PRELIMINARY BUSINESS CASE - Building...

49
BUSINESS CASE DEVELOPMENT FRAMEWORK PRELIMINARY BUSINESS CASE TEMPLATE AND GUIDE APRIL 2016 │ RELEASE 1

Transcript of PRELIMINARY BUSINESS CASE - Building...

Page 1: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

BUSINESS CASE DEVELOPMENT FRAMEWORK

PRELIMINARY BUSINESS CASE

TEMPLATE AND GUIDE

APRIL 2016 │ RELEASE 1

Page 2: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 2

BUILDING QUEENSLAND BUSINESS CASE DEVELOPMENT FRAMEWORK

This document forms part of the Building Queensland Business Case Development Framework, as follows:

GUIDANCE MATERIAL SUPPLEMENTARY GUIDANCE MATERIAL

Strategic Business Case Cost Benefit Analysis

Preliminary Business Case Social Impact Evaluation

Detailed Business Case

Disclaimer: While every care has been taken in preparing this publication, Building Queensland accepts no responsibility for decisions or actions taken as a result of any data, information, statement or advice, expressed or implied, contained within. This material is provided as a guide only and is subject to regular review and updates.

Attribution: Content from the Business Case Development Framework should be attributed to: Building Queensland Business Case Development Framework.

V1.0 April 2016

Page 3: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

CONTENTS

1. Introduction ............................................................................................................................................................. 6

1.1. Purpose of this Document ................................................................................................................................... 7

2. Executive Summary .................................................................................................................................................. 9

3. Governance .............................................................................................................................................................. 9

3.1. Project Owner ...................................................................................................................................................... 9

3.2. Steering Committee ............................................................................................................................................. 9

3.3. Building Queensland ............................................................................................................................................ 9

4. Project Background .................................................................................................................................................. 9

4.1. Outcomes of the Strategic Business Case .......................................................................................................... 9

5. Problem and Benefits ............................................................................................................................................. 10

5.1. Approach ............................................................................................................................................................ 10

6. Project Options....................................................................................................................................................... 10

6.1. Options Generation (Long List) ......................................................................................................................... 10

6.2. Options Filter (Shortlist) .................................................................................................................................... 14

6.3. Recommended Shortlist for Further Analysis .................................................................................................. 14

7. Shortlisted Options ................................................................................................................................................. 14

8. Risk Management ................................................................................................................................................... 15

8.1. Risk Approach ..................................................................................................................................................... 15

8.2. Risk Criteria ........................................................................................................................................................ 16

8.3. Risk Identification ............................................................................................................................................... 18

8.4. Risk Analysis ....................................................................................................................................................... 18

8.4.1. Quantitative Risk Assessment ............................................................................................................... 19

8.4.2. Qualitative Risk Assessment .................................................................................................................. 19

8.4.3. Calculate the Risk Rating........................................................................................................................ 19

8.5. Evaluate the Risk ................................................................................................................................................ 20

8.5.1. Risk Allocation ........................................................................................................................................ 20

8.6. Risk Treatment ................................................................................................................................................... 20

9. Control Point 1 ....................................................................................................................................................... 21

10. Strategic Considerations ......................................................................................................................................... 22

10.1. Strategic Alignment ........................................................................................................................................... 22

10.2. Policy Issues ........................................................................................................................................................ 22

11. Legal and Regulatory Considerations ...................................................................................................................... 22

11.1. Legislative Issues ................................................................................................................................................ 22

11.2. Regulatory Issues ............................................................................................................................................... 22

11.3. Approvals ............................................................................................................................................................ 23

11.4. Other Legal Matters ........................................................................................................................................... 23

D16/4

6186

Page 4: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 4

12. Market Considerations ........................................................................................................................................... 23

12.1. Market Sounding Approach and Objectives ..................................................................................................... 24

12.2. Assessment of Market Capability ...................................................................................................................... 24

13. Public Interest Considerations ................................................................................................................................ 24

