Step nine: assess affordability and record proposed arrangements for funding, management, procurement, marketing, benefits realisation, monitoring and evaluation

Assess affordability

2.9.1 DoF requires suitable information on these aspects to be provided in submissions for approval. The following paragraphs expand on the information required on affordability, funding, management, marketing, procurement, benefits realisation, monitoring and evaluation.

Affordability, funding, cash flows and commercial viability

2.9.2 Affordability should always be considered when developing and selecting options. It can influence option selection, therefore it is not usually sufficient to restrict consideration of affordability to a preferred option. In accordance with the Green Book, in addition to the analysis of economic costs and benefits, appraisals usually need three major financial statements, at least for the lead options:

1. a budget statement. This should be based on resource accounting and budgeting (RAB) principles, and show the resource costs over the lifetime of the proposal
2. a cash flow statement. This should show the additional cash that will be spent on the lead options if it goes ahead
3. a funding statement. This should show which internal departments, partners and external organisations would provide the resources, and in some cases the cash, required

Departments should use the NIGEAE affordability assessment template to complete both the budget statement and the cash statement. There is no prescribed standard format for the funding statement.

Cost controls and mechanisms for managing incentive based schemes are essential for ensuring affordability. Projects should ensure that there is a means for controlling demand in line with the available budget both initially and in future years.

Note that the figures in an economic appraisal often require adjustment to derive the relevant PE implications. For instance, adjustment may be required to account for factors such as values of buildings already in public ownership, or time savings that have no departmental expenditure limit (DEL) or cash effect.

2.9.3 Regarding the budget statement:

• the full capital and resource DEL impact should be set out, year by year for the shortlisted options
• prices should be up to date, and the exact price basis of the DEL figures should be recorded
• DEL provision should be sufficient to cover all project resource requirements including allowances for contingencies and optimism bias
• departments should confirm the extent to which they already have the necessary DEL provision - additional DEL requirements should be distinguished from existing provision
• calculations should accord with the latest HM Treasury Consolidated Budgeting Guidance. Departments should refer to their own finance divisions for advice on the relevant calculations in the first instance - the advice of DoF's Central Expenditure Division (CED) should be sought on any issues that the finance divisions can not resolve
• the following worked example illustrates the capital and resource DEL calculations under conventional procurement, PFI (off balance sheet) and PFI (On balance sheet)

2.9.4 Regarding the cash flow statement:

• the public expenditure cash implications should be set out in full, year by year, for the shortlisted options
• prices should be up to date, and the exact price basis of the PE figures should be recorded
• cash provision should be sufficient to cover all project cash requirements including allowances for contingencies and optimism bias
• departments should confirm the extent to which they already have the necessary cash provision - additional cash requirements should be distinguished from existing provision

2.9.5 Regarding the funding statement, departments should:

• indicate all the proposed sources of funding, including, for example, PE, private finance, EU grants, International Fund for Ireland grants, Lottery funding and so on
• provide a detailed breakdown of the proposed funding, showing the expected amounts by source and their phasing over time
• indicate how firmly committed to the proposal the various sources of funding are, together with relevant information on any interdependencies between funding commitments

2.9.6 In addition to these statements, it is sometimes necessary to assess the commercial viability of proposals. This generally applies when appraising financial assistance to the non-government sectors. For example, assessment of the general financial position of the applicant may be required, and it will often be appropriate to identify the relevant financial cash flows and calculate net present values (NPVs) on a commercial appraisal basis. This is explained further in the section 4.5. Commercial appraisal may also be necessary, for instance, when selling goods or services into private markets.

2.9.7 Commercial appraisal should normally be done separately from, and in addition to, the calculation of NPVs on an economic appraisal basis. A commercial appraisal, or affordability appraisal, or any other appraisal of some specific aspect of a proposal, should never be seen as an alternative to an economic appraisal covering the ten steps.

2.9.8 The differences between economic appraisal and commercial appraisal can be a cause of confusion. This is explained in the comparison of economic, commercial and affordability appraisal. It includes a checklist to help identify what items to include in each.

