A Suggestion for a Better Infrastructure Report Card

by | Mar 10, 2017 | Economics, News

ASCE – The American Society of Civil Engineers – has released its 2017 Infrastructure Report Card. America’s infrastructure scores a D+[1]. The ASCE wants to make America’s infrastructure great again.

The ASCE does the ranking based on 8 criteria: Capacity; Condition; Funding; Future Need; Operation and Maintenance; Public Safety; Resilience; and Innovation.

How would the ASCE handle a case where Capacity was enhanced but Public Safety was sacrificed? That’s a bit of a problem with multiple-criteria decision analysis (MCDA), when you are comparing different concepts without a well-defined scale – you can run into some problems making comparisons and trade-offs.

Going back to a more basic view of how we should evaluate infrastructure investment – Infrastructure serves the public good. It is built and maintained for the well-being of all of us. While the case for infrastructure is often made in terms of economic benefits like jobs, GDP growth and international competitiveness, infrastructure’s raison d’être should always be to improve the well-being of citizens. Wise infrastructure investments will make us safer, give us back time, improve our finances, provide opportunity, protect the environment, and help reconnect us to each other.

We have come to understand that people’s quality of life is determined not just by profits but also by how we treat the planet. Triple Bottom Line (TBL) or people, profit, and planet thinking helps to ensure we are not compromising one area of our lives as we try to improve it overall.

Triple Bottom Line Analysis (TBL) evaluates a project or policy based on its combined financial, social and environmental impacts. The financial (or profits) impacts are the life-cycle costs associated with the project (e.g., capital expenditures, operations and maintenance, replacement costs, residual value of assets). The social (or people) impacts are the effects of a project on the broader community, quality of life or society. Finally, the environmental (or planet) impacts are the effects of a project on the surrounding environment, habitat or climate. These three values presented together form the TBL valuation.

While TBL can have the same problems and MCDA as the three separate accounts cannot easily be added up, using Cost Benefit Analysis (CBA) and a common dollar metric gets around the problem.

Cost Benefit Analysis (CBA) is a formal way of organizing the evidence on the good and bad effects of projects and policies. The objective of a CBA may be to decide whether to proceed with the project, to see if the benefits justify the costs, to place a value on the project, or to decide which of various possible alternatives would be the most beneficial. To compare different projects or alternatives of the same project that may have costs and benefits occurring in different years, discounting is used to convert future benefits and costs to a current year perspective.

Infrastructure is long-lived while its costs are more immediate. Future generations often benefit more than us from the infrastructure we plan and build today. Methods for monetizing the costs and benefits that may contribute to the public good over long periods are codified in CBA. CBA dates back to a civil engineer and economist writing four years before the ASCE was founded in 1852. Taking a broader perspective for infrastructure projects of benefit beyond the financial started with the 1936 Flood Control Act’s requirement for “the benefits to whomever they accrue [be] in excess of the estimated costs.” CBA was later standardized by the USACE.

Sustainable infrastructure will give us benefits for the public good without compromising the planet or future generations. Too much emphasis is on the current cost of infrastructure and not on the future public benefit it generates. The history of CBA is important because it reminds that discipline of a CBA decision criteria in a TBL framework ensures that infrastructure is sustainable and contributes to the public good now and over its life.

Triple Bottom Line Cost Benefit Analysis (TBL-CBA) is a systematic evidence-based economic business case framework that uses best practice Life Cycle Cost Analysis (LCCA) and Cost Benefit Analysis (CBA) techniques to quantify and attribute monetary values to the Triple Bottom Line (TBL) impacts resulting from an investment.  These TBL outcomes are typically represented as People, Planet, Profits or Social, Environmental and Financial.  The framework quantifies all of these impacts in dollars over the life of the project and discounts them to the present in order to calculate the Net Present Value of an investment from the financial viewpoint of an organization, as well as from society’s perspective.  An example of the financial benefits would be items such as cost savings on an energy or water bill; a social benefit could be the benefit of reduced flooding or improved health & safety; and an environmental benefit might be a reduction in CO2 emissions or enhanced water quality.  The primary reason for adding the TBL qualifier to CBA is to make it absolutely clear that all of the relevant social and environmental factors must be rigorously quantified in dollars and included in the analysis.

Most engineers and architects have codes of conduct that require them to act to support the public good. ASCE’s code of ethics requires that engineers “hold paramount the safety, health and welfare of the public and shall strive to comply with the principles of sustainable development.” Impact infrastructure investors have Environmental, Social and Governance (ESG) guidelines and most infrastructure investing pension fund have signed on to the UN’s Principles of Responsible Investment (PRI).  All of which is to say everyone involved in infrastructure from planners, owners, funders, and users are demanding what we are advocating for: infrastructure that contributes to the public good.

[1] A D is “Poor, At Risk: The infrastructure is in poor to fair condition and mostly below standard, with many elements approaching the end of their service life. A large portion of the system exhibits significant deterioration. Condition and capacity are of serious concern with strong risk of failure. A C is Mediocre, Requires Attention: ” The infrastructure in the system or network is in fair to good condition; it shows general signs of deterioration and requires attention. Some elements exhibit significant deficiencies in conditions and functionality, with increasing vulnerability to risk.” Source

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