1. Economic/ financial evaluation: Why so often unsatisfactory? Urban Rail
Overview
The record of success..does it matter?
Why?
How to do better?
Conclusions

2. Success?

3. Poor Success - Does It Matter?
Opportunity cost
Decision-making
The changing market
Our profession and influence

4. Decision-making Is Flawed
Define Options
Compare
options (profit)
Implement?
Result A B C
A = 50
B = 65
C = 70
Yes > C
C=20 (not 70)
Is C Best?
Is any MRT best?

5. Causes of Poor Success 1. Decision-making by individuals/ organ’s
2. The framework for project development
3. MRT project characteristics
4. Characteristics of project dev’t process
5. The financing regime

6. 1) Decision-making - Individuals
Individual decisions:
Are not rational, unbiased
Take an ‘inside view of problems’
Do not recognise uncertainty
Are subject to escalation of commitment

7. >>> Decision-making - Organisations
Reinforces individual biases
Organisations have agendas (survival)
Want objective analysis?
…….. or reward ‘good’ forecasts
…….. while pessimism = disloyalty
Use ‘scientific’ forecasts as advocacy

8. 2) Framework for Project Dev’t
The C20th ‘rational comprehensive model’ pervades everything ……
But the political nature of policy/ project dev’t should be centre-stage
Requiring a different framework >>>

9. Framework for project dev’t
Appraisal
ECONOMIC
– value for money
POPULAR
– what the
people think
POLITICAL
the political agenda
and political process
Policy dev’t
Lobbying
Consultation
Focus groups
Public opinion

10. 3) MRT project characteristics
Have many proponents, few opponents
Are costly
Require land ….and imp’n, often in CBD
Have increasing complexity/ interfaces
Require forecasts = f( the future yrs)
……. which are: subjective …demanding….. uncertain… unverifiable - yet comprehensible

11. 4) Project Development Process
Projects dev’d over many years…many stakeholders/ discontinuities
Many decisions req’d. Each is critical
Involves =
Yet planning…imp’n…& ops are separated
No ‘template’ of what to do exists
And ever-reducing resources for planning

12. World Council for Sustainable Development
What Is Required?
“Reinvent the process of planning, developing, financing and managing mobility infrastructure”
World Council for Sustainable Development
in ‘Mobility, 2001’

13. What Is Required……. A financing regime with incentives
A managed project development process
Technical support to the process
A code of professional ethics

14. A Managed Project Development Process >>
Define a continuous, managed process
….linking Planning >>> Imp’n >>> Operations
Start by developing robust, acceptable project
Focus on institutions + decision-making
….on quality front-end planning
Opportunity risk-based management
… and on before/after studies

15. A Project Development Process
Feasibility
Study
Pre-feasibility
Study
Concept Study D4 ?
Financing
Approval?
Prelim eng’g, contract docs
Construct, equip, comm’n D6 D7 D5
Operations

16. Technical support
Req’t: provide timely, comprehensible, and balanced information to decision-makers
Continuously planning > imp’n > operations
Based on credible forecasts
…. which require a ‘reality check’
………..and comp. risk assessment
Appraisal methods to help develop consensus

17. Economic/ fin’l outturn Project implementation
Forecasting and the Project Development Process
Project operational
1. Original forecast
3 Managed outturn
Economic/ fin’l outturn
2. Benchmarked forecast (range shows risk)
Project implementation

18. Conclusions
MRT project development is poor…. economic/ financial appraisals are misleading
This matters
The reasons are deep and pervasive
Radical change is necessary
Procurement changes offer opportunities
There are 4 components
The role of economists needs to change