The ‘Draft Business Case’ proposing a car ferry between Cowes and Stony Point (Mornington Peninsula) was recently released and made available to the public, more specifically the residents of Phillip Island.
It is quite truly a comprehensive document of over 200 pages.
Many residents would not understand what a ‘Business Case’ is and having even to attempt to understand it would have them glaze over with total confusion.
To define as simple as possible, a Business Case’ is a document that is presented in a carefully constructed format that provides the reader with information about the risks and rewards involved in investing in a project.
A business case should have analysis supported by verifiable data and evidence based assumptions; show the risks of going ahead with the proposed project versus the risks not going ahead.
One of the biggest challenges in preparing a business case is achieving objectivity.
More often than not there is a preferred option for which it is difficult to guard against optimism bias.
This is why that the author of a business case would need to have an expert and totally independent review (an audit so to speak), especially where there is a significant amount of money involved.
Although the recently released ‘Business Case’ is labelled a ‘Draft’, it does not appear to indicate that there will be an independent and expert review.
Once the final ‘Business Case’ is approved, it becomes the core governance document for managing and measuring the project success.
A business case is always directed to those who will eventually invest the time and money into the proposed project.
A ‘Business Case’ follows a common format.
In engineering circles the terminology is quite foreign to most people. The Cowes to Stony Point Car Ferry ‘Draft Business Case’ released recently is written in ‘engineering’ terminology and jargon.
Common Business Cases start with an ‘Executive Summary’ as has the ‘Draft Business Case’.
As the title suggests, the ‘Executive Summary’ is a summary of the ‘Business Case’ document and outlines the reasons why the ‘Business Case’ was developed and essentially why the ‘Business Case’ if approved will provide significant benefits to the investor.
After the ‘Executive Summary’ the ‘Business Case’ document is broken down into sections that include:
- Problem statement
- Benefits
- Responses
- Options
- Analysis of Options
- Solution
A ‘Business Case’ is generally developed to show how problems within an organisation or in this case the State of Victoria can be ‘fixed’.
In the ‘Draft Business case’, the ‘Executive Summary’ has suggested that the problems’ that a car ferry will ‘fix’ are:
- Problem 1: A fragmented and seasonal view of tourist opportunities across the broader region forces visitors to select some destinations over others – Mornington Peninsula Shire and Phillip Island have a high proportion of day visitors, with poor road connectivity between the two regions and a lack of a touring route inhibiting longer stays for touring visitors.
- Problem 2: Many residents are excluded from a range of social and economic opportunities, exacerbating regional disadvantage – the Western Port side of Mornington Peninsula Shire and segments of Phillip Island experience social and economic disadvantage.
- Problem 3: An isolated Phillip Island during incidents will impede emergency services ability to respond in an appropriate and timely manner – Phillip Island residents can be isolated from the mainland as a result of road incidents or congestion, which reduces or temporarily impedes access to and from the Island.
In later articles we will analyse the ‘Problem’ section of the ‘Draft Business Case’ as well as each of those ‘problems’ and analyse just how reasonable it is to suggest that a car ferry from Cowes to Stony Point will fix those problems, although it is quite interesting to think that the author of this ‘Business Case’ considers Phillip Island a socially and economically disadvantaged community.
The ‘Executive Summary’ goes on to describe the benefits of the ‘Business Case’ if and/or when approved.
It suggests that the ‘Benefits’ are:
- Support the development of a touring route which will increase overnight stays and tourism spend in Mornington Peninsula Shire and Phillip Island.
- Develop a broader Victorian touring route that will enable tourists to travel from the Great Ocean Road to Phillip Island and onto Gippsland without the need to pass through Melbourne.
- Provide an alternative vehicle route for Phillip Island residents to reach the mainland for employment, services and recreational opportunities.
- The car ferry would result in additional regional economic growth and investment.
- Enhance the inclusiveness and productivity of Phillip Island and the Western Port side of Mornington Peninsula.
- Benefits derived from avoiding vehicle operating costs, that are reduced costs associated with vehicles (private cars and coaches) using the ferry service instead of traveling by road to Cowes.
- Enhance the safety of the Phillip Island community, through the development of a second vehicle route to and from the Island. Vehicle congestion, road accidents or extreme weather events can cut access from Phillip Island to the mainland, resulting in lost productivity and a temporary inability to access education, health or other services.
