So, how do you determine and evidence in the Business Case that your project or programme (your Preferred Option) provides value for money?
In our penultimate blog of the series, we explore how to establish Value for Money based on a balanced view of the benefits, costs and risks.
First things first, determining Value for Money DOES NOT mean choosing the cheapest option! It means really assessing other key aspects for the shortlist, including quantifying and monetising the risks of doing nothing, as well as assessing and quantifying the benefits.
So, have you set out:
The costs (capital and revenue) for each option?
Assessed and monetised the risks and benefits?
Calculated your value for money ratios?
Prepared sensitivity analysis to test and confirm your preferred option?
The Preferred Option is based on selecting the option which offers the optimum mix of costs, risks and benefits, thereby resulting in the highest Value for Money. The longlist option framework provides you with a shortlist of options from which you can then determine the Preferred Way Forward (PWF).
The Economic Appraisal allows you to assess the shortlist in detail to be able to determine the Preferred Option. This becomes your recommended solution at OBC, which if approved, becomes further developed to a point where the solution can be delivered for FBC.
For NHS Business Cases, the evidence for the Value for Money option is identified as the one with the highest Benefit to Cost Ratio (BCR), taking into account monetised risks.
Typically, a benchmark BCR rate of 4:1 needs to be achieved for the scheme to receive approval. However, Business Cases are assessed on a case-by-case basis, and whilst the BCR of 4:1 may not be achieved, the scheme can still be approved.
For example, the 4:1 BCR may not be required where there is a compelling case for change, and the benefits, whilst significant, are either not capable of being quantified or the cost and work needed to assess them is not proportionate with the value of the project or investment.
Economic appraisal of the shortlist for the OBC
To determine the Preferred Option, therefore, you need to collate all the necessary information to be able to prepare an Economic appraisal for the short list as follows:
Information on current and future running costs
Determine estimated capital construction costs, if any
Assessment of optimism bias for each option
Benefits appraisal and quantification
Risk appraisal and quantification.
Outputs
Once you have all the above for each option, you can prepare an Economic Appraisal model to assess the options, which may take the form of a Comprehensive Investment Appraisal (CIA) model for NHS schemes (or Value for Money Assessment for NHS scheme under £25m).
This is prepared over the life of the project, so in the example of a new build, these costs, risks and benefits would typically be assessed over 60 years. Below is an illustrative, summarised table for reporting purposes.
Once you have determined the Preferred Option, it is recommended to undertake sensitivity analysis to assess the robustness of the Preferred Option. This looks at the key inputs and assesses whether changes in the underlying inputs have a significant impact on the BCR, and thereby changes the Preferred Option.
✏️ Top Tip: It is useful to prepare switching analysis, which assesses by how much a certain input needs to change in order to change the preferred way forward or Preferred Option. This analysis providers stakeholders and approvers with confidence that this is the right thing to do in terms of selecting the best Value for Money option.
The majority of this work will be undertaken at OBC stage, which is then revisited and confirmed (or updated if necessary) at FBC stage, with cost estimates replaced by final (Best and Final Offers, BAFO) costs.
⭐Success Story: Unlocking the transformation of Hythe and Dibden War Memorial Hospital
In the case of Hythe and Dibden War Memorial Hospital, the project achieved a Benefit to Cost Ratio (BCR) of less than 4. Despite this, the Business Case was approved due to the proposal's aim to replace the oversized, underinvested, and deteriorating existing facilities with fit-for-purpose, flexible, and more efficient ones.
The facility is now open and provides a welcoming, inclusive, high-quality facility that creates a positive experience for patients, visitors and the staff caring for them. An increased provision of care closer to home (including expanded diagnostic services and more dementia care) is reducing pressure on nearby acute hospitals, with more patients being safely supported in their local community setting or at home.
Need help now?
Arrange a conversation with our expert Business Case Team. Contact Ian Sabini, Managing Consultant on: ian@gbpconsult.co.uk
Coming up in the last of our series of Business Case Club Blogs:
#10 Delivery and Governance
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