The EPP is the forward plan for equipment procurement, consisting mostly of capital expenditure (CDEL) along with other resource expenditure that is not capitalised40. It is compiled annually in line with planning round guidelines by the Capability Sponsor (CS) and the Heads of Capability (HoCs) who take responsibility for their respective areas of oversight.
The objectives of the EPP are:
• to create a balanced and coherent programme that is affordable within the Comprehensive Spending Review ("CSR") settlements for the Department; and
• to set firm control totals ("CTs") as a basis for two years of in-year management and indicative CTs for future years.
Spending on each project is subject to considerable uncertainty, and the forecast expenditure profiles held in the EPP are set to the 50th percentile estimate of costs. These are the values which are considered just as likely to be over-estimates as they are under-estimates. Business cases submitted to the Investment Approvals Board ("IAB") usually include an explicit assessment of the uncertainty around project costs by presenting values such as '10%' and '90%' estimates - the estimated costs that will not be exceeded with a 10% or 90% probability, respectively.
When project business cases are approved, the IAB authorises 'not to exceed' ("NTE") values, which correspond to the amount of money that the Department is permitted to spend on the project without having to obtain any further IAB approval. Historically, NTE values varied between the 'most likely' cost and a level around the 75% probability estimate, depending on the type of case. In early 2008, however, the process was standardised and the 'most likely' cost is now adopted as the NTE in all but the most exceptional cases.
The annual Major Project Reports ("MPRs") publish NTE41 values as the costs that are approved at Main Gate. Variance data in the MPR are also presented relative to NTE values, though Risk Differentials are also reported explicitly. In this report, all variances are considered relative to the 'most likely' estimates.
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40 Projects in the initial stages of development (CA in the CADMID cycle) typically cannot capitalize expenditure.
41 Where a 'Not to Exceed' parameter is greater than 50% it should represent the worst case scenario should all foreseen risks arise; this can be referred to as the project's Risk Differential, i.e., amount of risk that is allowed for in the approval.'