C2.2 Requirement for a business case Purpose To describe when a full business case is required to support a proposed acquisition. Summary This information sheet lists the current thresholds for the preparation of full business cases. Framework references B2.5 — Prepare funding submission for preferred solution
A full lifecycle cost analysis of the ‘do nothing’ option will be included as the base case. This will provide the baseline cost position, and will identify which options include significant changes in costs and will assist in identifying the required funding strategy. The financial evaluation of each option would be conducted using the ‘Lifecycle costing template’. The section includes instructions on how to use the template and provides guidance on the costs to include in the analysis over the expected life of the project. The reason for the chosen term (such as five years, seven years or 10 years) and any other key assumptions would be documented. A summary table of the lifecycle cost analysis should be included in this section as follows. Evaluation criteria Base case (‘do nothing’ option) Option 1 Option 2 Option 3 Revenues Residual Total revenue ($300,000) ($5,000) ($305,000) ($330,000) ($10,000) ($340,000) ($320,000) ($8,000) ($328,000) ($300,000) $0 ($300,000) Acquisition costs Leasing costs Maintenance Repair costs Operating Disposal costs costs $0 $0 $300,000 $65,000 $75,000 $10,000 $450,000 $250,000 $0 $100,000 $50,000 $35,000 $7,500 $442,500 $200,000 $0 $100,000 $50,000 $40,000 $7,500 $397,500 $0 $270,000 $75,000 $45,000 $65,000 $2,500 $457,500 Total net lifecycle costs (net present cost) $145,000 0 $102,500 +2 $69,500 +4 $157,500 –4 Note: example table only The table above shows hypothetical amounts for illustrative purposes only. The financial analysis would be scored using the following rating system. Ratings Value Least expensive compared with the base case +4 Significantly less expensive than the base case +3
The following table provides an example of information to be included in the implementation plan. Work step Target completion date Resource Example: Develop detailed equipment specifications Example: Release tender 30 June 2012 3 August 2012 Technical working Procurement manager Note: example table only Funding strategy The financial analysis undertaken as part of the options analysis will have identified the estimated total cost of the preferred option, and the estimated increase/decrease in costs associated with the preferred option in comparison with the base case (‘do nothing’) option. The business case is to include a funding strategy that identifies the total funding requirement, both capital and recurrent, and all proposed sources of funding over the expected life of the equipment. It is important to note that the funding sources identified must be matched to the type of expenditure to be incurred – that is, capital funding sources may only be applied to capital expenditure. The funding strategy identifies the and approvals required to secure the necessary funding to proceed with the equipment acquisition. Approvals and sign-off The business case would be endorsed by the relevant key stakeholders, and have the appropriate level of sign-off by the department/service area head, project sponsor and executive management.
Trade-in Discounts or allowances provided by the supplier for any equipment traded in. Only include actual discounts received. Do not include the written-down of the item being replaced. IT = information technology Leasing costs (if applicable) payments Annual leasing costs for the item of equipment being acquired (if purchased via a lease arrangement). Residual lease payments Identify (if applicable) any lump-sum residual payments (‘balloon payments’) payable at the end of the term. Maintenance costs maintenance Regular activities that need to be undertaken to maintain the equipment in safe working such as preventative service kits. This would include additional resources required for maintenance and/or maintenance contracts with external service providers. Decontamination and waste disposal Costs associated with cleaning, sterilisation, disinfection, decontamination and the disposal of hazardous waste such as radioactive materials or chemicals. Only costs that are directly related to the item of equipment, such as specific chemicals or decontamination equipment, should be included. Other maintenance costs (specify) Other significant maintenance costs associated with this type of equipment. Repairs maintenance Costs of maintaining the effective life and safe working order of the equipment. For simplicity, and given that repairs are estimates, an annual ‘best’ estimate of possible repairs is satisfactory. This estimate would be based, where possible, on past experience for the type/brand of equipment and reliability cited by the manufacturer. Upgrades and refurbishments Periodic updates to the equipment to maintain it in accordance with statutory or the manufacturer’s requirements. Spare parts and accessories Costs of replacement spare parts and accessories over the life of the equipment, such as monitor cables.
repair costs (specify) Other significant repair costs associated with this type of equipment. Operating costs Staffing costs Salary and related on-costs associated with employing additional staff to operate and maintain the equipment. Only costs of employing staff in addition to the existing base staffing should be included. Accreditation and certification Costs associated with undertaking certifications and compliance audits, and ensuring that the equipment meets professional standards. Supplies and consumables Costs of supplies and consumables directly used in operating the equipment. Ongoing training Costs for undertaking ‘train the trainer’, in-house biomedical engineering/engineering/technical support training, refresher courses and the production/acquisition of training material. Utilities Energy costs directly associated with operating the equipment where these costs are material and can be reliably estimated. Licences Fees and charges associated with licences required to operate and maintain the equipment, such as software. operating costs (specify) Other significant operating costs associated with this type of equipment. End-of-life disposal costs (of equipment to be acquired) These are costs to decommission, remove from service and safely dispose of the equipment at the end of its useful life, including removal costs, freight and ‘make good’ repairs to the facility. This would be the best estimate at the time of purchase. Where possible, disposal costs of similar items may provide a suitable guide to provide an estimate of these costs. Full lifecycle cost analysis – options development Base case and alternative options The lifecycle cost analysis will compare a of options including retaining the existing equipment item or systems to deliver the service. This is sometimes referred to as the ‘do nothing’ option and provides a base case to use as a comparator against alternative options. The base case option include all relevant costs associated with continuing the existing service delivery using the
Options considered for provision of service For example, rationale for alternate delivery methods and leasing Leasing Consumable contract 8. Preferred option For example, rationale for preferred option based on fitness for purpose, costs, benefits and risks 9. Implementation For example, timeframes, governance, procurement strategy Project management Governance Risk management Procurement strategy Adherence to government and health service policies related to procurement associated with cost of equipment Post-implementation assessment 10. Expected funding sources Identified funding source Applications for external funding completed 11. Replacement Proposed funding source for replacing the item in
Table 9 over the page provides guidance on the ‘consequence’ rating as it relates to ‘service availability risk’. Table 9: ‘Consequence’ rating for ‘service availability risk’ Consequence rating Description Evidence for rating Extreme Loss of, or indefinite closure of, a particular clinical service Health service articulation of how this service is dependent on the asset Major impairment of a clinical service Multiple cancellations of surgery Temporary closure of more than one critical care bed or operating theatre Health service articulation of how this service is dependent on the asset Moderate Moderate impact on a clinical service resulting in increased waiting times for an extended period Moderate impact on a clinical service resulting in decreased throughput for an extended period Temporary closure of one critical care bed or Health service articulation of how this service is dependent on the asset