1. Economic impact assessment
Methodologies and approaches to valuation
Presenter: Alan Smart Location: Washington
March 2017

2. Concepts of value

3. Economic welfare analysis
Consumer and producer surplus
Need to know what consumers are prepared to pay
Willingness to pay surveys
And at what price producers are prepared to produce
Usually commercially sensitive

4. Welfare analysis for a public good

5. Cambridge study – Pollock et al
Studied large scale topographic mapping and transport network products – sales worth £70 million
Concluded that a move from average to marginal cost pricing would increase economic welfare by £156 million

6. Value added Value added is the value of output less the cost of inputs
Indicates economic contribution of a sector to the economy
Gross value added is the main component of GDP

7. The value added approach
Economic contribution of Ordnance Survey in Great Britain – Oxera 1999

9. Economic impact assessment
Assess the net benefits of a change in policy or an investment
Compares a reference case to a counterfactual
Benefit cost analysis
CGE modelling
Input output multiplier analysis
Real options

10.  productivity x adoption = direct impact

11. Benefit cost analysis
Focuses on a specific investment or policy change
Uses discounting techniques to bring a time series of benefits and costs to a common year
𝑁𝑒𝑡 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒= 1 𝑛 𝐵(𝑛) (1+𝑟) 𝑛−1 − 1 𝑛 𝐶(𝑛) (1+𝑟) 𝑛−1
r = discount rate
B(n) = benefit in year n
C(n) = cost in year n

12. Estimating benefits Tangible benefits Intangible benefits
Direct benefits
Market prices and quantities (adjusted as necessary for monopoly pricing or subsidies)
Indirect benefits
Defensive expenditure or substitute cost method – e.g. reduced average annual damage costs from flooding or fires
Time saved by citizens
Intangible benefits
Stated preference
Willingness to pay surveys
Contingent valuation
Revealed preference
Travel cost method
Hedonic pricing

13. When all else fails – benefits transfer
Draw on comparable studies elsewhere to gain an indication of the benefits e.g.EVRI
EVRI contains over 2000 studies
Mostly contingent valuations
Summarises:
- topic subject
method of measurement
results
- Reference to further information
Sustaining member citizens have free access

14. Computable General Equilibrium (CGE)modelling
Economy wide approach
Estimate direct impacts and use general equilibrium model to translate into economy wide impacts
Takes into account resource transfers within the economy as a result of change
Direct impacts
changes in productivity of labour or capital or multifactor
changes in resource availability
changes in income or trade
CGE model estimates total impacts (direct plus indirect) for the economy as a whole

15. Economy wide impacts Direct impact NATIONAL ECONOMIC IMPACTS
OUTPUT AND VALUE ADDED
Direct impact
PRODUCTIVITY IMPROVEMENT
Additional supply of scarce factors
Crowding out effects
Exchange rate effects
Precise positioning used in road transport
Decreased per unit road transport price
INDirect impactS
Lower input costs
FLOW ON BENEFITS
Lower production cost for users of road transport
Increased access to factors
CROWDING OUT
Lower production by competing sectors (eg rail, coastal shipping)
TERMS OF TRADE
Lowered average export price to stimulate exports
Higher import demand due to higher consumption
NATIONAL
ECONOMIC
IMPACTS
GDP
Employment
Consumption
Investment
WELFARE
(real income)
PURCHASING POWER

16. Some published studies
Year
Organisation
Issue
Results (GDP)
2008
ACIL Tasman
Value of spatial information in Australia
$6 billion-$12 billion in
7% higher if barriers removed
2009
ACIL Tasman/SKM/Ecological Consultants
Value of Spatial information in New Zealand
$NZ1.2 billion
$NZ 1.6 million with barriers removed
2010
Value of earth observation from Space
$3.3 billion in
ConsultingWhere /ACIL Tasman
Value of geospatial information for local government in England and Wales
£320 million higher in as a result of geospatial information
Allen Consulting
Value of enhanced positioning
 Total value in mining, agriculture and construction $ 0.8billion-$1.9 billion
2011
ACIL Tasman/ Lester Fanks/Consultingwhere
Value of improved SDI in Tasmania
 $105 million to the state in 2010
 2013
 ACIL Tasman
 Value of augmented positioning
 $2,2 billion to 3.7 billion in 2012
 Consultingwhere/ACIL Allen
 Value of free open data for Ordnance Survey
£13 million to £28 million 
2014
ConsultingWhere-ACILAllen
Value of better property services in New Zealand
Not published
2015
HAL/ACILAllen/ConsultingWhere
Value of geoconnections Canada
Can$20 million, 19,000 jobs

