1. Step 1: Specify the initiative and analyse options


1.1 Describe the initiative.

1.2 List the objectives the initiative will achieve.

1.3 Check whether the initiative is properly scoped.

1.4 Consider whether the initiative should be staged.

1.5 Identify constraints that could inhibit the initiative from proceeding.

1.6 Specify the Base Case.

1.7 Identify and analyse options.

1.8 Consider pricing assumptions (where applicable).

1.9 Consider private sector funding.

1.10 Is a financial analysis needed?

1.1 Describe the initiative

Describe the initiative, including its location, physical characteristics, function, estimated cost, timing and main benefits. At the detailed appraisal stage, describe the initiative in much greater detail than at the rapid appraisal stage.

1.2 List the objectives the initiative will achieve

It is important to show that the initiative will contribute to achieving government transport system objectives. As discussed in Part F3 of the Guidelines, this alignment is demonstrated through the Strategic Merit Test (SMT).

Part F1 of the Guidelines discusses transport system objectives. At the broadest level, these objectives are likely to include promoting:

  • Economic efficiency
  • Economic development and trade
  • Environmental amenity and sustainability
  • Safety
  • Security
  • Accessibility, social cohesion and equity.

If the SMT shows that an option or initiative does not align well with the transport system objectives, it should either be dismissed at that stage or re-scoped until it does achieve strategic alignment.

Practitioners may also choose (optional) to create initiative-specific objectives that are consistent with and support the transport system objectives. The CBA can assist to clarify initiative-specific objectives. After the results of the CBA become available, practitioners should look at the relative sizes of the different benefits to see if they correspond with the stated objectives. For example, it would be expected that for a initiative aimed at relieving congestion, the bulk of the benefits would be savings in travel time and vehicle operating costs.

1.3 Check whether the initiative is properly scoped

If the initiative consists of discrete or separate components, each one must be justified as if it were an independent initiative. (See Chapter 5 of Part F3 and NGTSM 2006Volume 5, Section 2.2.11 for a discussion on relationships between initiatives). Where the impacts of a series of initiatives are closely interdependent, consider grouping the initiatives together and then treating them as a single initiative.

Only combine initiatives when a single initiative, implemented by itself, produces little or no benefit until another initiative (or initiatives) is completed. In other words, there has to be significant synergies between the initiatives. To test this, there are said to be significant synergies if the NPV of the group of related initiatives, assessed together as though they were a single initiative, is significantly greater than sum of the NPVs of the initiatives assessed individually.

If there are few, or no, synergies between initiatives, they should be appraised separately.

1.4 Consider whether the initiative should be staged

Breaking an initiative into stages can make financing easier, by spreading funding needs over time, and can reduce risks by providing opportunities to delay or cancel later initiative stages.

1.5 Identify constraints that could inhibit the initiative from proceeding

The next step is to identify any major constraints and show that the initiative is feasible given these constraints. The Strategic Merit Test template in Part F3 of the ATAP Guidelines asks for this information.

Many options can be ruled out quickly because they fail to satisfy constraints. Constraints may involve technical, environmental or public acceptability considerations.

1.6 Specify the Base Case

The proposal should specify the Base Case, including any significant assumptions about actions that need to be undertaken in the Base Case, and one-off, future events that affect benefits or costs.

A CBA is always a comparison between a Base Case (without the initiative) and a Project Case (with the initiative). Usually, the Base Case consists of whatever would be done in the absence of any new initiative being implemented or by following a business-as-usual scenario or a do-minimum scenario. It is rarely the same as the ‘do-nothing’ scenario. The Base Case should include assumptions about further maintenance and replacement of existing infrastructure.

When detailing the Base Case, think about whether there are future developments (for example, funded or committed initiatives, plus one-off events such as Olympic or Commonwealth Games) that could affect benefits and costs of initiatives. These developments are equally relevant to, and should be included in, both the Base Case and Project Case. Implementation of other transport initiatives can affect benefits and costs of the initiative being analysed. In some cases, benefits may be contingent on other initiatives being implemented.

Ask these questions:

  • Is the Base Case a realistic alternative?
  • What assumptions are being made about future developments that will affect the success of the initiative?
  • Are there other consequences from non-implementation of the initiative?
  • What is the nature and timings of other transport initiatives being implemented?
  • What government strategies should be consulted for information about future, one-off events that could affect benefits and costs?

Where there is some uncertainty about a one-off event, make the CBA calculations with and without the assumption, as a sensitivity test or as part of the risk assessment (see Chapter 11).

1.7 Identify and analyse options

See Part F3 of the ATAP Guidelines for guidance on the generation and assessment of options.

Always use the NPV, or incremental BCR, to choose between options on economic grounds - never the BCR or internal rate of return (see Sections 11.3 and 11.6).

1.8 Consider pricing assumptions (where applicable)

Specify any assumptions about charging for infrastructure usage. See Section 5.7 on developing pricing assumptions.

1.9 Consider private sector funding

Show that consideration was given to private sector funding for part, or all, of the initiative.

1.10 Is a financial analysis needed?

State whether a financial analysis is required. Financial analysis is required when the initiative generates revenues and/or involves a public private partnership (PPP). It demonstrates the impact of the initiative on the financial performance of the entity that will own the initiative.