Introduction

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1. Context

1.1. This PAG Unit introduces the key organisations and people in the appraisal process and sets out their role in overall project planning in accordance with the Project Management Guidelines.

1.2. These guidelines incorporate the requirements set out in the following documentation:

• “Guidance for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector”, Department of Finance, February 2005; and
• “Guidelines on a Common Appraisal Framework for Transport Projects and Programmes”, Department of Transport, June 2009.

Guidance for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector

1.3. The Department of Finance guidelines update the previous documentation from 1994 in order to reflect changes in evaluation, project appraisal and management best practice. The guidelines also introduce more proportionality and greater consistency in project appraisal and management while maintaining a rigorous approach, and provide for more clarity and greater understanding in relation to the roles of all those involved in approving capital expenditure.

1.4. The guidelines set out the stages of appraisal (appraisal, planning, implementation and post project review), identify the requirements from each stage and emphasise the need for all bodies in receipt of public funding to comply with the requirements. These requirements include the need to undertake a) an Exchequer Flows Analysis, and b) a Financial Appraisal (for commercial schemes only) in addition to the normal elements of CBA that have traditionally been undertaken. Where a scheme involves an element of Public Private Partnership (PPP), the PPP unit at the NRA should be consulted with regard to the correct approach to undertaking a financial appraisal.

Guidelines on a Common Appraisal Framework for Transport Projects and Programmes

1.5. The Department of Transport guidance provides guidelines for the appraisal of transport projects and programmes. It draws on, and is compatible with, the Department of Finance guidelines referred to above. The document provides advice on defining projects for appraisal and on the generation of project options, describing an objectives-led framework that employs both multi-criteria and cost-benefit approaches.

1.6. The document also requires that benefits and costs are considered through the development of a Project Appraisal Balance Sheet, which provides a framework within which the various benefits and costs of a project may be brought together for consideration. Specific advice is provided on the conduct of cost-benefit analyses and there is a template provided for the development of a Business Case.

2. Structure of the Project Appraisal Guidelines

2.1. The Project Appraisal Guidelines have been developed as a series of stand-alone documents which, together, form a complete appraisal manual. Reference is made between individual units throughout the guidance where further reading is recommended on a particular topic. The structure of the guidance is outlined overleaf.

Table 1.1: Structure of the Project Appraisal Guidelines

3. The Purpose of Appraisal

3.1. The purpose of appraisal is to ensure that scarce public funds are allocated in an efficient manner by establishing the merits of a proposal using a consistent and comprehensive framework. Proposals for public sector investment invariably exceed the resources available. Choice and priority setting are therefore inescapable. The systematic appraisal and professional management of all capital projects helps to ensure that the best choices are made and that the best value for money is obtained.

3.2. Appraisals should provide an assessment of whether a proposal is worthwhile and clearly communicate conclusions and recommendations. It is important to recognise that appraisal is an ongoing process through the life of a project concerned with the following stages:

• Justifying the need for intervention and setting appropriate objectives (incorporated into the Project Brief);
• Considering possible options as part of and facilitating the prioritisation of schemes (which is reported in the preliminary Business Case);
• Developing the preferred solution (reported on in the full Business Case);
• Implementing the solution; and
• Evaluation of the solution (as described in the Post Project Review).

The Need for Intervention

3.3. The first step in the appraisal process is to identify the need for the intervention and to consider whether or not any subsequent proposal is likely to be cost effective. Any appraisal must include the potential negative impacts of an intervention as well as considering a ‘Do-Nothing’ or ‘Do-Minimum’ option. It will often be the case that this initial step will involve an exercise to determine the scope of the work and the rationale behind intervention.

Setting Appropriate Objectives

3.4. An important task of any public sector organisation is continually to reassess needs and objectives. New projects should only be undertaken where there is a clearly established public need for the projects or service to be provided.

3.5. An objective is the explicit intended result of a particular programme or project, measured as precisely as possible. For example in the transportation context, there may be a need to improve traffic flow on a road. To state the objective of works on that road as being “to reduce average journey times” would be unsatisfactory since it would not provide a basis for judging whether investment proposed to improve the roads has been effective. Something more explicit is needed. “To reduce average journey times between Town A and Town B by X minutes” is a more precise objective. It should be noted that the degree to which the objectives can be specified will increase as the project progresses. Using the earlier example, once the preferred option has been determined, it may only then be possible to set a quantifiable amount of minutes that the journey time should be improved by.

3.6. Using this form of objective in addressing such question as what are the various ways in which this objective can be reached; what costs and what results can be expected from each alternative course of action; and are the benefits sufficient to justify the costs.

