Financial Appraisal Policy & Business Case Guidance
1 Introduction
A financial or investment appraisal is a technique whereby the need for the decision is outlined and set in the context of the College’s strategy, where all realistic options are identified and the relative merits and drawbacks of each option are analysed, culminating in the identification of a preferred course of action. The steps that should be considered in an investment appraisal can be found here Investment Appraisal - Step by StepThis guidance outlines the basic component parts of an investment appraisal and provides pragmatic guidance, protocols and thresholds for the completion of each stage. More detailed background information, guidance and advice can be obtained from the Higher Education Sector, HEFCE’s ‘ Investment Decision Making : a guide to good practice’ (http://www.hefce.ac.uk/pubs/hefce/2003/03_17.htm).
2 Principles
In reaching a decision it is necessary to answer three questions:
a. What is the problem that we are seeking to solve?
b. What solution represents the best value, taking into account costs, benefits, risks and opportunities?
c. Is that option affordable?
3 What kind of expenditure is covered by this procedure?
You should follow the principles when considering any expenditure. However, a full and formal written business case is always required for capital expenditure[1] and other significant expenditure where you are seeking approval for additional budget. If you are not sure whether you need to prepare a formal business case please discuss with your Management Accountant, who will be able to advise.
4 What documentation do I need to produce and who can approve my proposal?
The documentation requirement and approval level will vary depending on the size and nature of the investment. All spending proposals should be accompanied by a proportionate and well structured business case Broadly speaking, the greater the expenditure, the more formal the documentation and the more extensive the justification required. Approval levels are set out within the College’s Financial Regulations http://www.gold.ac.uk/media/FinancialLimits&CtePowers.pdf
The budget holder, supported by finance should complete a business case for approval by the appropriate body. This will normally be SMT in the first instance.
5 The business case
A Business Case documents the justification for the undertaking of a project or task and the associated costs and benefits.
The Business Case should demonstrate that the proposed solution;
- meets the business need;
- is affordable;
- is feasible and achievable in the time allowed;
- has been chosen after exploring inherent risk and appropriate options;
- is likely to achieve value for money.
6 Who needs to be involved?
Your Management Accountant or the Head of Management Accounts can advise on both the process and documentation and work with you to prepare the financial aspects of the appraisal. Finance should be involved as early as possible in the development of the appraisal, and certainly prior to any decision making. In addition, the following central departments should be involved:-
- Procurement should be involved in accordance with existing procurement procedures.
- Estates and IT should be involved for any proposal involving respectively property and IT related expenditure.
7 How should the project work be managed (once the business case has been approved)?
General guidance for project governance along with templates can be found here Project Governance
[1] This is expenditure on items such as equipment, IT projects, building and refurbishment projects which cost at least £7,500 and will be used in the College for more than 12 months.