Commonwealth entities should prepare a detailed business case to support all investment proposals. A business case should align benefits to the strategic objectives of the Government with clear and measurable targets, timelines and owners. It should also support the investment decision of the Government by providing analysis of options, costs, benefits and risks associated with addressing an identified problem.
For example, a typical problem that may be identified for Government to address is market failure.
A business case is subject to an iterative development process and should be continually updated throughout the development and decision-making process to include the best information available.
The Commonwealth Investment Framework contains Toolkits to support the development of investment proposals and business cases - these include:
- Commercial Models to guide entities when considering, designing and evaluating options for private sector involvement
- 3 Step Commercial Assessment to design and evaluate financing options
- Delivery Vehicles provide a guide on common delivery vehicles for entities to consider when designing the appropriate management and governance structure to deliver Government investments
- Developing a Business Case Toolkit to provide a guide on essential elements of a business case, including Cost Estimation and Financial Modelling.
Overall, the business case should provide:
- A clear statement describing the nature of the policy problem the investment is seeking to address and how that directly links to Government goals and objectives in the relevant market/sector.
- This involves identifying the problem, considering alignment with the Government’s priorities/objectives and analysing the market (if any), including market demand and alternative sources of supply.
- Options analysis should also include solutions to the identified policy problem beyond direct investment (for example regulatory response or demand management).
- A thorough estimation of the costs associated with the identified policy, program or project, including an assessment of the confidence of the cost and revenue estimates to inform both delivery options (first-pass) and final investment (second-pass) consideration by the Government.
- For major infrastructure projects, Commonwealth entities should undertake a probabilistic cost estimation process.
- This should include assessment of upside and downside risks, including the likelihood and impact of such risks.
- Cost benefit analysis, including a quantification (including assumptions) of direct and wider social and economic benefits associated with the investment proposal.
- The cost benefit analysis should also be used as a comparator to assess competing options to address the identified problem.
- The cost benefit analysis should also be used as a comparator to assess competing options to address the identified problem.
- Estimate for the risk-adjusted expected return should the investment be undertaken in the private market, detailing calculation assumptions made.
- This does not necessarily need to be a single rate of return and can be presented as a range, particularly where there is not an apparent or transparent market to derive the commercial rate.
- This does not necessarily need to be a single rate of return and can be presented as a range, particularly where there is not an apparent or transparent market to derive the commercial rate.
- A fit for purpose financial model that clearly outlines financial implications of all credible options and assumptions underpinning the model’s inputs
- Appropriate communication of risk to decision-makers in a robust, meaningful and concise manner, including key risks factors such as the Government’s risk appetite for the project, specific project risks and proposed mitigations.
- A detailed assessment of Commercial Models and financing approaches, as per the 3 Step Commercial Assessment, considered when making any recommendations.
- Detailed communication of investment arrangements, including:
- Consideration of co-investment arrangements for cost sharing, including with State and Territory Governments.
- Details of the Commonwealth’s ability to effectively manage investments.
- Analysis of the full lifecycle of the investment. Where possible, the business case should include information regarding the proposed term of the investment, and where there exists a policy reason or net benefit for Australians should include an exit and or end of life strategy.
- A note as to whether the project has complied with the requirements for an infrastructure project assessed by Infrastructure Australia (IA), or an indication of the likely timing of an IA assessment, where the Commonwealth contribution is $250 million or greater.
- Where a proposal includes the creation of a new non-corporate Commonwealth entity, corporate Commonwealth entity, or Commonwealth company, the proposal must meet the mandatory requirements of the Commonwealth Governance Structures Policy. Advice on meeting the requirements, including completing a governance assessment, can be sought from PGPA@finance.gov.au.
