6.10 The affordability of options should always be considered when developing and selecting options. In addition to the analysis of economic costs and benefits, appraisals usually need three major financial statements, at least for the lead options:
❑ 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. For strategic initiatives, the budget will often comprise the forecast RAB financial statements of a whole organisation over a number of years.
❑ A cashflow statement. This should show the additional cash that will be spent on the lead option if it goes ahead.
❑ A funding statement. This should show which internal departments, partners and external organisations would provide the resources (and in some cases cash) required.
6.11 Contingency arrangements should also be developed to ensure there is sufficient financial cover for risks and uncertainties.
BOX 22: EXAMPLE - DIFFERENCES BETWEEN COSTS
A project affecting 1000 existing employees in Department A involves a new project team of 10 additional people, plus an informal 'secondment' from Department B of another 15 people for six months each. Department B has also agreed to fund half of the additional cashflows expected to be incurred. ❑ The additional cashflows involve the costs of employing the additional 10 people. ❑ The economic cost of the proposal includes the cashflows of the additional 10 people, the costs to the 1000 employees affected in Department A (for instance, reflecting the cost of their time), and the costs of the 15 staff transferred. ❑ A brief funding statement could show that Department B is providing half the additional cashflows expected to be incurred. ❑ Both departments will need to consider how the transfers affect their staff resource profiles, and potentially other internal budgets. |