Our team has worked with state government agencies to examine how the specification of this base case option fundamentally affects the business case for school funding proposals. In this work, the following base cases were developed:
Base Case 1: Do Nothing
Under this option, government would simply not provide any further places for students. Theoretically, this would cause overcrowded schools to ration school places, with potential reductions in places for some age groups. For example:
- Primary schools might reduce the number of kindergarten places (if provided) offered to ensure all children can be accommodated in Years 1 to 6
- High schools might limit Year 12 places to ensure all young people can complete school up to Year 11, causing some students to miss out on Year 12.
The intention of developing this base case was to identify the incremental costs and benefits of meeting legislative requirements under each of State’s Education Act.
Base Case 2: Do Minimum
Under this base case, the government would install demountable buildings to increase the supply of student places for the lowest capital cost. Often this is the default base case option. However, in adopting this base case, it is assumed that available school sites have the physical capacity to accommodate demountable buildings even though this is often unworkable (and it displaces alternative uses of school space such as playground areas).
What are the costs and benefits of establishing new/expanding existing schools?
If new school places are funded (i.e. the project option), the incremental costs and benefits will vary depending on which base case is applied.
Base Case 1: Do Nothing
A project which is assessed against a ‘Base Case 1: Do Nothing’ has the following incremental costs:
- Capital works costs (once off)
- Ongoing capital asset costs (school maintenance, cleaning, utilities, etc.), and
- Ongoing school operations (teacher salaries, overheads and administrative costs).
The main benefit of the project providing additional school places is that no child misses out on school; meaning that legislative compliance is maintained and higher education attainment is achieved. This improved education attainment is associated with higher lifetime earnings, with there being a measurable difference in average lifetime earnings for people who have completed Year 12 compared, for example, to people who have only completed Year 11.
Moreover, there is also evidence that: a) children who attend pre-school are better equipped to deal with the challenges that school presents, positioning them better to thrive throughout their school years; and b) school students benefit from studying in a modern and up to date school, with the improved quality of infrastructure underpinning better education outcomes for all enrolled students, not just those who would have missed out on a place in under Base Case: Do Nothing.
Base Case 2: Do Minimum
If Base Case 2: Do Minimum is applied (i.e. a base case of installing demountable buildings), costs that are relevant to the project include only the incremental capital works and ongoing capital asset costs. That is, under both the base case and project options, student places are assumed to meet demand.
The benefits of the project include:
- The expected educational benefits to children studying in purpose-built, up to date facilities, as opposed to learning in demountable buildings. Australian evidence [1] shows that up to date school infrastructure can result in higher quality teaching, which leads to improved test scores in children, which in turn leads to higher earnings later in life.
- Children being able to go to a school closer to where they live, reducing travel costs; i.e. if demountable buildings cannot be provided locally due to the sheer physical capacity constraints at available school sites.
Quantitative impacts on project performance
While SGS cannot provide the official results of the cost benefit analyses undertaken, we can reveal that the specification of the base case had marked impacts on the assessed viability of the new/ expanded school projects tested. One project tested moved from generating a benefit cost ratio (BCR) of approximately:
- 0.2 when the Base Case 2: Do Minimum was applied; meaning the costs considerably outweighed the quantified benefits, to
- 1.4 when the Base Case 1: Do Nothing was applied; meaning the quantified benefits considerably outweighed the costs.
Clearly these different results would impact the likelihood of project funding. It is therefore imperative that school funding agencies think hard about how they position their projects, especially in established areas where the Base Case 2: Do Minimum option is physically impossible to deliver.
