Financial Objectives
Financial pressure are the most common reason for introducing reforms. This is usually because subsidy levels are excessive and forecast to rise further.

Competition “for the market” and “in the market”
To reduce subsidy levels there is a choice between reducing costs, increasing revenues or trying a combination of both. Usually the main focus is on reducing unit costs by introducing competition for the exclusive right to operate one or more bus services. This is called competition “for the market”.

It’s also possible to introduce competition by allowing different operators to compete with each other on the road. This is called competition “in the market.”

Both approaches can be expected to result in low operating costs with little or no waste.

Deciding which approach to adopt depends on what form of bus service policymakers want. If they don’t want to see buses competing for passengers on the road then policymakers should not select a reform structure that permits this (e.g., deregulated systems or certain types of net-cost systems ).

Balancing objectives
Policymakers should also ensure that their financial objectives are achieved to the greatest extent possible without compromising other operational objectives. If policymakers consider it of top importance to ensure the lowest possible operating costs on an ongoing basis then a system that requires the authorities to re-tender on a regular basis is more likely to achieve this goal than one that does not.

In addition to reducing costs it’s also possible to reduce subsidies by increasing revenues (i.e., increasing ridership and/or increasing fares or some combination of the two that results in increased revenue). Fares are discussed in more detail in the section on social objectives. It’s important to remember that ridership levels will vary depending on the fares charged. It may not be possible to achieve financial objectives and at the same time grant all the desired fare concessions implied by the social objectives.

If it appears that the reduced operating costs and the likely increases in revenue are insufficient to meet the financial objectives then either services must be reduced, to bring down the amount of subsidized service, or some restrictions must be imposed on private modes in order to increase ridership. Such a move may or may not conflict with social objectives.

Regulatory bodies are essential
Under all the proposed systems likely to be introduced, there will be a need for a regulatory body within government to oversee the bus service. The size of this regulatory body will depend to a large extent on the chosen bus system. For example, for a deregulated system with no entry controls the regulatory body could be very small. But for a route-based gross-cost system there would be a requirement for constant management and monitoring of the system and this would require considerable resources. Regulatory body costs must always be included when assessing the financial implications of each of the options.

Consider the range of reform options
Depending on your existing situation and future objectives, the range of reform options should be examined and the most appropriate approach adopted. The interactive tool can help you to select the most appropriate bus system option.

For more information see: operational or service objectives and social objectives.