This page relates to the 2021-24 National Land Transport Programme.
This page provides information on incremental assessment to assist the appraisal of options and consideration of proposed scope changes to a project or programme.
Incremental assessment is recommended to be used:
A recommended methodology for applying incremental analysis is provided in the Monetised benefits and costs manual (MBCM). Refer to section 6.3 of the MBCM for advice on incremental cost–benefit analysis and target incremental benefit–cost ratio (BCR) cut-offs.
Monetised benefits and costs manual
Where project alternatives and options are mutually exclusive, incremental cost–benefit analysis of the alternatives and options is recommended to be used to identify the optimal economic option.
Incremental analysis is carried out by comparing options, starting with the lowest-cost option, which is set as the initially preferred option. The next lowest-cost option is then compared to the lowest-cost option to determine the incremental costs and benefits.
The incremental BCR indicates whether the incremental cost of higher-cost project alternatives and options is justified by the incremental benefits gained (all other factors being equal). Conversely, incremental analysis will identify whether a lower-cost alternative or option that realises proportionally more benefits is a more optimal solution.
If the incremental BCR is higher than the target incremental BCR (refer to section 6.3 of the MBCM), this higher-cost option becomes the currently preferred option. This process is repeated using the next higher-cost option each time, until all options have been compared and an overall preferred economic option is established. This final economic preferred option from the incremental analysis may be sensitivity tested using a higher target incremental BCR (refer to section 6.3 of the MBCM) to see if it changes the results, and if it does this should be reported in the business case.
Note: economic optimisation is only one part of the process to choose a preferred option. There may be reasons why lower or higher cost options may be a preferred option.
Incremental analysis assists in the selection of a preferred option from a shortlist of options that have been determined during the development of a business case when using the Business Case Approach (BCA).
Issues other than economic optimisation that need to be taken into account during the option selection process include, but are not limited to:
The appraisal summary table, which is prepared at the end of an economic analysis of a project, should confirm that incremental analysis has been undertaken and that this analysis informed the selection of the preferred option.
While incremental analysis assists in the selection of a preferred option, other considerations may also need to be taken into account, such as the intervention hierarchy, the effectiveness of an option to address the problems identified in the strategic case, the impact of non-monetised impacts, funding availability, etc.
A material change in scope of an activity is recommended to be assessed incrementally. This applies even if the revised activity can be delivered within the approved funding.
The assessment methodology requires that the previously endorsed activity is treated as the base case. The scope change is to be treated as an option and incrementally assessed against the base case. Incremental analysis is not required for scope changes that are not material.