17. Reveals sector impacts

18. CGE Modelling
The strength of CGE analysis is its ability to the impact of productivity improvements across more than one sector of the economy and to account for the resulting resource shifts between sectors.
However the result is only as robust as the quality of the case studies. It requires extensive and robust case studies and estimates of levels of adoption to build credible results.

19. Questions?

20. Value of WA Land Information System (WALIS)
ACIL Tasman (2004)
Willingness to pay survey of 12 user groups to estimate consumer surplus
producer survey to estimate producer and surplus
Estimate value to WA economy was $14 – 15 million
Plus $1 million from more efficient and effective production of data

21. Cambridge study of Ordnance Survey Data
Pollock et al (Cambridge University, 2008)
Estimated demand curve to assess the value services supplied from government trading funds
Price elasticity of demand = percentage change in demand/ percentage change in price
Used multipliers to estimate broader economic and dynamic impacts on the economy

22. ANZLIC Study
PWC study for ANZLIC in 2010 used a similar methodology to address pricing policies
Change in economic welfare (consumer surplus in this case) by moving from cost recovery to marginal cost pricing is shown in table below
Report notes that this would come at a loss in revenue to the agencies concerned which has consequences for custodianship of data.
Victorian topographic
Landgate topographic
Landgate arial photography
Geoscience Australia topographic
$ million
Change in economic welfare
3.3
1.4
1.0
4.7

23. Houghton Study
Used data on increased use of spatial data from Geoscience Australia following implementation of new pricing policy
To estimate elasticity of demand
Increase in consumer surplus around $60 million over the period from 2001 to 2007
Downloads of scheduled spatial data sets from Geoscience Australia

24. POPSIS Study
European union sponsored study into pricing of public sector information (2011)
Assessed different models of supply and charging through 21 case studies (including meteorological and geographical information)
In case of zero-cost or cost-recovery number of re-users increased by between 1,000% and 10,000%.
PSI sales revenues can remain stable or even increase after drastic price cuts due to the growing demand.
Several case study public sector providers have reported that intensified ties with re-users that may lead to improved data quality and process efficiency

25. Welfare analysis
Problems in extrapolating the shape of the demand curve from single point observations
A partial analysis that does not take into account resource transfers in the economy
Eg - Planning and construction gains but lawyers lose when development approvals are streamlined
Multiplier analysis can be fraught with difficulties
“If I added up all the multiplier studies that come across my desk we would have an economy four times the size of the one we actually have”

26. Gross revenue analysis
An indication of the turnover of an industry sector such as geospatial information
Difficult to identify geospatial sector in national accounts
Hence requires surveys or estimation
Oxera – Google (2015) global revenues for Geo
$150 billion - $270 billion in revenues globally
$10 billion cost savings
Gross revenue indicates significance of an industry sector but not its economic contribution to GDP

27. Oxera findings
Largest contribution to GVA came from users of OS services and products
£79 billion to 135 billion
Around 10% to 21% of GDP of Great Britain at the time

28. Value added approach in Australia and New Zealand
Allen Consulting Group 2010 Value added in Australia - $12.5 billion
Mainly in government administration, property services, business services, construction and mining
Around 1.4 % of value added in these industries
Value added in New Zealand - $ 1.6 billion
Around 1.4 % of value added
Similar industries apart from mining

29. Economic linkages

30. Combining approaches – Oxera 2013
Direct effects
Gross value added $113 billion
Net $40 billion
Wider economy
$150 million - $270 million in revenues globally
$10 billion cost savings
Consumer savings
Fuel savings $22 billion
Education $22 billion
Source: Oxera - Jan 2013

31. Ireland 2014 Gross value added € 126 million (0.07% GDP)
Indecon Consultants
Gross value added € 126 million (0.07% GDP)
Public sector cost savings 0.2% - € 82 million
Economic value of time saved - €279 million
Competition benefits € 104 million
No calculation of economy wide impacts

