effective density and for where sufficient local employment by considering the employment data is available. All zones scoped in in each TAZ it is connected the model should be considered. to by at least one mode. Step 2: Estimate the Effective Density • Effective density is calculated on a Effective density is a measure of a single TAZ to TAZ basis (origin destination zone’s economic mass – it represents pair basis) and modal basis (auto the extent to which individual jobs and public transit) – for example, can are ‘connected’ to other jobs, for TAZ A, which is connected to and how these connections impact TAZs B and C, the analyst will: productivity. Generalized journey costs • Take the employment in Zone can be considered an ‘impedance’ to B divided by the minimal agglomeration – for a given level of generalized journey cost of employment in a neighboring zone, lower automobile raised to the power costs will mean a higher effective density. of the decay parameter and sum Generalized journey cost is raised to the it with the employment Zone power of a ‘decay parameter’ that reflects divided by the minimum transit the ‘diminishing agglomeration’ of higher generalized journey cost raised to cost connections – for example, consider the power of the decay parameter. a TAZ (TAZ A) with 1,000 jobs. This TAZ is connected to two other TAZs: TAZ B with 500 jobs that is 45 minutes away
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• Take the employment in Zone C divided by the minimal automobile generalized journey cost raised to the power of the decay parameter and sum it with the employment Zone C divided by the minimum transit generalized journey cost raised to the power of the decay parameter.
A set of example parameters for this simplified three zone example are provided in Table 5.28, with worked calculations provided in Table 5.29. Under this example an improved busway is provided to reduce travel times between three zones.
Table 5.28: Three Zone Example Input Data for the Services-producing industry in 2041
Investment BAU Generalized Generalized Zone Journey Employment Journey Costs Costs
A-B Auto: $10 A-B Auto: $10 A-B Transit: $15 A-B Transit: $12 A 1,000 A-C Auto: $5 A-C Auto: $5 A-C Transit: $7.50 A-C Transit: $6
B-A Auto: $10 B-A Auto: $10 B-A Transit: $15 B-A Transit: $12 B 200 B-C Auto: $22.5 B-C Auto: $22.5 B-C Transit: $30 B-C Transit: $25
C-B Auto: $22.5 C-B Auto: $22.5 C-B Transit: $30 C-B Transit: $25 C 4,500 C-A Auto: $5 C-A Auto: $5 C-A Transit: $7.50 C-A Transit: $6
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Table 5.29: Three Zone Example Effective Density Calculations
Effective Density post Zone Effective Density Business as Usual Investment
A
B
C
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Step 3: Estimate the Productivity Impact Productivity impacts are realized at a zonal level of origin, based on the total change in effective density. The total productivity increase for each zone i and economic sector k, should be estimated using Equation 5.15.
Equation 5.15: Estimating Productivity Impacts
Different sectors of the economy are more dependent on agglomeration for their day-to-day operations than others, and hence, the relationship between the change in effective density and he the associated change in productivity is captured by the industry-specific agglomeration elasticity parameter Rho. The greater this parameter, the greater a given change in effective density will translate into increased productivity.
This Guidance currently recommends the use of two industrial sectors – Goods- producing industries and Services- producing industries, based to NAICS 2017 Version 3.0 naming conventions. Summing these impacts across destination zones (i) and employment sectors (k), yields the agglomeration benefit for each origin zone.
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Static and dynamic effects should Step 3: Profiling Over the Appraisal Period be appraised separately. For static Productivity impacts should use the clustering effects, the total employment same discount rates and price base should be identical between the with- suggested in this Guidance. If several investment and without-investment forecast years are used, impacts scenarios. Dynamic clustering impacts should be interpolated in between. will require a bespoke land-use transport interaction model to estimate the change Productivity impacts are expected to in employment density and commuting grow by the annual growth rate of trips between these scenarios, which real GDP per Capita and Employment is only likely to be proportionate for background growth and capped at the largest transport investments. the Growth Cap period (Table 5.30). After evaluating productivity impacts for all zones i, the analysis should filter Table 5.30: Agglomeration Profiling Parameters out the zones that are outside the scope of the project and that are not Parameter Value expected to receive productivity impacts Annual growth rate of from the intervention. This filtering 0.9% real GDP per Capita is intended to reduce propagation of transportation demand model Employment 1.06% noise through to agglomeration Background Growth impacts and will typically consider:
• Filtering out benefits realized in TAZs that do not have any trips using the investment or any net increase in trips (if the investment modifies an existing service). • Filtering out benefits realized in TAZs that are geographically distant from the investment (example: filtering out all TAZs that are more than 2.5 km away from a station that is improved by the investment).
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Imperfect Competition Approach – Quantifying Output Change in Imperfectly Competitive Markets Transport investment can result in Imperfect competition impacts are increases in the level of economic typically measured by estimating ‘output’ and GDP – through a reduction the change in the price-cost margin, in transport costs for local businesses. multiplied by the elasticity of Local haulage companies, for example, demand, using the equation 5.16: may be able to increase the number of deliveries they make in a given timespan; Equation 5.16: Estimating Imperfect Competition Impacts ‘briefcase’ workers may be able to attend more meetings with clients. Traditionally, these benefits have been assumed to be fully captured within the where transport user benefits of an investment. • P: Price; Within a perfectly competitive market, the value of the additional output is equal • MC: Marginal Cost; to the cost of producing that output. • Ed: Elasticity of Demand with respect Any reduction in generalized travel to price for the market; and costs lowers the costs of production, which raises the return on capital and • P-MC/P. induces investment, with the value of the resulting increased output exactly equal to the magnitude of the change in generalized travel costs. However, perfect competition is primarily a theoretical construct. Distance and transportation costs can confer localized monopoly rents: if you are the only store in a town, you can afford to charge higher prices than you would if there were competitors nearby. Within an imperfectly competitive market, the value of the output is greater than the cost of production, with a consumers’ willingness to pay for the increased output exceeding the cost of producing it, and there is an additional WEI to consider.
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Employment Impacts
Investment in transport can have In some circumstances the local important effects upon the labour economy may operate below full market. An accessibility improvement is employment. In these cases, a transport equivalent to an increase in the effective investment could potentially help return to labour and capital. Changes to relieve structural and temporary to the effective return to labour, by barriers to employment. However, as reducing the ‘costs’ of commuting in discussed previously, traditional BCA terms of journey time, financial cost and assumes that the economy is operating level of over-crowding or congestion, under perfect market conditions. can change the supply of labour by: Under these conditions, only transport • Inducing inactive individuals to join investments which influence the supply the labour market by increasing the of labour can increase the number of perceived difference in the benefits jobs at the national level. Therefore, in of work versus non-work (assuming the absence of labour supply impacts, there is sufficient demand for labour); changes in the demand for labour will lead to displacement of employment at • inducing a change in the number of the national level; employment would be hours worked by those already active displaced from other sectors or locations. within the labour market; and/or In order for employment to increase, • making more distant (and perhaps there needs to be a supply response more productive and higher paying) accompanied by a change in demand. jobs more accessible, resulting Note - this WEI analysis is distinct in a shift in employment towards from direct/indirect impacts from more productive activity. construction, which are typically Changes to the effective return to derived from Input-Output models. capital, by contrast, may influence the demand for labour, through: • Increased demand for labour as firms seek to expand production; and/or • reduced demand for labour as firms seek cost efficiencies.
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Approach – Labour Supply Impacts Labour supply impacts arise when the When using such an approach the number quantity of employment is affected of people entering the labour market are by a transport investment. As set out not represented in the associated transport above, transport investment may induce model and standard BCA user benefits for individuals who are economically inactive those entering employment are assumed to to enter the labour market by influencing be equal to zero, and the impacts of these the effective return to labour, or by new transport users are assumed not to encouraging those already employed to significantly impact existing transport users. work more. For example, the commute This method is appropriate where it can between some communities and the be demonstrated that associated land use downtown core may take too long for change is not significant. However, if the residents. A transport investment reduces labour supply impacts (and by extension, the travel time to these communities land use impacts) are significant, the from the core, which adds the residents associated land use change and feedback to the core’s ‘commute shed’. effects into the transport market should be Labour supply impacts imply land use considered and reflected in the analysis. change. However, for most investments it would be disproportionate to quantify the land use change, as the labour supply impacts will be small relative to the overall benefits of the transport investment. Therefore, it is common practice to quantify and value labour supply impacts without explicitly quantifying land use change. Quantifying labour supply impacts relies upon several simplifying assumptions regarding: • The elasticity of demand for labour • The elasticity of labour supply • The relationship between changes in the generalized cost of commuting and the effective net wage Valuing labour supply impacts further depends upon simplifying assumptions, regarding: • The competitiveness of the local and regional labour market • The relative productivity of labour supplied at the margin
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Approach – Estimating Employment Relocation Impacts Changes to the effective return to The relocation of employment can labour can also affect the location of be estimated using either a land use employment. This relocation, in turn, transport interaction model or, in cases can lead to changes in economic where this is not proportionate, using output through the spatial inequality of a scenario-based approach. The latter productivity. These place-based effects provides a simple method for estimating are influenced by a location’s specific employment impacts as a direct characteristics, such as natural resource consequence of a transport intervention, endowments which confer productivity and is intuitive in linking transport advantages on firms and individuals. improvements to jobs created and local economic impacts. However, the causal However, productivity may not change chain that the transport investment is in response to a relocation of economic solely (or even partly) responsible for activity. In addition, firms may also be encouraging changes in the labour market subject to people based effects, may is consequently difficult to establish. lead to changes in which employee characteristics, such as skills, influence productivity. Moreover, firms may relocate in order to expand, which may have associated productivity impacts. When considering relocation impacts, therefore, it is important to isolate place based effects that are influenced by changes to transport connectivity, from people based effects which are not. Even in instances of 100% displacement there may still be a net national productivity impact as a result of place- based productivity differentials. However, standard methods for estimating employment relocation impacts typically use data on local average productivity differentials which do not control for non- placed based effects. As a consequence, the methodology could lead to misleading results, with the magnitude or direction of the productivity impact incorrect.
