Preparing a Business Case for Government Funding

There is a large amount of government funding available for businesses and not-for-profits for worthwhile projects, but organisations need to do the work prior to approaching the government and have a specific request backed up with a strong business case. In Adept Economics’ experience, the more work you can do before approaching the government, including business cases with detail commensurate with the funding request, the better. The easier you make it for decision makers to say “yes”, by providing a convincing business case with a clear funding request, then the more likely it is you will get that “yes”. Ultimately, government-funded projects will end up as two or three paragraph budget measures or a one-page government media release, but a lot of work needs to be done beforehand. 

Given the state of public finances (i.e. deficits and debt), governments have limited funds to invest meaning business cases are even more important in helping government authorities decide where to invest. Government funding is often only provided to strong business cases which clearly define financial and non-financial benefits, how their objectives align with government priorities, and expected budget impacts. One example of a project where Adept Economics has helped a client produce a strong business case was the Toowoomba Railway Goods Shed project (see Toowoomba Railway Goods Shed redevelopment: a closer look). 

A recent example of government funding is the Queensland Government’s recently established Queensland Jobs Fund which committed $2 billion to “grow renewable energy and hydrogen jobs”. This week Mining billionaire Andrew Forrest announced that Central Queensland would soon be home to the world’s largest hydrogen manufacturing facility. The overall operation has been described as a “$1 billion-plus” investment. The facility is expected to generate more than 300 local jobs and thousands of jobs into the future. 

A strong business case is the first step to gaining government support for an investment decision. Based on Adept Economics’ experience working with numerous organisations, we have prepared an outline of how to prepare a strong business case for government funding. These points are broadly applicable to the wide range of funding programs for example Commonwealth Government grants such as community and health sector grants or state government grants such as the Queensland Government’s social enterprise grants, but you should consult funding guidelines for specific programs to discover the exact requirements in each case. 

What is a business case? 

The role of a business case for government funding is to clearly outline the policy problem and justify the investment needed to address the problem. A business case needs to directly link to policy objectives of the government, which may include environmental sustainability, regional economic development, or innovation, among others .  

The business case should outline the problem to solve (e.g. a market failure) or investment opportunity, and analyse the benefits, risks and costs to support the investment decision. It should analyse different options and provide a recommendation. The required analysis in the business case will be based on the complexity and size of the investment decision. In some cases, particularly for multi-million dollar projects, you may need concept designs from architects and cost estimates from quantity surveyors or engineers, and an economic impact analysis or cost-benefit analysis from an economist. 

For example, the detailed business case for the Paradise Dam overseen by Building Queensland is relying on a range of studies from engineers and economists. Adept Economics Director Gene Tunny has participated as a member of a working group for the project, after a 2020 study for Bundaberg Regional Council and local grower groups on the economic cost of inaction on Paradise Dam (see Paradise Dam Update).     

A business case for government funding should show how it strategically aligns with the goals and direction of the government. It is important to align your project’s goals and objectives to current government priorities. It should demonstrate that, if successful, the project would contribute positively to the overall Australian community (or the community of the state or local government area).

Essential elements of a strong business case for government funding 

Framework for developing a strong government business case

The following framework is based on a framework developed by the Australian Government Department of Finance. 

1. Executive summary 

The Executive Summary should briefly outline the problem to solve and the investment opportunity, options to be analysed and the preferred option. It needs to sell the proposal to the government. Why is this a good thing to invest in? What’s in it for the community (and hence for the government, which will be mindful of public opinion, obviously)?  

2. Project description and overview 

It is crucial to demonstrate the benefits of addressing a current problem. The project description and overview should identify key objectives, problems and opportunities. It should be a clear statement describing the policy problem. It should be persuasive, particularly when outlining how the project aligns with relevant government priorities. It should also outline the scale of the problem expressed in monetary terms if possible and explain the underlying causes of the problem or opportunity. It is also important to identify assumptions in future trends. 

Essential elements to include in the project description should include: 

  • Objective 
  • Target outcomes 
  • Business need 
  • Consequences of not proceeding with an investment  
  • Implementation strategy 
  • Deliverables 
  • Project timing 

3. Options Analysis 

Options analysis should present a wide range of options to address the problem or opportunity. It should rigorously assess each option by describing the costs, benefits, risks and expected impact of each option. The analysis should determine which option is of most benefit to the community. Each option should consider financial and non-financial impacts to stakeholders. 

Analysis of each option should discuss the following

  • Description of option 
  • Stakeholder impact 
  • Costs 
  • Benefits
  • Cost-Benefit Analysis
  • Risks 
  • Schedule of work 

4. Detailed business case development or Cost-benefit analysis

The detailed business case should examine in significant detail the options shortlisted above. The business case should present a thorough estimation of the projected costs and should include analysis for the full lifecycle of the investment. 

Key questions the business case should consider include: 

  • Impact of the cost to be avoided or saved and benefits to be gained using evidence 
  • Cost-benefit analysis 
  • Timeframe of the project or program
  • Capital expenses (CAPEX), upfront and any future refurbishment expenses, and ongoing operational expenses (OPEX)  such as labour, maintenance, consumables, utilities, etc.  
  • Budget estimate of the whole-of-life costs of the investment and its financial benefits and the projected financial statements 
  • Benefits to stakeholders and government including non-financial benefits 

The centrepiece of a detailed business case is typically a Cost-Benefit Analysis. 

A Cost-Benefit Analysis is a structured process used to determine whether or not a particular project or policy is worthwhile. It compares all the possible advantages of a project or policy, including community welfare and societal gains, with the project or policy’s price tag, including financial expenditure and environmental costs.

Key metrics of a Cost-Benefit Analysis include 

  • Net Present Value (NPV)
  • Benefit-Cost Ratio (BCR) 
  • Internal Rate of Return (IRR)
  • Payback period 

In this outline, we have tried to share some of what we’ve learned about seeking government funding for projects or programs. In no way are we necessarily endorsing any specific funding programs. Clearly, some government funding programs have delivered questionable benefits over the years. But, if governments are going to make such funding available, it makes sense for businesses to try to tap into that funding, given the taxation and regulatory burdens that governments impose on businesses.  

Published on 11 October 2021. This article was prepared by Adept Economics Research Assistant Taylor-Rose Hull and Director Gene Tunny. For further information, please get in touch by calling us on 07 3085 7417 or emailing us via contact@adepteconomics.com.au.

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