5. Role in prioritisation of initiatives
When it comes to prioritising across a list of initiatives, CBA is also the primary tool to use (see F5). Indeed, prioritising initiatives by a productivity metric such as ‘productivity BCR’ instead of the conventional benefit cost ratio (BCR) could result in significant losses of other benefits. The losses are mainly savings in travel time for non-business car and public transport users, because a pure productivity metrics approach attaches zero weight to all non-productivity benefits. Sole reliance on productivity metrics to make decisions is to be avoided.
A compromise approach to prioritisation is to use the adjusted CBA technique in NGTSM06 (Vol 3, section 2.12) with productivity benefits given a weight greater than one. Initiatives would be prioritised using the ‘adjusted BCR’ obtained from the weighted sum of initiative benefits (including WEBs). The size of the weight represents the value decision-makers place on additional productivity benefits relative to non-productivity benefits.
Starting with the priority order of projects from unadjusted descending BCRs, as the weight for productivity benefits is progressively increased, pairs of initiatives swap places in the priority order. The first swap to occur is the cheapest in terms of non-productivity benefits forgone to gain additional productivity benefits. Say the weight was set at two, swaps in the priority order would only occur where the additional dollar of productivity benefit gained from the swap came at a sacrifice of less than two dollars of non-productivity benefit. More expensive reorderings of priorities in terms of non-productivity benefits forgone in order to gain additional productivity benefits would not occur.
The weighting approach offers a simple and transparent approach to reconcile decision-making using conventional BCRs and productivity BCRs while controlling the potential economic efficiency losses in terms of foregone non-productivity benefits.
5.1 Next Steps
The next step is to receive feedback from stakeholders about the merit of using productivity metrics to aid decision-makers.
An important barrier limiting application of productivity metrics is the poor quality of estimates for Australian WEBs parameter values (see T3). An important step forward is the improvement of those estimates, which will in turn improve the quality of productivity metrics estimates. As indicated in T3, work planned for 2015 should lead to a significant improvement in the quality of WEBs estimates.