13.1. Impact on Stakeholders ..................................................................................................................................... 24

13.2. Community Consultation and ‘Social Licence’ ................................................................................................. 25

13.3. Public Access and Equity ................................................................................................................................... 25

13.4. Consumer Rights ................................................................................................................................................ 25

13.5. Security ............................................................................................................................................................... 25

13.6. Privacy ................................................................................................................................................................ 25

14. Preliminary Environmental Assessment .................................................................................................................. 26

14.1. Approach ............................................................................................................................................................ 26

14.2. Identification of Environmental Impacts .......................................................................................................... 26

14.3. Environmental Assessment ............................................................................................................................... 27

15. Control Point 2 ....................................................................................................................................................... 29

16. Financial and Commercial Analysis ......................................................................................................................... 30

16.1. Approach ............................................................................................................................................................ 30

16.2. Financial Net Present Value .............................................................................................................................. 30

16.2.1. Approach ................................................................................................................................................ 30

16.2.2. Capital Costs ........................................................................................................................................... 30

16.2.3. Initial One-off Operating Costs .............................................................................................................. 31

16.2.4. Ongoing Costs (Whole-of-Life) .............................................................................................................. 31

16.2.5. Residual Values ...................................................................................................................................... 32

16.2.6. Revenues ................................................................................................................................................ 32

16.2.7. Analysis Summary .................................................................................................................................. 33

16.3. Potential Government Funding Sources ........................................................................................................... 33

16.4. Risk-Adjusted Financial Net Present Value ....................................................................................................... 33

17. Control Point 3 ....................................................................................................................................................... 34

18. Preliminary Social Impact Evaluation ...................................................................................................................... 35

18.1. Approach ............................................................................................................................................................ 35

18.2. Stakeholder Engagement .................................................................................................................................. 35

18.3. Evaluation ........................................................................................................................................................... 36

18.4. Impact Risk Assessment..................................................................................................................................... 37

19. Preliminary Economic Analysis ............................................................................................................................... 37

19.1. Approach ............................................................................................................................................................ 37

19.2. Methodology ...................................................................................................................................................... 38

Page 5: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 5

19.3. Benefits ............................................................................................................................................................... 38

19.4. Costs ................................................................................................................................................................... 38

19.5. Cost Benefit Analysis Results ............................................................................................................................. 38

20. Control Point 4 ....................................................................................................................................................... 40

21. Delivery Model Analysis .......................................................................................................................................... 41

21.1. Approach ............................................................................................................................................................ 41

21.2. PPP Delivery Model Assessment ....................................................................................................................... 41

21.3. Traditional Delivery Model Assessment ........................................................................................................... 42

22. Affordability Analysis .............................................................................................................................................. 43

22.1. Approach ............................................................................................................................................................ 43

22.2. Affordability Assessment ................................................................................................................................... 43

23. Control Point 5 ....................................................................................................................................................... 44

24. Preferred Option For Further Development............................................................................................................ 45

24.1. Approach ............................................................................................................................................................ 45

24.2. Selection of Preferred Option ........................................................................................................................... 45

24.3. Impacts of Preferred Option ............................................................................................................................. 46

24.3.1. Strategic Impact ..................................................................................................................................... 46

24.3.2. Economic Impact .................................................................................................................................... 46

24.3.3. Social and Environmental Impact .......................................................................................................... 46

24.3.4. Financial and Commercial Impact ......................................................................................................... 46

24.3.5. Procurement Approach ......................................................................................................................... 46

24.4. Criteria for Success ............................................................................................................................................ 46

24.5. Priority ................................................................................................................................................................ 46

25. Conclusions ............................................................................................................................................................ 46

26. Plans ....................................................................................................................................................................... 47

26.1. Detailed Business Case Plan .............................................................................................................................. 47

27. Recommendations ................................................................................................................................................. 47

28. References ............................................................................................................................................................. 47

29. Control Point 6 ....................................................................................................................................................... 48

Page 6: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 6

1. INTRODUCTION

Building Queensland has been established under the Building Queensland Act 2015 to provide independent expert advice to the Queensland Government about infrastructure. The preparation of business cases for infrastructure proposals over $100 million (or the equivalent net present value of financial commitments by the State) will be led by Building Queensland. Building Queensland will also assist in the preparation of business cases with an estimated capital cost of $50 million to $100 million.