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Valuing employment relocation Equation 5.17: Estimating Employment Relocation Impacts impacts relies upon a number of simplifying assumptions, including: • the change in productivity is a function of the average productivity differential of each area gaining This should be undertaken for each and shedding employment from scenario ( ) and forecast year. Areas ( ) the national average; and A, B i should be at a spatial scale which allows • the output change associated the change in generalized travel cost with changes in productivity is to be robustly captured, and for where valued by GDP per worker. sufficient data regarding geographical The valuation of employment relocation productivity differentials is available. impacts resulting from an investment The associated welfare change, which is can, therefore, be calculated in terms additional to user benefits, is equivalent of GDP using Equation 5.17, where PI to the increase in tax revenue (income represents the productivity index. tax, national insurance contributions and corporation tax) generated by the change in GDP. They can be calculated as a simple proportion of the GDP uplift estimated above.
Communicating WEIs A summary table should be provided to communicate each type of WEI considered in the business case. This table should be accompanied by a narrative explaining the assumptions used and the nature of WEIs that can be realized by the investment.
Positioning WEIs in Economic Analysis Similar to user and external impacts, all WEI analysis should include a narrative linking the inputs, actions, and outputs of the investment to any WEIs included in the economic analysis. This narrative should be project specific and clearly speak to how the investment contributes to the WEIs, the quantity of the expected WEIs, and risks associated with realizing the WEIs. WEIs should be considered as 'expanded analysis' meaning they should not be used to reflect the core conventional economic performance of an investment.
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Economic Case Section 6 As shown in Figure 5.7, the transport improvement increases spending in a Land Value and Development place, as the number of visits increases in response to lower travel costs. Higher This section provides an overview of the expenditure raises the profitability of approach used to estimate land value commercial ventures and hence the and development impacts. Transport landlord is able to charge higher rents. investments that improve accessibility This makes it profitable to develop more may also influence value of land and the space, redeveloping the site (improving level of investment or development that quality), or perhaps by building at a occurs at a given location. Moreover, higher density. This expansion creates having observed the economic benefits more floor space and induces the from the productivity, competition entry of more firms, in turn making the and labour market effects described place a more attractive destination and above, firms may choose to relocate. creating the feedback loop illustrated. This process of encouraging private development is often put forward as one of the major impacts of transport projects. The investment response is driven by the user-benefits experienced by residents, workers, and firms. Figure 5.7 provides a simplified schematic of the mechanisms through which commercial development may be induced by transport investment.
Figure 5.7: Visualizing Transport Investment's Impact on Commercial Development13
Transport Increased Higher Development investment spending rents of more space
Market entry (variety)
13 Incorporating Wider Economic Impacts within Cost-Benefit Appraisal, Venables. A.J., International Transport Forum Discussion Paper (2016-05)
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Induced investments are therefore In addition to increasing the level of associated with changes in the purpose or economic output through additional intensity of land use, the impacts of which activity e.g. new jobs, private-sector will be context-specific. For example, investment may further increase the nature and scale of economic economic activity through: impacts which occur will depend on the • Dynamic clustering – increases investment type, and may be affected by in economic activity near existing local attributes, such as workforce skills economic clusters may generate and the availability of developable land. further agglomeration benefits. Induced investments will have direct • Employment relocation impacts upon the transport-user benefits impacts – new commercial of an investment, since they are likely development may be associated with a to affect the intensity of network use further employment relocation effect. in the vicinity of the new residential or commercial development. However, • Place-quality effects – changes in in circumstances where displacement accessibility and the investment is less than 100%, they may also have responses they induce will additional economic benefits not bring about land use changes captured within transport user impacts. that generate additional place based benefits for households This may be the case where either and businesses which value: there are significant feedback effects into the transport market as a result of • the presence of a variety of land use change, or in the presence of services and consumer goods; distortions which mean the market for • aesthetics and physical land and property is not functioning characteristics; and efficiently. There are a number of potential market failures and distortions, which • the quality of public services. may occur in specific local contexts, including land-rationing, private sector co-ordination failure, imperfect externalities and tax incentives.
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Approach – Calculating Land Value Uplift Equation 5.18: Estimating Land Value Impact
There is a range of techniques for capturing the benefits of induced investment, including housing, The value to society of a change in use commercial development and land-based of the land may be separated into the interventions. The most common approach private benefit associated with the change is to the Land Value Uplift methodology, in land use (as represented by the uplift which reflects the location and use of in land value) and the net external impact the land pre- and post intervention. of the resulting development such as The Gross Development Value (GDV) of any amenity impacts from changes in a site is the estimated total revenue a land use. The net social impact is then developer could obtain from the land. A the summation of these two impacts. developer will also incur costs and would Note: these calculations should only be expect a minimum level of profit from applied to the uplift estimated due to developing a site. The residual method of the investment above and beyond the land valuation gives the maximum price BAU. Other uplift factors unrelated to the a firm is willing to pay for the land. In a investment (such as background trends) competitive market, the firm will pay a should not be included. At this time the price that gives a normal level of profit. Land Value Uplift should be calculated As set out in equation 5.18, the as a metric for consideration but should subsequent land price then reflects not be included in the expanded or the value of the land in its new use. In conventional BCR or NPV calculations. appraisal terms, the difference between this new value and its previous value is the Land Value Uplift and this represents the net private benefits of a development.
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Economic Case Section 7
Economic Analysis Summary This subsection of the Economic Case The analysis should note the relative should present a table summarizing the comparison of each option to help overall case for each option based on stakeholders and decision makers the key performance indicators shown in understand the merits of each option. In Table 5.32. Standardized inputs and Key general this section should articulate: Performance Indicators (KPIs) are used to • Which options have strong economic allow for different options and business performance and which do not? cases to be compared to one another on an equal footing in economic terms. • What are the overall key risks and performance drivers? The results of the evaluation of each direct and indirect impact of the option • Are there key differences between over the project lifecycle can be rolled the options that could be used to up into combined key performance refine a preferred alternative? indicators. These include the NPV, • How are benefits, costs, and disbenefits representing the absolute value created distributed across the region? by the option, and the BCR, representing the efficiency of the option in generating A table (template shown in Table value for each dollar invested. IRR, 5.33) should be provided as part of which is the discount rate for which the Economic Case Summary. the NPV of the project is zero should also be calculated and presented. ROI, Guidance for Reporting Precision which is calculated as the NPV/Total and Rounding Policy Costs, should be calculated as another All impacts estimated in the Economic means to calculate the overall economic Case including costs, user and external efficiency and performance of each impacts, CBA adjustments and the investment option. Costs used in these NPV metric should be reported to measures should be capital expenses two significant digits. Examples of and incremental operating expenses in metrics transformed to two significant the year they occur over the evaluation digits can be found in Table 5.31. period matching the project lifecycle, discounted to the present year. Ratios including BCR and ROI should be reported to two decimal places to ensure differences in performance across options are visible, especially as the business case moves through the lifecycle and options become less distinct from one another.
Table 5.31: Rounding Policy Examples
Impact Value
Benefits $7,526 --> $7,500
NPV $(5.37) --> $(5.4)
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Table 5.32: Economic Key Performance Indicators
KPI Formula
Conventional NPV = PV User Impacts + PV External Impacts - PV Costs
Conventional BCR = (PV User Impacts + PV External Impacts) / (PV Costs)
Conventional Capital = Conventional NPV / PV Capital Costs Utilization (NPV/k)
Expanded NPV = PV User Impacts + PV External Impacts + PV WEIs - PV Costs
Expanded BCR = (PV User Impacts + PV External Impacts + PV WEIs) / (PV Costs)
Expanded Capital Utilization = Expanded NPV / PV Capital Costs
= For conventional and expanded Return on Investment Economic ROI (ROI): (PV Net Impacts - PV Costs) / (PV Costs)
= For conventional and expanded Internal Rate of Return, Economic IRR calculate the discount rate required for the NPV to be $0
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Table 5.33: Economic Case Summary Template
• Impact Type Option 1 Option 2 Option 3
Total Costs (Present Year $)
Capital Costs
Operating and Maintenance Costs
Total Impacts (Present Year $)
User Impacts
External Impacts
Wider Economic Impacts
CBA Adjustments (Present Year $)
Conventional BCR
Conventional NPV (Present Year $)
Conventional Economic IRR
Conventional Economic ROI
Expanded BCR
Expanded NPV (Present Year $)
Expanded Economic IRR
Expanded Economic ROI
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CBA Adjustments After project impacts are estimated, a few Unit of Account adjustments to the analysis are required. User impacts accrue in the Market Price Incremental Fare Revenue Unit of Account, i.e., inclusive of taxation, while project costs accrue in the Factor The incremental fare revenue adjustment Cost Unit of Account, i.e., net of any taxes. is a post user impact estimation adjustment that converts user costs into User travel costs, whether on transit or societal costs relevant in a CBA context, auto, whether actual monetary travel costs i.e., net of transfer payments and taxes. A or the time spent travelling in crowded transit fare is perceived as a financial cost conditions are perceived by users as during a user's mode choice decision- tax inclusive travel costs, while taxes making and therefore makes up a user's associated with estimated project costs are utility for transit and determines transit typically excluded from project evaluation. ridership. Fare as a user cost impacts In order to evaluate project impacts modelling estimates for ridership and and project costs on a comparable consequently benefits but is irrelevant scale, user impacts are converted to in CBA because it is merely a transfer the factor price unit of account. In this between the transit user and the service conversion, a project’s estimated direct provider. To make this adjustment, user benefits are subject to a downward the regional average weighted fare is tax adjustment equivalent to Ontario's multiplied by the number of new users to HST using an indirect tax adjustment transit throughout the project evaluation. of (1+0.13) as in Equation 5.19. Indirect Taxation The indirect taxation adjustment is a Equation 5.19: Unit of Account Conversion post user impact estimation adjustment that capture the indirect impact on government fuel tax revenue as a result of changes in fuel consumption brought by a transportation intervention. A project’s user impacts subject to this adjustment include: Changes in the government’s indirect fuel tax revenue from a project’s impact • Travel time impacts (transit and auto) on fuel consumption, either through • Crowding, reliability and inducing mode shift or changes in VKT ambience impacts should be accounted for. An indirect fuel • User Costs (Incremental Fare tax adjustment factor is derived using Revenue Adjustment) the auto operating cost assumption in GGHMv4 which is equivalent to This adjustment should be made $0.1428 in $2011. The fuel component directly to the summary project makes up approximately 69% of the impacts (i.e., present value of total variable auto operating cost each impact specified above). assumption. Together with information on fuel taxes and fuel consumption rates in 2011, an indirect fuel taxation factor of $0.035/km has been derived and is used to capture the changes in the government’s fuel tax revenue brought by a transportation intervention. 166 Business Case Manual Volume 2: Guidance
Other variables subject to a 13% downward tax adjustment include: • Auto Operating Cost assumption in GGHMv4 (maintenance component) Reason for In order to evaluate project impacts CBA Component Impacted Adjustment Factor Application adjustment and project costs on a comparable scale, the maintenance component of the GGHM auto operating cost mode choice decision assumption, which is subject to HST, is converted to the factor cost unit of account. In this conversion, HST on the maintenance component of auto operating cost is • Transit/Auto Travel Time Presenting impacts in subtracted from the total project impacts • Crowding and Reliability Applied directly to the CBA using a single Unit of • User Costs (Incremental Fare (1+13%) summary pro-ject impacts, for every vehicle kilometre saved. Account, i.e., factor cost unit Revenue) i.e., NPV of each impact Users of the transportation network of account, net of HST. perceive variable auto maintenance costs in the market price unit of account, i.e., inclusive of HST. The total variable auto operating cost is equal to $0.1428/ km in $2011. It is comprised of fuel and maintenance and is based on CAA’s 2011 Presenting impacts in GGHM Auto Operating Cost CBA using a single Unit of $0.005/km Applied to annual VKT Cost of Driving Manual. This variable (maintenance) Account, i.e., factor cost unit is used in the mode choice decision of account, net of HST. making stage of GGHM for purposes of ridership and benefits estimation. Accounting for government indirect taxation impacts Variable auto maintenance cost makes GGHM Auto Operating Cost brought by a transportation $0.035/km Applied to annual VKT up approximately 31% of the total (fuel) investment (i.e., impact variable auto operating cost, and is of changes in VKT/mode shift on fuel tax revenue) equivalent to $0.044/km. HST on the maintenance portion of the auto operating cost variable is therefore equivalent to $0.005/km (i.e., 13% of $0.044/km). Converting user costs Average Fare into societal costs for Applied to new transit users Table 5.34 summarizes all CBA weighted fare adjustments and their application. purposes of CBA
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Table 5.34: Economic Case Summary Template
Reason for CBA Component Impacted Adjustment Factor Application adjustment
• Transit/Auto Travel Time Presenting impacts in • Crowding and Reliability Applied directly to the CBA using a single Unit of • User Costs (Incremental Fare (1+13%) summary pro-ject impacts, Account, i.e., factor cost unit Revenue) i.e., NPV of each impact of account, net of HST.