2.9.9 It should be borne in mind that DoF approval of a particular project relates solely to agreement to proceed with a project. It does not imply approval for expenditure to be incurred beyond existing agreed DEL or cash allocations.

Project management and procurement

2.9.10 Business cases should explain the proposed management arrangements for the preferred option, including:

1. the project initiation document (PID) or project execution plan (PEP) in the case of construction projects
2. the proposed management structures, covering all of the stakeholders in the project, and the relationships between them
3. the key personnel responsible should be identified in terms of a specific postholder and/or a named individual. For example, in the case of construction projects:

• investment decision maker
• project owner / senior responsible owner
• project sponsor
• project manager

4. confirmation that documented project management procedures are in place reflecting advice in the current relevant guidance authorised by DoF e.g. the PRINCE2 guidance or the achieving excellence in construction guidance and arrangements for the scheduling of gateway reviews have been made as part of the planning process. (See section 10 of the NIGEAE for details of these procedures)
5. the intended approach to procurement, including, for example, suitable consideration of traditional approaches and PPP alternatives. Section five of the NIGEAE explains the specific requirements regarding the consideration of PPP cases. The justification for the proposed approach should be explained
6. the benefits realisation plan. (See section 10 of the NIGEAE for relevant guidance)
7. the timetable for implementation
8. accommodation issues
9. staff and trade union side (TUS) issues
10. any other important management issues

Market assessment and marketing plan

2.9.11 Where goods or services are to be sold in private markets:

• a substantial market assessment should be undertaken and reported, demonstrating that sales projections are firmly based upon an appreciation of the current state of and future prospects for the relevant markets
• a marketing plan should be provided, including details of all the planned marketing activities, costed over the life of the project

Planning for monitoring and evaluation

2.9.12 Sections 10 and 11 of the NIGEAE provide guidance on monitoring and evaluation. Every appraisal of any substance should indicate how the proposals concerned will be monitored and evaluated after completion, including who will be responsible for them and how the results of the evaluation will be disseminated. This applies to policies and programmes as much as to projects. Approving authorities should ensure that adequate arrangements are made at the appraisal stage for subsequent monitoring and evaluation of all the public expenditure and resources for which they are accountable.

2.9.13 Good evaluation depends upon good appraisal, and appraisal procedures should be designed with evaluation in mind. For example:

• appraisals should include clear aims and objectives, quantified as much as possible, so that outturns can be measured against them
• key calculations, assumptions and judgements should be recorded, together with the extent and conclusions of sensitivity analyses

2.9.14 Poor information on both the deployment of resources and the level of service provision prior to implementation can be a serious hindrance to evaluation. It is important to record details of these in appraisal reports. The precise requirements will depend upon the scope of the evaluation in view, but in general it is good practice to include:

• a detailed breakdown of annual costs before implementation
• details of the accommodation, equipment and other assets in use prior to implementation
• an organisation chart showing the main pre-implementation functions, and the numbers of staff by grade related to each function
• details and measures of pre-implementation service provision, including quantification (for example, indications of activity, output, effectiveness, efficiency and economy) supplemented by appropriate text
• details of the expected phasing over time of the resources and outputs associated with the preferred option

Monitoring and evaluation plan

2.9.15 Appraisal reports should generally include a monitoring and evaluation plan for the preferred option. This should provide details of:

• who will be responsible for monitoring and evaluation; the organisation, division, post, individual(s)
• what factors (for example, costs, outputs, outcomes) will be monitored and evaluated, and how
• what staff and other resources will be required
• who needs to be consulted
• when monitoring and evaluation will be undertaken (the intervals at which monitoring will occur, and the completion dates for evaluations)
• how the results will be disseminated, including identification of the target audience

2.9.16 Plans should generally provide for post project evaluations (PPEs) to be conducted in two stages, including a project evaluation review (PER) and a post project review (PPR). See section 11 for further details.