A key principle of the Business Case Approach (BCA) is fit-for-purpose effort. This page provides guidance to help you right-size the amount of effort you use to develop your business case to ensure it is fit-for-purpose without wasting time and money.
A business case is right-sized if it has been developed with an appropriate level of effort based on the investment’s risk, complexity and uncertainty.
There are two distinct elements in right-sizing a business case:
Right sizing a business case is important to ensure that resources are not over- or under-expended in its development, and to ensure that the risk of the investment is appropriately understood as the proposal is developed through the business case lifecycle.
One important way of ensuring right-sizing is to make sure you have the information you need to make robust decisions, for example including appropriate early stage technical assessments, identifying and understanding risks, and, when appropriate, bringing forward technical testing (including more detailed design) into your business case development, rather than leaving it too late.
Historically, site investigations and detailed design have not occurred until the pre-implementation phase of project development. This means significant work can be put into project development, and the identification and development of a preferred option before site walkovers and technical testing occur.
This approach can result in significant risks to project delivery being uncovered late in project development and subsequent late-stage cost and scope increases.
Cost, risk and complexity form the major considerations (alongside things like uncertainty and previous or related works) in right-sizing business cases. The primary place to ensure the right-sizing of the business case pathway is at the point of entry (PoE), where there is the opportunity to agree the level of effort required for a given project. You will need to consider a range of factors to gain enough clarity over the likely risks, uncertainties and complexities involved, to be able to right-size the effort appropriately, and to decide on a business case pathway.
Right-sizing is also considered when scoping the next phase of the business case within the management case.
When determining the right amount of analysis and evidence to be completed during the business case, consider the time and cost of each piece of work against the expected value of that completed piece of work.
Be guided by industry norms and standards, but don’t follow these blindly. Are they appropriate to this business case? If they aren’t, how is a departure agreed and approved?
Once you have a picture of the amount of analysis and evidence to be completed, consider the sequencing and timing of the work. Should a piece of work be developed progressively and revisited as the business case progresses, or should it be completed in a single step? Here you are balancing the conflicting risks of spending time and resources on work that later proves to be unnecessary (if you do it too early) versus the time and resources wasted if you are progressing an option that later work reveals to be not feasible (if you do it too late).
Understanding and managing risk (to outcome, scope, cost and delivery) is the key to right-sizing.
Better understanding risk during business case development allows fatal flaws to be discovered while there is the best ability to influence the outcome at the lowest cost.
When risks become issues that are discovered in the pre-implementation and implementation phases, this can result in expensive mitigation, project delays or redesigns when public and stakeholder expectations are high. Ideally issues should be identified in the detailed business case (DBC) or earlier – before significant funding and time is spent on designing and consenting a preferred option.
For more about managing risk and uncertainty in the five-case model, see our detailed guidance.
Risk and uncertainty in the five-case model
When risks are not well understood, cost estimates are unlikely to accurately reflect the true cost of a project and the design may not be appropriate for the onsite conditions. This has flow-on effects for timing and schedules as more work is required. This could cause problems for complying with consents or other agreed requirements, damaging customer and stakeholder goodwill where expectations are changed. In significant cases this may result in decision makers withdrawing funding and support.
Example: Bridge construction project
During the recent construction of a bridge structure, it was discovered that rock depth in the actual location of the bridge piles was significantly deeper than in the location of the two bore holes completed during pre-implementation.
This had serious implications for the design: the bridge piles needed to be an additional 8 metres in length and the piles were redesigned from rock to friction piles. New piling equipment had to be transported to the site and a new methodology developed. This resulted in additional project costs of approximately $1.2 million, significant time delay and extra pressure on the contract to deliver the project before the busy summer period.
Having a better understanding of the geo-technical conditions at an earlier stage would have avoided project delay, the need for redesign and may have allowed more competitive pricing, or the project team could have located the structure in a better location.
Right sizing business cases is essential to getting a clear scope of work and should be done as early as possible.
The 16 business case self-assessment questions provide a helpful tool to consider both for how your business case is tracking and to consider what gaps may need to be addressed by the next business case phase.
Reviewing the relevant questions to your phase and considering how you will ensure they are answered through your project scope is a helpful approach when it comes to right sizing.
How to self-assess your business case
Much of the work undertaken during the PoE phase is concerned with right-sizing. Broadly you are determining the amount of effort required to develop a fit-for-purpose business case. Your focus is on scoping the next phase of work, while work that will be completed in subsequent phases should receive less attention.
See the PoE phase guidance for more information.
The strategic case, whether it is undertaken as a standalone phase or not, is about defining and understanding the problem and/or opportunity and showing there will be substantial enough benefits to justify investment to investigate the problem and/or opportunity further. It is the foundation on which the rest of the business case is built and, essentially, it asks ‘Is there a case for change?’
When considering the scope of the strategic case (and if it is right-sized) it can be helpful to consider what information you need to answer the first eight questions in the 16 question self-assessment tool.
Strategic case
Strategic case phase
The purpose of a programme business case (PBC) is to find the combination of activities that represent the best-value-for-money response to the case for change identified in the strategic case.
A robust PBC provides NZ Transport Agency Waka Kotahi (NZTA) and all stakeholders with assurance that:
The PBC should present costs and benefits as ranges because we know that we do not yet have certainty on detailed option selection. Generally, desktop assessments and site walkovers should be used to understand the risk profile of the different programmes. Where risks are likely to significantly impact the performance of a shortlisted programme it may be appropriate to bring forward additional investigations.
When considering the scope of a PBC (and if it is right-sized) it can be helpful to consider what information you need to answer the first 12 questions in the 16 question self-assessment tool.