32. Revenue/value added approach
Provides information about the size of the footprint
Difficulties in assessing the wider impacts
Does not take account of resource shifts nor productivity impacts
Not as useful for assessment of economic impact of geospatial

33. Waves of adoption Example from Local Government in UK
Four adoption waves
Basic use of GIS
Central storage of GIS mapping in local councils
Extend to web based applications providing wider access within and without council
Matures to enterprise applications
Each wave adds further productivity

34. Presentation of the results
Net present value =𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 −𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑜𝑠𝑡𝑠
Benefit cost ratio = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑜𝑠𝑡𝑠
Internal rate of return (IRR)
Represents the discount rate where 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑏𝑒𝑛𝑒𝑓𝑖𝑡𝑠= 𝑝𝑟𝑒𝑠𝑒𝑛𝑡 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑐𝑜𝑠𝑡𝑠
Often referred to as return on investment (ROI)
Care needed when cash flows oscillate between positive and negative
More than one solution
Care needed when ROI departs significantly from financing and reinvestment rate
Consider using modified rate of return (MIRR in excel)

35. Simple discounted cash flow
Building the Business Case –
Presenter’s Notes
12/23/2017
Simple discounted cash flow
Year 0
Year 1
Year 2
Year 3
Year 4
Total
Project Cost (€000)
-900
-700
-1,600
Contingency of10% (€000)
-90
-70
-160
Support Costs (€000)
-110
-440
Total Benefits (€000)
400
800
2,800
Net Cost (€000)
-990
-480
690
600
Discount Rate (5%)
1.000
0.952
0.907
0.864
0.823
NPV (€000)
-457
626
596
568
343
Cumulative NPV (€000)
-1,447
-821
-225
This example was compiled using the functions in-built with Excel.
See also:
“Go with the cash flow: Calculate NPV and IRR in Excel” under Help: function reference/financial
This is a handout in the file.
Payback
Point
Cumulative Net Present Value (NPV) = €343,000
Internal Rate of Return = 14% (increase discount rate until NPV = £0) 35

36. Value of the national map USGS(2004)
Benefits in improved effectiveness of decision making
Creating an emergency evacuation plan
Designating critical habitat for an endangered species
Conducting property tax assessments
Researching land cover change and deforestation
Verifying insurance claims
Net benefits estimated at $2.05 billion

37. Willingness to Pay :
Cockermouth example

38. Cockermouth flood defences
Building the Business Case –
Presenter’s Notes
01/08/2013
Cockermouth flood defences
Funding for flood protection works was limited:
Environment Agency required a local contribution of £300k towards the £5.2m scheme
Council could raise £180k from existing funds but would need an additional levy of £120k from householders
Householders asked if willing to pay between £ £ dependent on local tax banding a year for three years on their council tax.
Referendum of 4,153 homes saw householders vote overwhelmingly in favour of paying an extra levy

39. The economic impact of spatial data infrastructure -Catalonia
Surveyed
20 Local Government Authorities in the Catalan
15 end users
3 large institution al users
Valued time saved in these organisations
Net benefits €1.14 million over

40. Building the Business Case – Presenter’s Notes
12/23/2017
Non-market impacts
“Examples
Social impacts - equality: ethnicity, disablement
Personal impacts – injury, loss of life
Environmental impacts – pollution, loss of amenity
Impacts can be positive or negative
In monetary terms, a cost or a benefit 40

41. Building the Business Case – Presenter’s Notes
12/23/2017
Indicative values
Valuing time – UK Department for Transport (DfT) research
Difference between “own time” and “employer’s time”
Work time saved £29.65 (€35.30) per hour
Leisure time saved £6.39 (€7.60)per hour
Valuing prevention of fatality or injury – DfT research1
Reduction in risk of death on roads:
£1.585m (€1.900m) per fatal casualty prevented
Reduction in risk of injury on roads:
£178,160 (€212,000) per serious injury prevented
£13,740 (€16,400) per slight injury prevented
Based on WTP plus gross lost output, medical and ambulance

