2.8 Do minimum and benefit and cost differentials
- 2.1 Overview
- 2.2 Social cost benefit analysis and financial analysis
- 2.3 Benefits
- 2.4 External impacts
- 2.5 Costs
- 2.6 Present value and discounting
- 2.7 Time frame
- 2.8 Do minimum and benefit and cost differentials
- 2.9 Benefit cost ratios
- 2.10 Incremental cost benefit analysis
- 2.11 First-year rate of return
- 2.12 Uncertainty and risk
- 2.13 Alternatives and options
- 2.14 Packages
- 2.15 Transport models
- 2.16 Other inputs to funding allocation process
- 2.17 References
2.8 Do minimum and benefit and cost differentials
The do minimum
Most forms of project evaluation involve choices between different options or courses of action. In theory, every option should be compared with the option of doing nothing at all, ie, the do nothing.
For many transport projects, it is often not practical to do nothing. A certain minimum level of expenditure may be required to maintain a minimum level of service. This minimum level of expenditure is known as the do minimum and shall be used as the basis for evaluation, rather than the do nothing.
It is important not to overstate the scope of the do minimum, i.e., it shall only include that work which is absolutely essential to preserve a minimum level of service
Particular caution is required if the cost of the do minimum exceeds a relatively small proportion of the cost of the options being considered. In such cases, the do minimum should be re-examined to see if it is being overstated.
Future costs in the do minimum
In cases where the do minimum involves a large future expenditure, the option of undertaking the project now should be compared to the option of deferring the project until this expenditure is due. Similarly, if the capital cost of the project is expected to increase for some reason other than normal inflation, again the option of undertaking the project now should be compared with the option of deferring construction and incurring the higher cost.
Benefit and cost differentials
The project costs required for determining benefit cost ratios (section 2.9), incremental benefit cost ratios (section 2.10) and first-year rate of return (section 2.11) are the differences between the costs of the project option and the costs of the do minimum. The project benefits are similarly the differences between the benefit values calculated for the project option and those of the do minimum.
It follows that where a particular benefit or cost is unchanged among all the project options and the do minimum, it does not require valuation or inclusion in the economic analysis.
