Concept Approval and Business Case - Department of Treasury

Strategic Asset Management FrameworkConcept Approval andBusiness CaseExposure Draft – December 2010

ContentsINTRODUCTION .............................................................................................................. 1Context ..................................................................................................................... 1Purpose and Standard.............................................................................................. 1Options Analysis....................................................................................................... 2Fast-Tracked Proposals ........................................................................................... 3Development ............................................................................................................ 3Responsibility ........................................................................................................... 3PART ONE: APPLICATION FOR CONCEPT APPROVAL............................................. 4Purpose .................................................................................................................... 4Value ........................................................................................................................ 5Coverage.................................................................................................................. 5Standard................................................................................................................... 6PART TWO: BUSINESS CASE ....................................................................................... 7Purpose .................................................................................................................... 7Value ........................................................................................................................ 7Vision........................................................................................................................ 8Options ..................................................................................................................... 8Rigour and Detail...................................................................................................... 9Cost .................................................................................................................... 10Contingency ....................................................................................................... 11Total Cost ........................................................................................................... 11Schedule ............................................................................................................ 11Implementation................................................................................................... 12Procurement........................................................................................................... 13Finance................................................................................................................... 14PART THREE: ACA AND BUSINESS CASE MODEL .................................................. 15Introduction............................................................................................................. 15Unique Aspects .................................................................................................. 15Application.......................................................................................................... 16Executive Summary................................................................................................ 16

Statement of Purpose............................................................................................. 17Section One: Strategic Justification.................................................................... 17Section Two: Gap Analysis................................................................................. 17Section Three: Investment Proposal................................................................... 18Options ................................................................................................................... 19Section Four: Shortlist Description ..................................................................... 19Section Five: Value for Money Comparison ....................................................... 20Recommendations.................................................................................................. 22Procurement and Finance Plans ............................................................................ 23Procurement....................................................................................................... 23Finance............................................................................................................... 24APPENDIX A: PURPOSE, RIGOUR AND DETAIL ....................................................... 25APPENDIX B: ACA AND BUSINESS CASE – OVERVIEW.......................................... 27

Concept Approval and Business CaseIntroductionThis module clarifies the method and standards that apply for the content,development and review of an Application for Concept Approval (ACA) and adetailed business case. The Strategic Asset Management Framework (SAMF)High-Level Policy document describes how they are used during asset investmentplanning and decision-making.ContextBased on the justification in an agency’s Strategic Asset Plan, an ACA orbusiness case may be triggered for a range of objectives including to:• address a maintenance shortfall for an asset or asset class;• refurbish an existing asset;• replace or upgrade ICT software and infrastructure;• establish a long-term office accommodation arrangement;• undertake a large office fit-out;• acquire a new asset; or• dispose of real property, and seek to retain all or a portion of the net saleproceeds.Purpose and StandardAs outlined in the SAMF high-level policy document, an ACA should provide anearly assessment of the scope, cost, schedule, and risk parameters for a highpriority investment proposal in an agency’s Strategic Asset Plan. The early advicein the ACA should therefore be indicative, but sound.A business case should provide decision-makers with sufficient confidence toselect one investment option from various contenders, and to set the scope, cost,schedule, risk and other parameters that should apply. The advice in the businesscase should therefore be robust.Exposure Draft – December 2010 1

Strategic Asset Management FrameworkBased on the agreed business case, further work should be done to develop adetailed project definition plan (PDP) for the approved option before it goes totender. The PDP should either confirm that the business case and investmentdecision were valid, or advise that they should be reconsidered based on new,material information. The advice in the PDP should therefore be precise.Annex A to this module summarises the different purpose, content and levels ofrigour and detail required in an ACA, business case and PDP respectively.Options AnalysisAn ACA or business case should draw on both quantitative and qualitativeanalysis to provide concise advice to inform judgements on the relative value formoney that will be gained from alternative investment options.As depicted in the diagram below, the ACA and business case present the results(not the detail) of that analysis, focused on the shortlist of options. Importantelements of the options analysis include the cost benefit, benchmarking andsensitivity analysis that should be done to help establish the scope, cost, risk andschedule estimates in the ACA or business case.The options analysis should be provided separately to the reviewers of a proposal.The analysis should provide strong evidence that all of the feasible options wereconsidered objectively, and that options were only excluded from an ACA orbusiness case after careful consideration. Further guidance is available in theSAMF Options Analysis module.AdviceACA/Business CaseShort ListEvidenceOptions AnalysisLong List2Exposure Draft – December 2010

