This page relates to the 2021-24 National Land Transport Programme.

Introduction

This page provides information on incremental assessment to assist the appraisal of options and consideration of any proposed scope changes to a project or programme.

What is incremental assessment?

Incremental assessment is used:

  • to assess differences in cost–benefit appraisal among mutually exclusive investment options
  • to assess material changes in scope to a preferred option.

Incremental assessment should be used only when the options are mutually exclusive (for example when acceptance of one option excludes the acceptance of other options). For instance, when a new road is proposed and there is a choice between two different alignments, the selection of one alignment excludes selection of the other. The Monetised benefits and costs manual explains how to undertake incremental cost–benefit analysis.

Monetised benefits and costs manual

When to apply incremental assessment

We (Waka Kotahi NZ Transport Agency as investor) recommend incremental assessment to be applied to  option appraisal or when there is a material change in the scope of an activity.

Incremental assessment may also be applied in other situations to support an investment decision, for example, in the:

  • sequencing and timing of elements in an implementation plan in a programme business case
  • delivery of outcomes or programmes under a normal funding assistance rate compared with a targeted enhanced funding assistance rate.
    Targeted enhanced funding assistance rates

General methodology for applying incremental cost–benefit analysis

A recommended methodology for applying incremental analysis is provided in the Monetised benefits and costs manual.

Monetised benefits and costs manual

Incremental analysis is carried out by comparing options, starting from the lowest-cost option, which is set as the initially preferred option. The next lowest-cost option is then assessed by using the incremental costs and benefits to determine the change in benefit from the increased investment. If the incremental benefit–cost ratio (BCR) is higher, this option then becomes the currently preferred option. This process is repeated until all options have been compared to a currently preferred option.

Option selection

Incremental assessment is recommended to assist in the selection of a preferred option from a shortlist of options during development of a business case under the Business Case Approach (BCA). The results of incremental assessment are included in an appraisal summary table of short-listed options to inform the selection of a preferred option.

Appraisal summary table

Incremental cost–benefit analysis assist in the selection of a preferred option, but considerations may need to be taken into account, such as the interventions hierarchy, the effectiveness of an option to address the problems identified in the strategic case, the impact of non-monetised impacts, funding availability, etc.

Scope changes

A material change is 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.