Economic Appraisal

Purpose of this section of the Business Case

The primary purpose of an Economic Appraisal is to identify and measure the economic, social and environmental benefits and costs⁠ (Footnote: The phrase ‘economic, social and environmental benefits and costs’ is shortened and referred to as ‘benefits and economic costs’ as shorthand throughout the Guidelines. ) and project costs of a project, Program or Precinct, and to present them in monetary terms where possible. This format allows comparison of outcomes for a range of options, to facilitate evaluation and decision making.

The Project Team should answer the following key questions:

• What is the Base Case and Project Case(s) that will be assessed under the Economic Appraisal?
• What are the benefits, economic costs and project costs of each project option?
• What is the Benefit to Cost Ratio (BCR) and NPV of the project?
• What are the findings of the MCA and the distributional analysis?
• Which project option is expected to deliver the highest net benefit to the ACT community, commensurate with costs?

In developing this section and undertaking an Economic Appraisal, the Project Team should refer to the detailed Economic Appraisal Guidelines. These Guidelines cover the key appraisal assumptions and parameters and provide additional information on quantification of benefits and economic costs, detail on assessment of project options and links to other technical guidelines that may be beneficial when conducting the Economic Appraisal.

The Project Team may also elect to undertake an Economic Impact Assessment (EIA) to estimate the impact that the project is expected to have on the economy in terms of employment and economic output.

Content required for the Business Case

Base Case

In this section, the Project Team should define the Base Case, or the ‘Business-as-Usual’ or ‘do minimum’ option, that would be expected to take place should the project not go ahead. Importantly, the Base Case is not necessarily the same as a ‘do nothing’ scenario, but should represent the scenario under which there is no change in planned expenditure or policy, other than any expenditure required to continue to provide the current or Government’s previously agreed level of service.

Project Case

In this section, the Project Team should define the Project Case options, which should match the shortlisted project options already identified through the Options Analysis process. Project Case(s) should be defined for projects of all Tiers. However, the Project Team should present more clearly defined project options for Tier 1 and Tier 2 projects, for which they should conduct a CBA.

Assumptions and methodology

This section is not required for Tier 3 projects.

In this section, the Project Team should summarise the assumptions used and the methodology applied to conduct the CBA. The information that the Project Team may include in this section of the Business Case includes:

• Overarching CBA methodology supporting the appraisal
• Parameters used for the CBA including the appraisal period and discount rate
• Parameters used to estimate benefits and economic costs and project costs in the appraisal and their sources
• Sources of inputs to the CBA.

The Project Team can include further technical detail in relation to the above dot points in an appendix. For Tier 1 and Tier 2 projects, the Project Team must attach a technical economics appendix which details the economic methodology undertaken.

Project costs

In this section, the Project Team should provide an estimate of the costs associated with each Project Case over the costs that are expected to be incurred in the Base Case.

The Project Team should present costs in real, P50 terms. This differs from the Financial Analysis chapter of the Business Case where P90 is used. P50 is used for the Economic Appraisal as it represents a more appropriate comparative indicator.

Benefits and economic costs

The Project Team should identify and describe the set of benefits and economic costs that are expected to flow from a project, including those that are difficult to measure. Benefits and economic costs may include:

• Direct benefits or economic costs to users of a project
• Benefits or economic costs to users of adjacent assets due to shifting demand
• Benefits or economic costs in terms of resilience to climate change
• Indirect benefits or economic costs to the community, such as the monetary value of GHG emissions incurred or abated
• Avoided costs and/or cost savings
• Direct revenues
• Residual value of asset(s).

The Project Team should present the NPV of each benefit and economic cost item that has been quantified and describe any benefits or economic costs deemed to be non-quantifiable.

The Project Team should also consider whether any direct project benefits (included in the project benefits) are likely to lead to an uplift in land and/or property values and potential opportunities for value capture. The Project Team should discuss any expected land value uplift with Treasury, to avoid any double counting of benefits in the Economic Appraisal.

Non-monetised benefits and economic costs

The Project Team should report concisely the performance of each project option against the selected evaluation criteria (based on the benefits and costs for which a monetary value cannot be estimated) using MCA. For more information on how to undertake an MCA, the Project Team should refer to the detailed Economic Appraisal Guidelines and the MCA Guidelines. The Project Team should use the outputs of the Wellbeing Impact Assessment to inform the MCA.

Distributional analysis

The Project Team should include a qualitative distributional analysis of the project option(s). This should assess the relative impacts of the project’s benefits and economic costs on different groups in the community, to identify any ‘winners’ or ‘losers’ from the project. The Project Team may use the Wellbeing Impact Assessment to inform the distributional analysis.

Results

In this section, the Project Team should present the results of the Economic Appraisal for each project option in the Business Case using a BCR and NPV. The BCR and NPV provide consistent measures of the project’s overall net benefit to the community and allow the performance of each Project Case to be compared on a consistent basis. The Project Team should also present the summarised results of the MCA and the distributional analysis.

Sensitivity analysis

The Project Team should detail the results of sensitivity analysis on the Economic Appraisal outputs (refer to the detailed Economic Appraisal Guidelines).

Appendices required for the Business Case

The Project Team is required to attach the following document as an appendix to the Business Case:

• For Tier 1 projects, a technical economic appendix which outlines the methodology applied and the detailed results of the analysis.