Financial Case

The purpose of the financial case within the business case is to demonstrate the affordability and funding of the preferred option, including the support of stakeholders as required.

Demonstrating the affordability and fundability of the preferred option requires a complete understanding of the capital, revenue and whole life costs of the scheme. Alongside, how the anticipated deal will impact the balance sheet, income, expenditure and pricing arrangements (if any) of the organisation.

Whilst this may sound similar to the economic case, it only covers affordability and fundability whereas, the economic dimension assesses whether the proposal delivers best value to wider society. The financial case is exclusively concerned with the financial impact on the public sector.

Financial Appraisal Process

The financial case requires that the key following questions are answered:

  • Does the scheme need a financial model? For large, significant and/or complex schemes, a financial model of the proposed expenditure will be required. To ensure reliability and robustness the model will need to be continually reviewed and updated, the oversight of an external specialist (e.g., accountant or financial advisor) may be preferential.
  • What are the capital and revenue spending requirements for the scheme? A statement showing the necessary capital and revenue spending requirements for the scheme should be prepared. It should highlight the capital and revenue consequences of the preferred option for the lifespan of the service and/or contract period.
  • What is the impact on the income and expenditure account, as well as the organisation’s charges for services? Any impact on the organisation’s income and expenditure will need to be assessed. Additionally, it may also be necessary to assess the impact of the proposal on any contract prices that the organisation charges for its services, all costs should be covered by income year by year.
  • Are there any shortfalls in funding? Any shortfalls in funding must also be highlighted, as this is extremely important for proving affordability and fundability.
  • What is the impact on the balance sheet? The impact of the scheme on the organisation’s balance sheet must be assessed. Both the current position and the likely outcome should be assessed by a qualified accountant. If significant assets are an integral part of investment, accounting treatment will need to be examined, preferably by an independent auditor.
  • Is evidence of commissioner or stakeholder support necessary? Where necessary, particularly for large, significant or complex schemes, it may be necessary to provide evidence of stakeholder or commissioner support. Particularly if there are additional funders involved, an agreement in principle will need to be provided to evidence that the scheme is affordable and fundable.

Commercial Case

The commercial case within the business case demonstrates the commercial strategy and arrangements relating to the services and assets required by the proposal and to design procurement tenders where one is required.

Demonstrating a viable procurement requires an understanding of the marketplace, knowledge of what is realistically achievable by the supply side and research into the procurement routes which delivers the best value to all participating parties.

The challenge for the business case author is to be an ‘intelligent customer’ and to anticipate from the outset how the best public value can be secured during the contract phase, in the face of inevitable changes to business, organisational and operational requirements.

It should be noted that the commercial stage is not only fed by the strategic and economic cases, but it also feeds cost risk management and timings back into economic and financial cases of the business case process. The commercial case needs to be considered from the start when investigating the long list of options for the scheme.

Procurement Process  

The commercial case requires that the following key questions are be answered:

  • What procurement strategy should be used? This requires considering how the services, supplies or works can best be procured in accordance with current guidance and regulations, alongside the pre-existing commercial strategy of the organisation.
  • What are the main service streams and required outputs? The preferred options service streams and required outputs need to be determined, alongside the content of the potential deal developed with all service providers.
  • What is the risk apportionment? The main aim when answering this question is to ensure that specific risks are allocated to the best party equipped to manage it, subject to the risk premium. With the intention of optimising the allocation and sharing of risk rather than maximising the number of risks transferable to service providers in delivery.
  • What are the potential payment mechanisms? Here you should identify how the service providers will be paid for the delivery of key services and outputs over the expected lifespan of the contract. It is key to consider how best to incentivise providers to provide value for money over the lifespan of the project and its operational phase. This will help the organisation to deal with potential change and risks more effectively.
  • What are the contractual arrangements? The contractual agreements then need to be outlined for the project, including the use of the particular contracts, key contractual issues, any accountancy treatment and personnel implications (if any).

Management Case 

The final case within the business case is the management case, for which the purpose is to demonstrate the practical and robust arrangements in place for the delivery, monitoring, and evaluation of the scheme.

The case needs to outline how the preferred option will be successfully delivered, with supporting evidence that the scheme will be managed in accordance with best practice, subjected to independent assurance and that necessary arrangements are in place for change and contract management, benefit realisation and risk management.

Arrangements for monitoring and evaluation prior to, during and after implementation need to be provided. This includes who will be responsible for delivering outputs, what agreed milestones are to be achieved and when delivery is to be completed.

