Incremental assessment

Introduction

For the latest information, please see the Assessment Framework for the 2015-18 NLTP.

This section provides guidance on incremental assessment to assist option selection, optimise packages and evaluate proposed scope changes.

What is incremental assessment?

Incremental assessment involves the evaluation of differences in effectiveness and efficiency amongst mutually exclusive investment options, including proposed changes in scope to endorsed macroscopes. The incremental assessment informs the investment decision, e.g. which option should be selected as the preferred option?

Considers full assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively.

Incremental assessment considers the full assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively. as follows:

• Strategic fit – this is set by assessment of the underlying issues and impacts, rather than any aspect of the scope of the proposed activity, and will be consistent across all options of the activity. For instance, if the strategic fit of a project has been assessed as High, this rating will apply to all options of the project under incremental assessment.
• Effectiveness – assessed incrementally, this considers how much more or less effective an option or proposed change is against other options or the base case. This is rated as High, Medium or Low and is likely to differ from the effectiveness rating assessed for the base project, given that it is a measure of relative, rather than absolute, effectiveness of an option.
• Economic efficiency – this will involve incremental benefit-cost analysis amongst options for improvement projects. It may involve a least whole of life cost approach for some activities, e.g. maintenance programmes.

The NZ Transport Agency’s assessment framework is to be used to determine incremental assessment profiles.

NZ Transport Agency requirement

The NZ Transport Agency requires incremental assessment to be applied to all investment decisions involving option selection or changes to endorsed macroscopes for any activity where funding is being sought or has been approved from the National Land Transport Fund.

When to apply incremental assessment

Incremental assessment is expected to be applied in the following situations:

• project optimisation – to assist the selection of the preferred option;
• package/implementation plan optimisation – to assist decisions around the sequencing and timing of elements in a package or plan (but not between projects in a package);
• proposed changes to the scope of a project or package – to assist the decision whether to proceed with the proposed change; and
• proposed changes to programmes – to inform the decision whether to proceed with the proposed change.

Where incremental assessment is not applicable

Incremental assessment is not applicable where the options are not mutually exclusive, e.g. attempting to decide between projects within a package, where all projects within the package are critical to its performance and synergistic benefits exist between the projects.

General methodology

The following provides a general methodology to apply in cases of option selection and scope changes. There are some variations required to cover specific situations, as discussed in the following sections.

The general assessment methodology is:

• Strategic fit
  • The strategic fit of the project or package applies to all options and proposed scope changes.
• Effectiveness
  • Ranking the options/proposed changes from lowest cost to highest cost is recommended as this provides some consistency with the incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. analysis procedure;
  • The effectiveness of each option/change to deliver against the strategic fit potential is assessed against the requirements set out in the Effectiveness section
  • Differences, negative and positive, amongst options/changes should be highlighted;
  • The incremental benefits or disadvantages of options are rated High, Medium or Low in a similar manner as for improvement projects.
• Economic efficiency
  • The methodology for option selection and proposed scope changes are set out in the Economic Evaluation Manual (Nov 2013) - section 2.8.
    
  • Ratings for incremental BCRs are:
    • BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. >4 is High
    • BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. >2 and <4 is Medium
    • BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. >1 and <2 is Low
  • Normally, an incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. of at least 1 would be viewed as obligatory.
• Incremental profile comparison
  • Establish the target incremental assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively. appropriate to the activity class(es) and/or activity. For project option selection cases the target profile should reflect the threshold priority order for the activity class at which the NZ Transport Agency is prepared to fund activities. For proposed scope changes, the target profile should reflect the base case profile/priority.
  • The ratings for strategic fit, effectiveness and economic efficiency for each option/change are combined to provide an incremental assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively. . The profiles are then compared with each other and against the target profile and an investment recommendation/decision is then made.

Project An activity that has a defined start, end and scope. Also see capital project. option selection – variations to general methodology

For improvement project options, incremental assessment is required to select the preferred option from a short list of options. Short-listing may involve a sieving process to score long-list options against relevant criteria, which should always include economic efficiency at a minimum as a value for money Selecting the right things to do, implementing them in the right way, at the right time and for the right price. factors.

The incremental assessment for strategic fit, effectiveness and economic efficiency follows the general methodology above.

