The financial case answers the questions:

   Is the investment proposal affordable?

   How will we fund it?

Why is the financial case important?

The financial case determines the affordability of the investment proposal. It outlines the whole-of-life costs and funding requirements of the recommended option, taking into account all potential funding sources, risks and uncertainties.

A fit-for-purpose financial case will give decision makers confidence that they are committing to an option and delivery pathway that is affordable and unlikely to create unforeseen impacts on limited funding sources or to force significant trade-off decisions during implementation.  

When is the financial case developed?

A key principle of the Business Case Approach (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 financial case, because the business case will need different things from the financial case as it develops and as understanding of the investment grows.

The financial case is developed within one or more business case phases, such as:

  • a programme business case (PBC) – to inform selection of the recommended programme
  • an indicative business case (IBC), detailed business case (DBC) or single-stage business case (SSBC) phase – to inform selection of the recommended option, and determine the affordability and fundability of activities within the programme.

It is also part of a pre-implementation phase (if used).

The financial case will be revisited and built up in each phase, as knowledge gaps are filled and cost estimates are refined.

Business case phases

The main work on the financial case begins when the strategic and economic cases have been developed, as there is no recommended option to work on until that point. However, elements of the financial case may need to be understood early. For example, understanding affordability envelopes may create parameters for the economic case (optioneering), different funds available and their priorities may inform the strategic case (strategic context), and financing mechanisms may influence the commercial case (staging or sequencing needs).

What level of detail does the financial case need in each phase?

Within each phase of development, the key actions you need to focus on for your financial case will depend on a number of things, including:

  • the business case phase you are in
  • the pathway being used to develop the business case, from start to finish, and
  • the complexity, risk and uncertainty associated with the business case.

The table below illustrates how the focus and level of detail needed in the financial 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 financial case in business case development phases

Phase Focus of the financial case

Point of entry phase

  • The financial case is not normally a focus in the point of entry (PoE) phase, however, if work relevant to the financial case has already been done elsewhere then summarise that work in the PoE, along with a clear statement of any gaps that are still to be addressed.
  • Include any known affordability or funding risks or uncertainties and show how scope of work for next phase allows for these to be clarified and managed.  

Programme business case phase

  • Identifying the whole-of-life costs associated with each programme alternative or option.
  • Identifying any affordability or funding risks or uncertainties relating to each programme alternative or option.
  • Decide whether specific criteria relating to affordability or funding availability are needed for multi-criteria analysis (MCA) of options.
  • Identify any specific funding arrangements that may be needed to develop and implement the recommended programme (for example, multi-party or third-party funding agreements).

Indicative business case phase

and early single-stage business case phase

  • Identifying the whole-of-life costs associated with each activity alternative or option.
  • Identifying any affordability or funding risks or uncertainties relating to each activity alternative or option.
  • Deciding whether specific criteria relating to affordability or funding availability are needed for MCA of options.
  • Identify any specific funding arrangements that may be needed to develop and implement the recommended option.

Detailed business case phase

and late single-stage business case phase

  • Refining whole-of-life cost estimates for the recommended option (or shortlisted options) and do-minimum option to inform selection of the proposed solution.
  • Developing a detailed funding plan for implementation, including finalising any cost-sharing agreements where needed.

What are the key actions in developing the financial case?

The key actions for the financial case are:

  • estimating the whole-of-life costs of investment, either for different alternatives and options during optioneering, or for the recommended option
  • identifying risks and uncertainties associated with funding sources or availability
  • identifying all funding sources that will be needed to implement, operate and/ or maintain the recommended option, potentially including third-party funding sources.

In completing these actions, it is important to use sensitivity testing where appropriate to fully understand funding risks or uncertainties associated with each option, including the recommended option. The Monetised benefits and costs manual (chapter 7) contains information on undertaking sensitivity and risk analysis,
Monetised benefits and costs manual

It is also important to assess the funding priority of the proposed investment within the relevant activity class and/or work category. For more information see the Planning and Investment Knowledge Base.
Planning and Investment Knowledge Base

Cost estimation

Cost estimation is a core part of the financial case. It is not possible to determine whether a project is affordable without a good understanding of how the whole-of-life costs involved. Failing to get the project’s cost estimation correct may lead to decision making around a project’s affordability being completely wrong.

A robust method of cost estimation must be followed. NZ Transport Agency Waka Kotahi (NZTA) projects are required to follow the standard practices and techniques in the Cost estimation manual (SM014).

Cost estimation manual (SM014)

Approved organisations may use their own cost estimation methods; however, these must be robust and incorporate best practice. Good cost estimation also requires practitioners to use critical thinking skills and experience, supported by a good understanding of project risks and uncertainties.

Cost estimation is not an exact science, and it takes into account uncertainties and risks. Costs are progressively refined through the development of the business case by increasing the understanding, information and detail of each component of the project, as shown in the figure below, which comes from SM014.

A graph showing how over time your optimistic and pessimistic cost estimations should get closer to each other over time, as you refine your cost estimate

Refining the cost estimation as you develop the business case

As you develop the business case, you will learn more about the requirements of the project, and develop understanding of the uncertainties and risks involved. This iterative process allows cost estimates to be improved and estimation ranges to be narrowed through each phase of business case development. It also allows uncertainties and risks to be managed and factored into decisions.

Cost estimation ranges

When developing cost estimates in the early phases of a business case, there will be gaps in your understanding of project scope and risks to account for. However, it is expected that these gaps will be progressively reduced as you move from the early phases of the business case to later phases (as illustrated in the figure above).

