Infrastructure Australia is aware that two equations are sometimes used to derive the benefit-cost ratio (BCR). The first approach treats operating costs as negative benefits, i.e.:
BCR = (Benefits - Operating costs) / Construction costs
The second approach treats operating costs as costs, i.e.:
BCR = Benefits /(Construction costs + Operating costs)
The benefit and cost measures above are incremental to the Base Case and discounted over the evaluation period.
Whilst there are arguments in favour of both approaches in different circumstances, ultimately Infrastructure Australia seeks to understand an initiative's intrinsic lifetime merits, that is, the initiative's lifetime benefits set against the lifetime costs. In particular, Infrastructure Australia believes that the method of analysis should not make a distinction between the value of construction and operating costs. As a result, the second equation should be used for all submissions to Infrastructure Australia.