2.5.40 Cost savings and efficiency savings or improvements may be claimed as part of the justification for projects. In such cases, the appraisal report should make it clear whether the projected cost savings are intended to result in financial savings or in re-deployment of resources. Details of the expected financial savings or planned re-deployment should be given. This is particularly important where staff savings are projected. Specific points to note about cost savings include:
• When total costs are used for all options including the baseline option, cost savings are automatically accounted for in the differences in cost between the baseline option and the alternative options. In these circumstances it is incorrect to include cost savings on the benefit side of the calculations as this would be double counting.
• Where staff reductions are projected, a detailed analysis of them should be included separately. This should show the numbers and organisation of staff by grade prior to implementation (which should generally be the same as that assumed at the commencement of the baseline option); and how the numbers and organisation of staff by grade are expected to change year by year over the term of the appraisal under the preferred option.
• Where it is assumed that staff time savings will be taken up by extra output, or reallocation to other duties, justification must be provided.
• Redundancy payments should generally be treated as transfer payments. Details of any redundancy proposals should be explained fully in the appraisal report, including their financial implications. In some cases they may give rise to local economic and social difficulties, in which event their impact should be assessed. Such impacts may be significant where the numbers of redundancies are relatively large and where unemployed workers with characteristics similar to those being made redundant are taking longer than average to find jobs or are becoming inactive.