Role of the Business Case Approach in assessment

DIagram of business case development

How an activity's assessment profile is progressively developed through the business case process:

Support of strategic and programme business cases provides approved organisations and Waka Kotahi with:

• an appreciation of the scale of the problem and the benefits that should be achieved
• a reasonable degree of certainty for approved organisations and Waka Kotahi to invest to further develop the activities through the business case process
• an early view of transport proposals and the potential scale and timing of investments
• the opportunity to assess the affordability of transport proposals and identify potential future funding demands.

Support of these stages does not commit Waka Kotahi to investing in the programmes or activities subsequently identified to address the issues. Approval of funding for a subsequent stage in the process is a separate step which will consider the business case assessment profile, its priority relative to other cases, any changes that have occurred as a result of new information, and the availability of funding in the relevant activity class.

Waka Kotahi may not support a programme business case in its entirety. There may be elements that Waka Kotahi is prepared to support, and consequently assist their funding, and other elements that do not align with the GPS and which cannot be funded from the NLTF.

If support is limited to particular elements of a programme at the time of assessment these will be documented, with accompanying reasoning, in Transport Investment Online(external link).

A strategic case must be established for all activities to be considered for investment. The strategic case will be reviewed at each investment gate. Waka Kotahi will assess strategic cases for their Results Alignment, once these cases have been agreed with stakeholders. This will indicate how well the issues identified, along with the benefits, align with the results/outcomes set out in the GPS.

If the strategic case is not aligned with the GPS results, subsequent business cases will not be funded through the NLTF.

A rating of Medium or High Results Alignment should enable Waka Kotahi to support the strategic case, and the activity should be able to progress further through the Business Case Approach with funding from the NLTF, subject to funding availability and programme optimisation.

Programme business cases will be assessed by Waka Kotahi to confirm they provide indicative ratings for Results Alignment and Cost-benefit Appraisal. The benefit-cost ratio (BCR), should be a range, reflecting the spread of potential benefits, costs and risks of the preferred programme(s) to achieve the benefits identified in the strategic case.

Waka Kotahi will support the programme business case if:

• the Results Alignment rating is confirmed at Medium or High, and
• the indicative Cost-benefit Appraisal rating is sufficient to justify ranking the programme above the activity class investment threshold.

In some situations Waka Kotahi will support the direction of a programme business case but may decide not to invest in subsequent business cases. This could happen where a proposed programme does not include sufficient transport benefits, and therefore is not eligible for NLTF funding, but it does provide targeted outcomes, e.g. in land use or economic development, that support the desired shape of the transport network.

Although Waka Kotahi will endeavour to provide long term certainty to its investment partners, it will need to review its support from time to time. Some of the reasons for reviewing support are:

• significant change in government or Waka Kotahi policy that means the grounds for the support have changed, or that support is no longer applicable
• changes to the underlying assumptions, such as population growth and/or the sequencing of development, which have altered the degree to which the business case is fit for purpose and provides value for money.

Waka Kotahi support does not mean an ongoing guarantee of funding, due to a number of factors, including:

• changes in the GPS investment direction;
• activities no longer meet the requirements and thresholds for investment from the NLTF, including regional land transport plan inclusion;
• approved organisations and Waka Kotahi reviewing their investment policies;
• as an activity is developed, the assessment profile will be refined and this may impact Waka Kotahi investment decisions for future phases;
• implementation plans at the programme business case stage are intended to demonstrate the feasibility of a proposed programme, rather than being a definitive list of works that is locked in when the programme business case is supported, or;
• hypothecated revenue into the NLTF means that Waka Kotahi has a constrained budget, which is affected by changes in both global and national economic activity.

Following its support of strategic cases, and programme business cases for significant investment proposals, Waka Kotahi will assess subsequent business cases when the activities are progressed to the next investment gates, to decide whether to invest in these. Its approval of funding for subsequent cases confirms Waka Kotahi support for the assessed case, i.e. there is no formal support for business cases after the strategic case/programme business case.

Full assessment profiles are required at each business case stage, which should be refined as the activity is progressed through the business case approach.

Following development of the detailed business case, Waka Kotahi expects funding applications to cover the full implementation phase. The detailed business case should have been developed to a level that provides sufficient confidence to undertake all the steps involved in implementing the activity. Waka Kotahi discourages the splitting of implementation into a pre-implementation phase (covering design) and full implementation phase funding applications, other than for very large, complex and high risk activities.

The principles of the Business Case Approach apply to continuous programmes through:

• Identifying the strategic alignment and strategic direction for the programme in question
• identification, articulation and evidence of the key problems facing the transport network (current state) covered by the programme
• identification of the benefits that will be achieved by addressing the key problems
• the performance measures that will be used to measure the effectiveness of the proposed solutions
• consideration of options, and selection of the best value for money option(s), to address the problems taking into account funding and other constraints.

The foundation for applying the Business Case Approach to continuous programmes is activity management planning, documented in:

• activity management plans for (mostly roading) transport networks
• regional public transport plans,
• and road safety action plans.

The Activity Management Planning Cycle (currently being updated) section provides guidance on the continuous process of updating and improving activity management planning documents.

The activity management planning document should demonstrate that the proposed programme represents value for money by doing the:

• right thing(s)
• in the right place
• at the right time
• for the right price, and
• in the right way.

In doing so it achieves desired outcomes and benefits from addressing the key issues and/or the contextual state of play in the area covered by the plan.

Underpinning this approach is robust evidence that supports the investment proposed in the plan.

Waka Kotahi support for activity management programme business cases proposed by approved organisations or Waka Kotahi will be based on assessment of the plan demonstrating that the programme meets the expectations of the BCA approach and its fitness for purpose, value for money and alignment to GPS results.

The application of the Business Case Approach principles to Regional Land Transport Plans will assist in the:

• identification, articulation and evidence of the highest priority issues or problems facing the transport network covered by the programme in question
• identification of the highest priority benefits or outcomes that will be achieved by addressing the issues
• development of a clear set of regional objectives that will address these problems and outcomes
• inclusion of stakeholders in the identification of problems, outcomes and objectives
• consideration and prioritisation of the interventions and investments proposed for inclusion in the RLTP
• assessment as to how the programme of interventions and investments included in the RLTP will contribute to GPS results/outcomes.

The regional transport committee's assessment of its RLTP, required under the Land Transport Management Act, is made at a whole of RLTP level and, therefore, does not determine the individual assessment for each activity. The whole of RLTP assessment will, however, inform the assessment that Waka Kotahi makes for each activity. Each activity must be submitted to the RLTP with an assessment by the activity owner.