Building Queensland’s Business Case Development Framework (BCDF) addresses the requirements of the Building Queensland Act 2015 and enhances the way in which infrastructure proposals are assessed in Queensland. The BCDF includes the following documents:

Strategic Business Case (SBC)

Preliminary Business Case (PBC)

Detailed Business Case (DBC).

The BCDF is also supported by the Cost Benefit (CBA) Analysis Guide and Social Impact Evaluation (SIE) Guide. The relationship between the BCDF documents is illustrated in Figure 1.

Figure 1: Interaction Between the BCDF Documents

The foundation for the BCDF is the Queensland Government’s Project Assessment Framework (PAF). The BCDF supplements the PAF by providing guidance on how to undertake an assessment using industry best practice. The alignment between the BCDF and the PAF is illustrated in Figure 2.

Figure 2: Alignment of the Building Queensland Process with the PAF

Page 7: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 7

The purpose of the PBC is to:

confirm the service need or problem

identify and assess potential options

recommend (where appropriate) an option to be considered for detailed assessment in the DBC stage.

The PBC follows on from work completed in the SBC by considering the proposed initiatives identified through the Investment Logic Mapping (ILM) process. The PBC will also assess whether a project is suitable for delivery as a Public Private Partnership (PPP) with private finance. The PBC is an extension of the SBC. It is recommended that an SBC be completed and approved prior to the development of the PBC as the work undertaken during development of an SBC supports the integrity and quality of the PBC.

1.1. Purpose of this Document

This guide follows a suggested format for a PBC and details the work to be undertaken to successfully complete a PBC within the Building Queensland BCDF. Information developed within sections in the PBC link to others as illustrated in Figure 3.

Page 8: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 8

Figure 3: Development of the Preliminary Business Case

Page 9: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 9

2. EXECUTIVE SUMMARY

An executive summary provides an overview of the analysis undertaken and the key recommendations. At a minimum, include a summary of all material aspects of the PBC and the recommendations as well as:

summary of service need and problem statements

summary of outcomes and benefits sought

summary of options identified (long list) and assessment to establish a shortlist

summary of all assessments and analysis of shortlisted options (risk, cost, economic, environmental, social, financial, funding, delivery and affordability) to support a recommendation

recommendations for decision-makers.

3. GOVERNANCE

This section outlines the governance arrangements for the proposed project.

3.1. Project Owner

Outline the Project Owner including a project team structure and roles within the team structure.

3.2. Steering Committee

Outline the Project Steering Committee Terms of Reference and membership.

3.3. Building Queensland

Outline the role of Building Queensland and the Building Queensland Board. Refer to the Building Queensland ‘Engaging with Building Queensland’ documents for further guidance on collaborative governance arrangements.

4. PROJECT BACKGROUND

This section captures the project’s history. Outline:

when the problem (or opportunity) was first identified

when a project was selected for consideration

the location of the project

the scope and depth of all previous investigations and studies

a summary of prior decisions.

Include relevant maps and supporting graphics.

4.1. Outcomes of the Strategic Business Case

Summarise the findings from the SBC and/or any other relevant planning and feasibility studies. Important past milestones should be highlighted. Also provide a high-level summary of any context or information that has altered since the SBC was completed.

Page 10: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 10

5. PROBLEM AND BENEFITS

The purpose of this section is to clearly identify and articulate the problem (or opportunity) to be addressed within the scope of the PBC and the benefits that will be realised if a strategic intervention (business change or investment) is implemented. This section should be sufficiently robust to convey to decision-makers a sense of the level of detail or complete planning which has been undertaken to support options.

