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CHAPTER EIGHT: COMPARISON OF COSTS AND BENEFITS OF SERVICE DELIVERY OPTIONS

8.1 Introduction

This chapter uses the results of the choice experiment in chapter 6 to estimate the benefits of different configurations of services in the three case study areas. The scenarios presented do not cover the full range of possibilities offered by the choice experiment attributes and levels; instead they aim to reflect realistic combinations of the attribute levels. In each case the co-located local service is compared to an alternative provision at a distance over a range of service attribute combinations.

These service delivery scenarios are then combined with cost data to undertake cost benefit analyses of the different service delivery options. In undertaking the cost benefit analyses only the non-market benefits of the services are considered, any "market" or income generating aspects of the services are excluded and should be considered if applying the choice experiment benefit data to other service options.

8.2 Methods

Each of the service scenarios compares the attributes of a co-located service in one of the case study areas with a baseline. The benefits of the reduced distance to access a service are estimated from the avoided welfare loss of each additional mile travelled to access that service. Distances between the baseline and co-located services are calculated using the AA's online route planning facility ⁴⁸. It might be argued that distances saved from service users homes should be used to calculate these benefits, but this would add a great deal of complexity and would ignore the co-located nature of services where we are interested in the benefits of services users being able to access two or more types of service in a single location rather than travelling between outlets. The actual cost savings ( e.g. private or public transport) of reduced distances are also not included as the benefits considered here are non-market in nature.

Where the choice experiment indicated that preferences were significant, the service scenarios also include the other attributes of service delivery used in the choice experiment. The levels for the baseline and co-located scenarios reflect where possible the levels or type of service available in both the baseline and co-located service outlets. The benefits of each attribute are then presented at both the household level and aggregated over the number of households in the case study area ⁴⁹. It is assumed that the potential "market" for each service is the number of households in each area; no assumptions are made about frequency of use. The benefits may be positive or negative depending on whether the co-located service can offer an improvement over the baseline for specific attributes.

The benefits generated by each of the scenarios are then used to undertake a cost benefit analysis of the co-located service in each of the case study areas, where the costs are taken from those estimated in Chapter 7. The outputs from the cost benefit analysis include a cost benefit ratio and a net benefit (benefit minus cost) figure. The formal test for whether service should be provided is that the cost benefit ratio exceeds 1 and net benefits are positive, the most favoured scenario can be identified by comparing these figures to select the service combinations offering the highest cost benefit ratio or net benefit.

8.3 Non-market benefit scenarios

Eastriggs scenarios: Council services

The following services scenarios explore the provision of council services in Dumfries and Galloway using different locations and configurations of services. Each co-located scenario is compared against a baseline. The results of the choice experiment revealed that service location and service level were the only attributes for which respondents had significant preferences. In each scenario the value of the change in service provision presented both as per household and aggregated over the number of households in Eastriggs.

In Scenario 1, the baseline of single service provision in Dumfries is compared to a co-located provision in Eastriggs. This represents a distance saving of 19 miles over the baseline, which is valued at £3.76 per mile per annum, i.e. this benefit would not be achieved each time the journey was avoided. Scenario 1 further assumes that only a limited range of services would be available in the under co-located provision Eastriggs when compared to the baseline, this reduces welfare by £24.34 per household per annum. The total benefit of a co-location of limited service in Eastriggs over the baseline is £47.10 per household per annum. Total aggregate benefits over the 715 households in Eastriggs are £33,677 per annum.

Scenario 1: Changing from a baseline of a full range of single services in Dumfries to provision of a co-located service outlet in Eastriggs Post Office with a limited range of services

In scenario 2, the baseline of single service provision in Annan is compared to co-located provision in Eastriggs. Annan is only 3.5 miles from Eastriggs. The benefits of the reduced distance are therefore much lower then the previous scenarios and amount to £13.16 per household per annum. It is also assumed that the larger catchment available for a service outlet in Annan would justify a full range of services whereas the Eastriggs outlet would only have a limited service. Consequently there is a loss of welfare with respect to service level, this outweighs the benefit of reduced distance with the result that there is an overall welfare loss of £11.18 per household per annum, or an aggregate loss of £7,994 per annum. In order for a positive benefit to result, the distance saved would have to be 6.48 miles.