Concept Approval and Business CaseFast-Tracked ProposalsAn ACA is not required for fast-tracked proposals, such as asset-related electioncommitments. The focus of effort for such proposals should be on the businesscase and PDP, given the urgency and timing constraints involved, and that thegovernment may have focused the options down to one or two. Further guidanceis available in the SAMF module on Fast-Tracked Proposals.DevelopmentThe agency is responsible for determining the amount of resources that should beapplied to meet the SAMF standards for an ACA or business case. It is importantto get the balance right, in order to provide the best possible advice todecision-makers at the time of submission, without over-investing, for example, inspecialist cost benefit analysis in support of a business case at a point too distantfrom the investment decision.ResponsibilityBoth the ACA and the business case must be signed-off by the senior investmentdecision-makers in an agency, particularly the CEO and CFO, as well as relevantofficers such as the CIO and the appropriate heads of other asset planning areas,depending on the nature of the investment proposal.Exposure Draft – December 2010 3

Strategic Asset Management FrameworkPart One: Application for Concept ApprovalPurposeAn ACA provides investment decision-makers with an early, broad understandingof the indicative scope, benefits, costs, schedule and risks for options to achievean investment proposal that has strategic justification – as established in anagency’s Strategic Asset Plan. This is to ensure that the options are focused onachieving the government’s policies and service delivery objectives, and anagency’s business outcomes, including by optimising an agency’s existing assetbase.An ACA should be developed for all investment proposals that involve significantcosts (generally, a total cost of $1 million or more) and medium-to-high risks interms for example of the scale, technology, workforce skills, change managementor stakeholder engagement involved.A key objective at the early ACA stage is to clarify a range of feasible investmentoptions, and to provide an initial, objective appraisal of their relative strengths andweaknesses – rather than to focus on a single, preferred or ideal option that maynot provide the best value for money.An ACA would normally be expected to canvass at least three options includingcontinuation of the status quo. The range and nature of the options will depend onthe particular circumstances, and may, for example, include non-asset initiatives,various ways to refurbish an existing facility, to upgrade it, or to replace it with anew one. An ACA that proposes only one option is likely to be credible in only avery small minority of cases, for which clear and compelling reasons should beprovided.An ACA is submitted to the relevant Minister in order to seek approval that theinitial options should be examined further in a business case. If an ACA isendorsed by the Minister, it is included in the annual update of an agency’sStrategic Asset Plan.In this way, an ACA helps to reinforce the list of priority investment proposals inthe Strategic Asset Plan, and to assist discussions between Ministers and theTreasurer on the range of priority items that are likely to be submitted for furtherconsideration.In-principle support for an ACA by the Minister and the Treasurer does not committhem to proceed, nor does it lock-in funding for the proposal. There will be furtherwork to do to develop a business case before seeking an investment decision.4Exposure Draft – December 2010

Concept Approval and Business CaseValueAn ACA allows an agency CEO, Minister and the Treasurer to:• obtain a reasonable, early appreciation of the potential merits and priority ofan investment proposal, and the alternative options to deliver governmentoutcomes;• understand the broad scale of the asset investment and management taskahead, including in terms of implementation resources and through-lifeoperating costs;• note the time that will be needed to address high risk aspects such as landassembly, acquisition and approval, and workforce planning.Based on an ACA, agencies should be better able to convince their Minister, theTreasurer, and government that they understand the medium-to-longer termservice delivery and investment challenges they face, particularly as the ACAshould be closely linked to strategic asset planning that looks 10 years ahead, andshould be consistent with longer-term State development plans.An ACA allows agencies to test the willingness of their Minister to invest along theindicative lines proposed – without committing significant agency funds to themore detailed planning that would be required for a business case. An ACAenables the clear, early understanding that an investment proposal should orshould not be pursued, and that a detailed business case should be developed, orthat it should be done in ways that differ from the initial proposition.CoverageAn ACA should provide initial advice on all of the scope, cost, schedule, risk andvalue for money aspects expected in a business case. However, separate adviceon the potential finance and procurement arrangements is not required. The wayahead will be clearer, and it will be more cost effective to expend agencyresources on the necessary research, analysis and liaison with industry, closer tothe investment decision, at the business case stage.Exposure Draft – December 2010 5

Strategic Asset Management FrameworkStandardThe advice in an ACA should be indicative, but provide a realistic appraisal of thescope, benefits, cost, risk and schedule parameters for the options.Because the purpose of an ACA is to provide an early appreciation, the advice isnot expected to be definitive. It is recognised that both the advice and thesupporting analysis will change, and be improved. However, the ACA should stillbe based on the best available information at the time that it is submitted.The ACA should be well considered, not rushed. It should reflect sound desktopanalysis conducted over some months rather than days. It should be objective,evidence-based, and free from unsubstantiated assertions. At this early stage, arange of information sources and benchmarks should be used, including:• lessons learned from similar investments as reported, for example, in progressreviews by the Office of the Auditor General; and• internet searches, enquiries to local and overseas suppliers and to publicservice agencies in Western Australia or other jurisdictions on the actualcapital and operating costs, and schedule, for a similar investment – whether itbe a vehicle, IT equipment, a refurbishment or remedial maintenance project,or a non-asset initiative.6Exposure Draft – December 2010

