Cost benefit analysis of the redevelopment of the National Herbarium

The Issue

The Herbarium is currently housed in the Brown Building in the Royal Botanic Gardens. The building has reached its capacity for storing specimens and its design causes substantial challenges in maintaining the current collection in an acceptable condition.

The Trust proposes to relocate the Herbarium to a new building at Mt Annan and for the current location, the Brown Building, to be refurbished to provided public interpretation and education facilities while still housing the Herbarium’s library. It will also generate revenue from leasing space for commercial tenants, offices and events.

Relocating the Herbarium will incur costs (negative economic impacts) and provide benefits (positive economic benefits) to both the Trust as well as the wider community/stakeholders. These impacts must be appropriately identified and quantified in order to adequately assess the economic impact of relocating the Herbarium.

Challenges

In the economic evaluation of the Herbarium the key issue is the value to the community of preserving a record of Australia’s plants, in the form of preserved samples, since European occupation, for current and future generations. Apart from access to samples of extinct plants, the plant record has a number of use values in research and education:

• use specimens in research to improve understanding of potential use of native plants
• use specimens in climate change research to inform future native ecosystem management practices and costs
• use in research on biodiversity and management of natural ecosystem
• use in higher education courses.

A major valuation issue exists in this evaluation. What is the worth of the collection to our community of preserving the samples, even though almost all Australian’s will never directly use or observe the samples preserved in the Herbarium. Conceptually the same valuation issue applies to museums and public art galleries.

There have been no studies conducted on the community value of preserving collections in Herbariums nor less esoteric collections held in museums. We think this reflects an overall public acceptance of the intrinsic need to preserve these records for future generations and the costs of preserving a collection. The consequence for our study is that there are no direct or related studies from which we could reasonably infer the value of preserving the samples held in the Herbarium.

The operation of a Herbarium is not a commercial undertaking and therefore for a financial analysis to support a new building requires very large savings in operating costs from new building technologies to offset the costs of constructing a new building. The financial analysis shows these savings are not sufficient to offset the costs and an economic analysis will reach the same conclusion as a financial analysis, unless there are other external benefits to the community.

The Solution

We undertook an economic evaluation of the proposed relocation using a Cost Benefit Analysis to evaluate the economic impact of the changes involved in moving between the base case (remain at current location) and alternative scenario (relocation). As discussed, the Herbarium is unique as there is not a clear market value of the services and assets it owns. Therefore, there are unique values to consider in this economic analysis.

Private Value and Social Value

In economic analysis a distinction is made between private value and social value. Private value reflects benefits that can be captured by an owner and is observed in the market price. Social value is created when a product or service confers benefits to the community that are not just captured by the owner. In the case of the Herbarium, social value is created when the collection is used in research that generates benefits for society as a whole and the value the community places on the existence of the Herbarium.

Private value was based on the insurance value identified in the Final Business Case which aligned with the cost of acquiring the collection’s 1.2 million specimens.

The social value was driven by the Herbarium’s important role in research, in providing a centralised database and resource and non-use values. Non-use values have been shown to make up a significant portion of total economic value in the context of environmental natural resources, especially when the resource is unique and damage is irreversible.

Given there is no information on the potential social value (in particular the non-use value) and the fact that these specimens are unique and damage to collection is irreversible, we made the assumption that the aggregate social value that the society places on the collection is at least equal to 261% of the collection (tested further in the Sensitivity Analysis).

Cost benefit analysis

In order to assess the proposed relocation, we identified the impacts to occur under the alternative scenario against the base case.

Relocating the Herbarium to a new building in Mt Annan and repurposing the Brown Building under the alternative case will incur various capital, operational and economic costs relative to the base case. For example, capital cost of constructing the new building and repurposing the old building; relocation costs; economic cost of staff additional travel time; volunteer recruitment cost; and maintenance, operating and lifecycle replacement costs.

The primary benefit derived from relocating the Herbarium are the avoiding the costs that would be associated with remaining in sub-optimal condition of the Brown Building (under the base case). To quantify this benefit, we assessed the cost of damage to the collection. Based on the damage rate identified in the business case and the private and social value, we were able to assess the avoided cost of irreversible damages to specimens. Other benefits assessed include avoided operational costs and avoided storage costs due to the sub-optimal condition of the Brown Building.

Analysis results

The analysis found a benefit to cost ratio of 1.00 of relocating the National Herbarium of NSW to a new building at Mt Annan. The key result from the analysis is the value assumed for the community’s willingness to pay to avoid damage to the collection. If this benefit is omitted from the study, it follows from above that the economic valuation will also be negative. Facing the constraint of not having sufficient information to estimate the social value of preserving the Herbarium, we have estimated the community value necessary for the construction to have a positive net present value equal to approximately $1. What this means is that if the community were to value avoiding damage to the collection in the Brown Building at $19.121 million in present value terms, it is economically efficient to build the proposed new Herbarium at Mt Annan. In annual terms, the willingness to pay would need to be $1.295 million or $0.45 per household in NSW.