2.19 As part of the process of developing the OBC, the NHS body will have identified and assessed various options for delivering the project objectives. This assessment would take into account the costs, benefits and risks associated with the shortlisted options as well as affordability implications (as per the SCIM Business Case Guide). Based on the results of the economic appraisal, a preferred option would be identified, typically the option with the highest ratio of benefits to costs.
2.20 The amount of effort devoted to the risk analysis at this stage should be commensurate with the purpose of the analysis. Where the shortlisted options have similar risk profiles1, there is no need to quantify the risks associated with each option since the potential costs of these risks would be broadly similar and are therefore not material to the identification of the preferred option. In this case, detailed risk analysis and quantification should only be carried out on the preferred option (as per paragraph 2.22) in order to establish the true cost of the option for the purposes of affordability. Risk assessment guidance, Optimism Bias guidance and evidence based data should be utilised as outlined in Paragraph 2.8.
2.21 Where the shortlisted options have materially different risk profiles, it will be necessary to assess the costs of risks for each option. The objective of this work is to demonstrate that the option selected is the one which delivers the best value for money.
2.22 Resource constraints demand that the work done at this stage is not as detailed as that done for the Full Business Case (FBC). The level of work carried out, however, should be sufficient to assure the procuring entity that the preferred option is affordable and represents the optimum solution. Typically, the work will entail:
• risk audit interviews, risk reviews and brainstorming workshops (to identify and allocate risks);
• weighting and scoring analysis (to identify the amount of risk associated with the shortlisted options/preferred option);
• rules of thumb (to establish the amount of risk which may be inherent in the shortlisted options/preferred option);
• single point probability analysis (to quantify the risks that may be inherent in the shortlisted options/preferred option).
These methodologies are discussed in Appendix 2 (insert link). In certain circumstances generic risk uplifts can be applied in respect of identified risks.
2.23 Both the quantification of risks and the estimation of probabilities that such risks may occur is to some extent a subjective analysis. For this reason, the procuring entity should aim to use as much empirical information as possible. Typically, such information would be derived from the NHS Estates Database, expert opinion and experience from similar projects. Over time, an evidence base will be collated by the SGHD to help assess risks associated with schemes.
2.24 The preferred option represents the embryonic Conventional Procurement Assessment Model (CPAM) and the benchmark against which quantified value for money of the PPP solution will be demonstrated. Throughout the remainder of the procurement process, it should represent a viable and affordable alternative to the privately financed solution. At the OBC stage, therefore, the procuring entity should be confident that its proposed solution is both affordable and value for money. Scottish Govt PPP VFM Assessment guidance requirements should be referred to.
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1 Options demonstrate differing risk profiles where their inherent risks are not the same (eg as in construction versus refurbishment) and/or where the likelihood/impact of risks differs.