10 Private finance brings costs and risks over the use of conventional funding. Part of the cost difference is because, unlike Government borrowing, the cost of private finance reflects the risks of the project. So projects which use more expensive, risk-weighted, private finance must also bring sufficient benefits to be worthwhile. These benefits might include cost efficiencies, quality improvements, innovation or the better management of risk. It is important to establish how these will be achieved before the project is initiated.
11 Each project requires a business case that demonstrates that the project is feasible, affordable and VFM. Although business cases generally demonstrate feasibility and affordability they often do not manage to demonstrate adequately that private finance is the best VFM option. The problems we have encountered in business cases are: overall strategic reasons for using private finance are often unclear; financial modelling is error-ridden and given undue influence as the basis for decisions on VFM; and too much weight is placed upon subjective judgements of risk, which can easily be adjusted to show private finance as cheaper. Business cases also often do not explain how the desired benefits will be achieved.