Professional Documents
Culture Documents
Owain Ellis
12 June 2008
Contents
• Challenges
Why Assess VfM ?
• Starting Point:
– Major capital investment
• Programme level
• Procurement level
• Risk Management
• Innovation
• Duration, requirement and asset life
• Lifecycle costs
• Do the benefits outweigh the costs?
Qualitative assessment - Achievability
• Evidence-based approach
Adjust for:
•Flexibility
•Tax
•Life cycle investment
Measuring VfM - Public Sector Comparator (PSC)
NPV of PFI
NPV of PSC cash flows
Total value of public sector cash flows
delivering same outputs over
life of contract
– Design and build costs Risk retained Risk retained
– Operating costs
by Authority by Authority
PSC PFI
Measuring VfM - Public Sector Comparator (PSC)
• Key considerations:-
– sensible costing
– proper use of advice
– benchmarking with similar schemes
– recognition of risk and uncertainty
– optimism bias
– established public sector discount rate
Technical Adjustments
Third Party Income PSC OB Pre (%) OB Post (%) PFI OB Pre (%)
Income ( p.a.) (£'000) 475 10% 10% 575 10%