Presenting impacts in GGHM Auto Operating Cost CBA using a single Unit of $0.005/km Applied to annual VKT (maintenance) Account, i.e., factor cost unit of account, net of HST.
Accounting for government indirect taxation impacts GGHM Auto Operating Cost brought by a transportation $0.035/km Applied to annual VKT (fuel) investment (i.e., impact of changes in VKT/mode shift on fuel tax revenue)
Converting user costs Average Fare into societal costs for Applied to new transit users weighted fare purposes of CBA
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Conventional and Expanded BCA Two sets of Economic Case Key The Economic Analysis subsection Performance Indicators should be should include a information on Economic Parameter Value calculated: conventional and expanded. Distributional Impacts, including: Discount Rate 3.5% Conventional indicators consider how an • Are there any significant changes investment impacts the transport system. occurring in the distribution of the They therefore focus on the direct impacts following impacts related to the Growth Cap 30 years from the base year of project evaluation of the investment to transport users and investment: generalized journey time the external impacts of transport on (travel time, ambience, reliability); Evaluation Period 5 to 60 years (depending on project lifecycle/impacts) society. The expanded indicators include noise; air quality; accidents; security WEIs to capture how transport investment and safety; severance; accessibility; can have broader impacts to society affordability (travel cost)? Dollar Value Real, year of evaluation that are not related to the direct impacts to users or the reduction of transport • Are any vulnerable groups being Unit of Account Factor Cost social cost (external impacts). Both sets disproportionately impacted by any of of indicators are useful tools for decision the impacts listed in the question above? makers and stakeholders to understand • What is the estimated change in the Value of Time $18.79 (2021 $) the economic impact of an investment. number of the following destinations Value of Time Growth Rate 0% accessible to residents of the GTHA (real) Distributional Analysis within 30 minutes of travel time in the Capital Cost Growth Rate Metrolinx is actively developing future baseline year (for example: 2031): 1% methods to incorporate principles of jobs, hospitals, educational institutions?1 (real) social sustainability within the business Operating and case framework. Distributional Impacts Maintenance Cost Growth 1% should be considered in the overall Rate (real) Economic Analysis based on which members of society receive the benefits, Risk Free Bond Rate (real) 0.82% disbenefits, and costs of the investment. Land Cost Growth Rate Transportation investments are inherently 2.8% (real) spatial, meaning that the costs and benefits related to the impacts of projects IVT Weight 1.0 will be unevenly distributed across the region. These costs and benefits will have different impacts depending on Walk Time Weight 2.0 the groups impacted, particularly those already identified as ‘vulnerable.’ These Wait Time Weight 2.5 typically include individuals from low income households, recent immigrants, Interchange Penalty 5 minutes racialized groups, children, LGBTQ groups, seniors, First Nations communities and individuals with different physical GO Rail IVT Weight 0.85 abilities. The Economic Case should present information on the distribution Subway IVT Weight 0.90 of impacts particularly among these more vulnerable populations. Bus/Streetcar IVT Weight 1.0 12 Metrolinx has developed an accessibility analysis tool that can directly estimate changes to accessible destinations. This tool should be Auto Access Weight 2.48 considered within Distributional Analysis. 169 Chapter 5 : Economic Case
Table 5.35: Economic Case Parameters Summary Table
Economic Parameter Value
Discount Rate 3.5%
Growth Cap 30 years from the base year of project evaluation
Evaluation Period 5 to 60 years (depending on project lifecycle/impacts)
Dollar Value Real, year of evaluation
Unit of Account Factor Cost
Value of Time $18.79 (2021 $)
Value of Time Growth Rate 0% (real)
Capital Cost Growth Rate 1% (real)
Operating and Maintenance Cost Growth 1% Rate (real)
Risk Free Bond Rate (real) 0.82%
Land Cost Growth Rate 2.8% (real)
IVT Weight 1.0
Walk Time Weight 2.0
Wait Time Weight 2.5
Interchange Penalty 5 minutes
GO Rail IVT Weight 0.85
Subway IVT Weight 0.90
Bus/Streetcar IVT Weight 1.0
Auto Access Weight 2.48
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Economic Parameter Value
Reliability Ratio 1.76
Decongestion Impact 0.01 hours/km (peak)
Decongestion Impact 0.00125 hours/km (off-peak)
Road Safety $0.09/km
Road Safety Growth Rate -5.3% (real)
Walking Health Benefit $4.08/km
Cycling Health Benefit $1.83/km
GHG Emissions $0.01/km
Air Quality (CACs, NOx,, $0.002/km etc)
Agglomeration Elasticity 0.046 (Economy)
Agglomeration Elasticity 0.104 (Goods Industries
Agglomeration Elasticity 0.03 (Services Industries)
Decay Parameter 1.8 (Economy)
Decay Parameter (Goods 1.8 Industries)
Decay Parameter (Services 1.9 Industries)
Annual growth rate of real 0.9% GDP per capita
Employment Background 1.06% Growth Rate
GGHM fuel cost indirect $0.035/km taxation adjustment
GGHM maintenance cost $0.005/km taxation adjustment
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Financial Case
$ What does the Financial Case chapter cover in a business case?
What is the role of Requirements to successfully deliver the this chapter of the investment - details the financial impacts and business case? requirements for delivering each option
What factors are Key Financial Metrics: included in the analysis? • Capital Costs • Operating and Maintenance Costs • Revenue Impacts • Labour Force Requirements impacts
How is evidence summarized and The Financial Case communicates the overall financial impact of the investment communicated?
How is the guidance structured?
Section Content
Includes an overview of the Financial Case and a Introduction summary of what is included in the section
Provides instruction on: • The structure of the Financial Case Developing a Financial Case • The approach used for inflation and discounting • The key parameters that should be used to conduct an analysis • The role of sensitivity analysis
Provides detailed guidance for: Financial Case Analysis • Assessing revenue, operating expense, capital expense, and full time equivalent impacts of an investment • Summarizing the Financial Case Chapter 6 : Financial Case
Introduction
Overview Since most investments ultimately lead to increased expenditure, the Financial The Financial Case assesses the overall Case should be developed such that financial impact of proposed investment it can be integrated into future stages options. While the Strategic Case and of investment planning, workforce Economic Case outline how an investment planning, and capital planning. achieves organizational goals and social value, the Financial Case is one of two Guidance Structure cases (the other being the Deliverability and Operations Case) that focuses on This guidance is composed the requirements to successfully deliver of two sections: an investment. Typically, this includes a • Developing a Financial Case – review of the total changes and year over a summary of the key requirements year change in revenue and expenditure for the Financial Case analysis over the lifecycle of the investment. • Conducting Financial Analysis – The types of questions that the Financial a summary of the key points of Case will typically seek to answer include: analysis for the Financial Case • How much does the investment cost every year? What are the capital costs, operating costs, revenues, net financial effect, and financial cost recovery ratios? • How will costs be allocated $ between project stakeholders? • Are there identified risks in the funding sources? The Financial Case is different from the Economic Case in that it does • What cost of finance is assumed? not consider society-wide benefits of • Have any sensitivity tests and/ an investment. Instead, the Financial or risk analysis been completed Case focuses on the financial and what are the results? resources required to implement the investment and the cash flow • How robust are the financial impact for Metrolinx or the agency estimates and forecasts? responsible for the investment. • What is the source of funding for the investment (example: provincial or federal funding)?
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Developing a Financial Case Analysis
This section summarizes how to Financial Appraisal Techniques structure the Financial Case and the Conducting Financial Appraisal key inputs that should be included. includes applying financial case Financial Case Structure parameters, inflation, discounting, and sensitivity tests. When complete, the Financial Case should include all content specified in this guidance and noted in Table 6.1.
