This guidance requires that VfM is quantitatively assessed by comparing a risk adjusted CPAM against a shadow bid financial model. This section describes the quantitative work streams throughout the various stages of the VfM process.
| Stage 1: Programme Level Investment Quantitative Review |
When undertaking the Programme Level Assessment, a representative project (or projects) should be selected for the purposes of high level quantitative modeling so supportable conclusions across the whole programme can be drawn. If an investment programme encompasses elements with significantly differing characteristics, then examples from each different class of project will need to be considered. This assessment is normally undertaken at SG or directorate level before the development of the business case.
For the quantitative VfM assessment appropriate technical support and advice should be sought to estimate applicable capital, lifecycle and revenue costs of a capital investment or capital investment programme. In addition benefits, risks (including Optimism Bias) and relevant transaction costs should be assessed. These inputs are factored into the CPAM and shadow bid models and the results of these models are compared either on an individual project or a programme basis.
For this assessment, all input assumptions should be based upon evidence from past experience and projections. Where there is limited evidence or in the case of Pathfinder Projects, public sector bodies should consult with the Scottish Futures Trust (NHS Scotland Bodies should consult with the Private Finance and Capital Unit) directly.
The quantitative assessment at the investment programme stage will inevitably be conducted using only high-level estimates supported by appropriate evidence and should be used only as an indicator of whether there is potential to achieve VfM through the use of private finance. Other quantitative data that should be considered on a programme basis include:
• Economies of scale and efficiency gains across a programme;
• Programme set up and transaction costs of public and private sector participants relevant to financial / non financial benefits of the programme;
• Continuous improvement and related cost savings; and
• Transfer of risk through standardised contracts.
All quantitative assessment should be undertaken at a consistent evaluation point which will be the forecast projected "financial close" date. This will be more applicable for Stage 2 and Stage 3. The Procuring Authority should note that innovation is difficult to model at the investment programme stage - until the market has proposed innovative solutions, their costs and benefits are unknown. However, this is not designed to prevent Authorities from procuring large and / or unique projects. The ideal at Stage 1 is to uncover the scope and potential value of innovation.
At this initial stage a shadow bid affordability model would produce outputs which should be used to assess the VfM between an indicative private finance / NPD option and conventional procurement (either applying the models individually to a Project or as part of a Programme).
The following section discusses the contents of the quantitative models while further details on the application of Optimism Bias and Risk in respect of the quantitative assessment are detailed at Section 6 and Annex B.