Thursday, 26 September 2013

Do the math…


Do the math… please, government, before you embark on this HS2 project.  Otherwise, in twenty or thirty years’ time it will come back to haunt you, or your descendants.   I won’t be around, nor will my own descendants (I don’t have any), but I promise this will happen.  There are two things you need to do, or have done, before you irrevocably turn on the green light.
The first is called a cost-benefit analysis.  There are two parts to this, which I’ll call tangible and intangible.   The tangible ones are those directly related to the project, to which you are sure you can subsequently ascribe monetary values.  What you do is divide a piece of paper down the middle, with a line.  On the left, you list the costs of the project, on the right, the benefits.  Obviously, at this stage these aren’t quantified, nor should they be.  The point is to make sure you’ve covered everything, every quantifiable cost and benefit, and that you will later be able to put a monetary value on it which you’ll be able to substantiate’: otherwise, it’s intangible.
Intangible costs and benefits are those you recognise you won’t be able to monetise, but which nevertheless have to be factored into the broad picture.  They’re the ‘what if’, ‘blue sky’, ‘OSINTOT’ factors.   Hint – if you’re using bullet or numbered lists, always leave an empty one at the bottom, there’s bound to be something else no-one had thought of.

Once you’ve done all that, then you can plug in some numbers.  This means putting monetary values on all the tangibles and, if you choose (and in this case you should), the intangibles too.  All these numbers, of course, have to be properly assessed, peer reviewed, and consensually accepted.  And then you can run what’s called a discounted cash flow calculation.  Here's how it works, but don’t worry – there won’t be a test at the end of this post.  Basically, what a DCF does is demonstrate, given the best estimates of all the variables, when this project is likely to go into profit.  It takes into account, crucially, the opportunity cost of the bottom-line option, which is always ‘don’t do it.’

Being an optimist, I assume the government (or whoever’s really in charge) has done all the above.  Well, you’d have to be really stupid not to, wouldn’t you?  So why don’t they just publish the results?

Oh.  I see.

2 comments :

  1. They must have done something a bit like that mustn't they? I mean, the numbers they put in are the real issue aren't they & the more complicated they make it the less anyone can challenge them.

    I saw D Cam on our local news this evening, trying to dispute what his own party's local MPs & Devon Council leader are saying: that the rules have been changed to make central funding for rural councils grossly unfair. I don't know whether they are right or not. But Cameron said "I don't accept that" about 6 times. Nothing to support that - just blank, arrogant I don't accept that. To support his "argument" he referred to one local council to indicate how little extra they were having to cut next year. Which Council? Plymouth. Rural? That's rural to him I suppose, because it's a long way from London. So it must be rural. I suspect local yokels will not be impressed.
    And as for this HS2 thing, what does it do for Plymouth (or me)? The Romans have done more for me than that. I bet they did cost-benefit analyses & DCFs when they built their roads.

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  2. I can only do maths, it seems math is much harder.

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