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Future Engineers: Weighing up the pros and cons

A new engineer-led social and economic modelling tool has the power to turn around funding decisions, breathing life into projects that would conventionally fail to win support.

Every major infrastructure project in the UK has to go through a cost-benefit analysis process to prove that there is a strong enough business case to justify public money being spent. But, argues Mott MacDonald project director Paul Hammond, traditional analysis methods focus on national benefits, which are important, but fail to fully capture the potential economic and development benefits to local communities. As a result, schemes desperately wanted by local public and private sectors - and by people in local communities themselves - often fail to attract funding.

Hammond cites the example of a typical cost-benefit analysis for a road or rail scheme, which is based primarily on the value placed on reducing journey times. “The time saved for businesses isn’t the most important factor,” he says. “It is the utility of that road or rail - what are the people doing when they get out of their car or get off the train? How will it improve their earnings or productivity?

“What you need to look at is what is the value of that new development to the economy.”

Hull corridor

Waterfront redevelopment: The River Hull corridor is a keyarea of regeneration for Hull

Hammond, who heads up Mott MacDonald’s economic and social development team, says that traditional macroeconomic appraisal models take a “top down” perspective, whereas what is needed is a “bottom up” approach that takes the local community as the starting point. His division has developed a model that adopts this approach, while fulfilling the requirements of the Treasury’s Green Book guidance for appraising project proposals.

The transparent economic assessment model (TEAM), as it is known, takes account of a wide range of factors including creation of and access to employment, entrepreneurialism and trade, healthcare and education, travel and leisure, economic and regenerative stimuli, waste reduction, safety, health and wellbeing. It uses verified data from organisations such as the Office of National Statistics and the Homes & Communities Agency, to calculate exactly how many jobs and how much money would be generated locally by any proposed project.

Produced in association with Mott MacDonald

Case study: A47, Norfolk

Norfolk County Council and the A47 Alliance of local stakeholders have long been campaigning for major improvements to the entire length of the A47 trunk road, which runs through the county and beyond into Cambridgeshire in the west and Suffolk in the east.

Their main argument has been that the poor quality and unreliability of many parts of the route mean it does not function as the “gateway to growth” it should be. But if all the upgrades were completed, the cost would be £1.5bn, according to Department for Transport (DfT) estimates.

“At the moment the case for doing the whole road isn’t strong enough, and there just isn’t the money there,” explains Mott MacDonald principal consultant Stephen Cox. “But if you accept the road is a single strategic route, then break it down, you can judge the benefits of each intervention.”

These “interventions” are the 13 projects that make up the overall upgrade programme, a mix of selected dualling, junction improvements and a new river crossing in Great Yarmouth, with costs ranging from £2M to £150M. Mott MacDonald has used its TEAM approach to analyse the net additional economic benefits of each sub-project, and has been able to highlight where the greatest and fastest social and economic gains could be achieved.

Traditional cost-benefit analyses for major schemes focus on the savings achieved by reducing travel times - in this case a reduction of 30 minutes between Norwich and King’s Lynn, valued at £42M a year. But the TEAM analysis looked at the value to the local economy of each of the 13 schemes.

It showed that, over 20 years, bringing forward improvements such as junction upgrades, would result in the creation of 9,600 jobs, construction of 3,200 homes and investment of nearly £500M in local businesses, increasing the gross value added to the local community by £390M a year. It also provided important information that helped secure private sector and Local Enterprise Partnership (LEP) funding for some of the projects. As Cox says: “The analysis linked each scheme into the financial and economic situation of the county.”

The first scheme, an improvement to the Norwich Southern Bypass, has gained funding and planning approval, and is under way.

 

Mott MacDonald has used TEAM to help clients achieve funding for schemes that would fall short in a traditional cost-benefit analysis, as well as enabling clients to compare the benefits of different options. “What TEAM does is it takes a very complicated economic approach - the Green Book - and makes it very transparent,” says Hammond. “It takes the policy intervention - which could be a new office, a new highway or bridge, or a new housing development - and analyses the impact of that intervention on local jobs and the local GDP.

“The challenge in any sort of appraisal is the amount of time and resources available to put into it,” he adds. “A lot of our clients are used to investing in consultations for major scheme business cases. What we’ve done is allowed them to streamline that process. This [appraisal] comes before the major scheme business case, giving them a chance to look at the economic impact of all the options.

“For our clients it is a really powerful tool,” he adds. “The USP [unique selling point] of the model is that it always gives a monetised number, which is what the Green Book is looking for.”

Case study: Merthyr Tydfil - £4.7M in new employment

Merthyr Tydfil

Mott MacDonald was appointed by Merthyr Tydfil County Borough Council in 2013 to prepare an economic impact assessment of a bid it was making for money from the Welsh Government’s Vibrant and Viable Places regeneration programme.

The council had identified a range of housing and enterprise-related projects to regenerate the Pontmorlais area of the town, but was struggling to articulate the economic benefits of the projects. “This is quite a deprived part of town, with some potential for growth, but there was no money available and a lack of market demand from developers because it is too far from Cardiff - so they needed to find a way to plug that development gap,” explains Mott MacDonald principal consultant Stephen Cox. “They brought us in to substantiate the outputs and benefits that the individual projects would deliver.”

Using its economic impact model, Mott MacDonald showed that the combination of new housing and enterprise projects would generate 196 permanent full time equivalent jobs, putting around £4.7M back into the local economy in the first three years.

