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Benefit-Cost Ratio

Below is an extract from Infrastructure Australia 'Assessment Framework'  -  March 2018

"Benefit–cost ratio:
The benefit–cost ratio (BCR) could be calculated in a number of ways.

Consistent with the majority of the state and territory guidelines, Infrastructure Australia recommends the use of the following formula:

BCR = benefits* / (investment costs + net increase in operating costs)**

*  generally represented by the PV of total benefits

** generally represented by the PV of total costs

The benefit and cost measures above are incremental to the base case and discounted over the evaluation period (i.e. present values).

A BCR equal to or greater than 1 for the central case indicates that the project has economic merit (i.e. the present value of benefits exceeds the present value of costs) and is used to rank projects in a budget constrained environment.

To calculate the BCR, proponents can use costs at P50 or P90 level, or single point estimates if reliable historical data exist."

Seemingly, a forecast or estimated B-CR that is assigned -

*    P90 assumes a 90% probability of achievement; and

*    P50 assumes a 50% probability of achievement;  .

See also Greenfield,  Eleven Steps To Complete A Greenfield Or Brownfield Infrastructure Project Finance Transaction.

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