Business Case for a Proposed Service

[Template]

This document serves as a guide for parties looking to develop and propose a public transportation solution. It is
provided as a generic resource, but only represents one view on what information is required and how it should
be presented. Please contact your regional transportation committee for the appropriate procedure in your
particular circumstance.

A business case serves multiple purposes. It can be a communication tool ensuring early collaboration between
stakeholders. An evidence-based case can help challenge closely held assumptions. This template – and the
guide contained within – assumes the writer is providing justification for a specific recommendation.

A good business case answers the principle questions of who, what, why, where, when and how. As for the
length, balance this against the scope of the project. If in doubt, less is more and use bullet points.
Table of Contents
EXECUTIVE SUMMARY ...................................................................................... 3
Proposal background ........................................................................................ 3
National and Regional Transport Policy ............................................................ 3
Proposition ........................................................................................................ 3
Proposed service .............................................................................................. 4
Service Delivery roles........................................................................................ 4
Risks ................................................................................................................. 4
AREA PROFILE .................................................................................................... 6
Demographics ................................................................................................... 6
Transport options .............................................................................................. 6
DEMAND RESEARCH ......................................................................................... 7
Objectives ......................................................................................................... 7
Methodology ...................................................................................................... 7
Key themes ....................................................................................................... 7
Patronage analysis ............................................................................................ 7
FINANCIAL ANALYSIS......................................................................................... 8
Set-up Costs ..................................................................................................... 8
Operating costs and revenues .......................................................................... 9
Benefit Cost Ratio (BCR) ................................................................................ 10
CONCLUSIONS AND RECOMMENDATIONS ................................................... 11
APPENDIX.......................................................................................................... 12

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EXECUTIVE SUMMARY

This section should provide a concise summary of the key highlights of the business case. It is intended for
decision makers so they can determine from the summary the overall efficiency and/or effectiveness of the
project. [Although it appears early in the Business Case Documentation, it is usually written last in order to
provide a high-level description with the most impact.]

It should outline the scope, strategic alignment, business impact, finances and recommendations. It should also
give the reader a clear understanding of the Who, What, Where, Why, When and How of the project and should
be able to be extracted as a stand-alone description.

Proposal background

This section should give some context for why the business case is being put forth. Provide a synopsis of what
is happening currently within the municipality or region and what might happen if no action is taken at this time.
It should describe the history and the current state of affairs giving rise to the general business problem and thus
the need for the project.

Make sure you define the opportunity/problem in clear terms. If statistical information is available to support the
business case then summarize.

Be transparent about who is making the proposal and the genesis of the idea. Briefly summarize the key
stakeholders behind the proposal. Also note how far the idea has progressed, if similar proposals are being put
forth to other agencies, and any previous submissions.

National and Regional Transport Policy

This section should set how the proposal fits with national and/or regional transportation strategy. Ideally,
reference specific sections of the Regional Public Transport Plan and/or National Land Transport plan. There
needs to be a clear logic argument for how the proposal relates to policy.

Be mindful the audience; projects often have multiple direct an indirect impacts that are relevant to various
stakeholders. Focus on those that are specific to the audience for this proposal.

Proposition

This section should provide a clear description of the proposition, a definition of what the project will accomplish

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(objective), what the project will and will not include (scope), what are the expected results (outcomes) and who
are the parties involved (stakeholders).

Proposed service

Please describe the nature of the proposed service including

 Type of service, such as a scheduled bus, ferry, carpooling scheme.
 Sample schedule or timetable
 Resources needed to deliver the service such as vehicles
 The target population; who is going to use the service
 Pricing and cost recovery

Service Delivery roles

Who are the parties involved to deliver the service? Not all parties need to be expressly identified. It may not be
appropriate for certain parties fixed if there are roles that will need to go to tender, or if the role can be provided
on a contract basis. A party should only be suggested if there is a reasonable expectation they can complete the
assigned role.

