An evaluation should contain a list of the factors to be considered in each option, even when it is not possible to quantify them. It should assess, and where possible quantify and value, all benefits and costs (including ongoing service and maintenance costs). The values should be realistic and objectively assessed, as being over-optimistic (or overly pessimistic) about values or dates can lead to the wrong conclusion. Investment appraisals should be produced for each option, with a calculated net present value (“NPV”)3.
At this stage the project sponsor, in conjunction with the Director of Estates, should agree the preferred option or options, which as well as meeting the criteria, must also be affordable and viable. The project sponsor, in conjunction with Estates, takes responsibility for the prima facie case, which must include clearly articulated financial assumptions and show the range of options open to the University, and the logic behind the selection of the preferred option(s). The project sponsor submits the prima facie case to Capital Group: it should be reviewed by them (including project scoring using the criteria matrix attached at Appendix 3) and VCEG advised accordingly. VCEG review the prima facie case and inform Council where they support the case and project cost exceeds £3 million. At this stage VCEG may authorise the commitment of fees associated with the project, as recommended by Estates.
A flowchart, showing development of the prima facie case, is attached at Appendix 4.
Stage 3: Development of the Full Business Case
The project sponsor develops the full business case, for the preferred option(s) and the base case, with support from Estates and the Treasury Manager. The full business case should be forwarded to the Treasury Manager for their review at least two weeks prior to the Capital Group meeting.The amended case should then be forwarded to Capital Group,four working days before the meeting. If Capital Group approves the business case, it should be submitted to VCEG for their decision at least four weeks before Council. A flowchart showing development of the full business case is attached at Appendix 5.
The following steps should be undertaken in preparing the full business case:
Ensure the original assumptions remain valid.
Consider alternative procurement routes for the realistic options, each of which will have different costs, benefits and risks.
Consider the alternative financing options and their associated costs. Is there third-part funding available, and if so are there any “strings attached” and/or any time constraints? How does the forecast funding pattern compare with the spending pattern? What is the internal funding requirement and how is it to be met? What is the impact on the University cashflow and would this require any short or long-term borrowing?
Reassess the relative costs, benefits, timings, risks and uncertainties of each of the realistic project options, together with the base case, using investment appraisals and NPV calculations.
3 The discount rate to be applied is that recommended by Hefce (currently 3.5%). This is a real rate and it reflects the “social time preference rate” of money- the fact that normally people would rather have cash now than later, and would prefer to pay bills later rather than sooner. It must not be confused with inflation.