Auckland City Centre Rail Link - Business Case Review - Ministry of ...

Auckland City Centre Rail Link Business Case Review | May 2011
Appendix G: Net cost/benefit
1.1 Summary
To compare projects and options, the various costs and benefits are identified each
year over the modelling period. This stream of costs and benefits is then summed
into a single net present value using a discount rate to reflect the ―interest effect‖
where benefits and costs in the future are worth less to someone today (in other
words, to be compensated for deferring a payment for a year, interest needs to be
paid). The NZ Transport Agency material also sets out another related test, the
benefit cost ratio (BCR) which uses the same data as the overall cost benefit analysis
but presents it as a ratio which helps to identify relative priorities for projects,
especially relevant when funding is tightly constrained.
The Business Case prepared a range of cost benefit and BCR calculations and the
methodology was assessed as part of this Review. The Review found that while
there were minor irregularities in the approach, they did not have a significant effect
on the BCR. The one point identified is the need to use the BCR (National) rather
than a BCR (Government), as the latter subtracts revenues from costs with a
consequential inflation on the apparent BCR. The table below sets out a summary of
the net present values calculated by the Review.
46