The economic case answers the questions:
• What are the options?
• What is the best option to achieve the sought benefits?
The economic case is the second of the cases from the five-case model and it builds on the foundation created in the strategic case. The strategic and economic cases are the most substantive of the five cases, as they play a key role in setting the direction of the investment.
The purpose of the economic case is to find the best value-for-money approach to addressing the issues identified in the strategic case. It must show how the problems will be addressed and how the benefits will be achieved. It must also do this in a way that fits with the strategic context for the investment.
Value for money
The value for money of an investment is defined in terms of:
The economic case has four key actions, which build on the findings from the strategic case:
In completing these actions the economic case must consider risks and uncertainties, including how they affect the robustness of the (shortlist or) recommended option.
Appropriate decision-makers should be involved at critical milestones throughout and need to agree the preferred option before the business case continues. Depending on previous decisions, delegations or emerging complexity, this may include project directors, sponsors or investors.
Each of these steps are needed in some form for all investments. However, the amount of work involved in each step can vary a lot from one business case to another – following the Business Case Approach (BCA) principle of fit-for-purpose effort, it should be right-sized depending on how much complexity, risk and uncertainty are involved.
A key role for the economic case is the in-depth consideration of the possible ways of responding to the issues raised in the strategic case, to find the alternative or option that represents the best value for money. We call this process optioneering.
The economic case needs to start by considering an appropriate range of alternatives and options, which will be narrowed down through the development process. We will increasingly need to consider innovative responses to transport issues and not simply assume that an ‘obvious’ or tried-and-tested approach will suffice. Encouraging creative thinking about possible ways to respond, and not applying judgement too early, are important factors that can help achieve innovation.
Intervention options usually fall into three categories:
It is important, especially in early phases, to look for alternatives and options under all of these headings, and not simply assume that a supply-side response is needed. In later stages optioneering may include staging, sequencing, financing and procurement.
You should also use the intervention hierarchy to help generate ideas for alternatives and options.
Once a range of options have been identified, the economic case must identify a recommended option. To do this, the listed options are compared to a number of carefully selected criteria, through a process called multi-criteria analysis (MCA).
Other optioneering tools include:
A key focus throughout the five-case model is to identify and manage risks and uncertainties.
Although they are closely related, risks and uncertainties are typically managed in different ways within the BCA. For a detailed overview of how risks and uncertainties are treated throughout the five-case model, including definitions and templates for risk and uncertainty registers, see our detailed guidance.
Risks and uncertainties can arise within each of the five cases. As work on the business case progresses, risks and uncertainties must be identified, recorded and tracked. You should also capture the proposed approach to managing each risk or uncertainty, which will ultimately form a key focus for the management case.
It is good practice to set up registers to track risks and uncertainties from an early stage in the business case. The registers continue to be used throughout development of the business case to capture risks and uncertainties from all of the cases.
The economic case should focus on informing the optioneering process, for example by identifying the risks or uncertainties associated with each alternative and option. These could be risks or uncertainties relating to the cost, scope, timing or effectiveness of each alternative or option.
It’s important to account for these risks and uncertainties throughout the optioneering process, and to use that understanding to describe any residual risk or uncertainty associated with the recommended option.
You may need to develop an understanding of these risks or uncertainties for each alternative or option to inform the optioneering process, and also to determine any residual risks or uncertainties associated with the recommended option.
The economic case follows on from the strategic case, and is typically developed as a step within one or more phases of business case development, such as:
The development of the economic case is iterative, as it continually refines previous work and evolves from ongoing work. As further information is obtained, for example during engagement, consenting, or sensitivity testing, previous assumptions may need to be confirmed or revisited.
Within each development phase, work on the economic case must begin after the strategic case has been developed. This is because the economic case takes its direction from the strategic case.
Keeping good documentation during the economic case is crucial in order to support decision making and transparency. For example, you may need to provide clear documentation relating to the optioneering process as in input into consenting or for engagement purposes.
As with the strategic case, whether or not you develop the economic case in one go depends on whether the investment is simple or complex:
If you are working on a business case for a programme of investments, you will need to develop the economic case in more than one phase.
For more complex investments, especially programmes, you will need to start by developing the economic case at a system level. Then, as you start work on each activity in the programme, the economic case will need developing further to make it specific to that activity.
Example: improving a city’s public transport choices
A programme aimed at improving transport choices for a metropolitan area could consider a range of system-level options, or responses. The economic case will focus on selecting the best overall way to respond to the problems and achieve the benefits identified in the strategic case, but this will be at a fairly high level.
Programme-level options could include:
The recommended programme could include any, or some combination of, these options.
One intervention in the programme is aimed at increasing the availability of public transport. The PBC won’t contain enough detail to decide how this will be achieved – that understanding needs to be developed through an activity-level business case (IBC and DBC or SSBC). The activity-level business case takes its direction from the PBC – it’s already been decided the component intervention needed is about increasing public transport mode share. But now, the activity-level business case needs to identify options for making that happen.
The following options could be considered:
The economic case for the activity-level business case must then evaluate the range of options to see how well they would help achieve programme objectives, how much they would cost, how long they would take to implement, how much risk is involved, and so on. Out of that process, the preferred option will be identified.
As with the strategic case, it’s common to find when you start a phase of a business case that some of the work needed to develop the economic case has already been done. For example, this could be where:
It’s important to look at existing work objectively: consider how much is suitable for use in the business case and check if it covers everything that an economic case needs to cover. For example:
If the answer to any of those questions is no, you will need to address the gaps. That doesn’t necessarily mean starting over, but you need to complete the work to address those gaps before trying to move on. It’s important to carry out this gap analysis when you are scoping the next phase of business case development, for example when you are completing a point of entry (PoE) phase.
Another way to check if existing work meets the standard required for a business case is to use the ‘16 investment questions’ (see ‘How do I know if the economic case is complete?’ below).
A key principle of the BCA is that business cases are developed progressively, one step at a time. This means there will sometimes be more than one place where work is needed on the economic case, because the business case will need different things from the economic case as it develops and as understanding of the investment grows.
Within each phase of development, the key actions you need to focus on for your economic case will depend on a number of things, including:
The table below illustrates how the focus and level of detail needed in the economic case can change as the business case progresses from one phase to the next. For more information on each phase, please select the relevant link from the first column.
|Focus of the economic case
and early single-stage business case phase
and late single-stage business case phase
Engagement with stakeholders has a key role to play in the development of the economic case. There can be real value in seeking to collaborate with or involve those stakeholders in more meaningful ways, especially where the potential impact on a stakeholder or stakeholders is likely to be significant. For example:
More information about engagement in the BCA is available on our website.
This will depend on which phase you are working on, how complex the investment is and how much risk or uncertainty is involved.
However, there are a few things that can help you, including:
When assessing applications to fund business case phases from the National Land Transport Fund (NLTF), Waka Kotahi will seek assurance that the economic case has been adequately developed.
As a principles-based approach, there is no checklist of specific actions to follow to ensure that Waka Kotahi’s expectations regarding the economic case are being met. However, there are some questions that assessors will consider to ensure that the principles relating to the economic case are being followed:
Contact your Waka Kotahi investment advisor or email the Business Case Process team at email@example.com