5.78 Portfolio appraisal involves the optimisation of a portfolio of programmes and projects within a limited budget. The objective is to optimise the social value of the portfolio taking account of total whole life cost of projects, when subject to a budget constraint.
5.79 Public capital spending is a readily controlled form of expenditure. This is because proposals that are not yet started or fully implemented can be more easily delayed, reduced in scope, re-phased or abandoned. When a decision is made to go ahead with capital expenditure it usually creates substantial whole of life costs e.g. maintenance and running costs for infrastructure or service provision for schools or hospitals. As a result, public sector capital spending is usually a relatively small percentage of the total cost of project. When ranking a set of projects with substantial capital spending, the BCR including whole life costs should be used. However, the cut-off or budget constraint for considering which options are affordable should be the capital budget.
5.80 All capital spending proposals may be ranked according to their BCR and the ranking then adjusted to reflect unquantifiable and unmonetised factors and risks. Future spending commitments should be taken into account in approval of individual spending decisions and when strategically reviewing a portfolio.