saying that, there have of course been cost benefit analyses (Cycling
England, etc)... but it's a shame there isn't now one with an accurate
representation of the economic benefits too
Mike
On 25 Aug 2011, at 11:54, john meudell wrote:
> Ok, done the sums.
>
>
>
> First point, table 4 and 5 cycle sales and value, along with
> associated assumptions.
>
>
>
> As I mentioned, cycle sales have been in decline for a couple of
> years, with 2009 sales 2.91m at an average import price of £78.65
> per unit, giving a total import value of £229.6m. Now, accepting
> the report is correct, that cycle sales in 2010 are 3.7m (noting
> ProdCom provisional 2010 data is not due for release until about
> now), and assuming a 5% increase in import price (£82.58), that
> would make the total value of cycle imports in 2010 £305m.
>
>
>
> If the value of retail sales were as suggested, £1.62Bn, that would
> imply an import to retail margin of 430%, making cycling probably
> the most profitable trade in the UK (so why did Halfords pull the
> Bike Hut concept…?).
>
>
>
> That is not reality. Noting that the cycle retailers margin on the
> average cycle is somewhere in the region of 40%, total real margin
> on bikes through the entire supply chain is probably not more than,
> at best, 200% over import price, making total UK retail cycle sales
> no more than £915m, considerably below that suggested.
>
>
>
> Given this discrepancy, I would want to see sound confirmation of
> revenues in the other segments of cyclists spend in these two tables.
>
>
>
> (Note: I do have a plot of cycle sales since 1997, constructed from
> ProdCom data, but the configuration of this server means I can’t
> send it. That said, I’m sure someone can suggest a way of getting
> it out to you.)
>
>
>
> I’d also note the use of the term “Gross Cycling Product” (one
> assumes an attempt to (pseudo-) relate to Gross Domestic Product).
> In a gross domestic product calculation, import cost is subtracted
> from the output price…..in which case the GDP sales value quoted
> should really be £610m.
>
>
>
> The second major point I have is in the use of discounted cash flow
> and NPV. Discounted cash flow only has relevance in comparative
> investment appraisal….NPV has no meaning in terms of real money and
> anything besides internal investment appraisal. Here we seem to
> have an analysis that combines a calculation of a benefit in 2010,
> then tries to calculate a component over a ten year life cycle on a
> discounted basis….I note with no investment attached to it. Given
> I’ve spent the best part of 30 years involved with capital project
> appraisal I find the approach somewhat weird!
>
>
>
> In the same vein, I also find it hard to understand the choice of
> discount rates, given that government (presumably the target
> audience) use only a single, well publicised, discount rate to be
> found in the Treasury “Green Book”. This is currently 3.5% (where
> “project” cost and revenue streams are up to 30 years)….so why
> generate three arbitrary rates that have little application except
> outside of private sector internal investment appraisal?
>
>
>
> Furthermore, the DCF analysis only considers the “savings” in the
> context of “employment”, but doesn’t consider the “investment”
> required to achieve that outcome….the calculated result being
> therefore somewhat optimistic (though, presumably, the assumption is
> that the only costs would be cycle sales).
>
>
>
> Finally, in terms of the analysis, other major benefits, such as
> overall health and congestion, are ignored, arguably benefits much
> larger than the pure employment aspects. I would, however, note
> that to date, evaluations of these two have been poor to non-existent.
>
>
>
> The only thing I do find encouraging is the attempt to assemble
> benefits and costs in a systematic manner, albeit very crudely.
> That approach, and the report, is let down by gaping holes in the
> evaluation stemming from, in my view, likely crude and self-
> interested aims of the sponsors, combined with lack of knowledge of
> the authors.
>
>
>
> I have to say I find the errors and omissions highlighted above
> worrying. Even within the limitations of this particular analysis,
> the author has failed to use solid trade and economic data that is
> freely available and should be well known to staff at LSE.
>
>
>
> UK Treasury and other analysts are not stupid. Like the SQW
> analysis commissioned by Cycling England a couple of years back,
> analysis like this actually has the opposite effect of that desired,
> and undermines not only the arguments for improvements for cyclists,
> but also the credibility of those cycling sector arguments ….with
> the consequence that we’re even less likely to be listened to than
> we are now…….
>
>
>
> Must try harder………a lot harder!
>
>
>
> Cheers
>
>
>
> John Meudell
>
> C.Eng, MIMechE
>
> Swansea University
>
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