Business Case Evaluations
Because capital projects can be such a significant expense for a system, it is critical that the projects be validated to make sure the project is necessary, all potential alternatives are considered, and the best alternative is selected. To address these concerns, a business case evaluation should be performed that includes the following type of information:
- Project Description
- Need for Project
- Benefits as a Result of the Project
- Risk of Not Doing Project
- Current Asset Condition
- Estimated Useful Life of the Existing Asset
- Estimated Useful Life of the New Asset
- Probability and Consequence of Failure
- Current O&MOperations and Maintenance
- Capital Cost of Proposed Project
- Triple Bottom Line Analysis of Proposed Project
- Understanding Condition Curve and if Asset will Appreciate or Depreciate
- O&MOperations and Maintenance of Proposed Project
- Options for O&MOperations and Maintenance to forestall the capital project
- Alternatives to Proposed Project, including Non-Asset Alternatives
In some cases, there might be opportunities for O&MOperations and Maintenance interventions that can keep the asset in service for some additional time to delay the capital project. These options, cost, and number of years gained in useful life need to be documented.
No matter what the proposed project, there are almost always alternatives. There might be alternatives with different combinations of capital and O&MOperations and Maintenance costs that can be compared to determine whether a project with higher capital cost and lower O&MOperations and Maintenance cost is more advantageous than a project with lower capital and higher O&MOperations and Maintenance cost. There might be alternatives that more closely match community values or alternatives that are more comfortable for the current operators. It is critical that a thorough analysis of all the alternatives be completed and that the analysis is done objectively. All reasonable alternatives should be clearly presented, along with cost and benefit information.
A specific type of alternative that should be included, when feasible, is a non-asset solution. Non-asset solutions are alternatives that address a need without installing assets.
When done correctly, a business case evaluation can take time to complete. Therefore, it might be a good idea to use this process only for projects above a certain dollar amount.
- A business case evaluation can have several possible outcomes:
- Project should go forward in current year’s CIPCapital Improvement Plan
- Project should be delayed until a future year’s CIPCapital Improvement Plan
- Insufficient information was presented in the business case; project should be re-submitted with additional information
- Alternatives should be investigated, and the project should be re-submitted with the additional information
- A different alternative than the one selected should be chosen
- Additional O&MOperations and Maintenance is recommended; the project should be delayed for some number of years
- Project should not go forward
For assistance with preparing “business cases” for proposed capital projects, see The Business Case Evaluation: A Hands-on Manual in the Resources.
Justifying projects with business case evaluations – Kevin Campanella, P.E., Assistant Director Asset Management, Department of Public Utilities, City of Columbus, OH
With business case evaluations, it is decided early on who will operate and maintain the asset – Eric Saylor, P.E., Principal Engineer, Project And Business Development Division, Metropolitan Sewer District of Greater Cincinnati, Cincinnati, OH