2.5.1 The aim of appraisal is to obtain VFM from a broad economic perspective. This requires assessment of costs and benefits to the economy as a whole.
2.5.2 Following the latest HM Treasury terminology, the term 'base case' is now reserved for the best estimate of costs and benefits for any option, after adjustment for optimism bias. Thus every option has its own base case. Before discounting is applied, costs and benefits should generally be adjusted for both optimism bias and inflation. Other adjustments may be needed in some cases e.g. for tax differences among options or for displacement. Guidance on most of the necessary adjustments is given in this section together with general principles of cost and benefit measurement. The adjustment for optimism bias is explained in STEP 6.
2.5.3 The relevant base case costs and benefits to government and society of all options should be valued, and the net benefits or costs calculated. The decision maker can then compare the results between options to help select the best. In this context, relevant costs and benefits are those that can be affected by the decision at hand. Although they will vary depending on the scope of the proposal, some general principles apply. It is useful early on in the appraisal process to consider widely what potential costs and benefits may be relevant.
2.5.4 Wider social and environmental costs and benefits for which there is no market price also need to be brought into any assessment. They will often be more difficult to assess but are often important and should not be ignored simply because they cannot easily be costed. Section 2.7 below provides more information on how to take into account the impacts of proposals that can not be expressed in money terms.