Scenario 2: Changing from a baseline of a full range of single services in Annan to provision of a co-located service outlet in Eastriggs Post Office with a full range of services

Applecross scenarios: Library services

The following services scenarios explore the provision of library services in Applecross using different locations and configurations of services. In each scenario the value of the change in service provision is presented both as per household and aggregated over the number of households in the Applecross area, although distances are measured from Applecross village.

In scenario 1, the baseline of library services in Kyle of Lochalsh is compared with a co-located library service in Applecross. Neither library offers all day opening, however it is assumed that Applecross residents are more likely to know the staff in their local library, and that a full service is available in Kyle of Lochalsh but not in Applecross. The service level attribute was generic in the choice experiment, but in the context of a library full services might include access to the internet and information technology, a wider range of books, and educational facilities such as adult literacy. As might be expected the reduced distance for the co-located library in Applecross provides a substantial benefit of £139.40 per household per annum. Having familiar staff provides a benefit of £33.72 per household per annum, although there is a welfare loss associated with the reduced level of service of £15.28 per household per annum. Overall benefits of scenario 1 are £157.84 per household per annum. Over the 89 households in Applecross parish, these benefits aggregate to £14,048 per annum.

Scenario 1: Changing from a baseline of library services with limited opening, staff "who know you" and full range of services in Kyle of Lochalsh to a co-located library service with limited opening, staff "who know you" and a limited range of services in Applecross

Scenario 2 illustrates the benefits of an improvement in service levels at the co-located service in Applecross relative to baseline services located in Lochcarron. This change adds an additional benefit of £15.28 per household per annum bringing total aggregate benefits to £9,505 per annum.

Scenario 2: Provision of library service in Applecross compared to Lochcarron with all day opening, staff "who know you" and a limited range of services.

Lewis scenarios: Voluntary Resource Centre

This service is located in Stornoway, the most populous settlement and the main administrative and business centre on Lewis. Consequently, scenarios offering comparisons on the basis of distance are unrealistic as service users either live locally or would need to travel to Stornoway to access services in any case. However, benefits based on the remaining attributes can be assessed. In the scenario the value of the change in service provision presented both as per household and aggregated over the number of households in both Stornoway and Lewis, to reflect the range of possible catchment sizes.

In scenario 1, the baseline of voluntary resource centre in Stornoway, is compared to a co-located service with people you know you and with a full set of services. The benefits of having a service staffed by "people who know you" rather than "people you don't know" is £30.80 per household, whilst having a full rather than limited range of services provides a benefit of £16.12 per household. The total benefit is £49.84 per household, which aggregates to £165,111 for the 3519 households in Stornoway and £370,011 when aggregated over the 7886 households on Lewis.

Scenario 1: Changing from a Voluntary Resource Centre in Stornoway with all day opening, staff "who know don't know you" and a limited range of services to a co-located service in Stornoway, staff 'who know you' and a full service level.

Lewis scenarios: Hypothetical co-located services outside Stornoway

The Voluntary Resource Centre case study, whilst offering an example of a co-located service outlet due to the range of services provided, does not lend itself to a full exploration of the benefits of co-location particularly with reference to reduced travel distances as it is likely that alternatives that were not co-located would be available nearby within Stornoway. The following scenarios consider the non-market benefits of providing co-located services in two remote communities on Lewis: Ness in the north west of the island and Uig in the south west, where the baseline service location is Stornoway. These scenarios are out with the CBA exercise and serve to illustrate further uses of the choice experiment results in planning service delivery. In each scenario the value of the change in service provision is presented both as per household and aggregated over the number of households in either Ness or Uig.

Scenarios 2 and 3 consider a hypothetical co-located service outlet where the alternative outlet would be in Stornoway. It assumed that the co-located service would offer limited opening hours and service levels compared to the baseline in Stornoway, but due to the location within the local community would be staffed by "people who know you". For these attributes each scenario offers the same welfare changes of losses of £55.36 and £16.12 with respect to opening hours and serviced level and a gain of £30.80 in respect of staffing. The difference in welfare between the scenarios arises due to distance from Stornoway. Ness is 25 miles from Stornoway so the per household benefit of a co-located service locally would be £74.25 per annum, this compares to a benefit of £98.01 per households for Uig residents where service provision would be 33 miles form Stornoway.

