Chapter G1 Creating an assessment profile

G1.6 Guidance on the economic efficiency rating

Introduction

This section gives guidance on the economic efficiency rating in an assessment profile for packages and projects.

About maximising output from resources

The economic efficiency rating demonstrates how well the proposed solution maximises the value of what is produced from the resources used.

Requirement for economic efficiency determination

For projects costing more than $250,000, the rating for economic efficiency must be determined on a project-by-project basis.

For projects costing less than $250,000, no rating for economic efficiency is required to be supplied to the NZTA. However, the NZTA expects that funding applicants will provide, on request, evidence that demonstrates the economic efficiency reasons for selecting these projects, eg the activity management planning process. Where there are simplified procedures in the NZTA's Economic evaluation manual, these should be used as part of the economic efficiency judgement.

Benefit cost ratio (BCR)

The benefit cost ratio (BCR) provides a basis to rate the economic efficiency of packages and projects as follows:

BCR ≥ 4   is High

BCR ≥ 2   and   < 4   is Medium

BCR ≥ 1   and   < 2   is Low

Basis for calculating BCR

The basis for calculating the BCR is to be found in the NZTA's Economic evaluation manual, volume 1 and volume 2.

Non-monetised benefits

If a package or project has demonstrable non-monetised benefits that are not included in the BCR, then these should be taken into account and may, if the NZTA considers these benefits to be significant, result in a higher rating.

BCR < 2

If the BCR of a package or project is less than 2.0, then if the package or project is to be considered for funding the NZTA reserves the right to require peer review of the economic efficiency calculations including any non-monetised benefits and adverse impacts, regardless of the scope.

BCR < 1

If the BCR of a package or project is below 1, then the NZTA's assessment of any non-monetised benefits will determine whether the total of monetary and non-monetary benefits outweigh costs, in which case the economic efficiency can be rated low.

If the NZTA's assessment of monetary and non-monetary benefits is that they do not outweigh costs, then the package or project is considered to be economically inefficient. In this case, no rating or assessment profile is to be given until further optimisation of the project scope and investigation of benefits provides evidence that benefits outweigh costs.

Economic efficiency of programmes

For assessment of road operations, maintenance and renewal programmes and passenger transport programmes, alternative methods may be used in place of BCR.