3. Business cases
Spending proposals for capital projects need to be supported by a proportionate and well-structured business case. Too often, programmes and projects in the public sector fail to achieve their objectives and deliver anticipated benefits because the key phases of investment have been inadequately scoped and planned and the associated risks have not been taken into account.
Business cases represent a planning and management tool that enables stakeholders, customers and personnel to ascertain whether schemes are supported by a robust case for change, optimise value for money, are commercially viable, financially affordable and achievable. Furthermore, appraisal teams at ACME will make a judgement on a proposed project based on its’ business case and therefore it is crucial that ALBs follow relevant ACME and HM Treasury guidelines in preparing a business case.
The central point for access to guidance, support, explanation and practical assistance for both the creation and the assessment of business cases is the HM Treasury website, with the ‘5 Case Model’ and Green Book guidance forming the two key sources of guidance on business cases in the public sector. Note that the use of the ‘5 Case Model’ is mandatory for all business cases. The ‘5 Case Model’ and Green Book methodology is considered best practice and therefore all spending proposals will be scrutinised against this methodology whether or not they are submitted to HMT for approval.
The Department has a £50m limit for capital projects with a disclosure limit of £15m. Projects under £15m only need ACME approval. Those costing between £15m and £50m must be disclosed to the Treasury, and HMT may at its discretion, require any or all of these projects to proceed only after their approval. Those over £50m or judged to be highly innovative or risky fall into the Government’s Major Projects Portfolio (GMPP) and must be cleared and monitored by the Major Projects Authority (MPA).
Major Projects Authority, Cabinet Office
In addition to the 2010 Spending Review with its planned savings of around £80 billion in public expenditure, the Coalition’s Programme for Government made a clear commitment to achieving better value for money for public spending. This includes a strong will to improve the success and delivery of Major Projects. The Prime Minister announced the establishment of the Major Projects Authority (MPA) within the Cabinet Office’s Efficiency and Reform Group (ERG). The MPA replaces the Major Projects Directorate in the Office of Government Commerce (OGC).
The aim of the MPA is to ensure the successful delivery of Major Projects across central Government by working with departments to ensure the fitness and quality of Major Projects throughout their life. This is to be achieved this by introducing revised procedures for the assurance and support of Major Projects, and ensuring they are integrated with strengthened Treasury approval processes.
From 1 April 2011 the integrated assurance and approvals framework for projects and programmes in the Government Major Projects Portfolio (GMPP) will include the following:
- Integrated Assurance Strategies (IAS) and Integrated Assurance and Approval Plans (lAAPs)
- Planned assurance that is integrated with Treasury approval points and processes
- Consequential assurance and/or intervention by the MPA for Major Projects seen to be in difficulty or having a poor delivery confidence
- Government Major Project Portfolio (GMPP) reporting.
What is a Major project?
A Major Project is defined as “a central Government funded project or programme that requires HM Treasury approval during its life, as set out in Delegated Authority letters”. It is assumed that projects which exhibit any of the following characteristics will also be classed as Major Projects:
- Could create pressures leading to a breach in Departmental Expenditure Limits, administration costs limits or Estates provision (£50m for ACME)
- Would entail contractual commitments to significant levels of spending in future years for which plans have not been set;
- Could set a potentially expensive precedent;
- Are novel and contentious; or could cause significant repercussions for others; and
- Require primary legislation; or where Treasury consent is a statutory requirement.
Projects that fall above Cabinet Office limits for ICT, marketing and advertising spend, and consultancy spend, but are not otherwise outside department’s delegated authority are not considered Major Projects.
For projects over above the ALBs delegated limit, approval is sought from the Investment Committee (by submitting a SOC) before an OBC is prepared. Sector teams lead on the scrutiny of each business case, with input from Finance (on the Financial case), the Evidence and Analysis Unit (on the Economic case) and Procurement (on the Commercial case). Together, these officials form the appraisal team for the business case. For projects over ACME’s £15m limit, but under £50m – these cases may be referred to Treasury for approval.