Concept Approval and Business CasePart Two: Business CasePurposeA business case should provide decision-makers with a robust appreciation of thebusiness objectives and benefits of an investment proposal, and the value formoney, scope, costs, risks, and schedule for the options that were supported inprinciple based on the ACA.The business case should provide a recommended option, and alternative optionsbased on an objective appraisal of their relative strengths and weaknesses. Itshould provide sound, total cost estimates for both capital and recurrent items,including the costs of operation over the asset’s life.The business case must be sustained and refined as an enduring point ofreference particularly for any project definition planning that may follow. It shouldalso provide a clear basis for progress and benefit realisation reports by agenciesthroughout the life of the investment. This allows judgements about thecontribution to service delivery, and how lessons learned can be incorporated intoplanning for similar proposals in future.ValueThe draft business case should record in concise terms the logic and assumptionsthat underpin an investment proposal. This should enable scrutiny and critique byreviewers, and focused questioning by decision-makers, with the deliberateintention of identifying flaws that should be addressed.As a result, the final business case should reflect decisions on the investmentparameters that have been set with confidence. Based on this clarity, the bestvalue for money option can be selected, any variations from the agreedparameters can be recognised easily, and the reasons and implicationsaddressed later in the PDP. By using this questioning approach, each businesscase should contribute to greater certainty for investment planning, prioritisation,implementation and reporting at the State and agency levels.Exposure Draft – December 2010 7

Strategic Asset Management FrameworkVisionIt is essential that the business case demonstrate how asset investment wouldimprove the strategic performance of an agency (or group of agencies), consistentwith the service delivery objectives and model in its SAP. The motivation for abusiness case should be to achieve broad outcomes, such as the increasedreliability or frequency of a service, as distinct from simply replacing an asset; be ita generator, building, railway or road.OptionsWith a primary focus on improved service results, the business case shouldprovide combinations and flexible ideas across the full range of options includingexisting asset optimisation, and new minor and major investment.The business case must seek to maximise the value from existing assets andrelated non-asset initiatives which can provide an important foundation forimproved service delivery, either in their own right, or to complement new assets.The options may therefore include:• use of contract terms and conditions to require a manufacturer to repair orreplace an existing asset that has failed to reach its expected life span;• maintenance and refurbishment of existing assets before planning to acquirenew ones;• shared use of a facility or land that is occupied by another agency, or vacant;• modifications to operations in one work area to help meet additional demandin another;• consolidating and optimising the use of equipment across offices;• disposing of land or other assets, or ending a non-asset initiative, in order togain offsets to help pay for a new investment; and• adapting an existing facility, or acquiring a new one, to serve multiplepurposes.8Exposure Draft – December 2010

Concept Approval and Business CaseThe business case should not propose an asset enhancement or new acquisitionin isolation from the related assets in its class. Instead, the business case shouldtake an holistic approach to achieve a value for money solution, for example, byreplacing or upgrading all of the elevators, or all of the power generators in anagency’s portfolio (rather than focusing on a single item). The investment strategyshould offer alternatives for sequencing the upgrade and replacement work overtime, within tolerable risk, funding and schedule constraints.Rigour and DetailThe advice in a business case should be robust – because the proponent isasking decision-makers to agree that the proposal merits the investment ofsignificant amounts of taxpayer funds.Given the importance of the decision, a business case should not rely on laterwork in the PDP to provide the true scope, cost, risk and schedule. If the businesscase has been well prepared, the PDP should confirm that the advice in thebusiness case was accurate.The business case must therefore have a low risk of material variation, andprovide clear advice on the residual risks that are likely to cause changes to theparameters agreed by Cabinet. The business case should remove as many of the‘unknowns’ and uncertainties as possible.The evidence used to establish the reliability of the cost, risk and schedule adviceshould be strong, based on formal, initial advice from industry providers. Theevidence should include benchmarking and costed design models from similarprojects – to compare, for example the proposed hospital, major infrastructure orIT system design with a recently completed one. An initial master plan shouldtherefore be provided for the recommended and alternative asset options.Given the need for reliability, there will be a strong case for an agency to engagespecialist consultants to assist with the technical aspects of business casedevelopment and options analysis, for example, to apply cost benefit,benchmarking and early master planning techniques, particularly for complexassets. However, an agency and the Department of Treasury and Finance (DTF)should also be proactive and use their own in-house knowledge and research toquestion the consultants’ advice and the initial advice from potential industrypartners.Exposure Draft – December 2010 9