5.1. Approach

The identification of problems (or opportunities), and the benefits expected if a business change or investment is made should have been completed during development of the SBC. If an SBC was completed using the Building Queensland SBC template and guide, it is recommended that the problem identification and benefits sought sections be reviewed and updated and reported here (particularly if a significant period of time has elapsed since the SBC was prepared).

If an SBC was not prepared using the Building Queensland template and guide, it is recommended that the work required by the SBC in identifying and articulating problems and benefits be undertaken and the results presented here. Any relevant planning work or feasibility studies that have previously been undertaken can be used as an input into this analysis.

6. PROJECT OPTIONS

This is a critical section of the PBC as it:

provides a summary of the full range of initiatives that can be implemented to address the identified problem

generates a long list of project options

if necessary, filters the long list of options to generate a short list.

This section provides clarity and a common understanding of the range of options being considered, while providing transparency and confidence that the recommended options will deliver the expected benefits.

6.1. Options Generation (Long List)

The Queensland Government’s approach to infrastructure planning recognises that there is typically more than one way to solve a problem. As infrastructure is ultimately built to deliver a service, opportunities for non-asset solutions to problems (such as policy reforms or the better use of existing infrastructure) should be thoroughly explored before asset-based solutions are considered in detail1. If an SBC was completed following the Building Queensland SBC template and guide, a range of potential initiatives would have been identified and grouped into the following four categories:

Reform: typically non-asset initiatives

Better use: typically improving service performance

Improve existing: typically low cost augmentation

New: typically new assets.

Consider whether any of the initiatives identified in the SBC need to be deleted, modified or added to. Changes, and the justification for the change, should be documented in this section. An example of the output from an SBC is provided in Figure 4 and Figure 5.

1 Queensland Government State Infrastructure Plan (2016)

Page 11: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 11

Figure 4: Example Investment Logic Map

Page 12: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 12

Figure 5: Example Initiatives Map

Page 13: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 13

When generating options for the PBC, the following approach is recommended:

Specify the base case (status quo/do nothing). This involves continuing to deliver services in the same way using existing assets. This effectively describes what the impacts will be over time if the status quo continues.

Generate options considering operational reform and non-infrastructure solutions. In the SBC some relatively low cost non-asset initiatives (typically the ‘reform’ and ‘better use’ initiatives) would have been identified. Before embarking on a PBC these non-asset initiatives should have been subject to further investigations or studies by relevant government agencies.

Generate further options that reflect the widest range of realistic asset-based options. These asset-based options can be categorised as ‘improve existing’ or ‘new build’.

The base case is described at a high level of detail and used as the baseline against which the net impacts of investigated options are compared. Using the example in the SBC, the long list of options for the PBC might be as listed in Table 1.

Table 1: Example Option Generation Table

OPTION GENERATION

Option Option Category Option Description

Option 1–Do Minimum Reform/better use Status quo plus:

implement a driver education campaign

introduce variable speed signs

use emergency lanes during peak hour.

Option 2–Demand Management (peak hour)

Improve existing Build road tolling infrastructure and influence demand through time of day tolling

Option 3–Demand Management (all day)

Improve existing Build road tolling infrastructure and influence demand through flat rate tolling

Option 4–Improve Access to Public Transport

Improve existing Increase bus services to stations and introduce standing options in train carriages

Option 5–Enhance Public Transport

New build Construct a third railway track

Option 6–Enhance Road Corridor

New build Build additional road lane in each direction

For each option, a detailed description against a number of variables is recommended to ensure a greater understanding of the features of any option. These variables should include (where relevant):

service capacity

service provider

service level

service hours

operating model

infrastructure requirement.

Page 14: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 14

6.2. Options Filter (Shortlist)

If a large number of options are identified in Section 6.1, it may be necessary to filter them. Filtering options supports efficient planning and decision-making by directing resources into options that are more likely to be successful, and by providing a clear rationale for a preferred shortlist of options.

