Better Business Cases

Back in June, the Infrastructure Commission held its annual Infrastructure Summit. While the focus was on the release of the draft National Infrastructure Plan (NIP), the panel sessions covered a wide range of related topics.

One key issue raised was the current infrastructure business case process, which many felt has become too slow, ineffective and resource intensive. On the flip side, about half of investment proposals to central government are later found to be less robust than first thought – a point highlighted in Section 5 of the NIP.

This reinforces the value of well-developed business cases in building confidence and reducing the risk of cost blowouts and delays.

From a business case practitioner perspective, the need for faster and more efficient business cases, as well as avoiding costly blowouts are valid. But, if long-standing processes aren’t delivering, it’s worth stepping back and asking how we can do things differently. Encouragingly, there’s growing momentum across the industry to make Treasury’s guidance easier as well as more effective and efficient to implement. That includes setting clear funding envelopes, ‘stageability’, clearer investment prioritisation and programming to match regional construction capacity.

Last year the NZTA launched a revised approach to project development and investment justification. From what we understand, this shift responded to concerns – raised at forums like the Summit - that business cases had become focused on deliverables, rather than the strategic thinking needed to inform decision-makers. They were also getting more costly and time-consuming, without necessarily leading to better outcomes.

From our perspective, it’s encouraging to see the Government aiming to become a more informed and intelligent client – one that takes greater ownership of project development outcomes. 

The BBC framework, introduced by New Zealand Treasury over a decade ago, was designed to standardise and strengthen the quality of investment decisions - particularly as public sector capital proposals grew increasingly complex and costly.

The intention was to improve the quality, consistency and transparency of decision-making, while making sure investments were better aligned with government policies and priorities. It also aimed to reduce the number of one-off, ad-hoc investments that weren’t part of a broader strategic approach. 

The BBC framework and its five-stage model has been endorsed  internationally, so it’s well credentialled. Over a decade ago, NZTA developed the Business Case Approach, aligned with the BBC but specifically tailored for the land transport sector. 

Recently, they’ve been enhancing their investment decision-making, particularly by giving decision-makers greater visibility, input and direction on major transport projects. Four elements have been crucial to these improvements and they’re likely relevant across the broader infrastructure sector.

• Simplified process: The new Investment Case process is designed to reduce overall project development and decision-making processes. 
• Decision-led approach (DLA): The DLA helps speed up decision-making by focusing on the key information need, such as risks, opportunities and outcomes, rather than presenting them with a pre-determined decision backed by a stack of reports.
• Concise reporting: The Investment Case recommends reporting through a concise slide pack supported by technical analysis and reports (where necessary). 
• Upfront work: This approach requires more upfront work in defining the problem, confirming decision-maker needs and technical requirements. 

While the core Five Case model – Strategic, Economic, Commercial, Financial and Management – remains in place, the new approach shifts how it's applied.

There’s now a shift in emphasis, with less focus on certain aspects like consenting or procurement early. Instead, these are explored later in the process, once the project is defined and the client is ready to make an investment decision.

What are the likely trade-offs when improving general business or investment case processes?

While it’s early to assess the impact of NZTA’s Investment Case initiative, streamlining business case processes more broadly may require some trade-offs. These could include the following.

• Risk that ‘all stones haven’t been unturned’ in the options development and assessment process.
• Less detail and more assumptions.
• Targeted investigation on higher risk elements (i.e. geotech) of the project.
• Lower effort on justification of ‘non-options’.
• Stakeholder engagement and input at relevant stages rather than throughout the project’s initial phases.
• Improved direction such as affordability thresholds and scope in upfront project definition.
  
   

To mitigate the challenges faced by initiatives to streamline business case processes, several strategies could be employed such as the following.

• Building staff capability and resource to build ‘intelligent client’ capability.
• Scenario planning to test assumptions. 
• Greater focus on policy alignment. 
• Ensuring project development and risk management are focused on the clear direction of the client and project mandate and not seeking to solve all related and sometimes unrelated issues.
• Documenting and understanding the wider requirements that an RMA application is likely to require such as wider economic benefits, adverse effects and community feedback.

The Treasury’s BBC framework remains a solid foundation for robust business cases, as recognised by the Infrastructure Commission.

But, there’s a real opportunity for clients and practitioners to build on current momentum and keep challenging how it’s applied. As a leading infrastructure business case practitioner, GHD will continue contributing to the improvement process debate and bring resulting ‘better business case’ practices to our Local Government clients.

By refining our approach, we believe can lift its efficiency and effectiveness, without losing the rigour behind sound investment decisions.