6 Affordability – the Financial Case

6 Affordability – the Financial Case

6.1 Introduction

6.1.1 In a traditional business case for investment, forecast financial implications for the preferred options in terms of required capital expenditure, operating costs and any additional revenues generated would be established. This forms a key component of the case for any public sector investment. In this instance, the preferred way forward is generally based largely upon existing expenditure commitments and indeed investment by the private sector. This reduces the need for an in-depth financial analysis at this stage.

Cost Drivers

6.1.2 A number of issues will impact upon the overall cost of any implementation of a Smart and Integrated ticketing scheme as follows:

  • The nature of the back office which will be used to process transactions;
  • The nature of the front office and how it will interact with customers;
  • The nature of the ticket product (whether distance based etc);
  • The volume of passengers and individual journeys, given the impact upon front and back office costs;
  • The technology requirements; and
  • The need to improve infrastructure.

6.1.3 However, in this instance, the preferred way forward requires little in the way of new investment. Rather, the investment referred to in this instance is a mixture of existing commitments by TS (for example, the procurement of AMS/HOPS replacement) or the continuance of plans by third parties such as SPT and private operators. A further point of note is that much of the required technology is already in place as part of the Concessionary Fares Scheme.

6.1.4 Transport Scotland has undertaken an analysis of the likely costs of a nationwide Smart scheme (see Section 2). This analysis has estimated the additional costs to be:

Table 6.1: Estimated costs of a nationwide Smart scheme

 

Bus

Rail

Capital (one off)

£2.0m

£5.5m

Revenue (per annum)

£18.5m

£4.4m

6.1.5 Clearly, the most significant costs identified here is in relation to upfront capital costs for rail. This is something that TS will be able to incorporate into the rail franchise when it is tendered. This means that a key aspect of the additional cost will be subject to detailed analysis and market testing.

6.1.6 It should be noted that these costs do not include the costs of any future integration of different systems or back and front office requirements. This is something that will need to be costed and assessed once the integration phase of this overall approach is reached. This will allow for a full investment case to be constructed.