The Lost Honour of the Benefit-Cost Ratio



The Lost Honour of the Benefit-Cost Ratio

Authors

Yaron Hollander, Transport for London

Description

The paper is a humble reminder that the BCR is a component of the appraisal rather than a summary measure.

Abstract

In the UK, both the Department for Transport and Transport for London promote a balanced approach to project appraisal, where metrics such as the Benefit-Cost Ratio (BCR) are complemented by an investigation of the strategic aspects of each investment option. This paper contains a few basic reminders, for those assessing transport investments, that the BCR is one component of the appraisal rather than a summary measure. Issues covered in the paper include the role of the BCR in a multi-criteria analysis (MCA); the visibility of the BCR; the comparability of the BCR between projects; the comparability of the BCR between different options of the same project; the BCR and uncertainty; the BCR and innovative investment. The paper includes several examples to illustrate the dilemmas involved in selecting the preferred option in an appraisal. Some of these examples are imaginary and others are based on recent projects assessed by Transport for London.
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Publisher

Association for European Transport