Concept Approval and Business Case - Department of Treasury

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