42. Building the Business Case – Presenter’s Notes
12/23/2017
Indicative Values
Greenhouse gases and carbon emissions
Shortage of good metrics – general approach is:
Quantify emissions impact of project
Use illustrative values for the social damage cost of carbon
Estimate the monetary value of the impacts
Study from HM Treasury gives figure in range £5 - £130/tonne carbon emitted (in 2000 prices)1
Loss of amenity – quarrying and aggregate extraction
Based on WTP per tonne extracted (1999 prices)
Hard rock £0.34 (€0.40)
Sand and Gravel £1.96 (€2.30)
Quarries in National Parks £10.52(€12.50)
National average - all types £1.80 (2.10)2
Loss of amenity:
Study estimated how much people valued avoiding the adverse effects of quarrying for construction aggregates, such as crushed rock, sand and gravel, both in their locality and in landscapes of national importance.
10,000 respondents were picked at random from areas surrounding 21 sample quarries
and other extraction sites.
They were asked how much they would be willing to pay, in increased taxes over a five year period, for the local quarry to be shut down, assuming that the site was the workers found
new employment.
Further 1,000 respondents, chosen at random from 21 English postcodes not near aggregates production sites, were asked what they would be willing to pay to close a quarry in a National Park
Results show the value attributed to the environmental damages of quarrying by people
not themselves directly affected.
National estimates were calculated for the average amount that
people are willing to pay for the environmental benefits obtained from early closure of a
quarry. These are shown below for each category of sample site:
NB always check on the latest figures

43. Example of output – Australia 2008
Scenario 1
Scenario 2
Productivity only
Productivity plus resources
Per cent
A$ billion
GDP
0.51
5.31
0.61
6.43
0.99
10.31
1.20
12.57
Household consumption
0.50
2.89
3.57
0.93
5.39
1.16
6.78
Investment
1.43
1.73
0.98
2.78
3.39
Capital stock
0.56 -
0.72
1.05
1.38
Exports
0.45
0.58
1.26
0.80
1.07
2.30
Imports
0.39
0.89
0.52
1.18
1.64
1.98
2.23
Wages
0.60
0.92
1.12

44. Value of open data for UK (2013)
OS OpenData will directly deliver a net £13 million - £28.5 million increase in GDP by The main components of this increase are net productivity gains (£8.1 million - £18.2 million) and additional tax revenues (£4.4 million - £8.3 million).
The GDP increase is net of £3.7 million per year, applied as a negative to U.K. exports to account for OS OpenData being integrated into products of companies paying taxes abroad. Despite this loss of export income, overall the value of exports to the economy increases by £6.1 million - £10.3 million as other sectors of the economy expand.
The increased exports will enable U.K. residents to purchase more foreign goods, increasing real imports by £3.6 million - £7.1 million.
Real national disposable income (real GNP) will increase £10.2 million - £24.1 million by 2016, indicating an increase in the economic welfare for British society as a whole.
Real consumption will increase £8.1 million - £20.3 million and real investment will increase by £2.3 million - £5.1 million as result of OS OpenData.

45. Other methodologies – input output multiplier analysis
Takes into account indirect economic impacts in other sectors
But assumes no resource constraints or resource reallocation
Input-output tables provide a comprehensive picture of the supply and consumption of all commodities within the economy, including detailed information on factor incomes, taxes and the source (domestic or foreign) of every commodity.
Most recent I-O tables for Malaysia are 2010
I-O multipliers are summary measures generated from input-output tables that can be used for predicting the total impact on all industries in the economy of changes in demand for the output of any one industry.
For geospatial applications prefer CGE modelling

46. Other methodologies – real options analysis
A financial option is the right but not the obligation to acquire an asset
An option has value which is higher the higher the uncertainty
Offshore oil exploration is an options play
Real options similar to financial options
The right but not the obligation to pursue an investment
Very useful when considering investments with high uncertainty
Benefit cost analysis assumes that all costs are incurred throught the live of a project
Real options recognise that certain investments may not be pursued.
Geospatial information creates options for others to develop new products and services
Can be a useful way of thinking about the value of geospatial information
But not generally recognised in the geospatial community at the present time

47. Benefit cost analysis A subset of welfare analysis
Examining a subset of the total economic impact of geospatial information