Strategic Asset Management FrameworkCostThe advice on the costs of each option should be based on the sort of methodicalapproach normally taken, for example, by quantity surveyors who prepareestimates for major construction proposals. This does not mean that precisemicro-planning is expected to the level of a final architectural design – but ratherthat all significant cost elements of an option should be analysed rigorously.The business case must identify the main cost and risk drivers, drawing on actualexpenditure and schedule data derived from local examples in Western Australia.For example, the gross floor area (m 2 ) will be a major driver for a proposedbuilding because the scale of materials and extent of labour required will dependon the final area selected. This parameter also presents a high risk for relatedsub-items because it is often varied prior to a final decision on whether toproceed. Other cost and risk drivers for facilities include: the complexity of thedesign, the quality of materials, and the location of the site – for which recent,local cost premiums should be known, and from which informed projections canbe made. Similarly, the implications of ICT cost drivers, such as softwareintegration and programmers’ salaries, can be benchmarked and projected.The business case should also address basic aspects such as the future impact ofinflation both in a broad sense (using the latest CPI projections) and in termsspecific to the type of asset involved (for example, using the latest Building CostIndex).Overall, the business case should minimise the number of unknowns in the scopeand cost of the items that would make up the asset or the support elementsrequired to ensure that the proposal is project-ready on schedule; and that itoperates effectively throughout its life. For example, it would not be acceptable toleave as vague or unknown key factors for a facility, such as the cost of landacquisition, site decontamination, environmental approvals, or the recurrent costsfor staff and utilities.For this reason, SAMF does not support the creation of a general, indicativeestimate that obscures or omits coverage of key line items in a work breakdownstructure. Instead, for example, the cost of the ‘external works’ needed to supportthe operation of a facility should be derived from robust estimates of theconstituent elements including stormwater drainage, sewerage, water, gas,electricity and communications.10Exposure Draft – December 2010

Concept Approval and Business CaseContingencyTotal CostScheduleThe contingency estimate should also be robust, based on close consideration ofthe risks that are specific to a particular option, and its elements.The application of a vaguely-defined, blanket or ‘typical’ contingency (of say 30%)is not acceptable for either the total cost, or a particular line item – because thiswould leave open the real prospect that the estimate and advice to Cabinet will beincorrect. Blanket contingencies should not be used because they are a substitutefor careful cost and risk analysis, and because they carry a high risk of beingapplied inappropriately across investment options that are unrelated.Instead, the contingency should be based on sound logic, benchmarks andreasons as to the amount that should be set aside specifically for each cost itemand its associated risks. For example, the contingency to address an unexpectedincrease in the salary of an ICT specialist would be based on: current salary +future labour supply and salary projections (in competition with the private sector).The information to support this work is publicly available.The total cost should be provided as a point estimate, including a specifiedvariation for risk. For example, based on robust analysis of each cost element, thetotal estimate may be $20 million (plus or minus 20% contingency). Thejustification for the variation should be made clear, using scenario planning. Thisshould explain, for example, how an increase in costs might occur in the worstcase, and the likelihood of that result (for example, an increase in the cost oflabour specific to the proposed project in the particular region that the facilitywould be located).The business case and cost analysis may reach the legitimate conclusion that theoverall contingency, for say a complex ICT proposal should be high. However, thejustification for that amount must be transparent, logical and open to debate.The schedule for project delivery should be realistic, with adequate time allocatedto tasks. Proposed schedules should not contain unachievable deadlines whichsuggest, for example, that the tender evaluation process for a major project couldbe completed within two months, or which fail in terms of project delivery to takeinto account the actual number of days in the annual Western Australianconstruction calendar.Exposure Draft – December 2010 11

Strategic Asset Management FrameworkThe schedule should not be driven by a ‘desired’ date (such as for the publicopening of the facility); if such dates are unrealistic – because the advice toCabinet will not be robust, and schedule slippage will be inevitable. If desire,rather than reality, is the schedule driver, this should be made clear in thebusiness case, along with the consequent risks.The business case should make clear the logic for the schedule contingency forslippage. This should also be developed in terms specific to the particularinvestment option – for example, the number of heavy rain and storm days in thelocation in which the facility would be constructed. The schedule contingencyshould be benchmarked against public research which shows, for example,indicative timing in weeks for the design, documentation and completion ofprojects of a similar type, scale and total cost.ImplementationThe business case should be backed by detailed management and resourceplans for:• agency governance, including progress reports against performanceindicators;• project delivery;• risk mitigation;• stakeholder communication, and change management; and• through-life asset operation.The business case should identify any unintended negative consequences thatcould arise and how they will be avoided – for example, by providing adequateresources and supervision to ensure that frontline staff do not sacrifice servicequality in order to meet high targets (such as the number of enquiries addressedper hour).In particular, the business case must show how implementation risks experiencedby similar investment proposals in Western Australia and other jurisdictions will beaddressed. Reports by State, Federal and overseas auditors provide examples.12Exposure Draft – December 2010

