2.9.2 Affordability should always be considered when developing and selecting options. It can influence option selection, therefore it is not usually sufficient to restrict consideration of affordability to a 'preferred option'. In accordance with the Green Book, in addition to the analysis of economic costs and benefits, appraisals usually need three major financial statements, at least for the lead options.
1) A budget statement. This should be based on resource accounting and budgeting (RAB) principles, and show the resource costs over the lifetime of the proposal.
2) A cash flow statement. This should show the additional cash that will be spent on the lead options if it goes ahead.
3) A funding statement. This should show the level and sources of capital and revenue resources to support the options.
2.9.3 Regarding the budget statement, it should be noted that the Cost of Capital Charge has been set at 3.5% p.a. in real terms since 1st April 2003.
2.9.4 Regarding the cash flow statement,
• The public expenditure (PE) implications should be set out in full, year by year, for the shortlisted options.
• The price basis of the PE figures should be recorded.
• NHSScotland bodies should confirm that they have the necessary resources to proceed with a project.
• The figures in an economic appraisal often require adjustment to derive the relevant PE implications. For instance, adjustment may be required to account for factors such as values of buildings already in public ownership, or time savings that have no PE effect.
2.9.5 Regarding the funding statement, NHSScotland bodies should:-
• Indicate all the proposed sources of funding, including, for example, revenue and capital resource, private finance, EU or other grants, endowment funding, donations and so on.
• Provide a detailed breakdown of the proposed funding, showing the expected amounts by source and their phasing over time.
• Indicate how firmly committed to the proposal the various sources of funding are, together with relevant information on any interdependencies between funding commitments.
2.9.6 In addition to these statements, it is sometimes necessary to assess the commercial viability of proposals. This generally applies when appraising financial assistance to the non-Government sectors. For example, assessment of the general financial position of the applicant may be required, and it will often be appropriate to identify the relevant financial cash flows and calculate NPVs on a commercial appraisal basis. Commercial appraisal may also be necessary, for instance, when selling goods or services into private markets.
2.9.7 Commercial appraisal should normally be done separately from, and in addition to, the calculation of NPVs on an economic appraisal basis.
2.9.8 The differences between economic appraisal and commercial appraisal can be a cause of confusion. Appendix 2 of the Option Appraisal Guide seeks to explain this. It includes a checklist to help identify what items to include in each.
2.9.9 A commercial appraisal, or affordability appraisal, or any other appraisal of some specific aspect of a proposal, should never be seen as an alternative to an economic appraisal covering the ten steps listed in Section 1.4.