BUSINESS CASE COSTING POLICY

Transcription

1 Affiliated Teaching Hospital BOARD OF DIRECTORS 30 Th OCTOBER 2015 AGENDA ITEM: 8.3 SUBJECT: RESPONSIBLE DIRECTOR: AUTHOR: PREVIOUSLY CONSIDERED BY: BUSINESS CASE COSTING POLICY Kishamer Sidhu Director of Finance & IM&T Peter Bunnewell Trust Management Committee EXECUTIVE SUMMARY: This document proposes the methodologies that managers are to use for identifying the costs contained in capital business cases and how variances to original business case values are approved and reported. ACTION REQUIRED BY THE BOARD For information and approval RISK TO THE TRUST (include reference to BAF or Corporate Risk Register) WORKFORCE ISSUES: (including training and education implications) FINANCIAL IMPLICATIONS: Specify No/Yes (Detailed within the report). COMMUNICATION/CONSULTATION ISSUES (including patient and public involvement) STRATEGIC OBJECTIVE: (specify trust strategic objective) None at this time Yes detailed in the report Not applicable Not applicable CQC DOMAINS safe. effective. caring. responsive to people s needs. well-led Please indicate which domain the report is providing assurance on Well Led 1

2 Affiliated Teaching Hospital BUSINESS CASE COSTING POLICY 1. BACKGROUND 1.1 The Trust has a significant capital plan for both this financial year and future years. 1.2 It has been identified that a number of existing schemes have exceeded the budget approved with submitted cases. A cause of some of the additional costs is due to estimation being inaccurate in the original business case. 1.3 It is therefore necessary to provide a policy to managers which aims to help ensure costs provided are more accurate. 1.4 There are three types of capital expenditure the organisation typically expends; equipment, IT and Estates. The latter two are the principal causes of variance. 2. THE BUSINESS CASE PROCESS 2.1 The Business case process of the organisation is driven through the organisations SFI s. 2.2 The Trust capital plan at the beginning of the year determines the list of capital cases required before requisitions are raised. The capital plan is monitored through the Capital group through to TMC. 2.3 The capital case is submitted to the capital group and approval is provided where appropriate for cases up to, above this level all cases require Board approval. 3. COSTING POLICY 3.1 Business cases must include all costs relevant to the case and the author must ensure costs incurred by other departments are identified e.g. clinical support, estates and IT. 3.2 For all schemes where the actual cost obtained via the formal procurement exceeds the approved sum the project manager must seek approval for the additional cost from the approving committee (in line with SFI s). For urgent schemes the chairman of the relevant committee may give approval of the additional sum pending ratification at the next available committee meeting. Equipment 3.3 For capital equipment where the cost is expected to fall below 50,000 the provision of an estimate from at least one supplier. This to be used for creating a business case. A revised (final) business case would be submitted where the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions and approval is required before contracts are signed. 2

3 3.4 For schemes above 50,000, the business unit manager shall obtain at least one written quote (via the Procurement Dept) based on the services/equipment specification, from a framework supplier. This to be used for creating a business case. A revised (final) business case would be submitted where the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions and approval is required before contracts are signed. 3.5 For schemes above 500,000 the same process as 3.3 is applied but the outline business case has to be submitted to the Board of Directors for approval; a further case needs to be submitted if the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions. 3.6 Whilst one written quote is sufficient for business case approval the Standing Financial Instructions and Scheme of Delegation must be adhered to in relation to the actual procurement of the relevant goods and services i.e. competitive quotes/tenders and EU regulations (or a waiver is required). IT 3.7 For IT schemes where the cost is expected to fall below 50,000, the Head of IT shall provide the cost based on their professional expertise and knowledge of the IT market. This method to be used for creating the business case but where the actual cost exceeds the approved value a report must be provided to the Capital Investment prior to any contract being signed. 3.8 For IT schemes above 50,000, the Head of IT shall obtain at least one written quote based on the services/equipment specification, from a framework supplier. This to be used for creating a business case. A further case should be submitted where the tender cost exceeds the level in accordance with the Standing Financial Instructions. Approval is required before contracts are signed. 3.9 For IT schemes above 500,000 the same process as 3.7 is applied but the outline business case has to be submitted to the Board of Directors for approval and the final case needs to be submitted if the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions Whilst one written quote is sufficient for business case approval the Standing Financial Instructions and Scheme of Delegation must be adhered to in relation to the actual procurement of the relevant goods and services i.e. competitive quotes/tenders and EU regulations (or a waiver is required). Estates 3.11 For works, the Director of Estates is responsible for ensuring specifications are produced Where the cost is expected to be below 50,000, the Director of Estates shall provide the cost based on their professional expertise and knowledge of the market. This method to be used for creating the business case but where the actual cost exceeds the approved value a report must be provided to the Capital Investment prior to any contract being signed For works between 50,000 and under 500,000, the Director of Estates shall obtain a feasibility report from a cost consultant (QS), which includes the scope of 3

4 works and optimisation bias (financial risk analysis). This cost is to be used for creating an Outline Business Case and to proceed to design/tender. A revised case would be submitted where the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions and approval is required before contracts are signed For works above 500,000 the same process as 3.12 is applied but the outline business case has to be submitted to the Board of Directors for approval and the final case needs to be submitted if the tender cost exceeds the tolerance level in accordance with the Standing Financial Instructions In line with the Trust section 42 requirements the Trust route will be P21+ unless VFM prevents this procurement route being used. 4. APPROVING AND REPORTING VARIATIONS 4.1 Cases above in variation will be transparent to the Board as they require Board approval. 4.2 Cases below in variation will be reported through to the Performance, Finance and Resources (PFR) Committee. Particular emphasis will be placed on reporting those cases where the variation is above 50k of the original proposal. Original Case Below 50k Between 50k and All Schemes Capital Investment Capital Investment Above Board of Directors Variation below 50k Variation between 50k and Variation above Variation below 50k Variation between 50k and Variation above Approval on variation Capital Investment Capital Investment Capital Investment Capital Investment Capital Investment PFR Committee Board of Directors Board of Directors Board of Directors Reporting on variation Capital Investment PFR Committee PFR Committee PFR Committee PFR Committee PFR Committee Board of Directors Board of Directors Board of Directors 5. RISK 5.1 The Trust has a significant capital programme and there are inherent risks associated with the procurement, if costs have not been accurately identified at the business case stage. 4

5 5.2 Whilst strengthening controls at the business case approval stage is advantageous, additional costs may arise in obtaining quotes and feasibility reports. This may also delay the process for producing business cases and some cases may have abortive costs if the case is subsequently rejected. The mitigation of risks will require better and prompt planning. 6. FINANCIAL IMPLICATIONS 6.1 Controls that improve the accuracy of costs at the business case stage should minimise the risk of overspends on capital schemes. 7. ACTION REQUIRED BY THE BOARD OF DIRECTORS 7.1 The Board of Directors is asked to note the contents of the report and is recommended to approve the additional controls contained in this document. PETER BUNNEWELL HEAD OF FINANCIAL SERVICES 5