Concept Approval and Business CaseProcurementProcurement planning is distinct from the business case. If Cabinet decides that aproposal should be supported, a separate, preliminary plan should be available toenable Cabinet to decide on the sort of procurement path or paths that would beappropriate, or should be explored further.The procurement plan should address the range of potential methods, to indicatewhether suitable strategies may include the traditional design and constructapproach, an alliance contract, early contractor involvement, or a public privatepartnership.The procurement plan should provide clear alternatives, and ensure that thegovernment is fully advised of the benefits and risks inherent in each. Based onthat advice, Cabinet may decide to pursue a higher risk procurement strategy inorder to achieve an early service delivery start-date, or it may opt for a moremanageable balance of schedule and risk.Informal consultation with industry should be held to help develop theprocurement plan. The interaction should be based on non-binding expressions ofinterest (not high cost tender work by companies). This will help clarify, forexample, the potential for a particular procurement approach to deliver the scopeof an investment option within the cost, risk and schedule parameters proposed toCabinet – as well as key issues including the likely contract type (whether fixedprice or cost plus).The procurement plan should also allow an early appreciation of the potential forsmart arrangements, including the bundling of related contracts by one agency oracross agencies, for which sufficient time will be needed to prepare.Overall, procurement planning must be robust at the business case stage –subject to refinement and finalisation in the context of the PDP. Sound planning atthe business case stage should help to ensure that the procurement aspects arenot rushed or left incomplete during the tendering process.Because the extent and timing of market interest are significant factors inselecting a procurement arrangement, the final decision should be made at theappropriate time, based on the more detailed work required later in support of aPDP.Exposure Draft – December 2010 13

Strategic Asset Management FrameworkThe challenge at the business case stage is to remain flexible in terms of theprocurement method, while ensuring that Cabinet is provided with sound adviceon the potential way (or ways) ahead. For example, in order to provide suchadvice, it would be appropriate to conduct an initial PPP value driver analysis forproposals that are likely to cost $50 million or more. This would help to clarifywhether the nature and scale of the investment might be attractive to the marketas a PPP prospect, and in particular, the potential for innovation and appropriaterisk allocation to achieve a value for money outcome.FinanceFinance planning is also distinct from the business case. Consideration ofpotential finance arrangements should only be made after the merits of the casehave been established. This is to ensure that a proposal is supported due to itsstrengths and relative merit in relation to Government policy and service deliveryobjectives, rather than simply because access to finance can be secured.The finance advice should identify the range of sources that may be feasible –whether through the investment of State budget funds, or a joint fundingarrangement with the private sector, or with Commonwealth sources (such as forinfrastructure, health, hospitals and education). For each feasible source, therelative levels of debt should be made clear across the full life of the proposedasset – rather than on a start-up or capital cost basis alone.It is important to emphasise that regardless of the type of finance sourceenvisaged, any finance proposals received, and any analysis and planning by anagency, must be prepared in consultation with the DTF, particularly whenco-investment and financial risk-sharing by the State is involved.The final decision on the most appropriate source of finance for a major proposalshould be taken (after the costs and risks have been confirmed, based on thePDP).14Exposure Draft – December 2010

Concept Approval and Business CasePart Three: ACA and Business Case ModelIntroductionThere are many examples of sound concept and business case methods inAustralia and overseas. They cover similar aspects: clarity upfront on the purposeand reason for an investment; specific gaps and strengths in current services;options to address those gaps; the relative pros and cons of each option; and theproposed next steps.Consistent with this approach, the SAMF ACA and business case model identifiesthe essence of what should be included in the asset investment and managementcontext. The model is similar for both an ACA and a business case. It focuses onthe essential elements that must be addressed, namely the scope, benefits, costs,schedule, risks, and implementation issues for alternative investment options. Anoverview of the model is at Appendix B.The SAMF model is suitable for all types of investment proposal. It should be usedregardless of the type of asset, or whether the proposal involves investment tosustain the existing asset base, or to acquire new assets. It should be usedwhether the proposal involves high, medium or low costs and risks.The aim is not to provide a one-size fits all, prescriptive template. Instead,agencies are encouraged to use and improve on the SAMF model, provided thattheir final ACA or business case meets the SAMF standards.In particular, agencies must make clear the logic and assumptions that underpintheir advice, and the key judgements and conclusions. Sufficient justification mustbe provided that a proposed investment represents value for money.Unique AspectsThere will be aspects that will be different for a particular type of asset. Forexample, a business case for an ICT upgrade should address the:• short life span of software, and the frequent need for refresh planning andexpenditure; and the• merits of reducing the technical scope to small, high value increments, ratherthan pursue large, extreme-risk phases.Exposure Draft – December 2010 15