Using ranges in cost estimates are a reflection of knowledge gaps and risks at any given point in the business case process. It is important that cost ranges are continually reassessed and refined these throughout the business case development cycle. Any unmitigated risks or uncertainties should be appropriately priced and the cost estimate should actively respond to the risk and uncertainty registers, with key assumptions being clearly recorded.

Ranges for cost estimates for IBC, DBC and SSBCs are normally expressed as expected (P50) and 95 percentile (P95) estimates. The P50 estimate is the base estimate with a contingency allowance. The contingency is an objective allowance for remaining knowledge gaps and remaining risk. The P95 is an estimate is made up of the base estimate plus contingency plus costed risk, which theoretically should be exceeded by the final cost only once in 20 occasions.

Optimism bias

Optimism bias is a cognitive bias that leads people to significantly underestimate the probability of an undesirable outcome, and overestimate the probability of a favourable outcome. In the context of cost estimation, it frequently leads to:

  • understatement of project costs, and/or.
  • overstatement of project benefits,

In developing the financial case, appropriate care must be used to minimise or, where possible, avoid optimism bias. Failure to achieve this can result in significant cost over-runs, or failure to deliver the anticipated benefits – both of which are key measures of project success.

The effects of optimism bias on the financial case can be minimised several ways, including:

  • use of a rigorous cost-estimation methodology, such as SM014 or a local equivalent
  • ensuring that costs are expressed in whole-of-life terms
  • using sensitivity testing
  • effective use of baselining, for example by researching actual whole-of-life costs for previous activities of similar type and scale to the alternatives, options, or recommended solution.

Above all, it is important to use your critical thinking power skills in the preparation of the financial case.

Risks and uncertainties in the financial case

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.

Risk and uncertainty in the five-case model

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 financial case should focus on identifying risks and uncertainties that relate to:

  • cost estimation
  • affordability
  • funding availability, across all sources.

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.

How does the financial case link to the other cases?

The financial case will be developed in parallel with the wider business case and will draw upon the following elements from other cases in the five-case model:

  • a comprehensive investigation of uncertainties (sensitivity testing) and risks, including costs for risk treatments and mitigations
  • site investigations
  • well-defined project scope and functionality
  • design of project
  • costs for consenting and procurement approaches
  • the construction methodology (for infrastructure projects) such as traffic management costs
  • evidence of robust-value engineering.

A good financial case will demonstrate a clear linkage to these elements. They are important because they inform the cost estimator about and make transparent project costs imposed by design, functionality, construction methodology and project site. To use these elements effectively the cost estimator must apply their skills and experience, but most importantly critical thinking.

What does engagement look like in the financial case?

Engagement while developing the financial case relates primarily to funding agreements and funding availability:

  • You are likely to need to undertake more engagement if there are multiple investment partners and more complex funding agreements.
  • You will need to liaise with the NZTA Investment Assurance team about activity class funding availability and fundability.

More information about engagement in the BCA is available on our website.

Engagement and the Business Case Approach

Assessing the financial case

How do I know if the financial case is complete?

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:

  • Talk to your NZTA investment advisor. It’s important to work with your investment advisor throughout the financial case. They will be able to help you get the level of detail right, and avoid missing any important steps.
  • Check against the 16 questions, which have been developed to help business case practitioners understand when they have done enough. Questions 13–16 encompass the commercial, financial and management cases, and are designed to test whether:
    • enough work has been done to identify the preferred response from a range of alternatives and options, and
    • the reasons for choosing the preferred response are clear.  
  • Make sure you have identified any residual risks or uncertainties relating to affordability, especially where these will impact your confidence in delivering the recommended option within the cost range (PBC/IBC) or for the cost estimate (DBC).

How to self-assess your business case

What does NZTA look for from a financial case for assurance purposes?

When assessing applications to fund business case phases from the National Land Transport Fund (NLTF), NZTA will seek assurance that the financial case has been adequately developed.

As a principles-based approach, there is no checklist of specific actions to follow to ensure that NZTA’s expectations regarding the financial case are being met. However, there are some questions that assessors will consider to ensure the principles relating to the financial case are being followed:

  • Has a standardised cost estimation methodology been used, supported by critical thinking and experience? For NZTA activities, have the practices and techniques in the Cost estimation manual (SM014) been followed?
  • Are the assumptions used in estimating costs and uncertainties transparent?
  • Has the base cost, contingency, expected cost and 95 percentile estimate (P95) been included?
  • Have appropriate steps been taken to avoid or minimise optimism bias, including in the appraisal of project benefits and project costs?
  • Have cost estimates been sense-checked and reconciled against previous estimates for this activity and comparable projects in similar conditions?
  • Has benefit–cost appraisal and sensitivity testing been included? Is the level of appraisal appropriate for the business case phase?
  • Has the sequencing and timing of the activity been optimised, to the extent relevant to the business case phase?
  • Are the cost estimates and cashflows consistent with what is entered into Transport Investment Online (TIO)? If there are inconsistencies (such as escalation or administrative costs), are these transparently reconciled to prevent undue uncertainty or delay?
  • Is there clear evidence of project funding priority and funding availability? This applies to the NLTF share and the approved organisation share, or any other Crown funding.
  • Are all sources of funding clearly identified? Where agreements between funding partners are needed, have these been drafted or finalised?
  • Where third parties are involved, is there confirmation of their share of funding, and does the third-party share of funding appropriately reflect the proportion of the project benefits the third party is expected to enjoy?
  • Where tolling contributes to the funding, is there clear evidence of the sufficiency of the net toll revenue stream?

Resources and further information



Need support?

Contact your NZTA investment advisor or email the Business Case Process team at