Transport business cases: Beyond the BCR

Over the past few years, I’ve presented on several occasions to colleagues and customers that a transport business case is not just a BCR (benefit-cost ratio). As part of these presentations, I’ve talked about how a BCR only monetises a limited proportion of a scheme’s true economic, environmental and social benefits (or disbenefits).

The BCR can therefore never give a fully rounded picture of value for money particularly where a scheme aims to deliver a wide range of outcomes beyond transport – ie wider Placemaking.  Recent changes to HM Treasury and Department for Transport guidance reflect a desire in central government to move away from an over reliance on BCR in funding decisions.

Not Just a BCR

Of course, business cases have never just been about the BCR, but there has sometimes been a tendency to view this as the most important factor when determining a funding decision. The limitations of this approach are widely recognised – not the least the narrow focus this brings – both in the range of impacts that are appraised and the type of scheme that tends to be feasible when this becomes the key determining factor in gaining funding approval. In other words, there was a problem with schemes being designed to maximise benefits according to these criteria, rather than meeting a wider range of strategic objectives. The argument in defence of the BCR ran that they give a consistent and strong quantitative basis for decision makers to compare proposals and assign funding.

Over recent years there has been a recognition amongst funders and decision makers that the BCR should still be a key consideration in allocation of public funding, but it shouldn’t carry a disproportionate weight. This culminated in a review of HM Treasury’s Green Book, which provides guidance on business cases and appraising policies.

The 2020 review found a “common failure of those writing appraisals to engage properly with the strategic context in which their proposal sits resulting in business cases that do not address the contribution of a proposal to strategic policy goals…with a lack of strategic direction now baked into the appraisal process, the selection of the option to be presented as the best becomes heavily reliant on a Benefit Cost Ratio (BCR) that is not aligned to the decision makers’ objectives”. Updated versions of the Green Book have sought to address these failings.

TAG spending objective analysis

Principals of the Green Book underpin the Department for Transport’s Transport Analysis Guidance (TAG). Since 2020, TAG updates have incorporated elements to reflect the updated Green Book including place-based analysis and uncertainty analysis.

The latest set of changes, published in November 2023, include a new unit titled TAG spending objective analysis which “helps ensure that economic analysis engages with the strategic context of the appraised scheme…(helping) business case authors to systematically connect the economic and strategic dimensions of the business case, allowing a more structured and consistent presentation of evidence across the two dimensions.” Furthermore, “this will help to ensure that the strategic dimension is analytically informed, evidence-based, and robust. This should reduce the risk of overly optimistic claims being made in the strategic dimension regarding the benefits of the proposal.”

The guidance goes on to suggest how spending objectives analysis can be conducted proportionally at the long-list and short-list stages of option appraisal. Prior to the long-list stage, the guidance sets out the need to establish SMART spending objectives and states “the default approach is that options which do not achieve spending objectives should be ruled out at the long list appraisal stage.” This process is already commonly carried out as part of option sifting using the DfT’s EAST tool or other multi-criteria analysis (MCA).

At the short-list stage, a number of qualitative and quantitative techniques are covered which should be referenced in the strategic dimension including:

1. Disaggregating TAG impacts: a BCR or VfM category provides an overall assessment of the social value of a project but does not give information on its value for individual strategic objectives. By disaggregating and mapping impacts to objectives it is possible to see how successful the proposal is in realising the desired strategic outcomes.
2. Composite measures – where spending objectives relate to multiple TAG impacts or part of an impact.
3. Supplementary analysis including distributional analysis, place-based analysis, individualised impact analysis, programme level; and transformational impact analysis.

Individualised impact analysis in particular is an area that the Sweco team (and no doubt other practitioners) have recently included within business cases for Local Authority promotors so this guidance is useful in that formalises the approach. It also provides something that we can ‘point at’ in a situation where there is a low BCR and we are advising that a strong case for investment can still be made due to alignment with strategic objectives.

Sweco has recently presented individualised impact analysis in a business case for walking and cycling improvements in Bradford City Centre, a scheme that is now under construction. This involved analysing and presenting changes in pedestrian and bus journey times for routes (individual journeys) as well as in the aggregate. Further narrative was also added to reflect how the scheme enabled the ambitions of Bradford which will host the 2025 UK City of Culture.

Spending Objective Analysis Statement (SOAS)

The new TAG unit advises findings from this analysis should be reported in the Value for Money (VfM) statement and summarised in a ‘Spending Objective Analysis Statement’ (SOAS).

It is perhaps this part of the guidance that provides the most practical advice. It explains how to include analysis in the business case to ensure that strategic alignment is recognised as a consideration as part of an evidenced decision-making process.

The guidance is nothing revolutionary in this sense, but does show a simple way to present information including both quantified and qualitative analysis. It goes onto say that uncertainty should be considered and finally a summary narrative drawing conclusions and including an assessment of potential trade-offs between options in terms of spending objective impacts. The guidance describes the SOAS as “complementary” rather than additional to the VfM statement noting that double counting should be avoided.

Summary

The new guidance on spending objective analysis and reporting in a SOAS, brings DfT guidance further into line with recent releases of the Green Book. It is likely that business case authors and promotors are already using some of the analysis techniques suggested to develop, sift and appraise options, as well as demonstrating alignment of proposals with strategic objectives, but this guidance should lead to more consistent reporting.

The guidance highlights the importance of making references between outcomes in the strategic dimension to evidence in the economic dimension and how to summarise findings in the SOAS, which is complementary to the VfM statement.

There remains a nervousness amongst some practitioners, scheme promotors and decision makers in moving away from the (false) certainty of BCRs. This latest guidance could be interpreted as part of a shift from quantification in transport business cases. Instead, I would view this as part of a process of recognising that only a limited range of impacts can be reliably monetised, creating a particular challenge for transport scheme proposals that have broader objectives such as environmental or regeneration.

A more nuanced view of value for money is required in these situations and the analysis sets out a framework for supporting conclusions that consider a wider range of benefits.

It is therefore part of the move away from over reliance on a single number -the BCR – to a more entwined strategic and economic narrative supported by both quantitative and qualitative evidence.