Discussion Paper     Defined Terms and Documents     Written Question With Notice     Annexure A    Annexure B    

Centralising Cost Benefit Analysis audit responsibility to the Productivity Commission will evidence valuable synergies from concentrating knowledge, collaboration, economies of scale and rigid disciplines

A.    The Commonwealth Government must bolster the independence and analysis expertise of the Commonwealth Productivity Commission

Creating a clearer separation between project promoters and risk management analysts will bolster the integrity of analysis.  A balance needs to be struck between institutional separation and joint working. Good economic analysis will be an iterative process between analysts and policymakers, but it is important that C-BAs are not just post-hoc justifications of decisions already made.

The Productivity Commission should also independently assess the C-BAs conducted to ensure that each major rail infrastructure project delivers the option that enacts the objectives of ministers with the highest benefits to cost ratio. 

To effectively scrutinise modelling undertaken by State govt. departments/agencies, the Productivity Commission needs to be given the resources to employ a team of economists and engineers that will stay long term with material flow-on synergies. This ongoing additional expenditure on centralising C-BA evaluation is more than justified by the medium to long-term billions of dollars Public Purse annual savings that would be realised.

As the Productivity Commission further invests in C-BA resources/skill/expertise (with additional economic analysts and civil engineers) its Gatekeeper ‘Public Purse’ safety net role will reap additional economies of scale – not attainable by individual States.

B.      State Govt Ministers need to be honest about the data and assumptions underpinning C-BA

Ministers must improve the way they communicate C-BA to the public. This means being transparent about the assumptions that underpin each C-BA, making the relevant data available to the public and presenting benefit–cost ratios as a range of possible outcomes rather than a single number.

Greater transparency can strengthen both the quality of decision making and public trust in the process. Local communities affected by infrastructure projects, academics and other stakeholders can act as auditors, refining assumptions, providing additional data and identifying issues that may have been missed by officials. Making greater use of the expertise that lies outside of government departments and agencies will help to expose dubious early cost estimates in early-stage business cases, improving project design and selection.

Furthermore, greater honesty with the public about the uncertainty of costs, timescales and likely benefits when projects are announced would provide more political space for ministers to make amendments or cancellations at a later stage. State Governments should revisit decisions considering new technological, social or economic developments and will find it easier to do so if the assumptions underpinning C-BAs are clearly communicated .

C.      Post project C-BA evaluation of rail infrastructure projects

The Productivity Commission should carry out a post project audit for major rail infrastructure projects.  Where these projects are particularly ground breaking they would bear lessons for other future projects.  Hence, the findings from such audits should inform the future work of the Productivity Commission and be incorporated into training for project leaders.

Policymakers and Govt. ministers do not always sufficiently understand C-BA, viewing it as either a hurdle to jump or a decision-making tool.  Analysts can help by being clear about which assumptions are critical and what might happen to the value of a project if assumptions changed.  Published results still tend to be in tables rather than charts and graphs, where the latter can communicate uncertainties in a more visual way. 

D.    Training for officials and ministers should be expanded

It is critical that training is not limited to analysts. Senior public servants and ministers, the people making decisions, need to understand the sensitivity of estimates and have the confidence to challenge underpinning assumptions. The skills of ministers are rarely nurtured in a formal way. Ministers with infrastructure responsibility should have deeper and more regular engagement with the Productivity Commission.

Decision making is improved if officials in policy, delivery and commercial teams have a better understanding of analysts’ work. Similar training should be widely available. The Commonwealth Productivity Commission is best equipped to provide this, with priority given to public servants from Transport for NSW, Transport Victoria et al in other Australian States.

The Productivity Commission should bring together staff working on transformation projects to share their work and develop a joint approach to delivering transformation entailed in this Discussion Paper.

(Some of the recommendations/proposals contained herein were drawn from How to value infrastructure - Improving cost benefit analysis - 20 Sept 2017 - Graham Atkins - Nick Davies - Tess Kidney Bishop)