Table 6.1: Core Content Required to Complete a Financial Case
Section Sub-sections Requirements
1. Introduction N/A Overview of chapter
Subsections can 2. Capital be set out at the Summary of capital cost impacts and cost drivers Costs analyst’s discretion
3. Operating Subsections can and be set out at the Summary of operating cost impacts and cost drivers Maintenance analyst’s discretion Costs
Fare Revenue Summary of fare revenue impacts 4. Revenue Impacts Non-Fare Revenue Summary of non-fare revenue impacts
5. Labour Subsections can Force be set out at the Summary of labour required over the investment lifecycle Requirements analyst’s discretion
Subsections can 6. Funding be set out at the A description of the proposed funding sources for the investment Sources analyst’s discretion
Financial Impact Complete a key metric table showing financial NPV, total Summary operating expense, and revenue/operating cost ratio
Option Comparison Identify key factors that lead to different performance between the options 7. Financial Analysis Identify the assumed funding sources for the investment along Summary Funding Sources with key risks and uncertainties that may limit the option from and Risks achieving the performance noted in the evaluation
Recommendations Identify key recommendations for each option
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Financial Case Parameters Each Financial Case should use Table 6.2: Financial Case assumptions prevailing Metrolinx assumptions for financial discount rate and inflation. The current values are shown in Table 6.2. Parameter Value
Discount rate 5.5% Applying Inflation Inflation Rate 2% Financial analysis should be conducted in nominal terms (which means all costs 1% until 30 years from the and revenue changes should include Capital and Operating and base year of evaluation, Maintenance Cost Escalation the impact of inflation). Inflation reflects 0% after in absence of (real growth) that over time, the value of money detailed cost forecasts changes. Under conditions of inflation, Straight Line based 1 dollar today could not purchase what Amortization 1 dollar could purchase last year, and 1 on useful lifecycle dollar in the future will purchase even FY 2016/17 and beyond = less. When prices are given in ‘nominal’ Financing Costs 5.78% for any capital costs paid terms, these are the actual or expected for by the Province of Ontario. prices, at face value, of that good or service in that particular year. This Labour Benefits 25% of salaries change in price is typically captured by changes to the Consumer Price Calculated on an investment Avg. Fare Price Index (CPI) – with the Bank of Canada by investment basis policies targeting an inflation rate of 2% a year. Therefore, all financial impacts In the absence of specific guidance per input, included in the Financial Case should Capping all growth cap all growth after 30 include an annual inflation rate of 2%. years of operations Similar to the Economic Case, changes 5 to 60 years (depending on in price due to escalation (the relative Evaluation period change in the value of a good or service investment lifecycle/impacts) relative to the average increase captured in the CPI) should be captured in the Dollar value Nominal, year of expenditure Financial Case. Escalation should be considered when developing estimates for Unit of Account Market prices capital and operating costs. In the absence of sufficient data to estimate escalation, an assumed rate of 1% may be used until 30 years from the base year of project evaluation, which should be applied on top of the assumed 2% inflation rate.
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Discounting Costs and Revenue Sensitivity Tests
Discount rate, in the context of discounted Risk and uncertainty are embedded cash flow analysis, is the interest rate within each cost and revenue estimate. used to determine the present value of As a result, the Financial Case should future cash flows. It is used to calculate include sensitivity tests to understand the current worth or Net Present Value how the financial impact varies based of future cash flows of a project. on changes in expenditure or revenue. Similar to inflation, the financial discount A general approach is to test high and rate should be applied to all financial low estimates for costs and revenues, impacts included in the Financial Case. and represent these in summary tables. This discount rate is applied annually At the initial stages of investment, to all costs and revenue changes. there can be tendencies for optimism Note: the financial discount rate is a or pessimism bias, and estimating the different value than the social discount range of possible costs is best practice. rate used in the Economic Case. As the investment progresses and better information is known, these The discounting process is represented ranges can be narrowed down. by the following formula, where the ∑ symbol represents the sum over the evaluation period from year 0 to year n, and the ∏ symbol represents the product of (1+ri) over the range shown, which can be sumarized as shown in Equation 6.1.
Equation 6.1: Discounted Value Calculation n y Discounted Value = I / (1 + r ) ∑ y ∏ i y=0 i=base
I : The Impact (Cost or revenue)
R : Financial Discount Rate
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Conducting Financial Analysis Financial Case Analysis Over the Business Case Lifecycle Financial analysis is concerned with four overall factors based on their incremental Initial Business Case impact over the BAU scenario: • Conduct an analysis of each option using best available cost and revenue estimates • Capital Costs – changes in expenditure to procure/deliver • Conduct sensitivity testing to understand infrastructure or core systems the key cost and revenue drivers and level of uncertainty for each option required to deliver the investment, including major lifecycle renewals • Operating and Maintenance Costs – changes in expenditure to operate and maintain the investment Preliminary Design Business Case (example: cost of operating a bus) • Update the analysis conducted in the Initial Business Case based on any changes to • Revenue – changes to revenue investment specification or detailed design from fares (or other customer • Analytic tools may be updated to ticketing products) and non-fares ensure all analysis and forecasting (example: revenue from property) is commensurate with the level of specification and scale of the investment • Labour Requirements – changes to the level of staffing to deliver and operate the investment
Full Business Case • Update the analysis conducted in the Preliminary Design Business Case based on any design refinements • Analytic tools may be updated to ensure all analysis and forecasting is commensurate with the level of specification and scale of the investment
Post In-Service Business Case • Review financial narrative and compare estimated performance against collected data • Update costs and revenue and re-forecast where relevant
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Financial Case Section 1
Introduction Land Acquisition Costs This section should frame the Financial In financial analysis, project land Case and confirm its overall content and acquisition costs are captured in full structure. Each Financial Case should in their year of expenditure. A residual clearly identify the assumptions and value is assigned at the end of the process used to develop quantified project evaluation period recognizing the estimates for each of the financial remaining value of the land at the end factors. The methodology may vary of the project's life. The residual value of between business cases based on the the land is derived using the initial land nature of investment but should be acquisition cost, a real annual growth conducted to a level of detail appropriate rate and annual inflation. In the Financial for the stage of business case. Case, there is no need to cap real growth in land costs. A real growth in land should Financial Case Section 2 be applied over the life of the project.
Capital Costs The assumptions used in the derivation of a residual value of Capital costs includes any expenditure land at the end of the project's life to deliver the investment’s key can be found in table 6.3 below. infrastructure and systems. Generally, this analysis should consider the categories outlined in Table 6.4 Costs should be incremental to the BAU scenario. Table 6.3: Land Acquisition Assumptions Where appropriate, the total BAU, investment, and incremental costs may Parameter Value be used to illustrate financial impacts.
This section should communicate: Annual growth rate, land (real) 2.8% • A summary table (based on Table 6.4) with all relevant capital costs for each Inflation Rate 2% option across the investment lifecycle • A summary graph showing the expected capital expense profile for the investment from start of evaluation until end of construction
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Table 6.4: Capital Expense and Asset Considerations
Line Item Description Assumptions
Please contact an appropriate The useful life used to calculate amortization should be Amortization finance counterpart to assist included in the assumptions for all capital expenses with this requirement
Please contact an appropriate This is the cost to the province to borrow Cost of Borrowing finance counterpart to assist capital funding on our behalf with this requirement
Estimated salaries should The amount should reflect all capitalized salary costs include an uplift of 25% to Capital Labour that are directly spent on a specific capital project account for employee benefits (example: healthcare)
Costs to acquire land Land Acquisition (note: these costs are not amortizable)
Costs that are associated with, but not limited to, Property buildings, stations, storage facilities, maintenance facilities and leasehold improvements
Costs that are associated with improvements to Capital Construction Cost right of way, railway plant, grade separations, trackwork, parking lot and supporting structures
Costs associated with project design, Design and Planning planning, environmental assessment, Costs project management and permits
Pre-construction work required at the site, Enabling Work including land improvements, land remediation, and other pre-construction works
Costs including interest during construction Financing Cost and long-term financing cost (note: interest during construction is capitalized)
Costs that are associated with locomotives, other Vehicle and Rolling Stock railway rolling stock, buses and vehicles
Including computer, equipment, software Equipment Costs and other I&T costs (for example: wifi)
Including, but not limited to, procurement costs, non-recoverable HST, ancillary / transaction costs Other Capital Costs and energy efficiency / sustainability costs (for example: energy efficient retrofits, ventilation, thermostats, energy storage devices)
Contingency Calculated as a % of capital costs during option scoping
Costs that are associated to keep assets in a state of Lifecycle Cost good repair, including capital repairs and rehabilitation
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Financial Case Section 3
Operating and Maintenance Costs Operating and maintenance costs Each type of operating cost incurred represent the expenditure required to by the investment should be calculated operate and maintain the investment over annually with a total operating cost value its lifecycle and on a year over year basis. estimated for the investment's lifecycle Each investment may include different – including discounting and inflation. operating costs changes including both This section should communicate: new costs and potential savings in network • A summary table (based on Table terms (example: a new LRT line replacing 6.5) with all relevant operating an intensive bus service will save the cost costs for each option across of the bus service and replace it with the investment lifecycle the cost of operating the LRT service). Generally, each business case should • A summary graph showing the consider the costs outlined in Table 6.5. expected operating cost profile for the project from start of operations until the end of the appraisal period Table 6.5: Operating Expenses
Line Item Descriptions Assumptions
Estimated salaries should include an Labour and The amount should reflect all operating salary uplift of 25% to account for employee Benefits costs expected to operate the investment benefits (example: healthcare)
Includes professional services, advertising Supplies and and promotions, financial fees and services, Service uniforms, office supplies and equipment, software, and staff development
Includes facilities and track maintenance (for example: corridor, stations, facilities, rent, utilities, telecommunications, contracted Maintenance services) and equipment maintenance (for example: inspection and cleaning, consumable parts, yard operations, bus storage, bus satellite services, other support services)
Includes costs associated with rail operations, bus operations, crew operations, PRESTO Operations operations, fuel, power and communications, road charges, insurance and claims, and farecard stock and commissions
Anticipated operating expenditures Other outside of the categories listed above
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Financial Case Section 4 Financial Case Section 5
Revenue Impacts Labour Force Requirements Revenue impacts should be quantified The financial impact of labour is and accompanied with a narrative included in the operating and capital explaining the impacts and the expense analysis. This section of the methodology used to derive them (for financial analysis is focused on clearly example: using change in ridership defining the number of part and full time multiplied by the expected average equivalents represented in the capital fare). Revenue impacts include two and operating expense sections. Two considerations (shown in Table 6.6), which types of labour should be outlined: may be estimated differently depending on the nature of the investment. • Existing - The count of staff that will work on this initiative who are already Revenue impacts should be calculated part of the Metrolinx workforce plan on an annual and lifecycle basis including inflation and discounting. They should • Incremental - The count of be communicated in two ways: staff that will need to be hired to work on this initiative • A table (based on Table 6.6) illustrating the lifecycle total revenue impacts by category • A graph showing the annual revenue impact from start of operations until the end of the appraisal period
Table 6.6: Revenue Impacts
Line Item Descriptions Assumptions
Fare revenue includes Assumptions on ridership growth and fare revenue resulting from Fare revenue growth rates should be clearly stated in the changes in fare paid and assumptions row below the input cells. number of trips taken
Non-fare revenue includes, but is not A description of revenue and methodology limited to: parking of calculation should be provided in the Non-fare revenue revenue, commercial assumptions row. A description of what space rent, cash drives the assumptions can be included contribution and value- in the Notes and Assumptions column. in-kind contribution
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Financial Case Section 6 Financial Case Section 7 Impact/KPI Value Funding Sources Analysis Summary
Typically, interventions will draw from The Financial Case should include Revenue $756 --> $760 a number of sources that should be an overall summary of the financial identified in the business case. These impact on a year by year basis and include new fare revenues, new non- over the investment’s lifecycle. It is NPV $(58.78) --> $(59) fare revenues, reallocated operating recommended that the year over year funding or capital contributions from the impact be represented graphically Province of Ontario, other government and include total operating, capital, bodies as well as potential third party and revenue impacts for each year. contributions. Showing the diversity of A lifecycle summary table should also streams, the proportion each stream is be generated that includes the metrics contributing as well as any constraints/ outlined in Table 6.8. This table should be uncertainties related to funding sources accompanied by a narrative that describes will allow decision-makers to determine the key findings of the Financial Case: the risk associated with project funding. • How does the investment's revenue compare its ongoing operating and maintenance costs (operating cost recover ratio)? • How does the investment's revenue compare to the overall costs of the investment (net present value)? • What is the investment's internal rate of return (IRR) and return on investment (ROI)?