Areas to consider in this section include:

 Operator: who has primary responsibility for operating the principle resources (ie. Bus and Drivers)
 Administrator: who will deliver back office support, manage scheduling, provide customer services,
deal with billing, etc?
 Marketer: who is responsible for being the “voice” of the service? This is both in bringing in patrons, but
also dealing with media and other external relationships. For a community service, outreach is a critical
component that will need to be described.
 Funders: Who are the key stakeholders behind financing the proposal and what is the level of financial
risk?
 Project Management: Which party is responsible for keeping parties aligned and on track.
 Technology: Is there a clear understanding on what technology is necessary for the service, and what
technology is simply advantageous? Who is going tie these pieces together?
 Other: Please note other enablers who are critical to the project. This could be political support,
corporate sponsors, legislative action or specific individuals who hold core skills.

There need not yet be formal relationships with each party, but ideally there has been pre-work to understand
how the parties interact and how each role should be budgeted.

Risks

Risks are uncertainties or constraints that may prevent the project from completing on time, on budget, or in its
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original scope. Few projects are completely without risk, however, most successful projects manage or mitigate
their risks through good planning and on-going management.

The point is not to be overly critical, or conversely, unrealistically optimistic, but to express that the project has
been well thought through. It may even be noteworthy to discuss alternatives or options that were originally
conceived but have been dropped or altered.

Presenting the information in a table can provide structure.

Risk Description Probability Impact Mitigation Responsible
Party
Snow Snowfall Low  Delays service  Busses carry Drivers
closes (5 days a  Angry snow chains
roads year) Customers  Reimburse tickets

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AREA PROFILE

This section should describe the main features of the area. This varies upon the type and scale of the service so
focus on the aspect that are critical to the case or could affect the project.
 Geography with a map of the area
 The local economy
 Weather or seasonal variations, if relevant
 Other environmental or social considerations
 Traffic and parking in the region
 Ongoing or planned major projects, events, or construction

Demographics

This section will introduce the people who live in the area and the target audience. Typically, this is done by
presenting relevant statistical information. This information can be gleaned from national government
demographic datasets, or from local agencies. If there has been a recent survey or poll with relevant information
that can be introduced as well.

A qualitative description of the people can help add colour. Indicate who will benefit from the project, for
example, residents or businesses, and how they will benefit (i.e: improved health, safety, and/or economic
benefits).

If the focus is on a specific segment of the population, such as a particular community or cultural group, talk
about the relationship with the greater population and if the benefits will be shared more widely.

Transport options

This section should list the current available transportation options, their prevalence to the project. Historic
service may also be discussed if there is a relevant precedent. Ideally, describe the size and scope of each
service, the target audience, and how the existing service will be impacted by the proposed service.

Depending on the type of service and the audience for the proposal you may want to explore the impact on other
current subsidized services. There may be multiple government funded services in a single region; school bus
services funded by MoE, mobility service funding by a local DHB, etc. This section should explain these overlays
and navigate potential conflicts of interest.

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DEMAND RESEARCH

This section should discuss the demand for the proposed service. This includes patrons willingness to use and
the willingness to pay.

Stronger proposals will be supported by evidence that has been gathered through a scientific process. This
doesn’t necessarily mean conducting a major study, but exploring the question of demand should have been
undertaken with a clear objective, a methodology that tests a falsifiable hypothesis, and data collected and
interpreted without prejudice.

Objectives

In conducting the research, what was actually tested and for what reason? The objectives of the study need to
be aligned with the argument around demand.

Methodology

How was the research conducted and the process employed to gather and interpret the data.

Key themes

What was learned through the study (qualitative) that is relevant to the proposal?

Patronage analysis

What was the quantitative outcome? Extrapolate the findings into a theoretical scenario(s) to show the expected
demand for the service.

Example of “Willingness To Pay” survey expressed in a Table

Price point Expressed as… Trips/Day
(Respondents)
Low Med High
$0.50/Km “$4 for an 8km Trip” 10 15 20
$0.75/Km “$6 for an 8km Trip” 8 12 16
$1.00/Km “$8 for an 8km Trip” 4 9 12
$0.50/Km “$10 for a 20km Trip” 8 10 15
$0.75/Km “$15 for a 20km Trip” 4 8 12
$1.00/Km “$20 for a 20km Trip” 2 4 9

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FINANCIAL ANALYSIS

This section should confirm the costs of the scheme, the timeframe involved and the funding sources that
scheme promoters will utilise to bring the scheme forward. In preparing a proposal for submission, ensure the
financial implications of developing the scheme (including any implications for future resource spend and
ongoing costs relating to maintaining and operating the asset) are well understood. Be clear about the need to
secure and underwrite any additional funds other than what has been identified.

