Part 1 – Investment Proposal & Business Case Development

Commonwealth entities should prepare a detailed business case to support all investment proposals. A business case should align benefits to the Government's strategic objectives using 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, Government addressing some form of market failure.

Business cases are to be developed iteratively and should be continually updated throughout the decision-making process to include the best information available.

• A clear statement describing the nature of the policy issue the investment is seeking to address and how that directly links to Government goals and objectives in the relevant market/sector.
  1. This involves identifying the problem, considering alignment with the Government’s priorities/objectives and analysing the market, including market demand and alternative sources of supply.
  2. Include an options analysis should also include solutions to the identified policy problem beyond direct investment (for example regulatory response or demand management).
      
• A robust costs estimation for the policy, program or project. Include an assessment of the confidence levels of the cost and revenue estimates to inform both delivery options (first-pass) and final investment (second-pass) consideration by the Government.
  1. For major infrastructure projects, a probabilistic cost estimation process should be undertaken. Include upside and downside risk assessments, including their likelihood and impact.
      
• A cost benefit analysis, quantifying (including assumptions) direct and broader social and economic benefits, including assumptions associated with the investment proposal.
  1. 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 (either single or changed rate, where practicable) for private market investments, with calculation assumptions made.
  1. This does not 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
   
• Risks are communicated to decision-makers in a clear and concise way including key risks, such as the Government’s risk appetite, project specific 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.
  1. A communication of investment arrangements, including co-investment options (for example, for cost sharing, including with State and Territory Governments).
  2. Effective investment management, analysis of the investment lifecycle, and exit and/or end-of-life strategies. 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 is compliant with the requirements for an infrastructure project assessed by Infrastructure Australia (IA), or timing of an IA assessment, where the Commonwealth contribution is $250 million or greater.
   
• If the 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.