Additionality

Is a real increase in social value that would not have occurred in the absence of the intervention being appraised.

Affordability

Is an assessment of the costs of an intervention to the public sector taking into account current and expected future budgets.

Appraisal

Is the process of defining objectives, examining options, and weighing up the relevant costs, benefits, risks, and uncertainties before a decision is made.

Assessment

May refer to either an appraisal or an evaluation.

Business as usual

Is the continuation of current arrangements as if the intervention under consideration were not to happen. This serves as a benchmark to compare alternative interventions.

Business case

A management tool that records the current state of evidence and thinking concerning the development approval and implementation of a proposal. It supports the processes of scoping, analysis, appraisal, planning, monitoring, evaluating, approval, and implementation of a proposal and is the repository for the evidence base.

Business Justification Case (BJC)

A single stage business case, using the Five Case Model, for the delivery of relatively low-level spending for which firm prices are available.

Capital expenditure

Expenditure on durable assets such as land, buildings, and equipment.

Contingency provision

Should reflect the sum of measured risk (costs of risks avoided, shared, and mitigated on an expected likelihood basis) and optimism bias adjustment estimated in nominal prices.

Critical Success Factors (CSFs)

A management term for an element that is necessary for an organisation or project to achieve its mission.

Discounting

A method used to convert future values occurring over different periods of time to a present value so that alternative future values can be compared on the same basis.

Discounted Cash Flow (DCF)

A technique for appraising investments. It reflects the principle that the value to an investor of a sum of money depends on when it is received.

Discount rate

The annual percentage rate at which the present value of a £, or other unit of account, is reduced over time. This is applied to values that are at constant prices and has nothing to do with currency inflation.

Do-minimum option

Refers to the minimum intervention required to deliver core objectives only.

Effectiveness

Is the systematic assessment of an intervention’s design, implementation, and outcomes.

Efficiency

A measure of the extent to which a project, programme, or policy’s associated throughputs are increased.

Evaluation

Evaluation is the systematic assessment of an intervention, its design, implementation, and resulting outcomes both during implementation and most importantly afterwards.

Expected value

The weighted average of all possible values of a variable, where the weights are the probabilities.

Five Case Model

A systematic framework for the development and presentation of the business case, comprised of the strategic, economic, commercial, financial, and management dimensions of the case.

Full Business Case (FBC)

The completed business case and third stage in the development of a business case for a significant project, which identifies the most economically advantageous offer following procurement, confirms affordability, and puts in place the detailed arrangements for successful delivery.

Market value

The price at which a commodity can be bought or sold, determined by the interaction of buyers and sellers in a market.

Monte Carlo analysis

Is a simulation-based risk modelling technique that produces expected values and confidence intervals as a result of many simulations that model the collective impact of a number of uncertainties.

Net Present Social Value (NPSV)

Is the present value of a stream of future costs and benefits to UK society (that are already in real prices) that have been discounted over the life of a proposal by the social time preference rate.

Opportunity cost

Is the value that reflects the best alternative use that a good or service could be put to.

Optimism bias

Is the proven tendency for appraisers to be over-optimistic about key project parameters, including capital costs, operating costs, project duration, and benefits delivery.

Option appraisal

The process of defining objectives, examining options, and weighing up the costs, benefits, risks, and uncertainties of those options before a decision is made.

Options framework filter

A systematic framework for the generation of a wide range of possible options (the ‘long-list’) and the filtering of a few possible options for a shortlist and identification of the preferred way forward (Flanagan, JC (2006)).

Outline Business Case (OBC)

The ‘intermediate’ business case and second stage in the development of a project business case, which identifies the option offering best public value, confirms the deal and affordability, and puts in place the arrangements for successful delivery prior to taking a procurement to the market.

Outcome

Refers to the consequences to society of a change in service or policy. For example, improved life expectancy of the population.

Output

Refers to the change in the level or quality of a service delivered. For example, more cardiovascular operations carried out.

PPP

Refers to a Public Private Partnership. This includes PFI, or Private Finance Initiative, which involves the private sector in the design, creation (or construction), operation, and initial financing of a publicly provided service. PF2 is a specific form of Private Finance Initiative.

Public Sector Comparator

Is an option for direct public provision with the same output and maintenance assumption as a Public Private Partnership option with which it is to be compared. Allowances for risk and tax are also included to create a level playing field for comparison. This comparison provides an initial value test in praising possible partnership options.

Qualitative benefits

Benefits that may not be readily measurable or monetisable.

Required rate of return

A target average rate of return for a public sector trading body, usually expressed as a return on the current cost value of total capital employed.

Risk

The likelihood (measured by its probability) that a particular event will occur.

Sensitivity analysis

Analysis of the effects on an appraisal by varying the projected values of important variables.

Social Cost-Benefit Analysis (SCBA)

Analysis that compares the costs and benefits of alternative options from the standpoint of society, including social values derived according to the principles of welfare economics.

Social Cost-Effectiveness Analysis (SCEA)

Analysis of the costs of alternative options where the social output that results effectively remains the same.

Spending objectives

The ‘targeted’ outcomes for the scheme, which reflect the rationale for the intervention and must be made SMART for the purposes of evaluation. Occasionally referred to as the investment objectives for the scheme.

Strategic Outline Case (SOC)

The ‘early’ first stage in the development of a project business case for a significant project, which makes the case for change and appraises the available long list to produce a short list of options.

Strategy

The strategic context for the project, which demonstrates how the project aligns with other projects within the strategic portfolio to deliver the mission and vision of the organisation in the longer term.

Switching value

Refers to the value a key input variable would need to take for a proposed intervention to switch from a recommended option to another option, or a proposal not to receive funding approval.

Transfer payment

A payment for which no goods or services are received in return.

Uncertainty

Is unmeasured risk where known risks are not yet well enough understood to be estimated in terms of probability or impact and where not all risks may be identified and quantified.