Guidance for Reporting Precision and Rounding Policy All impacts estimated in the Financial Case including costs, revenues, the NPV and net operating cash flow metric should be reported to two significant digits. Examples of metrics transformed to two significant digits can be found in Table 6.7. Ratios including R/C and ROI should be reported to two decimal places to ensure differences in performance across options are visible, especially as the business case moves through the lifecycle and options become less distinct from one another.
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Table 6.7: Rounding Policy Examples
Impact/KPI Value
Revenue $756 --> $760
NPV $(58.78) --> $(59)
Table 6.8: Financial Case Summary Table
Financial Case Metric Description
Total Revenue Impacts Sum of lifecycle revenue impacts
Total Capital Costs Sum of lifecycle capital expenses
Total Operating and Maintenance Sum of lifecycle operating expenses Costs
Revenue impacts minus operating expenses (note: if this value is negative, Net Operating Cash Flow it represents the required subsidy for operating the service)
Net Present Value (NPV) Sum of total revenue impacts, operating and maintenance costs, and capital costs
Internal Rate of Return (IRR) The interest rate (or discount rate) when the NPV is equal to zero
Payback Period (PBP) The amount of time it takes for an investment to pay for itself
The surplus (or return) generated from the investment, calculated Return on Investment (ROI) as: (change in life cycle revenue - total costs) / total cost
Operating Cost Recovery Ratio (R/C The percent to which the annual revenues generated by the project Ratio) recover the annual operating costs associated with the project
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Financial Risks Financial risks should be explained using a narrative along with sensitivity testing. The narrative should explain risks to option performance (such as risks to attaining estimated revenue) and any core dependencies for the project to attain its overall estimated Financial Impact. Sensitivity tests should be conducted to identify ‘switching values’ – key variables that would cause the financial performance or the financial cost benefit / net present value calculations to change enough to affect a decision-makers’ decision. The impacts of these tests should be included in the Financial Case, with appropriate sensitivity tests determined at the onset of the business case process.
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Deliverability and Operations Case What does the Deliverability and Operations Case chapter cover in a business case?
What is the role of Requirements to successfully deliver the this chapter of the investment - Details the technical and institutional business case? requirements to deliver the investment
What factors are included Key Financial Metrics: in the analysis? • Delivery • Operations/Maintenance • Procurement Plan
How is evidence Descriptive narrative of requirements to summarized and deliver/operate/procure the investment and communicated? the key risks that must be mitigated
How is the guidance structured?
Section Content
Includes an overview of the Deliverability and Operations Introduction Case and a summary of what is included in the section
Developing a Provides an overview of the key analytic content included in the Deliverability and case and how it varies over the lifecycle of a business case Operations Case
Provides detailed guidance for: Deliverability and • Delivery requirements Operations Analysis • Operations and Maintenance requirements • Procurement Planning Chapter 7 : Deliverability and Operations Case
Introduction
Overview The Deliverability and Operations The term ‘commercial’ is used here to Case is an analysis of the technical and refer to the feasibility of undertaking commercial feasibility of an investment the project and delivering the expected or transportation improvement. This outcomes in practice. It does not refer to includes delivering the project from the financial performance of a project, original concept through to planning, which is captured in the Financial Case. design, environmental assessment and The core questions that the Deliverability stakeholder engagement, procurement, and Operations Case seeks to address construction and operations. The are shown in Table 7.1. Note - this list is Deliverability and Operations Case is not exhaustive and is intended as framing one of two cases (the other being the to support analysts and sponsors in Financial Case) focused on requirements developing and reviewing this case. for delivering a transport investment.
Table 7.1: Deliverability and Operations Case Core Questions by Business Case Stage
Initial Preliminary Design Post-In Service Full Business Case Business Case Business Case Business Case Identify key State and review Revisit and evaluate Has a procurement strategy Define a specific set of procurement issues procurement the success of the been developed? procurement options and opportunities strategy procurement strategy Identify key What formal role will each Define key roles each Assess stakeholder stakeholders and stakeholder play? stakeholder should play involvement potential roles What are the arrangements for project governance and decision making? What risk do these arrangements introduce or mitigate? What approvals and reporting processes apply to the project? What is the current approval status of the project? Define a more detailed What is the service plan (if applicable) Identify high-level Define a delivery approach for and is it realistic? Are delivery considerations and specific delivery Revisit and evaluate the investment and timeframes envisaged realistic? note key differences approach and the success of the note key differences between potential provide evidence delivery approach Has the critical path been identified? between potential investment options for its selection Has phasing been considered? investment options What contractual strategies are being considered? Are there any significant political or stakeholder risks that could affect delivery? What is the reporting and approvals mechanism? Identify if the What project and program Identify key dependencies and Clarify high-level dependencies dependencies exist? Have state their impact on project dependencies assessment supported these been mapped? delivery and long term delivery robust delivery
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In order to improve the decision- making process for selecting a preferred alternative, this guidance seeks to clarify delivery and operations practices for major investments and improvements and to incorporate these into the Metrolinx Business Case Guidance. In the past, deliverability and operations analysis were usually undertaken on the preferred alternative (for example: after the selection of a preferred alternative). This guidance intends to bring forward initial elements of the deliverability and operations analysis to contribute to the selection of the preferred alternative. This does not necessarily mean that the alternative with the greatest deliverability and operations potential should be the preferred alternative. However, when two or more alternatives have similar results in their respective Strategic, Financial and Economic Cases, the Deliverability and Operations Case could potentially influence the choice of preferred alternative. In addition, early consideration of deliverability and operations implications can reduce surprises later in the process.
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Developing Deliverability and Operations Case
Each Deliverability and Operations Case includes: Deliverability and Operation Case Analysis • Introduction – an introduction Across the Business Case Lifecycle summarizing the purpose of the case and the approach used to complete it (Section 1) Initial Business Case • Project delivery – a review of how the • Conduct a high-level review of investment investment can be delivered including delivery, operations and maintenance, and procurement requirements for each option project governance, major project components, project management • Key risks and deliverability considerations should be noted for plan, environmental assessments and further review and design in future construction impacts (Section 2) stages of investment development • Operations and Maintenance – a review of the operations and maintenance plan, including roles and responsibilities, changes in Preliminary Design Business Case service provision and maintenance, trade-offs between the capital • Complete a detailed review of investment delivery requirements,develop an operations and operations and maintenance and maintenance plan and outline key phases, project dependencies and procurement considerations for each option human resources (Section 3) • This content should help decision makers • Procurement Plan – a review of the see any key differences in delivery investment’s procurement plan, requirements and risks between the options including the role of Infrastructure Ontario, industry capacity to deliver the project, procurement options and the evaluation of these, risk management issues and future- Full Business Case proofing of projects (Section 4) • Refine content from the Preliminary • Conclusion – summarizing the Design Business Case to provide a key findings, risks and issues detailed specific investment delivery, operations and maintenance, and related to investment, delivery procurement plans for the investment and operations (Section 5) • This content should be prepared at a level to support procurement
Post In-Service Business Case • Review key risks and risk mitigation strategies and comment on effectiveness • Detail any variance from the investment delivery, operations, and procurement plans outlined in the Full Business Case and what has been delivered
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Conducting Deliverability and Operations Analysis
Guidance has been prepared to support The core content requirements for the completion of each section of the the Deliverability and Operations Deliverability and Operations Case. This Case is shown in Table 7.2. guidance provides an overview of the key questions that should be answered and the types of content that should be generated to complete a robust case.