Whether the number of options identified in Section 6.1 is manageable will depend on the nature of the options. Generally, it is recommended that no more than four asset-based options be carried forward for further assessment in the PBC. If filtering is required, the long list of options should be assessed against underlying drivers (such as problems, outcomes, benefits) and high-level criteria (such as cost, risk) to arrive at a shortlist of viable options for further assessment. Undertaking the analysis detailed in Sections 10 through 14 of this guide for all options may also assist in the filtering process e.g. significant legal, regulatory, policy, public interest or environmental issues might exist that severely impact the deliverability of an option.

6.3. Recommended Shortlist for Further Analysis

Regardless of the methodology used to filter, the assumptions, sources of information, and the basis of calculations underlying all aspects of the options filtering should be documented. The recommendation should be clearly presented and state why the agency, government and the community will benefit.

Document the shortlisted options and describe the reasons for shortlisting or dismissing each option. Table 2 provides an example shortlisting table identifying which options will be further assessed in the remaining sections of the PBC. Again, shortlisted options are compared to the base case.

Table 2: Example Summary Table for Shortlisted Options

SHORTLISTED OPTIONS

Option Initial Assessment Recommended for Further Consideration

Option 1–Do Minimum This option must be taken forward for further analysis. It also serves as a baseline for comparing the net impact of each asset based option.

(baseline measure)

Option 2–… Taken forward as …

Option 3–… Taken forward as …

Option 4–… Taken forward as …

Option 5–… Taken forward as …

Option 6–… Dismissed due to …

7. SHORTLISTED OPTIONS

This section should provide clear details about:

the shortlisted options and what they will accomplish (i.e. objective/s, benefits)

what the shortlisted options will and will not include (i.e. scope)

a description of how the shortlisted options would be implemented.

The description should also provide an explanation of how the shortlisted options will address the problems/opportunities identified in Section 5.

Page 15: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 15

8. RISK MANAGEMENT

Risk is an inherent part of any project. The purpose of this section is to establish the risk environment for the project including the criteria for undertaking risk assessments. This provides the framework for the identification and assessment of project and ongoing risks that might create, enhance, prevent, degrade, accelerate or delay the achievement of the objectives and outcomes associated with the shortlisted options.

Risk assessments are undertaken across all aspects of the project in the development of the PBC including:

Project governance and background (Sections 3, 4, 5, 6, and 7)

Context (Sections 10 to 14)

Financial, commercial, social impact and economic analyses (Sections 16, 18 and 19)

Deliverability and affordability considerations (Sections 21 and 22)

Preferred option consideration (Section 24).

The PAF requires a risk assessment to be conducted and a project risk register to be developed. Refer to the organisation’s risk management policy and the Australian Standard (AS NZS ISO 31000:2009 Risk Management–principles and guidelines) for guidance on conducting a risk assessment. The PAF and National PPP policy (if applicable) also provide guidance on risk assessments.

Quantitative risk assessment is a mandatory part of the development of the PBC to enable risk to be quantified and applied to costed items to support the Financial and Commercial Analysis (Section 16). Risk assessment will also identify and, where possible, quantify risks associated with proposed options. Quantitative risk assessments are used to:

adjust cost and revenue estimates

adjust wider economic benefits and costs

inform the risk management strategy for project implementation.

Risk assessment also includes a risk allocation to the party (public or private) best placed to manage the risk (Section 8.5.1).

8.1. Risk Approach

Describe the approach used for the risk assessment. The process for risk assessment should involve:

1. Establish the Risk Criteria (Section 8.2)–including defining the terms for likelihood and consequence and their timeframes, risk tolerance and how the level of risk is to be determined.

2. Identification (Section 8.3)–identifying and documenting risks to which the project could be exposed, ensuring a wide range of risks are considered (e.g. political risks and compliance with legislation).

3. Analysis (Section 8.4)–conducting assessments of the materiality of the risks and the likelihood and consequences of the risks occurring with involvement of stakeholders.

