Least cost planning methodology (LCPM), or just least cost planning (LCP), is a project analysis technique that goes far beyond conventional cost-benefit analysis by estimating not only the total long-term costs and benefits for an individual construction or other project but also the costs and benefits for all possible alternatives to that project in order to select a solution that maximizes net benefits to a city, region, etc.
One of the fundamental principles of LCPM is that all alternatives, including building a very different project or projects, demand reduction, and even not doing anything, are treated on an "equal footing," i.e., with no alternative favored or discriminated against based on political, institutional or ideological factors. Each alternative is assessed objectively based on its full costs and benefits — not just the financial ones and those that would accrue to users of the project — including those related to the environment, to public health and to the economy. Although such intangible costs and benefits can be more difficult to forecast than financial costs and benefits, they are no less important and, moreover, they may eventually also have major financial consequences.
Demand reduction, which is often overlooked or ignored in conventional cost-benefit analysis in favor of supply-side solutions, can include such strategies in the case of proposed transportation projects as implementing road pricing, promoting public transportation, improving walkability and encouraging remote work. In the case of proposed power generation projects, it can include raising electricity rates, encouraging homeowners and businesses to improve the insulation of their structures, and discouraging the use of electric automobiles in favor of more transit and walking.
A major obstacle to the widespread use of LCPM has been the fact that it is considerably more difficult to estimate the values of non-monetary costs and benefits for projects, such as the effects on the environment and public health, and to analyze all of the alternative solutions instead of just looking at the financial costs and benefits to the users of a single proposed project. Moreover, construction and planning agencies often have a bureaucratic culture that is structured to analyze and promote just a single type of solution (e.g., building more and wider roads) and do not have the human resources, incentive, or legislative mandate that would allow them to look objectively at alternatives.
Still another obstacle to the use of LCPM may be its unfortunately very misleading name, which implies that its focus is on minimizing cost. Rather, when applied appropriately, the emphasis is on maximizing net benefits rather than minimizing cost. Thus, a much more appropriate name would be "maximum benefits planning."