2.7 Cost Benefit Analysis
Section 122C of the LGA, Principles of Financial Management, requires Council to assess the benefits and costs of different options in making any decision with significant financial consequences, including deciding to take no action. This places a requirement on Council to assess the cost/benefit of proposed work. While some benefits can be measured in simple financial terms, other benefits are not necessarily financial, or easily measured and stated in financial terms.
Section 122I provides Council with discretion in respect of the extent and detail of information to be considered, the degree to which benefits and costs are quantified, and the extent to which different options are considered.
Fundamental to Project Watershed are the existing schemes, which make up 68 percent of proposed annual expenditure. Since 1996, Council has prepared Asset Management Plans for these schemes, a process that involved extensive consultation with the community to determine the future level of service schemes would provide, and to consider the associated cost. Since the inception of the existing schemes, and through the process undertaken to prepare the Asset Management Plans the community has had the opportunity to consider and comment on the benefit of the schemes. That the community wishes the schemes to continue demonstrates there must be sufficient benefit resulting from them.
Almost 75 percent of proposed capital expenditure is for soil conservation. Economic analyses have been completed for most of the major soil conservation schemes within Project Watershed. These were either undertaken during the approval stages, or are post scheme analyses. Assessments were also undertaken as part of the development of Asset Management Plans.
The key points of the economic analyses are:
- There are both quantifiable and non-quantifiable benefits associated with soil conservation. Analysis of the quantifiable benefits and costs with and without soil conservation measures indicates an internal rate of return (IRR) ranging from seven percent to 14 percent depending on scheme.
- In regard to soil conservation, it is generally accepted that in justifying work programmes, (particularly where the IRR is less than 10 percent), promoting new programmes and continued maintenance of existing schemes relies on benefits which are not easily quantified, These include water quality enhancement and associated recreational, aesthetic and other values, such as biodiversity.
- It is evident that the wider community places considerable weight on these values and is willing to contribute toward their protection. This has been shown during community consultation for Project Watershed and other data accumulated during the promotion of earlier catchment-based programmes.
The new soil conservation work proposed is largely to extend and complete existing schemes. Therefore those who are to fund the major share of the costs, and receive the major share of the benefits, most likely understand the economics of the work. There has been rigorous discussion at liaison subcommittee level with those directly affected by the work, and support from liaison subcommittees for the work proposed indicates that they see sufficient benefit.