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This page relates to the 2018-21 National Land Transport Programme.

Introduction

This section provides guidance 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 calculate the benefit-cost ratio for options
  • to evaluate differences in cost-benefit appraisal among mutually exclusive investment options, such as proposed changes in scope to a preferred option.

Incremental assessment should be used only when the options are mutually exclusive (eg 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(external link) (from August 2020) and Section 2.8 of Waka Kotahi NZ Transport Agency’s  Economic evaluation manual (superseded August 2020) explains how to undertake incremental analysis.

When to apply incremental assessment

Waka Kotahi requires incremental assessment to be applied to all investment decisions involving option appraisal or when there is a proposed change in the scope of a project/programme to a preferred option.

General methodology

This section provides a general methodology for applying incremental analysis. More information on this methodology is provided in the Monetised benefits and costs manual (from August 2020) and section 2.8 of the Economic evaluation manual (superseded August 2020).

Incremental benefit-cost ratio cut-offs are based on the ranges set in the Investment Assessment Framework.

 

  • Option selection

    For improvement project options, incremental assessment is required to select the preferred option from a short list of options during development of the detailed business case under the Business Case Approach. Short-listing may involve a sieving process to score long-list options against relevant criteria, eg through multi-criteria analysis, which should include economic criteria.

    While Waka Kotahi requires incremental cost-benefit analysis to select the preferred option, other considerations need to be taken into account through the Business Case Approach. In some cases, this may see an option that is more effective in addressing the problems identified in the strategic case being selected ahead of an option with the best incremental benefit-cost ratio. 

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  • Scope changes

    Scope changes proposed for a project/programme following preferred option endorsement must be assessed incrementally. This applies even if the revised project/programme can be delivered within the approved funding.

    The assessment methodology requires that the previously endorsed project/programme 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 less than minor, having regard to the total cost of the project/programme.

     

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