Table 7.2: Content Required to Complete a Deliverability and Operations Case
Section Sub-sections Requirements
1. Introduction N/A Overview of chapter
Describe the following project delivery aspects of each investment option: • Identification of project sponsor(s) and governance arrangements • Description of major project components, incl. constructability review Subsections can 2. Project • Project management plan, including schedule, phasing be set out at the Delivery and potential community benefits if applicable analyst's discretion • Environmental assessment requirements • Construction impacts • Operations and maintenance overview
Describe the technical and commercial feasibility of the operations or service delivery stage for each investment option, including: • the relevant operations and maintenance roles and responsibilities 3. Operations Subsections can • any changes in the service plan and maintenance plan and be set out at the • any material trade-offs between the capital and Maintenance analyst's discretion operations and maintenance phases of the project Plan • project dependencies • required changes in regulations or legislation • human resource implications
Describe how the investment is best procured and any differences in the procurement approach or approaches deemed feasible or desirable for each alternative under consideration. The analysis should take into account: Subsections can 4. Procurement • Role of Infrastructure Ontario be set out at the Plan • Assessment of industry capacity and experience to deliver the project analyst's discretion • Feasible procurement options • Risk management • Future-proofing and long-term contracts • Evaluation of procurement options
Identify key risks and uncertainties that may limit the option Risk Review 5. Deliverability from achieving the performance noted in the evaluation and Operations Case Conclusion Recommendations Identify key recommendations for each option
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Deliverability and Operations Case Section 1 Identification of project sponsor(s) and governance Introduction arrangements (if not The introduction to the Deliverability and already covered elsewhere Operations Case should clearly articulate in the business case) the chapter's structure and the key assumptions made to conduct the analysis. Description of major project components, including a Deliverability and Operations Case Section 2 constructability review Project Delivery Project management The project delivery component of the plan, schedule, phasing Deliverability and Operations Case covers and community the technical and commercial feasibility benefits realization of each investment option, with the level of detail increasing as the investment progresses through the business case lifecycle (example: an Initial Business Environmental assessment, Case may have a high-level analysis where relevant for all proposed investment options, while the Full Business Case, which only considers one option, will have a more detailed review). This entails covering Construction all aspects of project delivery except the impacts choice of procurement model which is made at Stage 2 of the Province's two- stage approval process for major public infrastructure projects. Project delivery Operations and considerations must cover the following: maintenance overview
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Project sponsor(s) and Major project components governance arrangements A description of the key components As part of the importance of clear is required for each project option, governance across the entire business distinguishing between: case, it is necessary to identify the project • Civil infrastructure, including any sponsor(s) and governance arrangements. corridor, fixed guideway, stations, At the Initial Business Case stage, this and maintenance facilities involves identifying the main project sponsor(s) for each option, including the • Rolling stock owner(s) of the assets under consideration • Signalling, train control, traction and/or the public transportation authority power, communications and responsible for advancing the project. any other systems, including It is also necessary to identify the interfaces with existing systems governance arrangements for each • Property access and acquisitions, project, including the relationship including air rights between the owner(s) of the assets, the relevant transportation authorities, The description should include a operating companies and project constructability overview which funders, where these are different entities. describes the degree of construction These governance arrangements can complexity and any physical constraints be identified at the Preliminary Design or modifications to existing assets Business Case stage, including: required to accommodate the new project.14 The property section should • Which entities are the project describe any challenges associated sponsor(s) and/or owner(s)? with property acquisitions required • Which entities are responsible for the project option, including with for project delivery (for securing access to property owned example: Infrastructure Ontario), by third parties (for example: freight funding and operations? rail corridors). Table 7.3 is a sample constructability overview conducted • Are formal agreements required for the new GO RER rail stations. between different entities, and if so, between which entities and at what stage? These governance arrangements can be described either in one of the earlier cases (for example: Strategic, Financial or Economic Cases) or in the Deliverability and Operations Case.
14 Construction complexity depends on several factors including the physical constraints imposed by existing facilities within which any new structure is built, including existing utilities and any adjacent facilities, as well the inherent complexity of the new structure itself.
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Table 7.3: Sample Constructability Overview for Potential New Stations
Construction New Station Rationale Complexity
• Site located off-line within existing facilities. Low Station 1 complexity • Track alignment and grade generally consistent with that of existing yard tracks.
• Surrounding area fairly flat with low density properties. • Portion of track within length of platform to be relocated to reduce degree of curvature, superelevation and land acquisition requirements. Low Station 2 • All track work would occur within the existing right- complexity of-way or within the main station site. • Large site east of corridor is opportunity to stage track realignment. • Station can be built with little disruption to other transport facilities.
• Can be constructed within the existing rail corridor. • Existing track may need to shift westward on the southern approach Moderate to accommodate the platforms. This could be accommodated Station 3 complexity within the existing right-of-way with minimal track curvature. • Temporary lane closures may be required to accommodate rail overpass widening work.
• Vertical track alignment may need to be re- profiled to accommodate the station. • Vertical curve within site that should be relocated. Moderate Station 4 • Site is located on a terrain with a significant slope downward complexity towards the rail corridor. Grading and drainage will likely be key design constraints for the station. • Presence of designated environmental and natural heritage features could create a constructability constraint.
• Platforms to be located along a straight section of the rail corridor and will require grade separations to limit impact on adjacent transport facilities. • May require adjustments in track geometry to accommodate two side platforms, and potentially to protect for a future third mainline track. • Two vertical curves may need to be removed, and the vertical alignment re-profiled, in order to ensure tangent High gradient along the length of the station platforms. Station 5 complexity • Three culverts located within the proposed station site and two of which may need to be extended to accommodate the site platforms. • Presence of hydro facilities adjacent to the proposed station site could create a constraint on station construction staging. • Station could impact the design of the electrification system due to the short distance separating the proposed station and a future substation required for electrification.
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Project management plan A description of the project management In Ontario, environmental assessments plan, including the schedule, key are required for all large-scale projects milestones and any critical path issues with potential to impact the environment. required for each option. The project In 2008, the Province of Ontario passed management plan should include a a regulation called the Transit Project description of any project phasing Assessment Process (TPAP) to accelerate implied by any one of the alternatives the delivery of critical transit expansion (for example: where one or more parts projects (Ontario Regulation 231/08). of the project are delivered in a later The TPAP is a sponsor-driven, self- time period). If the investment includes assessment process that provides a a Community Benefits Program15, the framework for focused consultation and proposed benefits and plan to realize objections to the proposed project. them over the project lifecycle should be The TPAP regulation does not require outlined. The plan should also indicate proponents to look at the rationale if the impact of any constructability and planning alternatives or alternative challenges noted in major project solutions to public transit or the rationale components section are incorporated into and planning alternatives or alternative the schedule; as well as the interaction solutions to the particular transit project.16 between any required project approvals and the project timelines. A sample critical path issue is described for the Eglinton Crosstown project in the box on the right.
Environmental assessment A description of the environmental assessment process is required for Crosstown tunnel alignment each project alternative, including – Sample critical path issue: the status of any completed or The tunnel alignment was a critical path issue for outstanding requirements. the Eglinton Crosstown project, impacting most other components of the project, including station design and the design for the at-grade portion of the alignment. Hence, the tunnelling component of the project was designed and procured before the rest of the project through a design-bid-build (DBB) approach. Yet, this also created the potential for some additional risks in the interface between the two tunnel contracts (East and West of Yonge St.) issued in 2012 and the subsequent design-build- finance-maintain (DBFM) contract procured in 2015. 15 Community benefits refer to local employment, training and apprenticeship opportunities as well as opportunities for local suppliers and 16 Ministry of Environment, 2014. Guide to social procurement. See link for a description Environmental Assessment Requirements for of the Metrolinx community benefits framework Transit Projects. Accessed 13 July at: https:// for the Toronto Transit Projects: http://www. www.ontario.ca/page/guide-environmental- thecrosstown.ca/sites/default/files/pdf/ assessment-requirements-transit-projects. communitybenefitsframework.pdf. 195 Chapter 7 : Deliverability and Operations Case
Construction Impacts Deliverability and Operations Case Section 3 A description of the impacts of each investment option during the construction Operations and Maintenance Plan phase is required. These impacts include: The operations and maintenance plan Maintenance of traffic, including examines the technical and commercial travel time delays feasibility of the operations or service delivery stage for each investment option, Continuity of transit operations, including the BAU scenario if relevant (for including any reductions in service example: the option in the absence of the levels project). This requires a description of the Impacts on retail activity for nearby relevant operations and maintenance roles businesses and responsibilities, any changes in the service plan, maintenance plan, project Operations and Maintenance dependencies, required changes in An overview of how each option is to be regulations or legislation, human resource operated and maintained (for example: implications, and any material trade-offs scheduled maintenance) is required. This between the capital and operations and includes a description of service levels maintenance phases of the project. and the location of maintenance facilities. Roles and responsibilities It also includes how the operations are expected to interface with other transit A description of the roles and networks and with other travel modes responsibilities for the operations and (for example: multi-modal interchanges, maintenance activities is required. car parking, pick-up drop-off facilities). The description must indicate which organization is responsible for operations At the Initial Business Case stage, the and maintenance activities, allowing for at operations and maintenance overview least one organization to be designated should also include a qualitative review for each of the two areas of responsibility. of the risks associated with each option. The organization responsible for For example, Table 7.4 is a sample operations may be the incumbent transit overview of the operations risks associated service provider; an outsourced service with each selected new GO RER rail provider (as for GO Rail fleet operations stations and an assessment of impacts and maintenance); or another transit on operations (for example: minor, service provider (for example: for services moderate impacts). This analysis should which cover more than one municipality). either be undertaken for each investment When multiple entities have operations or option or it can be undertaken for one maintenance roles, these should be clearly alternative, with a discussion of variations delineated with respect to the assets implied by the other alternatives. operated or maintained by each entity.
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Table 7.4: Sample Overview of Operations Risks for Selected Potential New Rail Stations
Operating Station Rationale Impacts
• Concept requires trains to use the USRC B Track. This may affect the scheduling of other trains using the B Track and B Track extension to and from Union Station. Potential effects on platform allocation at Moderate Station 1 Union Station and delays and/or conflicts with the impacts UP Express due to frequent service in the USRC. • Concept requires removal of three yard tracks, reducing the storage capacity of the Bathurst North Yard from seven to four 12-car consists.
• No potential for an express train service to Minor bypass the station, which would result in Station 2 impacts schedule impacts for stations upstream, impact currently estimated at 2 minutes per train.
