Economic Case: Options Appraisal and Value
What the economic case must prove
The economic case identifies the option that delivers the best balance of costs, benefits and risks to society or the wider public. Candidates must understand option generation and appraisal: a long list, critical success factors, a short list, a do-minimum or do-nothing baseline, whole-life costs, benefits, dis-benefits, risk, optimism bias, discounting, net present value (NPV), sensitivity analysis and the preferred option. Benefits may be cash-releasing or non-cash, and both count in economic appraisal. The output is the preferred option, not simply the cheapest.
Traps
The most frequent error is confusing the economic case with the financial case. Economic appraisal compares value and cost across options; financial appraisal tests whether the preferred option is affordable. Another trap is ranking on raw totals rather than NPV, or ignoring optimism bias and sensitivity testing. Sunk costs should be excluded. Do not double-count benefits or count transfers as new value.
Worked example and rule of thumb
Option A costs 10m and yields benefits of 15m over five years. Option B costs 7m and yields 9m. Both may look positive, but the incremental test asks whether the extra 3m spend buys at least 6m of extra benefit after risk adjustment; if not, B may be preferred. Rule of thumb: evaluate everything against the do-minimum baseline and discount to present value.