The indicative business case (IBC) should confirm the case for change (the strategic case) and demonstrate that it optimises value for money (the economic case). It should also include an outline of the:
Find out more about the strategic, economic, commercial, financial and management cases in our guidance on the five-case model.
The IBC will identify the scope of work for the DBC, including any work that needs to be completed to better understand risks for the activity-level optioneering and assessment.
It is good practice to aim for a single, clear recommended option at the end of the IBC shortlisting exercise – then you only need to do detailed analysis (within the DBC) of one option, and the investor(s) can be clear about what type of solution is proposed.
However, there may be investments where the advantages and disadvantages, risks and accurate cost estimates for two or three options are hard to distinguish, meaning more work is required to identify the best solution. In these cases, doing more work to understand the risks and identify a preferred solution will help you to make an informed decision and tell a clear story to the investor(s) as to why we should recommend a particular way forward.
A right-sized IBC will accelerate investigations that materially affect option selection – this could be traffic modelling; site walkovers or level of design depending on the project.
When considering the scope of an indicative business case (and if it is right-sized) it can be helpful to consider what information you need to answer the 16 questions in the 16 question self-assessment tool.
Indicative business case phase
The DBC should carry out detailed analysis on the preferred option (or options) from the IBC phase against the do-minimum option. The DBC identifies a recommended solution for implementation and shows how the solution will be delivered.
The DBC should summarise the case for change (strategic case) and demonstrate that it optimises value for money (economic case). It should also demonstrate that the preferred option is commercially viable (commercial case), is affordable (financial case) and can be delivered successfully (management case).
Find out more about the strategic, economic, commercial, financial and management cases in our guidance on the five-case model.
The DBC should consider all relevant technical requirements as well as a detailed analysis of the risks and uncertainties associated with the preferred option. By this phase, you should also have plans to mitigate the preferred option’s risks heading into pre-implementation. The risk and uncertainty registers are critical in documenting this.
To mitigate risk, you need to understand it. The NZTA minimum standard Z/44 Risk management practice guide provides a consistent and uniform approach to risk management services from suppliers delivering NZTA contracts. Approved organisations can also follow Z/44 or their own organisation’s equivalent.
Z/44 Risk management practice guide
For more about managing risk and uncertainty in the five-case model, see our detailed guidance.
Risk and uncertainty in the five-case model
From the DBC onwards site visits and/or walkovers should be included in the professional specifications to assist with understanding likely technical risks.
When developing the scope of a DBC we should include the appropriate site investigations required for professional service providers to stand behind an option, and the option should be able to be designed and built within the contingency.
If there are risks identified that are not well understood, it may be appropriate to do additional detailed investigation within this business case phase. This could include additional design work, site investigations or consultation. You may know this based off the PBC/IBC management case and be able to include it upfront in the scope of your DBC, or it may be appropriate to seek a scope adjustment if these risks are identified during DBC development.
When considering the scope of a DBC (and if it is right-sized) it can be helpful to consider what information you need to answer the 16 questions in the self-assessment tool.
Are the assumptions, risks and uncertainties well documented? Are these effectively mitigated or priced within the contingencies?
Because the single-stage business case (SSBC) combines the IBC and DBC into one phase, all the IBC and DBC considerations above will need to be worked through upfront in their entirety to properly scope an SSBC. Care needs to be taken to ensure the right work is completed before the preferred option is agreed, and what should take place after the preferred option is agreed. There is a significant risk where SSBCs are used for complex activities that either a recommended option will be pre-determined (that is, with insufficient work on the strategic case and optioneering), or that too much time is spent on optioneering and the option is insufficiently developed (insufficient work in the risk mitigation in the commercial, financial and management cases). The scope of the DBC section of the SSBC should be confirmed after completing the IBC section.
Single-stage business case phase
When considering right-sizing by each of the five cases, it is important to remember that the five cases progressively develop throughout the business case lifecycle. The diagram below provides helpful context of how the five cases are developed.
Open an interactive PDF of this table [PDF, 399 KB]
Right-sizing is very dependent on the cost, risk and complexity of a project. Below we discuss the range of detail that may be expected when developing a right-sized business case through each of the five cases. For more about the five cases, see our detailed guidance.
A strategic case for a SSBC or DBC (that has been identified through a recent PBC and/or IBC) may very simply confirm and then update on the micro-level/localised project-specific context only. However, a standalone IBC or SSBC will need a more thorough assessment of strategic context, evidence and benefits.
Depending on your business case pathway, an economic case could be a quick assessment of a couple of options identified through previous work or it could require sorting, assessing and refining many options.
For example, the economic case for an end-of-life bridge replacement will have a different scope to a business case for a new cycleway. The bridge replacement may have been identified through asset management planning or a net-present-value end-of-life assessment. These documents may fill in some of the gaps we would typically look for a SSBC to answer and, consequently, the scope of options assessed in the economic case and the level of strategic context required could be substantially reduced compared to the new cycleway project.
Consenting, procurement and project management options are likely to be low-risk for standard activities but require substantial consideration if complex construction, multiple sites or staging requirements or third parties are involved.
The financial case may simply outline the whole-of-life costs and funding requirements of the recommended option or, for a more complex activity, it may require more robust discussion on funding sources, risk and cost-sharing arrangements.
Increasingly the financial case will need to consider multiple funding sources. Non NLTF options, split funding, developer contributions or loan type structures will all influence the level of effort needed within a financial case.
The management case can be as simple as an identification of residual risks and expected next steps, or can extend to a full project management plan with agreed multi-party governance and memoranda of understanding.
It is important to talk to us throughout the development of your business case. Contact your NZTA investment advisor or email the Business Case Process team at businesscaseprocess@nzta.govt.nz