The focus here is on the finances, but don’t forget that time is money. Be clear in your description about the
timeframe and when certain costs will occur.

Depending upon the scope and size of the service the financial analysis will require only a simple cash accounts
or a complete set of audited financial statements. The principle points in any analysis will be the following:
 Capital expense: Initial expense such as set-up costs
 Operating expense: Ongoing costs
 Revenue: What money is coming from what sources
 Cost efficiency: How much of the cost of the service comes from patron revenues
 Benefit Cost Ratio: Different agencies have ways of estimating the “benefit” of a service. This is
compared as a ratio against the total cost of the service.
 Assumptions: Be clear about the assumption behind the financial case. Ideally, assumptions should
have some basis in fact – whether this be a formal quote or an estimate from an expert.

The sections and examples below assume a simple case that does not require complete financial statements.

Be careful about GST treatment. A common mistake is to exclude GST when calculating expense, as GST can
be claimed back, but to include GST when calculating fare revenue. GST treatment must be universal, and
typically it is excluded.

Set-up Costs

All the costs associated with initiating the service. These will most likely be a singular expense and would not
typically be recurring once the service is operational.

Be mindful of lease arrangements. While the payment should be recorded in operating costs, any contractual
risks should be noted.

If there are significant uncertainties that cannot be immediately resolved it may be appropriate to express some
costs as a range. If costs vary according to one or two possible conditions then you can present these as
scenarios.

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Presenting the information in a table can provide structure. The categories and description presented below is a
guide. Typically, each item of significant expense (~3% of total cost or greater) would be presented as a
separate line item

Example of Setup Costs

Category Description Low Scenario High Scenario
Assets
- Vehicle retrofit Painting logo on bus* $5,000 $5,000
- Signage Marking bus stops $1,250 $2,00
Marketing
- Web development Outsourced web design $2, 000 $3,000
- Print (brochures) 100 copies* $500 $500
- Launch campaign Radio ads $2,00 $2,500
Technology
- GPS Tracking plus installation* $800 $800
- Database software Setup and integration with $1,200 $1,500
existing systems
Other
- Legal Vendor contracts @ $150hr $2,000 $2,500
- Management Development time @ $100/hr $1,500 $1,750
Total $ $
* Have received a specific quote for service so cost is fixed. Please see assumptions sheet for specifics

Operating costs and revenues

All expenses once the service is operation. These should be recurring and regular. Some expenses will be fixed
(ex. the month cost of a phone contract) while others will be variable (ex. Bus lease cost might be charge per
km). For the later indicate the base rate of the charge and the current assumption on the multiplier.

Operating costs are a snapshot for a certain time period. Be clear about the length of time, whether that is
monthly, quarterly, or yearly.

Example of an Operating Budget

Category Description Cost (Annual)
Vehicle
- Daily rate 350 days @ $250/day $87,500
- Usage charge 10,000km @ $1.50/km $15,000
Salary
- Drivers 350 days @ 6 hrs/day @ $20 $42,000
- Admin Salary; $25,000 $25,000
Misc
- Web Hosting $1,000/year $1,000
Total $

Revenues will be both the fares charged to patrons and any income from advertising, sponsorship, or other
sources. Depending upon the agency, there will be more of less emphasis on cost efficiency – the operating

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revenue divided by the operating cost. Some agencies will want to see the total farebox recovery, which is only
the revenue from patrons excluding income from other sources.

Present your revenue in a table similar to the table above for operating costs

Benefit Cost Ratio (BCR)

To obtain funding from the RLTP typically requires a BCR to be carried out to assess economic efficiency. There
is simplified procedure where the benefit is assumed given certain features of the service; such as the types of
patron and the identified need.

Different agencies will apply different calculation and have different minimum ratios. Work with your agency to
determine what is appropriate in your case.

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CONCLUSIONS AND RECOMMENDATIONS

Quick summarize the conclusions, key considerations, and the final recommendation(s). The information
presented should make a clear case for the recommendation(s). However, the recommendation(s) should not
exceed the scope of the information presented.

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APPENDIX

Depending upon the size and scale of your proposal there may be appendices with additional information.

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