4.11 The quantitative assessment methodology for considering PFI against public sector delivery (see HMT VfM assessment guidance)39 utilises a public sector comparator as a baseline, adjusting for risks and discounting future costs and revenues using an NPV approach. A replication of this approach is however not considered appropriate when looking at a JV delivery option alongside other delivery options. Rather the recommended approach is to focus on estimating the monetary value of the potential benefits of JVs (see Annex J), using where appropriate an expected value approach, and comparing this to a valuation of potential disadvantages (see Box 4.A), such as increased transaction costs and risks borne by the public sector. This approach seeks to convert any non-financial benefits into expected values, creating a "should cost" or "worth" model for the JV delivery option that can then be compared with the "should cost" or "worth" of other viable delivery options to show the potential for relative benefits. Sensitivities should be run to examine the effect of changes in major assumptions and to estimate the tipping point for switching from one option to another.
4.12 However, even with the appropriate use of sensitivities it must be recognised that in this context a quantitative approach is an inexact science and difficulties will often be encountered in estimating expected values. Notwithstanding that the discipline of undertaking a quantitative analysis is in itself beneficial to understanding the venture, it is better to understand and articulate the drivers of VfM without detailed spreadsheet modelling and it is generally preferable to base the decision on a clear explanation of the qualitative factors. The quantitative assessment should then be used to inform and to scale the potential benefits and disadvantages - to elaborate on and support the picture provided through qualitative analysis where necessary. In practice, the two elements of the analysis might proceed in parallel, with quantitative results informing consideration of the qualitative appraisal and vice versa.
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39 HM Treasury Value for Money Assessment Guidance, November 2006 ( www.hm-treasury.gov.uk/d/vfm_assessmentguidance061006opt.pdf).