Steps of an Investment Appraisal An investment appraisal can be broken down into the following basic steps: a.

Identify the need or problem, set in the context of the Colleges strategies and define the objectives of the project b. Identify the options incl!ding a "do nothing or "do minim!m option which sho!ld be incl!ded as a base case even if totally !nacceptable in operational terms# c. Assess the cost and benefits, financial and otherwise, of each option i# Analysis of non financial benefit ii# $inancial Analysis d. Consider any other factors that cannot be assigned a financial val!e e. Consider risk and !ncertainty f. %resentation of res!lts and assessment of affordability and achievement of val!e for money. 5.2.2 Define the Problem &he rationale for the investment sho!ld be clearly artic!lated, and how it fits with the strategic priorities of the College. &his is an important stage in the process. It is easy for circ!mstances to change d!ring the co!rse of large projects, so it is important at vario!s stages to be able to refer back to the original rationale and to test its contin!ing validity. 5.2.3 Identify All Possible Options 'ere it is important to demonstrate open thinking, by looking at all potential options. Consideration m!st be given to at least three options ( the option "to do nothing) the recommended option) and the next best option. *ach option sho!ld be described clearly, with pros and cons identified. +ome options can be discarded at this stage if they are clearly not feasible. &he gro!nds for rejection m!st be clearly stated. 5.2.4 Evaluate the Options inan!ially and "on inan!ially &he financial eval!ation sho!ld incl!de Ass!mptions) Impact on Income , *xpendit!re and -alance +heet. All relevant costs incl!ding ongoing rec!rrent costs to be incl!ded. Consideration to be given to opport!nity costs) A disco!nted cash flow) +cenarios to demonstrate the impact of potential risks and !ncertainties and how these will be managed) +cenarios to reflect different proc!rement or f!nding ro!tes) %roject deliverables and associated .%Is) A financial s!mmary s!pporting the proposal. &he non financial eval!ation sho!ld incl!de &imescales and reso!rce availability)

/reen iss!es) 0ep!tational enhancement or risk) Impact on stakeholders +taff, st!dents etc.#) $lexibility for the f!t!re.

1ote: &he eval!ation m!st address the impact on the College, not j!st local impact. 5.2.5 #onsider $is%s and &n!ertainty All risks and !ncertainties m!st be identified. $or example risk of delays s!bject to planning consent, income estimates may be !ncertain etc. 2escribe how each of the above will be managed and risks controlled or mitigated note: risk here relates to the initial investment only#. 'ighlight resid!al risks and their potential impact despite these mitigation methods and disc!ss sensitivities if costs, timescales and disr!ption change on o!tp!ts of scheme. 5.2.' Present the $esults for Approval A formal doc!ment sho!ld be prepared and follow the process o!tlined above for approval. Points to $emember Comm!nicate as early as possible with stakeholders. &hese will incl!de the primary b!dget holder, yo!r 3anagement Acco!ntant or the 'ead of 3anagement Acco!nts, *states for property transactions etc) &hink well ahead and start to incl!de projects within the planning process so that finances are sec!red in advance of b!dget preparation) &he rationale for the project has to be rob!st and all possible options m!st be incl!ded) *ns!re that the disposal costs incl!ding write off of any existing assets is taken into acco!nt) %lan ahead for the approval process, ens!ring the relevant a!thorisers have been pre(warned, have diary time available, and are presented with high 4!ality doc!mentation) -e realistic abo!t reso!rces. 2o not ass!me that others will be able to s!pport yo!r re4!irements. $or example many I& projects impact different areas. *ns!re yo! have cons!lted and so!ght agreement.

$ebr!ary 5677