The analysis took a very realistic approach to the potential for regeneration in this area, and recognised that salary levels would be lower than the Welsh average, because many of the new jobs are for people moving from benefits to employment. “These are fairly low value jobs, but employment is exactly what Merthyr Tydfil needs, because there are people with the right skills who are currently locked out of the jobs market,” says Cox. The housing projects are intended to stimulate the local housing market by overcoming barriers and providing sites that are ready for development. Mott MacDonald’s model included the construction jobs generated by building these new homes.

The analysis helped Merthyr Tydfil County Borough Council secure the funding it was looking for, and the projects are now
under way.

The consultant is currently using TEAM to identify the economic impacts of proposed major rail and metro routes both in the UK and overseas.

“We have looked at the economic benefit around each station, explains Mott MacDonald principal consultant Stephen Cox.

“The model takes a very micro level approach - an area of 200m to 300m from each station - and looks at what is in that zone of influence, and how that could change if the railway is built.”

One important aspect of the model is that it can break down a major project into individual sub-projects and show the economic benefits of doing each of these sections of work separately.

This is very helpful to clients that do not have the money for the entire project, as they can decide which elements to prioritise, as is the case on the A47 in Norfolk (see box).

Case study: River Hull and Flood Defence Scheme

Hull flood alleviation

Turning the tide: A flood alleviation scheme has been incorporated into the regeneration of Hull waterfront

The Environment Agency (EA) is working with local partners to implement flood alleviation schemes in a way that also meets economic and social development objectives.

Mott MacDonald has advised the EA on the potential economic benefits that could emerge from incorporating enhancement projects along the waterfront of the River Hull into a planned flood alleviation scheme for very little extra cost. The River Hull corridor is a key area of regeneration for Hull, which did not benefit from the urban renaissance enjoyed by other UK cities during the last property boom.

“The corridor includes a lot of development land that no-one’s been interested in. This scheme would enhance the area and make it much more attractive to develop in the future,” explains Mott MacDonald senior
economist Miriam Ferrari.

The study focused on quantifying the potential economic benefits that could emerge from the River Hull+ flood defence scheme, to help the EA unlock funding from other sources so that the enhancements could be incorporated. The consultant used TEAM to look at three types of potential benefits: regeneration and economic benefits, visitor economy benefits, and community and social benefits.

TEAM assessed the potential regeneration and economic benefits derived from making the area more appealing and attractive for development, using information about the various employment sites along the river corridor and potential land use changes. It suggested that the scheme would contribute £1.4M of net gross value added (GVA), and 39 new jobs a year.

Mott MacDonald also assessed the potential for attracting more visitors to the enhanced waterfront area and for increasing spending by those who already visit. The scheme has the potential to support Hull’s role as UK City of Culture in 2017, and help the city achieve its tourism targets. Overall the total tourism impact from the scheme was calculated to be in the range of £3.2M of net GVA and 92 jobs between 2015 and 2020.

Community and social benefits arising from the renaissance of the waterfront are harder to quantify, but the study found that new development and pathways linking the River Hull frontage to the city centre would have a positive effect on the views of residents and the way they navigate through their city.

The calculations demonstrated that, by adding just £2.5M to the overall project cost, significant potential economic benefits could be generated.

 

Hammond says the model’s clear outputs also make it easier for public sector clients to approach private developers and funding bodies like Local Enterprise Partnerships (LEPs), as they can be armed with robust and justifiable numbers to show why it is worth investing in an area or project.

Mott MacDonald has already used TEAM during a public enquiry for a road project that had a negative benefit-cost ratio (BCR) using a traditional transport appraisal.

“The wider analysis showed that the road would unlock associated development sites and generate jobs; and that over 30 years it would overcome the negative BCR,” says Hammond.

The company is continuing to develop the TEAM model, which is currently geared mainly to transport and building projects. Hammond believes there are other sectors where it could be successfully used, including water, environment and tourism.

Mott MacDonald is also looking at whether the model could be linked into BIM for future projects.

The current political climate means the need for accurate and transparent economic appraisal modelling will only increase,” says Hammond. “Government is determined to promote economic growth. Quantifying growth and demonstrating value for money is central to that.”

Case study: HS2 Rail College, Doncaster

HS2 rail college

Mott MacDonald helped Doncaster to be chosen as one of two sites for a new college that will provide vocational training to the next generation of engineers working on High Speed 2 (HS2) and beyond.
The Centre for Rail Engineering & Technical Excellence (CREATE) at Doncaster’s Lakeside Campus was selected - along with Birmingham - as home to the high speed rail college following a competitive consultation process. All bids were assessed against a range of criteria, including the size and availability of the site, accessibility, and the potential to develop strong links with employers and providers already operating in the sector.

One of the main proposals for CREATE was to position it as a potential British version of the Massachusetts Institute of Technology in the United States. The team also spoke regularly with the ICAM School of Engineering in Lille in France.

The Mott MacDonald team supported the bid by Sheffield City Region and Doncaster Metropolitan Borough Council, advising on the college’s location, assessing the economic impact the college would have, and supporting the client to obtain public backing from locally based international businesses like Hitachi Rail, Wabtec, DB Schenker, Volker Rail and Tata. It also worked with neighbouring councils, local chambers of commerce, and education organisations including the University of Sheffield Advanced Manufacturing Research Centre and Sheffield Hallam University.

“Doncaster’s business case was excellent,” says Mott MacDonald project director Paul Hammond, who claims many people considered Doncaster to be an outside contender at the start of the bidding process.

“We helped them present it as effectively as possible and backed it with economic numbers and knowledge of the sector.

“The project will be a great addition to the town and the wider region; it’s a potential economic game changer,” he adds.

 

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