It is interesting to see that the author of the ‘Draft Business Case’ has suggested that a ‘benefit of the Cowes to Stony Point Car Ferry is to evacuate the residents of Phillip Island in extreme weather events?
It would be safe to say that the ferry would not be operational in extreme weather events.
It is also interesting that the author states as a benefit is the lower vehicle operating costs using the car ferry instead of driving but avoids suggesting that those savings are well and truly offset by the cost of ferry fees.
In later articles we will analyse the ‘Benefits’ section of the ‘Draft Business Case’ and analyse just how reasonable it is to suggest that a car ferry from Cowes to Stony Point will provide those benefits.
However, it is clear that the ‘Touring Route’ concept is high on the list of priorities and benefits.
The ‘Executive Summary’ goes on to further summarise the car ferry terminal options; where the car ferry would load and unload in Cowes and Stoney Point.
In our analysis of the ‘Draft Business Case’ we will not go into in depth analysis of the terminal options.
However, what the ‘Executive Summary’ has stated is that the proposed car ferry would now be a 30 car capacity vessel, plus two coaches or heavy transport vehicles (trucks). This is at odds with all other reports supporting the car ferry.
For example in 2010 a report stated that the vessel would have a 50 car capacity, the ‘Visitors Strategy 2035’ (developed by EarthCheck) stated that the vessel would have a 45 car capacity, Mark Olsen from EarthCheck in a recent presentation stated the vessel would have a 44 car capacity, in a recent ‘Discussion Paper’ (developed by EarthCheck and Mark Olsen) stated that the vessel would have a 36 car capacity.
So we have gone from 50 cars, to 45 cars, to 44 cars, to 36 cars and now to 30 cars; an 18% reduction in capacity from the stated capacity from ‘Discussion Paper’ alone.
In the ‘Draft Business Case’ the term ‘NPV’ is used extensively. This is refers to ‘Net Present Value’ a term that most people would not have any understanding of.
It is a tool used to assist in the decision making process for expensive projects such as the proposed Cowes to Stony Point Car Ferry project.
One pitfall in this approach is that while financially sound from theory point of view, an NPV calculation is only as good as the data driving it.
Coming up with the correct assumptions is extremely difficult.
This is why an ‘independent review or audit’ is often required.
The majority of the work in developing NPV is verifying and validating the data and if the data is flawed the NPV calculations are flawed.
It is not unusual for local and state governments to release a ‘Business Case’ to the public; however unlike private enterprise Business Cases, the public are not considered decision making stakeholders.
As a result, many times a government based Business Case biased toward a specific project and is only released to the public so as to determine ‘public opinion’ and not in most cases not terribly concerned with project viability.
This is why an ‘independent review or audit’ concept of the Cowes to Stony Point and the ‘Draft Business Case’ will not happen.
Another reason why an ‘independent review or audit’ will not happen is that the author of the Business case has the potentially to gain a lot should the final Business case being approved.
AECOM, an international conglomerate and the author of the ‘Draft Business Case’ for the Cowes to Stony Point Car Ferry is quite closely involved or has been involved in countless major projects for the Victorian State Government. This is just another project that fits quite well into the capabilities of AECOM.
The key messages that the author of this ‘Draft Business Case’ is communicating in this document are clearly coming from the Victorian State Government.
For example on page 25 of the ‘Draft Business Case’ it clearly articulates, the State Governments’ 30 Year Infrastructure Strategy outlining 137 recommendations for improving the provision, operation and use of the state’s infrastructure and the Cowes to Stony Point Car Ferry Project aligns with the objectives of this strategy.
And, it goes on to further suggest that a car ferry to Phillip Island will boast residential and commercial development and bring in more permanent residents on to the island.
This is contradictory to the issues that are now faced by the Phillip Island residents; lack of infrastructure, health care facilities such as hospitals, educational facilities and the preservation of the nature so much associated with Phillip Island.
Greater residential development puts pressure on the questionable infrastructure of Phillip Island and more importantly the natural environment for which people come to Phillip Island in the first place.
As mentioned earlier following articles will analyse in greater detail the data used in the ‘Draft Business Case’ document and the reasonableness of the viability and benefit statements in this document.
One final comment though, a significant amount of the data used in this ‘Draft Business Case’ has been drawn from the precursor document the ‘Discussion Paper’ and this data has been proven inaccurate, flawed and in some cases misleading.