4. Evaluation (Section 8.5)–comparing the level of risk found during the analysis process with risk criteria established in step 1.

5. Treatment (Section 8.6)–developing risk management strategies and contingency planning approaches to mitigate the risks.

Throughout the development of the PBC it will be necessary to regularly revisit Sections 8.3 to 8.6 and update the risk register e.g. quantified risks identified in the assessment of financial costs and revenues (Section 16.2) will have implications for project cash flows.

Page 16: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 16

8.2. Risk Criteria

If not previously established, the risk criteria should be established for the project. These should reflect the context and scope of the project and the risk appetite. The categorisation of likelihood and consequences may therefore vary from project to project. Any project risk criteria should be consistent with the organisation’s risk management policy. Typical risk assessment ratings are outlined in Table 3.

Table 3: Example Risk Likelihood Ratings

RISK LIKELIHOOD RATING

Level Descriptor Description

5 Almost Certain

Occurs in most circumstances or the issue is expected to occur very frequently (e.g. at least once in every 3 months).

4 Likely Likely to occur or the event is expected to occur regularly (e.g. at least once in every 12 months).

3 Possible Might occur or the event is expected to occur occasionally (e.g. at least once in every 1 to 5 years).

2 Unlikely Could occur but unlikely or is expected less frequently (e.g. at least once in every 5 to 25 years).

1 Rare Occurs only in exceptional circumstances or is expected to occur infrequently (e.g. once in 25+ years).

In assessing likelihood, a probability distribution must be defined to allow for Monte Carlo analysis required in Section 16.4.

Definitions for ratings of consequence may also vary between projects and organisations. Criteria should reflect the organisation’s values, objectives and resources and may be imposed by, or derived from, legal, regulatory and other requirements. An example of consequence ratings is provided in Table 4.

Page 17: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 17

Table 4: Example Risk Consequences Ratings

RISK CONSEQUENCE RATING

Level Descriptor Financial Strategic Environment Delivery Social Safety

5 Severe >$Z Fails to align with strategic context

Long-term (5–10yrs) environmental harm

Delay in delivery >12months

Irreversible changes to social characteristics or values

1 or more fatalities

4 Major $Y to $Z Some elements conflict with strategic context

Significant environmental harm (1–5yrs) and costly restoration

Delay in delivery

6–12 months

Long term recoverable changes to social characteristics or values

Extensive serious or permanent injuries or disabilities

3 Moderate $X to $Y Some elements do not align to strategic context

Significant release of pollutants with mid-term recovery (<1yr)

Delay in delivery 3–6 months

Medium term recoverable changes to social characteristics or values

Individual major injury requiring hospital attendance

2 Minor $W to $X Minor misalignment to strategic context

Limited impact which is fully recoverable

Delay in delivery 1–2 months

Short term recoverable changes to social characteristics or values

Minor injury—medical treatment

1 Insignificant < $W Aligned to strategic context

Minor transient environmental harm

Delay in delivery <1month

Local small scale impact of social characteristics or values

Minor injury—first aid treatment

Other categories may include reputation, compliance, resources, performance, demand, service interruption etc.

The risk matrix is then developed with consideration of the risk appetite and scope of the project. An example is provided in Table 5.

Table 5: Example Risk Matrix

RISK MATRIX

Consequence

Insignificant Minor Moderate Major Severe

Like

liho

od

Almost certain

Medium

High

Likely

Possible

Unlikely

Rare Low

The risk criteria and matrix should be approved by the Project Steering Committee prior to risk assessment being undertaken.

Page 18: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 18

8.3. Risk Identification

As noted in Section 8, risk assessment is undertaken across a broad range of activities in the development of the PBC. Risk identification involves determining what, why, where, when and how events could prevent, degrade, delay or enhance the project outcome. Risks include (but are not limited to) the risk types illustrated in Table 6. These risks include:

Project risk—all risks associated with the design, procurement, construction, and commissioning of the asset.

