Guide to Calculating Mobility Management Benefits Victoria Transport Policy Institute
Economic Evaluation This guide describes economic evaluation (also called economic analysis or appraisal), which involves determining the value of a policy or program (Litman, 2001). This can help answer planning questions such as whether a particular option is cost effective (benefits exceed costs), which of several options provides the greatest value (optimization), and how impacts are distributed (equity analysis).
Economic impacts refers to benefits and costs. These include both market impacts (involving goods commonly traded in markets, such as land, fuel and labor) and non- market impacts (involving goods not normally traded in markets, such as personal travel time, pain and suffering, and ecological damages). These can be defined in terms of objectives or their opposite, problems (for example, if congestion is a problem, congestion reduction is considered an objective), or in terms of benefits and costs (if congestion is a cost, congestion reduction is a benefit). Planners tend to use the terms objectives and problems (which are more qualitative), while economists tend to use the terms benefits and costs (which are more quantitative), all of which are different approaches for evaluating the same impacts, as illustrated in the table below.
Ways to Describe An Impact
Objective, Problem, Benefit and Cost are different ways to describe an impact.
Economic evaluation is based on net benefits; incremental benefits minus any incremental costs, including program costs (costs of program implementation), and any external costs (costs to other people). For example, a telecommuting program’s net benefits are the benefits of reduced automobile commuting minus program costs (costs for any additional telecommunications equipment or services), and any external costs from additional vehicle trips for errands that participants would otherwise make while commuting. Economic analysis requires an evaluation framework that identifies:
Evaluation method, such as cost-effectiveness, benefit-cost, lifecycle cost analysis, etc.
Evaluation criteria, the impacts considered in a particular analysis.
Modeling techniques, which predict how a policy or program will affect travel and land use.
The Base Case, the conditions assumed to occur without the proposed policy or program.
Comparison units, such as costs per lane-mile, vehicle-mile, passenger-mile, etc.
Base year and discount rate, which indicate how analysis reflects the time value of money.
Perspective and scope, such as the geographic range of impacts to consider.
Dealing with uncertainty, such as which statistical tests will be used.
How results will be presented, such as reporting standards and format.