Below, we briefly describe the meaning of these terms within government, starting with the Project Development and Project Funding phases. A follow-up article will focus on the Project Approvals, Delivery, and Evaluation phases.

Project development

While many activities occur during Project Development, two key tasks are preparing an investment logic map and a needs analysis.

Investment logic map

An investment logic map distils the rationale for investment. It identifies the challenges related to the proposed investment, the benefits generated if these problems are effectively addressed, and the key interventions that must be included for success. As the name suggests, there must be a clear link between the problems, anticipated benefits, and prioritised interventions.

A related concept is the program logic map used in social program design, delivery and evaluation. These maps are more complicated but share the same goal: to ensure a program’s activities are designed and delivered in response to the identified problem or opportunity and that they generate the expected short-term outcomes and long-term impacts.

Both investment logic maps and program logic maps include key performance indicators, allowing for ongoing monitoring and evaluation of the project or program delivery.

Tip: Invest in an investment logic map at the beginning of a project. Most public and for-purpose investors require one, and retrofitting it into an already developed project can be challenging. Sometimes, a project's scope may also need to be altered after the map is created, which can have serious consequences.

Needs analysis

A needs analysis identifies and measures unmet community needs (or existing market failures) and forecasts how these unmet needs will grow if current policy settings or provisioning rates remain unchanged.

It can also be viewed as a supply/ demand assessment, recognising that both elements should identify and describe the underlying drivers of market failure and propose effective solutions.

Tip: The ultimate objectives of needs analysis are:

1. To demonstrate why the private market cannot address the issue at hand

2. To estimate the scope and scale of current and future unmet needs if no action is taken. Too often, needs analyses focus heavily on the second objective , neglecting the first.

Project funding

Business case

A business case must be prepared to secure government funding for a project.

Within Commonwealth and State government agencies, business case development typically occurs in two stages. A preliminary or strategic business case is required before submitting a detailed or final business case for consideration.

The requirements for a business case vary across the stages of project development and should be interpreted based on the scale of a project’s costs and risks. Government treasuries publish relevant guidelines on their websites, which are essential resources.

Despite some variations, business case requirements are broadly similar across Australian jurisdictions. Generally, they call for:

1. A clear distillation of the project’s investment rationale (hence the “investment logic map”).

2. Evidence supporting the investment rationale, recognising that unsupported claims will not be accepted. This includes evidence on the issue at hand (hence the “needs analysis”), the benefits expected from the investment, and how they align with stated government policies.

3. A description of the investment options considered and how they have been shortlisted to two or three options.

4. An integrated analysis of competing project options from a wide variety of perspectives, including:

• Stakeholder impacts
• Financial impacts to government (see “financial appraisal” below)
• Economic, social and environmental impacts across the community (see “cost benefit analysis” below)
• Delivery risks.

5. A detailed delivery plan for the preferred project option.

Preliminary or strategic business cases focus on the first four items to identify a preferred option. In contrast, detailed or final business cases revisit these items to confirm the preferred option before developing extensive plans to ensure the preferred option can be delivered within community expectations, technical performance specifications, and the project’s budget and timeframe.

Tip: While there are many good sources of qualitative and quantitative evidence for business cases, business case writers must strike a balance between exhaustive evidencing with concise, compelling storytelling. Overloading the business case reviewer with excessive detail can lead to disengagement and confusion, ultimately undermining the effectiveness of the business case.

Financial appraisal

A financial appraisal can be prepared separately, but it is an absolute requirement for a business case.

The financial appraisal identifies and measures the financial impacts to government that will be generated by delivering shortlisted project options over their lifetimes. This helps gauge both short- and long-term budgetary impacts. Financial appraisals consider capital and operating costs contributed by government, which may be offset by fees, charges, or other revenues that the project may generate for government.

Often the ultimate results of a financial appraisal are assessed using performance measures like Net Present Value (NPV) or Internal Rate of Return (IRR).

Tip: If governments are not delivering the project but are providing external funding (e.g. a grant provider), the financial appraisal should assess the viability of project delivery by the delivery agent. For example, if a project part-funded by the State is to be delivered by local government, the State will need to ensure that the project is financially viable for local government or that local government understands and accepts any ongoing financial burden the project may create.

Cost benefit analysis

A cost benefit analysis can also be prepared separately but is an absolute requirement within a business case.

Cost benefit analysis takes a community-wide perspective and compares the costs and benefits generated by competing project options, incorporating economic, social and environmental considerations.

Since many economic, social and environmental impacts are not traded in the marketplace, a cost benefit analysis typically uses market prices and non-market valuation techniques (e.g. stated preferences, revealed preferences, and productivity techniques) to express all costs and benefits in monetary terms, making them easier to compare. While imperfect, this process helps create a clearer understanding of the project’s overall value.

The results of a cost benefit analysis are commonly assessed using performance measures such as Economic Net Present Value (NPV) and Benefit Cost Ratio (BCR). While these metrics tell us whether a project is worthwhile from a community welfare perspective, assessing how the costs and benefits are distributed is essential to ensure social equity is promoted.

Tip: Cost benefit analysis is a crucial form of value-for-money assessment, especially for projects addressing market failures that don’t generate financial returns to government. As projects become larger or more complex, more scrutiny is placed on cost benefits analysis. This is manifest in the BCRs for major projects (e.g., new metro train lines), tending to be much lower than those for smaller projects (e.g., community arts facilities). Avoid overclaiming a project’s benefits and ensure that benefits and valuation techniques don’t lead to double-counting.

Economic impact analysis

Economic impact analysis is typically not required in government business cases. Still, it is often an implicit requirement in government grant applications and can be valuable in informing environmental impact statements(see the “Projects Approvals” stage in the table above).

This type of analysis measures how a project influences overall economic activity by tracing and quantifying its value chain linkages. The results are most often presented in terms of Economic Value Added (Gross Product) and Employment (Jobs) generated over the course of the project’s delivery.

While cost benefit analysis assesses whether a project is worth doing from a whole-of-community perspective, economic impact analysis estimates the level of economic activity generated—regardless of project merit.

Tip: Economic impact analyses were more common before the COVID-19 pandemic. Since then, governments have become more aware of the constraints on economic activity—such as competition for resources (e.g., capital, labour) that might otherwise be used productively elsewhere. However, looking beyond headline measures and examining the specific skills and supplier inputs required to deliver a project can help target industry and workforce development initiatives more effectively (a separate article on this topic is coming soon).

These insights aim to support better decision-making. Please reach out if you would like to discuss this further.