The estimated NPV life cycle cost will be based on a number of assumptions. A sensitivity analysis should be undertaken to show the effects of different assumptions on the relative value for money of the procurement options. This analysis should be used to identify the changes in assumptions that are significant enough to potentially change the recommendations. The analysis should assess the change to one or other of the procurement options (traditional or P3) but not both at the same time. The assessment should also identify which assumptions are most likely to change, the level of uncertainty and whether these assumptions are significant in the value for money estimate.
The business case should include a summary of the impact of changes in assumptions that are significant. A table is often effective in illustrating the impact. Separate tables should be used to illustrate the impact of changing assumptions and could be presented in the following format.
[Description of Table (e.g. Expected NPV with Different Credit Spread and Debt/Equity Ratio)]
[Description of Assumption that will be Changed] | Base Case | Assumption Change A (e.g. debt/equity ratio) | Assumption Change B (e.g. debt/equity ratio) | |||
| %VFM | %VFM | %VFM | |||
Assumption Change 1 (e.g. credit spread) |
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Assumption Change 2 |
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Etc. |
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There should be a written explanation of the results of the analyses.