Strategic Asset Management FrameworkApplicationSAMF therefore provides supplementary guidelines to support the main ACA andbusiness case method. The guidelines clarify, for example, the unique issues thatshould be addressed for ICT assets, for non-residential buildings, or to ensure thatland assembly issues are well covered in a business case to acquire or dispose ofa facility [forthcoming hyperlinks].To assist the proponents and reviewers of asset investment proposals to apply theSAMF model, the remainder of this module clarifies the sorts of key issues andquestions that should be addressed in each section of an ACA or business case.The shared objective should be to clarify the expected results, significant risks,and necessary action from the government’s perspective, as the investor onbehalf of the taxpayer.Executive SummaryThis section should outline: the purpose of the investment, the business problemthat would be addressed; the pros and cons of the recommended and alternativeoptions; and the key approvals and next steps.Clear advice should be provided on:• the most cost effective investment option that would best serve thegovernment’s policy, and an agency’s service delivery objectives; and the• alternative options, should decision-makers conclude that the first option doesnot have priority for investment at the levels of expenditure and risk proposed,or should future financial, economic or other capacity constraints preclude it.Examples of key approvals and next steps include that: action should commenceto acquire a parcel of land for the asset as a matter of priority; and that formalnegotiations should start with stakeholders.The advice should be presented in summary, rather than argued. The informationin the remainder of the ACA or business case should provide the necessarybacking.16Exposure Draft – December 2010

Concept Approval and Business CaseStatement of PurposeSection One: Strategic JustificationThis section must demonstrate that the investment proposal has a strongbusiness justification and high relative priority.The main points of reference are the government policies, demand drivers andprojections, and the service delivery objectives and model in an agency’sStrategic Asset Plan.The ACA or business case should not repeat the detail to be found in the SAP –but a clear, direct link must be shown.Question• What ranking does the proposal have in the list of highest priority investmentitems provided at the conclusion of the SAP?Section Two: Gap AnalysisThis section should clarify the weaknesses and strengths in an agency’s existingasset base and future service capacity that the investment proposal would target.The point of reference for the gap analysis should be the Current Review sectionin the Strategic Asset Plan.Concise reference should also be made to any emerging changes in state orfederal government legislation or regulation that relate specifically to theinvestment proposal – for example, in terms of OH&S or asset design quality andmaintenance standards.The gap analysis should cover the limitations and significant risks to servicedelivery caused by weaknesses in both existing assets, and related non-assetinitiatives.The focus of the gap analysis should not solely be on weaknesses – it should alsoidentify strengths that could be built upon to help address the gap.Questions• Which of the highest priority service delivery gaps and risks would theproposal address?• What are the strengths of the existing assets (and non-asset initiatives) uponwhich future capacity could be built?Exposure Draft – December 2010 17

Strategic Asset Management FrameworkSection Three: Investment ProposalThis section should provide a concise statement of the objectives and benefits,including the levels of improved functionality and performance that the investmentproposal would aim to achieve.The statement of benefit and the performance measures should be focused on thebroad investment proposal in an agency’s SAP (not on the alternative options thatmight be used to achieve it).This should be possible in dot point form on a single page which lists for example,the percentage increase in a service per hour to the public, or in the availability ofthat service, or the speed at which an agency could respond.The benefits statement should be practical, with measurable performanceindicators, for example to:• improve emergency response times in given suburb from thirty to twentyminutes;• consolidate multiple, on-line public information sites to a central, easy-accessportal;• increase positive stakeholder or user satisfaction feedback by X% in year one.A well-constructed statement should seek to build on the strengths in an agency’sexisting assets (as identified in Section Two).Questions• How would the proposed investment help to meet the service deliveryobjectives, and form part of the service delivery model in the SAP?• What practical impact would the proposal have at the particular communitylevel and among other users who would benefit?• Why are each of the benefits and performance measures realistic andachievable?18Exposure Draft – December 2010

