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Difference between Quantitative and Qualitative VfM Criteria

Contents. Pros and ConsQualitative VfM CriteriaQuantitative VfM CriteriaChallenges. Why Assess VfM ?. Starting Point: Major capital investmentDesired End point: Optimum and enforceable risk allocation to the private sector partner . When is the VfM assessment made?. Programme levelSuitability of using private financeProject level

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Difference between Quantitative and Qualitative VfM Criteria

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    1. Difference between Quantitative and Qualitative VfM Criteria Owain Ellis 12 June 2008

    2. Contents Pros and Cons Qualitative VfM Criteria Quantitative VfM Criteria Challenges

    3. Why Assess VfM ? Starting Point: Major capital investment Desired End point: Optimum and enforceable risk allocation to the private sector partner

    4. When is the VfM assessment made? Programme level Suitability of using private finance Project level – pre market launch Important decision point Procurement level Check that procurement will deliver the forecast VfM benefits

    5. Qualitative assessment - Viability Measurable and definable outputs, clear scope Operational flexibility Inclusion of soft services Equity/efficiency reasons for private sector service provision Strategic/ regulatory issues

    6. Qualitative assessment - Desirability Risk Management Innovation Duration, requirement and asset life Lifecycle costs Do the benefits outweigh the costs?

    7. Qualitative assessment - Achievability Market capacity and interest Timing Procurement time scales Value Procuring authority skills and resources

    8. Balanced Approach Balanced qualitative and quantitative assessment Evidence-based approach Generic VfM model

    9. VfM Quantitative analysis

    10. Measuring VfM - Public Sector Comparator (PSC) Same outputs specified under PFI PSC helps to determine: indicative costs (as benchmark) risk transfer VfM of private sector bidders’ solutions

    11. Public Sector Comparator

    12. Measuring VfM - Public Sector Comparator (PSC) Key considerations:- sensible costing proper use of advice benchmarking with similar schemes recognition of risk and uncertainty optimism bias established public sector discount rate

    13. Technical Adjustments Unbundled discount rate - time preference rate of 3.5% Optimism Bias factored in to investment appraisal Monetisation of non financial benefits and costs Material tax differentials recognised and monetised

    14. VfM Analysis – Input Sheet

    15. VfM Model - Challenges Timing: Decision making tool or demonstrator? Optimism Bias: availability of a reliable evidence base (PFI & PSC) Data management - double counting Limitations of a standardised approach Care over presenting numbers

    16. Conclusions Qualitative VfM Assessment assists with decision at Programme and Project levels Quantitative VfM Assessment assists with demonstration of VfM at Procurement level Limitations - Part of Business Case approach

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