• Concept assumes that local trains will be on GO Weston Subdivision tracks 1 and 2 when passing Moderate through the station. As a result, express trains on the Station 3 impacts Kitchener and UP Express lines will need to be diverted to tracks 3 and 4 or otherwise scheduled so as not to be delayed by local trains stopping at the station.
• Concept does not provide the capability for an existing VIA train to bypass a GO train stopping at the Minor Station 4 station. There appears to be sufficient room within impacts the right-of-way to add a third mainline track if it is deemed to be a requirement for VIA operation.
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Changes in service provision Changes in maintenance plan A description is required of all the material A description is required of all the material changes in services provided under changes in the maintenance plan under each option (relative to the BAU). This each option (relative to the BAU). The includes new services, services made maintenance plan covers all the assets redundant, and changes in service routes, associated with the project, including station locations, frequency of services, any rolling stock, station facilities, track journey time (in-vehicle) and travel-time bed, and systems. The maintenance reliability, if relevant. It also includes any services cover both “soft services” (for changes in how operations are organized example: cleaning) and “hard services” in order to deliver the identified services (for example: capital maintenance) and (for example: due to changes in work should include provisions for access to the shifts, depot locations or other factors equipment (for example: work windows which affect operations). For a new during service downtimes) and provision service offering, this includes an overview for additional equipment (for example: of how service levels are expected to spares) to avoid service reductions evolve during the ramp-up period. This during repairs or refurbishment. period can extend several years – from the start of operations up to the point Trade-offs between capital where the services reach the steady-state and O&M phases growth rate of the rest of the network. The Operations and Maintenance plan The changes in service provision may should describe any material trade-offs also include requirements to adjust between the operations and maintenance feeder services or other connecting plan costs or schedule and the scope services not necessarily under the direct or components of the capital phase. control of the designated operator. For example, investment in selected equipment or software during the capital Note that the definition of services is not phase can result in automation of certain limited only to transit services. It consists of labour-intensive tasks as well as service all outputs resulting from an improvement improvements. The description should or an investment decision (for example: a include the trade-off between the two new or refurbished station, fare collection project phases and the assumption about services, customer response inquiries). how the trade-off is resolved for any The key is to define the service in terms option (for example: the actual decision of the desired output (for example: point which is included in the option). percent availability of the station, fare collection transactions per time period, processing time for customer inquiries).
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Project dependencies Human resources and change management implications The Operations and Maintenance Plan should describe any project or Any changes to the operations and program dependencies. These refer maintenance plans under each to service levels or maintenance option may have significant human outcomes associated with each option resource implications as well as change which depend on the prior delivery of management implications. The required other projects in the region or on prior changes in human resource arrangements implementation of significant changes should be described fully, including any to timetables of other related services. expansion or contraction in the workforce, the type of workers affected (for example: In the case of new or innovative service drivers, station operators). This includes offerings (for example: micro-transit any transfer of legacy staff from an existing services, autonomous vehicle services transit service provider to a new entity and for first/last mile access to rapid transit), any potential labour relations challenges. project or program dependencies There may also be change management may also include prior changes in implications in the absence of significant regulations or legislation required to changes in workforce levels, if work roles ensure that services can be delivered in or processes are subject to reorganization conformity with health and safety and as a result of one or more options. These other legal and regulatory frameworks. implications should be described and any potential requirements for change management services associated with one or more options should be highlighted.
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Deliverability and Operations Case Section 4
Procurement Plan Preliminary Design Business Case above as well as an evaluation of the procurement The procurement plan describes options using the IO methodology for how the project is best procured and a Value for Money (VfM) analysis. any differences in the procurement approach or approaches deemed Role of Infrastructure Ontario and feasible or desirable for each option assessment of industry capacity under consideration. The requirements IO is the Province of Ontario’s delivery for such a plan will differ depending organization for major infrastructure projects on the stage of the business case. where the Province is the infrastructure For an Initial Business Case, it is necessary owner.17 This means not only managing to consider the role of Infrastructure the procurement process, but also the VfM Ontario (IO) as the delivery organization analysis discussed below. The guidance for major public infrastructure projects in here is not intended to supplant the IO VfM the province and the capacity of the local report, but to incorporate the results into industry to deliver on the project. It is also the procurement plan. IO is the mandatory necessary to identify the list of potential provider of procurement analysis and procurement options considered feasible; the Province of Ontario requires that a identify the project risks, including any complete evaluation of procurement options interface risks between different contracts; be submitted to Treasury Board for the and any future proofing considerations. approval to start project construction. Each of these analyses should be undertaken for each investment option. Industry capacity and experience to deliver project At the Preliminary Design Business Case stage, the procurement plan is developed An assessment is required of the local with input from IO, beginning with the industry capacity and experience capacity of the industry to deliver the to deliver the project, including all project; the procurement options under the options, where relevant. Industry consideration; the risk assessment capacity refers to the availability of local and mitigation; and future-proofing. construction and engineering industry Each of these analyses is undertaken labour, and especially the skilled trades, for each investment option, as in the required to deliver the project, given Initial Business Case stage, but at a other infrastructure projects which are more in-depth level given the greater competing for the same labour resources. availability of data for the project. At the Full Business Case stage, where the focus is on a single, preferred option, the procurement plan is developed based on input from IO. In this case, the plan covers all the items of analysis identified for the 17 IO also provides procurement services and advice to local governments on major infrastructure projects.
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this procurement approach. At the Preliminary Design Business Case • Build-Finance (BF) – this procurement and Full Business Case stages, this can model was used early in the history be done through a market sounding of IO projects, when certain projects of the local contractor firms. Industry had already been designed (or where experience refers to whether or not design was substantially complete). contractors in the GTHA have delivered The construction and financing similar projects in the recent past and (during construction only) risks for whether or not they have the staff these projects were transferred to a expertise to deliver on the type of project. single private sector proponent.
Procurement options • Design-Build Finance (DBF) – this procurement model adds the design A description is required of all the component to the concession and potential options available to procure the thereby transfers to the private sector project, including any differences between the bulk of design, construction the investment options. The description and financing risks (with financing should focus on the feasible procurement limited to the Design-Build stage). options, given the ownership structure In this model, there is a significant of the assets under consideration. overlap in the schedule of the design Multiple procurement options are and build components. That is, available in principle as alternative ways the two components are planned to procure projects including traditional and executed jointly rather than and Public Private Partnership (P3) sequentially as under the DBB option. approaches. A typical way of presenting • Design-Build-Finance-Maintain these options is in terms of extent of risk (DBFM) – this procurement model transfer to the private sector proponents. transfers additional risks to the private The main procurement options typically proponent during the service life of considered in Ontario in recent years the asset, because the proponent include (in order of increasing risk also takes responsibility for the transfer to the private sector): maintenance of the new asset (and • In-House Provision – this is the possibly any pre-existing assets). Unlike procurement option where the public the models above, this is a longer- sector retains all the risks, almost by term concession – usually in the range definition. It is fairly common for transit of 20-30 years, and hence, includes service operations and maintenance. explicit conditions for the state of the assets upon return to public ownership. • Design-Bid-Build (DBB) – which is known as the conventional approach • Design-Build-Finance-Operate- for infrastructure delivery, where design Maintain (DBFOM) – this procurement is procured and completed before model transfers the most risk to the proceeding with construction; and private proponent, compared to the where both phases are characterized other options, since the proponent by multiple contracts to different is also responsible for operations, private sector firms. The public in addition to design, construction, sector retains most of the risks in financing and maintenance. 201 Chapter 7 : Deliverability and Operations Case
There are also variations in a number Moreover, some construction projects of these options in practice. For are carried out on property not owned example, DBB approaches also include by Metrolinx or the Province (for Construction-management (CM) or example: property owned by freight CM at-risk, where there is greater risk rail carriers), in which case the feasible transfer to the private sector as compared procurement options are usually to DBB. Design-Build (DB) – that is, limited to Design-Bid-Build. These and without transferring financing risk – is other relevant considerations should also an option that has been used by be taken into account in developing Ontario's Ministry of Transportation a list of feasible procurement options (MTO) for smaller highway and bridge for an Initial Business Case. At the projects. IO has typically included the Preliminary Design Business Case stage, financing component in P3 projects, a more extensive analysis of feasible because this component is seen as an procurement options can incorporate effective vehicle for transferring schedule the results of a market sounding of and related risks to the private sector. contractors and investors. At the Full However, P3 procurement options tend Business Case stage, there should be a to be feasible only for large projects clear short list of procurement options (for example: at minimum $50M in for the purpose of the VfM analysis. project costs), due in part to significant Detailed analysis of VfM for procurement transaction costs. On the other hand, options should occur after a preferred DB projects can be smaller than $50M. investment option has been selected. The Province’s Directive for Major Public In earlier business case stages Infrastructure Projects requires that where there are multiple competing an analysis of procurement options investment options a high-level review is completed when making a Stage 2 of procurement options is sufficient. request (that is, a request for construction As the business case process narrows approval) valued at over $100 million. down the investment to a preferred IO provides guidance and support when option then detailed procurement conducting this analysis and should option analysis should be undertaken. be consulted early in the development Commercially confidential material of the business case. Ultimately, the that is generated in the procurement Province’s Treasury Board makes the final planning process will not be released determination of which procurement within the business case. model to adopt, based on advice from Metrolinx, the MTO and IO. Risk management It is necessary to recognize from the The procurement plan should include an start that not all procurement options identification, assessment and mitigation are feasible. For example, in-house of risks, including interface risks, and how provision is not typically feasible they differ across investment options. for civil construction projects.