Management Process  

The management case requires that the following questions must be answered:

  • What is the project management plan? The strategy, framework and plans for successful project delivery using a proven methodology for guiding investments through a controlled, professionally managed and visible set of activities to achieve the desired results and benefits, needs to be put in place. Evidence must be provided that these arrangements are in place.
  • What is the change management strategy? A strategy, framework and plan will need to be implemented to manage change. It is anticipated that investment will lead to change within the organisation whether organisational, commercial, or structural change etc., and this change will need to be manage and embraced. Therefore, the change management strategy will need to assess the potential impact of the proposed change on the culture, systems, processes, and people working within the organisation, to ensure benefits are fully realised.
  • What is the benefit realisation strategy? This strategy should set out arrangements for the identification of potential benefits, their planning, modelling, and tracking. Including a framework to assign responsibilities for benefit realisation throughout the key stages of the scheme.
  • What are the risk management arrangements? Arrangements must be put in place to manage and mitigate risks during the key stages of the project. A structured approach must be developed to identify, assess, and control risks that may emerge during the project lifecycle. This should support better decision-making, through understanding the inherent risks in a proposal and their likely impact.
  • What are the arrangements for assurance, monitoring, and evaluation? An assurance, monitoring and evaluation plan needs to be developed for the preferred option, to ensure that a true understanding of the impact of the preferred option can be developed. This is important for ensuring the successful implementation and the responsible, transparent management of public resources.

Business cases often used to show there is a compelling and worthwhile case to initiate a viable project. All projects should show their value for money, added value, viability and deliverability in order to get the go ahead. Universities frequently use business cases to help get projects off the ground, whether that be for a large capital investment, or for a community-based initiative. This blog will outline the good practice guidance for how universities should develop a business case for civic university work.

HM Treasury defines a business case as: a management tool and which is developed over time as a living document as the proposal for a project or programme develops. The Business Case keeps together and summarises the results of all the necessary research and analysis needed to support decision making in a transparent manner. In its final form it becomes the key document of record for the proposal, also summarising objectives, the key features of implementation management and arrangements for post implementation evaluation.

The HM Treasury Green Book five-case model is the required framework for considering the use of public resources, to be used proportionately to the cost and risks involved, whilst taking into account the context in which a decision is set to be taken. For HM Treasury to approve funding it is usually a requirement that a business case be complied, to prove that the programme demonstrates the best value for public money.

According to the Treasury Approvals Process for Programmes and Projects, HM Treasury scrutinises and approves any project and programme spending outside the agreed Delegated Authority Limits (DAL) set by the Treasury. Spending for which a business case must be conducted includes:

  • All major projects or programmes
  • Novel, contentious or repercussive spending
  • expenditure outside a Department’s delegated authority limit, as defined in Departments’ delegated authority letters

This is to ensure that all spending proposals reflect the priorities of the government of the day and meet the four criteria for the use of public funds. To this end all spending proposals must be developed and presented in accordance with the Green Book and Business Case Guidance.

Why are business cases important to universities?

Higher Education research funders

The majority of Higher Education scientific research funding comes from public funding, with 62% of funding for research coming from public funding. With the majority of the UK’s main higher education funding bodies being publicly funded, including, UKRI and Research England. On occasion therefore, when applying for funding through bodies such as this, there is a likelihood that for some funding bids, a business case may need to be completed or a bid which contains some or all of the components of a business case. Therefore, for generating funding it can be extremely beneficial for universities to building capacity and understanding of how tackle business cases in the most effective way possible.

Government Department funders

All government departments are anticipated to use a business case model for bids when funding research with public sector money. Though there are occasionally exceptions to this, for instance this is less likely to be the case for health research, which is largely focused on quality-of-life analysis or highly focused/specialised grants around specific scientific innovations. Largely though the majority of bids for funding from government departments will most likely be in business case format of some form.

Large Scale Place-based funds

Large scale place-based funds often require a business case to secure funding for a project. For instance, many universities won funding through the Levelling Up Fund when partnering on projects with local authorities. All these projects needed a full business case to be funded. Universities partners are often expected to contribute and help with the business case as a partner and therefore, it is important that those bidding understand the intricacies of developing such a business case.

Local policy makers

Local policy makers can also be funders as occasionally central government will give them some funding to fund projects in their geography. Often Combined Authorities, Growth Hubs, Local Enterprise Partnerships or Local Authorities, are given some funding, through which they may put out calls for local partners to place bids for innovative projects, usually within a particular theme. The majority of the time the bidding process will be the development of a business case.

Overall, any public funding no matter where it comes from will most likely have a bidding process based on the development of a business case. This is largely because all public funding has to be justified to HM Treasury and this is their chosen appraisal model. Whilst the bidding processes may not explicitly say ‘business case’ in the bid, or have the same terminology, the core elements of the business case will be within the bid. Consequently, it is highly important that academics looking to make impact, understand how to build and create an effective business case.

Join our journey to developing better civic business cases

As part of the National Civic Impact Accelerator programme, join City-REDI and the NCCPE in a webinar:

An Introduction to Developing Business Cases for Civic Engagement Projects

Sign up here to register onto the waiting list, as bookings are now at capacity.

Details

Friday 22 March 2024

10:00 – 12:00

This webinar will provide an overview of the Treasury Green Book’s Five Case Model and we will introduce you to how it can be used to develop effective business cases to fund your civic engagement work.

This webinar is for anyone working in higher education who is developing, or looking to develop, bids and proposals to fund their civic work.

In the session, Bec Riley (City-REDI) will set the scene and there will be opportunities for discussion and questions in breakout groups. There will also be an opportunity to hear from Joseph Lowe, Editor of the Green Book and Head of Economics Branch at HM Treasury, who will provide an overview of the processes that go into developing a business case to deliver effective projects.