Innovation in social value advisory

A new approach to social value creation

This article first appeared in Infrastructure Partnerships Australia’s Future Building Volume 12 (2021).

A new approach to social value creation in infrastructure will help companies by identifying the true value of projects. It will also help communities by better understanding their needs.

That is the view of Vanessa Pilla, National Lead of the new Social Advisory and Research Practice at RPS. She believes Australia’s infrastructure sector should collaborate on a social value agenda that becomes embedded within project analysis and delivery.

“Social value creation is the future of infrastructure,” says Pilla. “If our industry wants to deliver more projects, we will need different thinking on how social value in infrastructure is defined, measured, valued and communicated.”

That begins with building industry consensus on a definition of social value and the assumptions behind its measurement, says Pilla. “RPS believes social value in infrastructure is ultimately about individuals’ wellbeing and quality of life. An agreed definition would standardise measurement of social-value creation and feed into project cost-benefit analysis.”

Pilla sees two main benefits from social-value creation. The first is project design. “At its core, social value creation requires a deeper understanding of how people value infrastructure. That means wider engagement with communities upfront, and more opportunity for them to co-design projects. The long-term result will be infrastructure that better serves communities.”

The second benefit is economic. “Defining and measuring social value could have a profound effect on project economics,” says Pilla. “A lot of social value creation from new infrastructure projects is not being sufficiently recognised because our industry doesn’t measure it properly.”

Project economics

Pilla’s colleague, Lee Jollow, National Lead – Economics at RPS, uses transport infrastructure as an example of social value capture. “Typically, economists look at commuting time saved from a new road and what that means for employment. Then, we use average weekly earnings to put a value on that job creation. But that only tells part of the story.”

Lee adds: “What if the new road is in a community with high long-term unemployment? And the road enables someone to move to a full-time job. Also, what if the new road helps people to live a little further out and reduces their debt and housing stress? We need to capture this value in project economics.”

Social value creation recognises the interplay between infrastructure, says Lee. “Imagine if that road makes it easier for young people to go to university. Or makes it easier for older residents to access hospitals. We need to ask more questions about how a project will support the value and sustainability of other infrastructure in a community.” 

Lee says the economics of social value capture are significant.

 “RPS has worked on projects where identified social value has been worth up to half a billion dollars over 30 years. On major projects, social value can change the dial on investment decisions.”

Lee says social value creation is particularly important in regions. “We know infrastructure is an enabler in the regions and can help address community problems by better connecting people to services, work and each other. We also know that only around 30 per cent of projects on Infrastructure Australia’s priority list are in the regions. Capturing social value is the missing piece of the puzzle in regional infrastructure.”

Long-term approach

Pilla emphasises that social value is not a new concept and that Australia’s infrastructure sector has done much good work in this area. “It’s not about starting from scratch. Rather, it’s about building on current thinking on social-value creation and taking it to a new level. Most of all, it’s about stakeholders working together on this issue to help communities.”

Pilla says the United Kingdom shows the potential of new approaches to social value creation. After the 2008-09 GFC, the UK cut spending on social services, public health, social infrastructure and housing. That increased poverty and inequality in some areas.

With funding constrained, the UK Government introduced the Social Value Act 2012 to ensure social, economic and environmental benefits were included in decision making for public-sector contracts. In July 2021, the legislation required all major procurements to explicitly evaluate social value rather than just consider it.

"The UK Act is not perfect, but it shows how other countries are moving towards social value creation - and where Australia needs to head," says Pilla

“There are good signs with Infrastructure Australia starting to lead this conversation.”

Launched in July 2021, Infrastructure Australia’s refreshed Assessment Framework requires proponents to demonstrate the merits of each proposal across three overarching assessment criteria: Strategic Fit, Social Impact and Deliverability. On Social Impact, companies need to show the value of their infrastructure proposal to society and the community, across quality of life, productivity, environment, sustainability and resilience.

“For the first time, the Assessment Framework is saying: ‘Even if you can’t monetise social value in cost-benefit analysis, it will be counted in the decision on a project,” explains Jollow. "Until now, our industry has tended to treat social value as binary: if it can be monetised, it’s included; if it can’t, it’s excluded. That’s led to a lot of social value not being captured."

Supporting clients

RPS recently launched its Social Advisory and Research Practice to help clients position for this change – and harness the firm’s Australian and global strengths. RPS is one of the world’s leading infrastructure advisers with around 5,000 consultants working across 125 countries and six continents.

Operating in Australia since 2003, RPS has advised on many of the country’s largest projects: Brisbane’s Cross River Rail, Sydney’s Metro, Parramatta Light Rail, Great Western Highway Upgrade Program and Western Sydney Airport, as well as Melbourne’s Metro Tunnel Project, Level Crossing Removal Program and Airport Rail Link.

“RPS has done extensive work in social value capture through our economics team,” says Pilla. “The new Practice builds on that and provides a structure to bring together RPS economists, social researchers, community-engagement practitioners, and other infrastructure experts.

Pilla says the Practice aligns with RPS' purpose and values, and it's goal to provide the best advice.