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All material risks should be identified and Even in a case where only one contract is assessed at least in a qualitative manner, envisaged to deliver on all components of covering the entire project lifecycle the project, there are potential interface from the environmental assessment (if risks between the assets within the relevant) to operations. This includes contract and any adjacent or connected any compliance issues with respect to assets outside the contract. The rationale technical standards of a regulatory nature. for identifying these interface risks early on is that they are typically borne by the At the Initial Business Case stage, only a project owner and are difficult to transfer preliminary identification and assessment cost-effectively to the private sector. of risks is required for each option. At the Preliminary Design Business Case Future proofing and long-term contracts stage, a more robust risk review covering the identification, assessment, and When long-term contracts are envisaged mitigation of risks for each option should as a procurement option (for example: be prepared. This review should also including operations within a P3 provide an initial assessment of whether contract), the procurement plan should or not each risk can be transferred to a consider whether there is a significant private sector entity. For retained public risk that the project requirements (for sector risks, it would indicate how those example: as driven by user needs, public risks should be mitigated and managed preferences, government policies) are throughout the project lifecycle. The likely to change substantially over the Full Business Case stage requires a term of the contract. In such cases, the completed risk management plan. plan should consider whether the output and performance specifications in the The risk management plan should cover long-term contract can be adapted to interface risks, which arise between the accommodate the changes (or whether different contracts required to deliver there is a significant risk that the contract on a project. These risks can arise for a becomes an encumbrance which whole host of reasons when the owner of precludes addressing such changes). This one contract relies on conditions which is particularly relevant in areas with rapidly are not within their direct control (for changing technologies or processes example: access to premises, timing of (for example: micro-transit services for activities), but within the control of another last/first mile access to rapid transit), entity (or that require coordination with where performance specifications can one or more other entities). Interface become obsolete within a few years. risks can also arise over time, when a project has two or more phases Future-proofing also requires considering delivered under separate contracts. if any of the investment options may preclude or create significant obstacles to other future projects. This is especially relevant for any new region-wide projects, which could preclude or create obstacles to the expansion of other legacy networks.
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Evaluation of procurement options Deliverability and Operations Case Section 5 The procurement plan requires an evaluation of procurement options Analysis Summary identified. These refer to the feasible The conclusions subsection should procurement options discussed under summarize the preceding analysis Section 1 above. The evaluation is called a for project delivery, operations and VfM analysis, which essentially compares maintenance, and procurement. Key the risk-adjusted costs of delivering a risks that shape the overall success of the project through one or more feasible investment should be clearly noted, along P3 options against one conventional with recommended areas for further focus. delivery option (usually DBB).18 The Initial Business Case would need only a This risk assessment should preliminary and qualitative evaluation include at a minimum: of procurement options, but this would • Interface risk the need to get need to include a discussion about agreements from other infrastructure how the evaluation differs across each owners and operators to realize option. The Preliminary Design Business the benefits of the investment Case requires a complete evaluation of procurement options for the preferred • Regulatory Risk- The level of permission option , while the Full Business Case and certainty that is provided by should clearly communicate the preferred the regulatory environment for option and procurement approach. the proposal and the approvals that are yet needed to deliver on As required by the Province’s Directive for the benefits of the program Major Public Infrastructure Projects (MPIP), a complete evaluation of procurement • Scope Risk – the risks associated options must be provided with a request with unknown future scoping to Treasury Board for Stage 2 approval issues or project evolution (for example: construction approval).
18 See Infrastructure Ontario, 2015. Assessing Value for Money: An Updated Guide to Infrastructure Ontario’s Methodology, March 2015.
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Business Case Summary How is the guidance structured?
Business Case Chapter Overview
A summary of the rationale for the business case and where Introduction it fits into the project and business case lifecycles
A summary of the key findings across the analytic chapters Summary of the business case. The summary should also discuss next steps for the investment planning process
A concise summary of the analytic content and Executive Summary key findings in the business case Business Case Manual Volume 2: Guidance
Overview
This chapter of the Guidance: Business focus on sharing evaluation material or Case Guidance outlines how to structure exploring contextual information. Rather, the “Summary” chapter and describes it should be a brief chapter that ensures what should be included in the readers understand why the business introduction, summary, and executive case has been completed and where it summary chapters of the business case. fits into the investment planning process. These chapters are crucial to developing a coherent business case. Because these sections will not typically focus on analytical content, this guidance focuses more on how to structure these chapters.
Introduction Chapter Each business case should include a concise introduction chapter that explains the rationale, structure, and content of the document. The introduction chapter will typically: • Explain the rationale for developing the business case • Outline the status of the business case and which part of the lifecycle it is in (example: Initial, Preliminary Design, Full or Post In-Service) • Identify key drivers for the business case process – such as board recommendations, mandate letters, official plans, or previous business cases • Provide an overview of the business case and its structure (Context, Investment Options, Strategic Case, Economic Case, Financial Case, Deliverability and Operations Case, and Summary) • State how different stakeholders and Sponsors have been involved in the business case The introduction chapter should not
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Introduction/Executive Summary Summary Chapter The Summary Chapter is the final chapter Each business case should prepare of a business case. This chapter focuses on a concise executive summary that being a ‘book end’ to the business case by is placed prior to the Introduction synthesizing the insights and key lessons Chapter. While positioned at the start of learned identified in each preceding a business case, this section is typically chapter. Typically, the Summary Chapter: prepared last. The Executive Summary • Provides an overview of the key is intended to provide decision makers findings across each of the four cases and the public a concise version of the for each of the options (including content of the business case. The goals pros, cons, challenges, risks) of the Executive Summary are to: • Outlines the comparative • Communicate the key narrative of performance of each option the business case: why the problem compared to business as usual or opportunity is relevant, the range of options that may address • Describes any emergent differences it, and their overall performance in the performance of each option against the four chapters • Details key performance drivers • Illustrate key findings and next steps for for each option and their continued investment development relevance to future work Typically, this section should provide • Summarizes key lessons learned/ a high-level overview of each content findings that are relevant to chapter (context, option development, the advance work on the problem or four cases, and summary). If appropriate, opportunity and investment that some chapters may be summarized the business case is focused on with a brief paragraph of infographic. To • Identifies next steps for the ensure the Executive Summary is concise, investment’s analysis process only the key elements of the business case narrative should be included. Summary chapters do not need to Additional contextual, background, and identify a single preferred option. Rather methodological information should not they should focus on providing the key be a focus of the Executive Summary. information that will assist decision makers and stakeholders to understand the merits and potential drawbacks related to the investment and its options. Summary sections may suggest refinements to options based on key lessons learned from each of the four cases.
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Glossary
Business Case A generic term for a collection of evidence which, when assembled in a logical and coherent way, explains the contribution of a proposed investment to organizational objectives. It supports decision- making process to sift options, select a preferred option, and optimize the preferred option.
Business Case Framework A four chapter approach to assembling business case evidence that is based on international best practice. It requires the integration of strategic fit, economic and finance, and deliverability and operations evidence.
Business Case Review The concept of evaluating options and selecting a preferred option is enshrined within international best practice of business case development. However, there are situations when a simple business case “health check” is required to assess the business case performance of a single option, typically for an investment that has already been approved. This type of study is known as a Business Case Review.
Benefit Cost Analysis Analysis that is undertaken to describe an economic and/or financial cost benefit ratio.
Business as Usual Scenario The baseline against which options are compared where the intervention has not occurred and existing business practices, committed plans and general trends continue into the future.
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Economic Benefit Cost Ratio The ratio of societal benefit to societal cost, this ratio describes the benefit to society in economic terms, expressed as a return per dollar invested.
Economic Net Present Value The Present Value of Benefits minus the Present Value of Costs.
Future Year Transportation Forecasting exercises typically use a future year and Land Use Baseline that is 15 to 30 years in the future. The intervention under consideration is assessed against this future year understanding of land use and transportation networks. As there is considerable uncertainty surrounding these forecasts (and because there are iterative interactions that the intervention under consideration may trigger), it is good practice to assess alternative future year baselines.
Investment Business cases are applicable to assess the case for anything that requires investment including projects, programs, and policies, both small and large. For the purpose of this guidance, all such investments are referred to as “interventions”.
Multiple Account Evaluation Metrolinx previously used a Multiple Account Evaluation Framework to structure economic analysis of transportation investments. The business case framework incorporates a modified version of this framework within the Economic and Financial chapter
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Glossary Table 8.1: Economic Parameters
Parameter Purpose Value
Over time, the value of a cost or benefit will decrease – Social Discount Rate as a result, a social discount rate is applied. The social 3.5% discount rate reflects society’s time preference for money.
In the absence of input specific guidance, growth in all After 30 years from Growth Cap inputs to the evaluation (example: user benefits) should the base year of be capped after 30 years to reflect uncertainty. project evaluation
5 to 60 years (depending Different evaluation periods are used for different Evaluation period on investment levels of investment and scales of options. lifecycle/impacts)
All values should be discounted and, if necessary, escalated Dollar value to a common year defined at the onset of the study, Real, year of evaluation Typically this will be the year the evaluation takes place in.
Glossary Table 8.2: Financial Case assumptions
Parameter Value
Discount rate 5.5%
Inflation Rate 2%
Capital and Operating and Maintenance Cost 1% until 30 years from the base year of project evaluation, 0% after Escalation
Amortization Straight Line based on useful lifecycle
Financing Costs FY 2016/17 and beyond = 5.78% for any capital costs paid for by the Province of Ontario.
Labour Benefits 25% of salaries
Avg. Fare Price Calculated on an investment by investment basis
In the absence of input specific guidance, growth in all inputs to the evaluation Capping all growth (example: user benefits) should be capped after 30 years to reflect uncertainty.
Evaluation period 5 to 60 years (depending on investment lifecycle/impacts)
Dollar value Nominal, year of expenditure
Unit of Account Market prices
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List of Acknowledgements
Metrolinx would like to thank those Academics involved in the development of the Anindya Sen, University of Waterloo Business Case Guidance, including David Amborski, Ryerson University participants of the Business Case Graham Haines, Ryerson University Guidance workshop. The participants, Matti Siemiatycki, University of Toronto all experts in transportation, economics, Robin Lindsey, University of British Colombia and public policy, provided independent, objective advice on the draft Business Non-Profit Organizations Case Guidance, which was considered Carolyn Kim, Pembina Institute during the development of the first Lindsay Wiginton, Pembina Institute version of the Guidance released in April 2019. Special thanks to MTO Economics Methodologies Office for Ministry Of Transportation their sustained engagement and input Cristina Marcelino since the early stages of development of Felix Fung this document. Finally, Planning Analytics Sundar Damordaran would like to thank staff from across Amanda Helderman Metrolinx and the consultant team from Cvetomir Georgiev Steer who were involved in the research and development of the document. Ministry Of Infrastructure Vijay Gill
Toronto Transit Commission Mishaal Hussain
Transport Canada Nancy Bergeron
Treasury Board Secretariat Shannon Fenton Sophie Liu
Professionals & Consulting Firms Steer Marcy Burchfield, Neptis Steven Landau, EDR Group Lura Consulting
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