A2.14 Some common errors in Economic Appraisals include:
• Statement of objectives in vague qualitative terms such that their achievement can not be measured
• Failure to cost assets already in public ownership. These have an opportunity cost and should be costed at their current market value.
• Inclusion of capital financing charges such as loan charges. These may be relevant to a Commercial Appraisal or Affordability Assessment but do not represent an economic cost. In an Economic Appraisal, capital should be costed according to its purchase cost at current market values.
• Double counting of capital expenditure with interest and depreciation charges. In Economic Appraisal the cost of capital is adequately covered by including expenditure on capital costs in the years in which it occurs. In Commercial Appraisal the conventional approach is to include depreciation and interest charges. To combine these approaches is to count capital costs twice.
• Inclusion of transfer payments such as social security or redundancy payments. These do not represent economic costs.
• Applying the test discount rate to cash or nominal values. This is wrong because the discount rate is defined in real terms and must be applied to values expressed also in real terms.
• Failure to consider costs and benefits to other bodies or budget holders. Economic Appraisal is about all the costs and benefits to the UK and needs to go beyond the horizons of an individual NHSScotland body or other body.
• Ignoring Displacement. The impact upon the business of other
• service providers or market competitors should be taken into account.
• Lack of a clear explanation of the basis of all weights and scores, leading to misunderstanding and delays until clarification is obtained.