Concept Approval and Business CaseOptionsSection Four: Shortlist DescriptionThis section should describe each of the shortlisted options that are most likely toprovide value for money in achieving the objectives, benefits and performancemeasures for the investment proposal.In most cases, the shortlist will contain at least three options:• continuation of the status quo: including the benefits, and the costs andrisks inherent in this approach, for example for increased maintenance andstaffing;• first alternative: which would enable transition from the status quo to asatisfactory level of improved service – focused on the essential, highestpriority objectives and benefits only, rather than those that may be desirable orideal; and• other alternatives: which would substantially improve services to meet thehighest levels of demand, and achieve all or most of the objectives andbenefits of the investment proposal.The shortlist should include a mix of current asset optimisation, non-assetinitiatives and new investment, whether major or minor, as appropriate to thecircumstances for the proposal.The shortlist should not provide an argument for a single option by emphasisingonly its strengths, and the weaknesses of the alternatives.Sufficient, concise advice should be provided to demonstrate that the highestranked options that were excluded from the shortlist were rejected objectively, dueto their weaker relative merit and value for money potential. The evidence for thisshould be contained in the options analysis that underpins the ACA and businesscase (see the SAMF Options Analysis module).Questions• To what extent would each shortlisted option address each of the highestpriority service delivery objectives, benefits and gaps?• What are the weaknesses, limitations and risks of each shortlisted option?• Why were the top-ranked options in the long list rejected?Exposure Draft – December 2010 19

Strategic Asset Management FrameworkSection Five: Value for Money ComparisonThis section should clarify the parameters for each of the shortlisted options, andcompare their relative value for money potential.The objective should be to clarify the relative advantages and disadvantages ofeach option in terms of the scope and benefits that could be achieved, at a givencost, and at the earliest time at manageable risk.It is important to emphasise that the recommended option should be an outcomefrom this evaluation, not a favoured input.Scope• What is the scope of each option?• Why is the scope appropriate and not excessive in addressing future servicedelivery demand drivers and projections?• Would any shortfalls in scope be material to the success of the proposal?• Which options provide the best opportunities to promote inter-agencyefficiency, for example through the shared use or development of existing orfuture information technology systems or support?• Why should the status quo not continue – why do the costs and risks of thisoption outweigh the benefits?Existing Asset Optimisation• Which options make best use of existing assets?• Do any of the options waste, or duplicate existing assets?• Why would the most cost effective way ahead not be to invest solely insustaining current assets?Non-Asset Initiatives• Which options make best use of current or new non-asset initiatives?• Why would the most cost effective way ahead not be solely to invest innon-asset initiatives?20Exposure Draft – December 2010

Concept Approval and Business CaseBenefits• What are the top three, practical benefits that would be achieved by eachoption in terms of service delivery, stakeholder expectations, and theefficiency of the public service?• Why are the top benefits worth the price that would be paid to achieve them?Cost/Contingency• What are the top five cost drivers for each option?• What are the operating costs?• What are the best and worst case total cost estimates (including thecontingency element, calibrated to address the risks)?• How much would costs have to increase before the option would no longerprovide value for money?Schedule• When would each option start to deliver services – based on a realisticappraisal of the scope and risks involved?• Which option offers the best balance between early, substantial benefitsrealisation and prudent planning and implementation?• How would the schedule enable a gradual, incremental approach to achievingthe benefits – as distinct from a big bang, high risk approach?Risk Mitigation• What are the major risks faced by each option, in terms of: delivery on-time,cost and schedule; benefits realisation; and overall value for money –including, for example, risks from stakeholder opposition, land assemblyapprovals, the complexity of the technology involved, or the lack of workforceskills and numbers?• What action would be taken to address each major risk?• What unintended negative consequences could arise, and how will they beavoided or minimised?• After taking risk mitigation into account, what overall risk rating should beallocated to each option (high, medium, low) and why?Exposure Draft – December 2010 21

Strategic Asset Management FrameworkRecommendationsBased on the above value for money comparison, this section should recommendthe best and alternative options, and the next steps to ensure that the significantimplementation issues are addressed.Examples of significant implementation issues include: the governance andaccountability system that would be established in an agency (and with relatedagencies); and any resource or capacity constraints for which detailed planningand corrective action should start soon to ensure that an agency can deliver theinvestment option as proposed.Options• Which of the shortlisted options is the recommended one, and why?• Which are the next-best, alternative options, and why do they offer less valuefor money than the recommended one?Implementation IssuesGovernance/Accountability• What governance and accountability arrangements would the agency apply toensure successful implementation including the:−−timing for regular progress and benefit realisation reports; and theinternal and other agency officers and committees that should be involved,and the value-add and timing for each?Resources/Agency Capacity• Which options are safely within, and which are beyond the capacity of theagency to deliver through the use of existing experience, skills and resources?• What additional resources would the agency need to develop and implementeach option, and how would these be obtained?Planning and Delivery• What would be the scope, cost and timing of the project development work?• What key approvals would be required, for example to commence landacquisitions, or formal negotiations with stakeholders?22Exposure Draft – December 2010

