Economic analysis can either evaluate whether a policy or project provides net benefits (total benefits exceed total costs) compared with a base case (also called a no build), which is a realistic representation of expected future conditions without the project, or it can compare the net benefits of various alternatives (also called options), which are actions that might be taken to achieve results similar to those of the project. How these alternatives are selected, defined and compared can have significant impacts on benefit-cost analysis.
In general it is best to compare a project with several alternatives. These may include "no build," "some build," "alternative proejcts," "demand management," and "degradation." Both the base case and alternatives should be described in as much detail as the proposed project, and should include all the actions necessary to make it work, including both capital costs and any incremental future operating costs. For example, the benefits of increasing the capacity of an air terminal building might not be realized unless ground access to the facility were also improved, so the cost of improved access must be included.
The analysis should include only incremental benefits and costs attributable solely to that alternative, over and above those resulting from other approved projects. Including the costs or benefits of other projects misrepresents benefits and/or costs (Transport Canada, 1994)
If benefit-cost analysis is being used to decide how, where, or when to do something that has already been decided on, there may be no base case. Project alternatives will be compared with each other.
"No Build" — Northeast Corridor High Speed Rail Study. The base case is continuation of current highway, air and rail facilities and services. The alternative is electrified high speed rail service.
"Some Build" — Wisconsin Hwy 29 Study. The base case is a scenario of partial road widening, as called for by normal growth of traffic over time. Alternatives are various levels of new highway construction.
"Alternative Investments" In some cases, such as when evaluating urban roadway expansions to reduce traffic congestion, alternatives can include investments in alternative modes, such as grade-separated bus or rail transit (Abley, Durdin and Douglass 2010; Smith et al. 2009).
"Transportation Demand or Systems Management" Transportation demand management (TDM, also called mobility management) and transportation systems management (TSM, also called operations) includes various strategies that encourage more efficient use of existing transport systems, including pricing reforms, road space reallocation (such as converting a general traffic lane to a HOV, HOT or bus lane), and various trip reduction programs that encourage travelers to shift travel time, mode or destination (VTPI 2010; USDOT 2010).
"Degradation" — SEPTA Transit Study. The base case is continuation of equipment and service degradation due to insufficient funds. Alternatives are various levels of investment to reverse this trend (TRB 1997).
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