The Investment Committee may decide to outright turn the case down, request further development work or approve the case outright. To avoid the need for re-work at later stages of the business case process and to minimise the costs associated with preparing the business case, it is crucial that ACME and HMT guidance on business cases is closely followed.
The SOC, OBC and FBC
The Strategic Outline Case
The first stage of the business case process involves ALBs providing ACME with the Strategic Outline Case (SOC) for a capital project. The purpose of the SOC is to outline the strategic context of the proposal, to set out the case for change, to generate a wide range of potential options for delivering the investment objectives, to undertake some initial analysis of these options to generate a proposed way forward and to indicate what funding is available. This proposed way forward may alter as further analysis and costing is undertaken, and it is not until later that it becomes a ‘preferred option’. For further guidance on creating and appraising options, refer to chapter 5 and 6 in the Green Book and stage 1 of the 5 Case Model toolkit. This phase maps onto OGC Gateway 1 (Business Justification).
The Outline Business Case
The purpose of the OBC is to revisit the SOC in more detail and to identify a preferred option which demonstrably optimises value for money. It also sets out the likely deal, demonstrates its affordability and details the supporting procurement strategy, together with management arrangements for the successful rollout of the scheme. This phase maps onto OGC Gateway 2 (Procurement Strategy).
The Full Business Case
If approved by Treasury for the next stage of the process, the business case must then be developed to the Full Business Case (FBC) stage. The purpose of the FBC is to revisit the OBC and record the findings of the subsequent procurement activities; together with the recommendation for an affordable solution which continues to optimise value for money and detailed arrangements for the successful delivery of required goods and implementation of services from the recommended supplier/s. This phase maps on OGC Gateway 3 (Investment Decision).
The FBC must be approved by both ACME and Treasury before the investment decision is made and contracts are signed – projects can still be cancelled even if the OBC has been approved if, for example, funding does not materialise, the project changes markedly or the Department’s overall capital position changes.
The 5-Case model
Treasury ‘5 Case Model’ incorporates the following elements – the strategic case, the economic case, the commercial case, the financial case and the management case.
Strategic Case
The strategic case sets out the rationale for the proposal; it makes the case for change at a strategic level. It should set out the background to the proposal and explain the objective that is to be achieved. The strategic policy context and the fit with the wider public policy objectives and the department’s corporate plan must also be satisfactorily explained, as should any interaction with or dependency on any other public sector programmes.
Economic Case The economic case is the essential core of the business case and should be prepared according to Treasury’s Green Book guidance. The economic case assesses the costs and benefits of the proposal (both financial and non-financial) to society as a whole and should include the economic, environmental, health, social (including cultural) and other costs and benefits that will impact social welfare. While economic costs include some financial costs, these are not the same as the financial costs to the department or body undertaking the expenditure.
Commercial Case The commercial case is concerned with issues of commercial feasibility and sets out to answer whether or not the proposed solution can be effectively delivered through a workable commercial deal (or deals). The first questions the commercial case must deal with therefore, is what procurement does the proposal require, is it crucial to delivery and what is the procurement strategy?
Financial Case
The financial case is concerned with issues of affordability and sources of funding, covering the lifespan of the scheme and all attributable costs. The financial case must demonstrate that funding for the scheme has been secured and it falls within appropriate spending and settlement limits. The focus is on capital and resource requirements and therefore VAT and capital charges must be included. The financial case is concerned with the impact upon budgetary totals (RDEL, CDEL and AME).
Management Case The aim of the Management Case is to outline the governance processes that will surround the project or programme. These governance processes fall into three different categories: programme/project arrangements; outputs, outcomes and milestones; and assurance processes.The management case must clearly set out management responsibilities, governance and reporting arrangements and identify a Senior Responsible Owner for the project. Where significant change management is involved, a change management and stakeholder management plan should be included.