Concept Approval and Business CaseProcurement and Finance Plans(To support the business case only)ProcurementThe advice in support of a business case should clarify how government policies,principles, and best practices for procurement will be upheld.Advice on potential procurement arrangements should be provided in a separateplan which supports the business case (not an ACA).Key questions include:• What are the strengths, weaknesses, benefits and risks of the alternativeprocurement methods (whether design and construct, early contractorinvolvement, alliance, or PPP)?• What is the potential for collaborative planning with other agencies to achieveprocurement efficiencies – if there is none, or only limited opportunity, why isthis so?• What capacity does the market have to deliver each option to the standardand within the schedule proposed?• Why is the proposed allocation of risk to the State and to the private sectorappropriate?• What type of contract would be pursued – fixed price or cost plus?• How will the agency ensure that it has the skills needed to manage theinvolvement of consultants and contractors effectively?• Overall, what is the extent of the exposure to risk, and the magnitude of theconsequences of failure?Exit Points• What would be the exit strategy from the contracts for each option if thingsstart to go significantly wrong?• What would be the reasons for using an exit point, and the benefits, costs andnegative impact of doing so?• What would the recovery strategy and next steps be after an exit point isused?Exposure Draft – December 2010 23

Strategic Asset Management FrameworkFinanceAdvice on the potential finance arrangements should also be provided in aseparate plan which supports the business case (not an ACA).Key questions include:• Which finance arrangement would be the most attractive from the State’s andan agency’s perspective – whether through an outright purchase, lease,rental, private funding, joint government funding, or a combined arrangement?• What would be the extent of the financial exposure, co-investment and riskshare borne by the State?• What would be the net debt impact on the agency and the State’s finances?• Does the DTF support the proposed arrangement?24Exposure Draft – December 2010

Concept Approval and Business CaseAppendix A: Purpose, Rigour and DetailACA Business Case Project Definition PlanPurposeEarly appreciation / initialadviceClarify highest priorityproposals in SAPFor the AIP out-years (5-10)Robust advice / reasonablecertainty to identify the bestvalue for money optionFor the Budget Year andforward estimatesAccountable advice / realitycheck before preparing fortenderOptions3-4 feasible, indicativeoptions (including StatusQuo)Focused in detail on at leastthree options (status quo;recommended; andalternatives)Focused on the optionselected from the businesscase and the approvedparametersDepth/RigourIndicative but soundRobustPreciseDesk-top analysisEarly / initial master planDetailed master planFunctions and designparameters clear(for later detailedarchitectural; engineering;and technical work)ScopeIndicative scale and standard(eg. broad area of land andfacility; type of hospital;possible vehicle type andfleet size)Accurate scale and standard(m 2 of land and facility;hospital room and bednumbers; vehicle model andnumbers)Scale within the businesscase parameters(developed to a standardsuitable to commenceprocurement phase)BenefitsEarly, broad benefitstatement (mostly qualitative)Precise statement of benefitsand KPIsNil additional analysisInitial cost benefit analysis,with broad coverage of thefour perspectives: socialRigorous cost benefitanalysis (strong quantitative)Exposure Draft – December 2010 25

Strategic Asset Management FrameworkACA Business Case Project Definition Planimpact; agency financial;agency performance; andeconomicCostRough Order Magnitude/best available benchmarksIndicative contingency(benchmarked)High-quality estimates byappropriately experiencedpeople (similar to quantitysurveyor standard andmethod)Closely calculatedcontingency by line item(justified / not broad brush)Closer to tender-quality/fullyitemised / based on detailedunderstanding of assetscope and riskAccurate cost, and justifiedcontingencyScheduleIndicative, but realistic/conservative (based onresults from actual projects)Accurate, detailed and wellconstructedRefined scheduleRiskMain risks and mitigationflagged (esp. lessonslearned from similarproposals)Sound strategies for: riskmanagement; useracceptance; stakeholderengagement (etc)Comprehensive strategiesand plansImplement-ationGovernance andimplementation resourcesand processes sketchedClear implementation plan,with governance requirementsestablishedStrategies established formajor issues including: benefitrealisation; project delivery;stakeholder engagement andcommunicationRefined/final implementationplans and strategies (basedon detailed projectunderstanding)26Exposure Draft – December 2010

Concept Approval and Business CaseAppendix B: ACA and Business Case – OverviewExecutive SummaryPurpose/Business ProblemRecommended and Alternative OptionsKey Approvals and Next StepsStatement of PurposeStrategic JustificationAlignment to Government Policy and LegislationDemand Drivers and ProjectionsService Delivery Objectives and ModelGap AnalysisExisting Asset BaseWeaknesses, Strengths, RisksInvestment ProposalObjectives and BenefitsPerformance IndicatorsOptionsShortlist DescriptionStatus Quo/First Alternative/Other AlternativesValue for Money ComparisonScopeBenefitsCostsScheduleRisksRecommendationsBest Option and AlternativesImplementation Issues and Resources 11Advice and plans for the procurement and finance arrangements should be provided to support a business case(not an ACA).Exposure Draft – December 2010 27