The total benefits of co-location would be £33.57 per household per annum in Ness and £57.33 in Uig. The aggregate non-market benefits would be £14,872 in Ness based on 443 households and £38,870 in Uig aggregated over 678 households.

Scenario 2: Changing from a Voluntary Resource Centre in Stornoway, open all day, staff "who know don't know you" with a full set of services to a co-located service outlet in Ness with limited opening, staff "who know you" and a limited range of services.

Scenario 3: Changing from a Voluntary Resource Centre in Stornoway, open all day, staff "who know don't know you" with a full set of services to a co-located service outlet in Uig with limited opening, staff "who know you" and a limited range of services.

* Location of existing community-run shop and post office, primary school and community centre

8.4 Cost benefit analysis of service provision scenarios

Eastriggs

Table 12 presents the results of the cost benefit analysis of the above service scenarios against the cost scenarios presented in Table 11. For the current cost situation there are large net benefits associated with having co-located council services in Eastriggs compared to locating services in Dumfries (scenario 1). The net benefits of a service outlet in Eastriggs rather than Annan (scenario 2) are negative due to limited range of services in the co-located scenario outweighing the limited benefits from decreased distance. The benefit cost ratios range from -0.96 to 4.05.

Table 12: Cost benefit analysis of Eastriggs council service outlet cost and service scenarios.

With the more detailed cost information from Eastriggs (chapter 7, table 11), it is also possible to explore the cost implications of changing service levels. For example, increasing the opening hours of the Eastriggs service outlet from its current 3 hours per day over two days, to 7 hours per day over 2 days costs £16,280. For scenario 1, this leads to a net benefit of £17,397 and a benefit cost ratio of 2.07; both are lower as a result of the higher costs.

Applecross

Table 13 presents the results of the cost benefit analysis of service provision scenarios for library services in Applecross. Detailed cost estimates of library service provision in Applecross, and so the cost implications of changing service levels, are unknown. However, the cost estimate used here offers a useful lower bound for the costs of any service improvement. Both scenarios offer positive net benefits primarily due to the reduced distances involved and, to a lesser extent, the likelihood that staff are known to the Applecross residents. Scenario 2, comparing a library in Applecross instead of Lochcarron, offers minimal positive net benefits.

Table 13: Cost benefit analysis of Applecross library service scenarios.

Despite the benefits of co-located library provision in Applecross a decision was made by the Highland Council's Education, Culture and Sport Committee on 16 March 2006 to close three small libraries including the one in Applecross ⁵⁰. A possible reason for this was an estimated £28,750 capital cost required to make the Applecross library compliant with the Disability Discrimination Act ⁵¹.

Lewis

Table 14 presents the cost benefit analysis of different levels of service provision for the Stornoway Voluntary Resource Centre aggregated at both the Stornoway area and the island of Lewis levels. The effect of distance is not included due the lack of realistic alternative locations on Lewis for this service; consequently the scenarios concentrate on different levels of choice experiment attributes. Detailed cost information was not available that would have allowed the cost effects of different levels of service provision to be determined. Consequently the cost benefit analysis compares increased levels of service with a limited service provision. At the Stornoway level of aggregation, scenario 1 has negative net benefits whereas scenario 2 (at the Lewis level of aggregation) has positive net benefits, the difference between these scenarios being length of opening hours, highlighting their importance. The wider catchment area leads to greater benefits.

Table 14: Cost benefit analysis of Stornoway Voluntary Resource Centre service scenarios.

8.5 Conclusions

The benefits scenarios demonstrate the sensitivity of the non-market benefits to changes in the distance travelled to access services. This was particularly the case in the Eastriggs where respondents were the most sensitive to distance. However, whilst the reduced distance to access services offered by co-location can serve to compensate for reduced service levels and opening hours for larger avoided distances this does not necessarily apply for smaller distances. This emphasises the importance of other service attributes when developing packages of services.

The estimation of non-market benefits allows a partial cost benefit analysis to be undertaken based on the welfare derived from having co-located services available. Full CBA would require information on service usage and travel costs. However, despite the partial, non-market, nature of the benefits estimated here and the limited cost information, under certain circumstances benefit cost ratios in excess of one and associated positive net benefits can be demonstrated.

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