ANALYSIS OF A COST-BENEFIT STUDY: LESSONS TO BE LEARNED FOR LARGE INVESTMENT PROJECTS IN PORTS AREAS



ANALYSIS OF A COST-BENEFIT STUDY: LESSONS TO BE LEARNED FOR LARGE INVESTMENT PROJECTS IN PORTS AREAS

Authors

K De Langhe, C Sys, E Van de Voorde, T Vanelslander, University of Antwerp, BE

Description

This paper deals with the typical pitfalls made when conducting cost-benefit analyses for large-scale port investment projects. The research allows deriving a number of recurring errors, and also provides a set of recommendations for better projects.

Abstract

It is generally accepted that seaports are of crucial importance to a nation?s development and welfare. It is also for that reason, and of course because of the magnitude of the investments needed, that in most cases, public authorities intervene in the construction. For that reason, a cost-benefit or similar analysis to be conducted is a natural step to take before taking the decision to build or not to build a project, so as to test whether the public money is well spent. But even when investments are largely or entirely in private hands, it seems necessary to conduct a similar project evaluation analysis, as seaport projects usually have a large impact on the economy (employment through construction, permanent impact after construction, tax income for governments, etc.), space consumption, negative environmental and social externalities, etc. For that reason too, it is to be tested whether the available space could be better used for other investment options, i.e. whether the opportunity cost of the planned project is high.

In this paper, a cost-benefit study performed for a large dock construction project in the Port of Antwerp is conducted. In the meantime, the dock is present, and therefore, estimated costs and benefits at the time of planning can be confronted with the actual costs and benefits as observed during and after construction.

It turns out that from the confrontation, a number of conclusions as to typical errors can be drawn, and a number of recommendations can be given. In the conclusions section, it turns out first of all that planning periods in construction projects are nearly always underestimated. This has to do with the increasing severity of consultation and appeal procedures that need to be respected. Second, inflation should be duly taken care of. Third, expropriations which were conducted are very often considered to be part of general port developments. In practice, they require most often additional actions specific to the new project. Traffic forecasts are an other issue, where especially the benefit side is very often going wrong. Time and cost savings due to the new facilities are also very often underestimated.

From the ex-post analysis and the previousy mentioned lessons, a number of recommendations can be derived. First, all impacts should be included, and the impact of probability changes of certain conditions or events should be estimated. Second, consultation but also better co-ordination among government agencies concerned can have a big impact on costs incurred. Third, price and tax evolutions should be accounted for. Fourth, insurance claims should be duly traded off against the benefits or savings of further delaying a particular sub-project. Finally, renegotiation options of contracts should be considered.

It turns out that take into account the above recommendations can have a big impact on the final financial outcome of a project, impacting both on costs and benefits. For governments, especially in times of budget restrictions, as well as for the wider society, better port investment projects can be selected for implementation.

Publisher

Association for European Transport