3.7. Project objectives should be expressed in terms of the benefits they are expected to provide and those whom they are intended to benefit. For example, the construction of a new road is not an end in itself; it must be seen in the light of the needs of the economy as a whole, and of the target groups for which the project caters (for example, freight traffic, tourist traffic, commuters etc.).

3.8. There is a need for realism in stating objectives. Where schemes have multiple objectives it is necessary to be clear about the relative importance of each and how this should be reflected in resource allocation and in the appraisal process.

3.9. It is important that objectives are expressed in a way that will facilitate consideration and analysis of alternative ways of achieving them. In other words, they should not be so expressed as to point to only one solution.

3.10. Further detail on this topic is provided in PAG Unit 3.0: Project Brief.

Considering Possible Options

3.11. All realistic ways of achieving stated objectives should be identified and examined critically when considering project options for the first time. Different scales of the same response should be included as separate options, where appropriate. Furthermore, the alternatives should be described in such a way that the essentials of each alternative, and the differences between them, are clear.

3.12. Considering the possible alternatives in the light of the constraints will usually lead to the conclusion that some of the alternatives are not feasible. Others may conflict with existing policies. Objectivity is important in considering options. There can be a danger that the selection of options may be manipulated in order to make a case for a course of action which is already favoured. It is intended that following the appraisal process set out in this document will minimise the likelihood of that occurring.

3.13. Further detail on this topic is provided in PAG Unit 4.0: Definition of Alternatives.

Appraisal Tools

3.14. Project Appraisal should be supported by necessary analysis tools which can allow clear, evidence based findings to be incorporated into the appraisal process.  Typically, project appraisal is supported by a traffic model to understand the impacts of a scheme.  It is therefore critical that the traffic model is fit for such an intended purpose, and can allow the difference in impact between alternatives to be understood.

3.15. Other economic analysis tools, such as COBA and TUBA are also available to assist with appraisal.  These tools automate many of the calculation process required for the appraisal of economic and safety impacts.  The construction of COBA and TUBA models is specific to every scheme, although there are some datasets (e.g. economic parameters) that are common across all projects.

3.16. Further detail on the development and application of appraisal tools is provided in PAG Unit 5.0: Transport Modelling and PAG Unit 6.0: Cost Benefit Analysis.

Choosing Between Various Options

3.17. Once the possible alternatives have been considered, the Project Appraisal Balance Sheet should be used to select the most appropriate alternative.  See PAG Unit 7.0: Project Appraisal Balance Sheet for further guidance.

Evaluation

3.18. Evaluation is similar in principle to appraisal but relies on actual outturn information and takes place after the scheme or solution has been implemented. The main purpose is to ensure that lessons are learnt and applied for other future appraisals.

4. When is Appraisal Required

4.1. Appraisal is required at different stages of a project, depending on project size.  For major schemes, appraisal is required at all decision stages (Feasibility, Route Selection, Preliminary Design, Award and Project Closeout).  Smaller schemes are subject to a more compact appraisal requirement, and may be appraised instead at strategy level (an aggregation of small schemes). 

4.2. Further detail on appraisal requirements is provided in PAG Unit 2.0: Project Management for major schemes, and PAG Unit 14.0: Non-Major Schemes for other schemes.

5. Structure of Appraisal

5.1. Each scheme must be assessed against the Government’s five key criteria set out in the Department of Transport’s Guidelines on a Common Appraisal Framework for Transport Projects and Programmes:

• Economy;
• Safety;
• Environment;
• Accessibility and Social Inclusion; and
• Integration.

5.2. The economy objective is concerned with improving the economic efficiency of transport and providing economic transport solutions. Safety relates to loss of life, injuries and damage to properties resulting from transport accidents and security. Environment aims to protect the built and natural environment, including reducing the direct and indirect impacts of transport schemes and their use on the environment of users and non-users. Accessibility and Social Inclusion seeks to improve facilities for those without a car and to reduce access severance. Finally, Integration aims to ensure that all decisions are taken in the context of wider Government policy objectives, and the impact of a scheme in terms of transport provision (e.g. provision of missing links), land use integration (e.g. compatibility with national / local land use strategies) and geographic integration (e.g. does the scheme improve transport links to Northern Ireland, Europe or the Rest of the World?).

6. Project Appraisal Deliverables

6.1. The deliverables from the appraisal process are as follows:

• Project Brief (PB);
• Transport Modelling Report (TMR);
• Cost Benefit Analysis (CBA) report;
• Project Appraisal Balance Sheet (PABS);
• Business Case (BC); and
• Post Project Review (PPR).

6.2. These deliverables represent the suite of documentation that is required to allow the appraisal to be formally reviewed and approved by the Strategic Planning Unit.