For the incremental profile comparison:

• Compare the incremental profiles with each other and against the target profile for the activity class. The option with the highest incremental profile, using the priority order set out in the Prioritisation section, should be selected as the preferred option, provided it matches or exceeds the target profile.
• In some cases, the use of incremental assessment may not provide material differences amongst option profiles. For these, it is likely that the results of incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. analysis will be the main determinant for the investment decision.
• While the economic efficiency rating is given more weight under the NZ Transport Agency’s Assessment Framework, where the effectiveness of a lower incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. option is markedly better than a high BCR option there may be grounds to select the more effective option. Robust evidence for such judgement calls is needed and, where there are significant cost implications, the decisions should be peer reviewed.

Package/plan optimisation – variations to general methodology

Incremental assessment should be used to optimise packages and implementation plans. Optimising packages and implementation plans includes consideration of project/element timing and sequencing within operational and funding constraints.

The assessment methodology requires a first step of developing mutually exclusive options, which reflect the range of sequencing/timing alternatives A strategic option that may encompass a mix of modes and/or high level routes and/or land use options. Alternatives would be considered during strategy development, with the preferred alternative being selected and taken through into package and project development. available within realistic operational and funding scenarios.

The incremental assessment for strategic fit, effectiveness and economic efficiency follows the general methodology above.

For the incremental profile comparison:

• Compare the incremental profiles of the mutually exclusive options with each other and against the target profile for the activity, which should reflect the endorsed package option. The option with the highest incremental profile, using the priority order set out in the Prioritisation section, should be selected as the preferred option, provided it matches or exceeds the target profile.
• Apart from the selection process immediately above, the same considerations as for project option selection assessment above are to apply, i.e. likely use of incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. analysis as the deciding factor and need for robust evidence for incremental effectiveness to override the results of BCR analysis.

Project An activity that has a defined start, end and scope. Also see capital project. / package scope changes – variations to general methodology

Scope changes proposed to projects and plans following macroscope The information required for the "notice of requirement" under the Resource Management Act 1991, reflecting the scope of the preferred option selected for an improvement project. endorsement must be assessed incrementally. This is regardless of whether the project/package plus the scope changes can be delivered within the approved funding budget. The reason for this is that the funds consumed by the scope change may be released to fund an alternative higher value activity, which means that their allocation to fund the scope change must be justified.

The assessment methodology requires that the project/package with its endorsed macroscope The information required for the "notice of requirement" under the Resource Management Act 1991, reflecting the scope of the preferred option selected for an improvement project. is to be treated as the base case. The scope change is to be treated as an option and incrementally assessed against the base case.

The incremental assessment for strategic fit, effectiveness and economic efficiency follows the general methodology above other than the incremental effectiveness of the scope change being assessed as a higher cost option against the base case. Scope changes may increase or decrease the project/package’s effectiveness and this difference is to be rated in the incremental assessment.

For the incremental profile comparison:

• Compare the incremental profile of the scope change against the target assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively. for the activity class.  If this is of higher priority order, using the priority order set out in the Prioritisation section, then it should proceed, subject to funding availability.
• Apart from the selection process immediately above, the same considerations as for project option selection assessment above are to apply, i.e. likely use of incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. analysis as the deciding factor and need for robust evidence for incremental effectiveness to override the results of BCR analysis.

Programme Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities. scope changes – variations to general methodology

Material scope changes proposed to programmes, e.g. new additional public transport services, need to be assessed incrementally. This is regardless of whether the programme plus the scope changes can be delivered within the approved funding budget. The reason for this is that the funds consumed by the scope change may be released to fund an alternative higher value activity, which means that their application to the scope change must be justified.

The assessment methodology requires that base programme is to be treated as the base case. The scope change is to be treated as an option and incrementally assessed against the base case.

The incremental assessment for strategic fit, effectiveness and economic efficiency follows the general methodology above other than the incremental effectiveness of the scope change being assessed as a higher cost option against the base case. Scope changes may increase or decrease the programme’s effectiveness and this difference is to be rated in the incremental assessment.

For the incremental profile comparison:

• Compare the incremental profile of the scope change against the target assessment profile The three-part rating for an activity, rated as high, medium or low e.g. HMM, and representing the assessment for Strategic Fit, Effectiveness, and Benefit and Cost Appraisal respectively. for the activity class.  If this is of higher priority order, using the priority order set out in the Prioritisation section, then it should proceed, subject to funding availability.
• Apart from the selection process immediately above, the same considerations as for project option selection assessment above are to apply, i.e. likely use of incremental BCR The NZTA uses the BCR as a measure of economic efficiency from a national perspective as defined in the NZTA's Economic Evaluation Manual. The ratio compares the benefits accruing to land transport users and the wider community from implementing a project or providing a service, with that project or service's whole of life costs. analysis as the deciding factor and need for robust evidence for incremental effectiveness to override the results of BCR analysis.