Ongoing risk—all operating risks associated with the operation of the asset from commissioning to maintenance to end of life.

Table 6: Example Risk Categories

IDENTIFYING RISK

Project Risk Ongoing Risks

price risk—the price and or quantity of inputs required

schedule/program risk

contractual and legal risk

health and safety risk

political risk

environmental risk

approval risk

community and stakeholder risk

design and other technical risk

legislative and regulatory risk

project finance risk—funds not available

market risk—insufficient skilled suppliers.

technology and obsolescence risk

demand risk

commissioning risk

operating risks including maintenance

legislative change

health and safety risk

approval risks

performance and availability risk

community and stakeholder risk

political risk.

A range of techniques may be used to identify risks. These techniques (such as structured review meetings, risk interviews and risk workshops) can be applied to any type of project.

However, for significant projects or projects considered to be high risk, risk identification with stakeholder and subject matter experts through a workshop should be undertaken. This will help to capture all risks identified during the development of the PBC.

8.4. Risk Analysis

Once identified, risks are analysed. Risk analysis involves developing an understanding of the risk, causes and sources of risk, their positive and negative consequences, and the likelihood that those consequences will occur. Risks are analysed and rated according to the criteria established in Section 8.2 and documented in the Risk Register. Effective risk analysis will also include consideration of potential interdependencies between key risks.

Risk analysis techniques range from assessments based on experience with similar projects to computer based simulations. The approach adopted for a particular risk will depend on the significance and complexity of the shortlisted option and the relative impact of the risk. At the PBC stage, risk analysis will typically involve a subjective assessment that is reviewed and confirmed through a risk workshop.

Page 19: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 19

8.4.1. Quantitative Risk Assessment

Describe the process used to identify and quantify the risks. Quantification of risk involves assessing the likelihood of the risk occurring and the associated financial consequences. Likelihood and consequence of risk will vary due to the delivery models considered (Section 21). Quantification comprises the product of:

the likelihood (probability) of costs, revenues and benefits being different from the expected values

the consequences (i.e. the difference between the actual and expected values).

8.4.2. Qualitative Risk Assessment

Qualitative risk assessment involves determining, for each identified risk:

the triggers of risk, their impacts, the likelihood of those impacts occurring

the consequences of the risk.

The combination of the likelihood of risks occurring and their consequences determines the materiality of the risk, and hence the level of risk analysis undertaken, including the need for mitigating strategies.

8.4.3. Calculate the Risk Rating

The risk rating is the combination of the likelihood of the risk occurring and the size of the consequence of the risk event. The risk rating can either be ‘low’, ‘medium’, or ‘high’ (Table 5). The risk rating affects how the risk will be treated as well as any requirement for reporting or escalation. Details of risks should be included in a risk register (example risk in Table 7).

Table 7: Example Risk Register

RISK REGISTER

Risk Category

Risk Description

Trigger Impact Likelihood Consequence of Risk

Risk Rating

Mitigation Strategy

There is a risk that …

… caused by … .. resulting in ..

Delivery There is a risk that construction is delayed

caused by extended periods of rain

resulting in an extended construction period which may impact on …

Likely Major High Ensure that the project schedule includes sufficient float to account for potential weather delay

Demand There is a risk that local growth strategies may change under the newly elected local council

caused by new local councillors having a stronger preference for urban containment

resulting in lower traffic volumes and toll revenue

Possible Moderate Medium Agency to keep in close and regular contact with council

Etc.

The risk register may also include: the date the risk was identified, who identified the risk, due dates for implementing mitigation strategies, residual risk rating, and the action officer responsible for the mitigation.

Page 20: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 20

8.5. Evaluate the Risk

The purpose of risk evaluation is to assist in making decisions, based on the outcomes of risk analysis, about which risks need treatment and the priority for treatment implementation. Risk evaluation involves comparing the level of risk found during the analysis process with risk criteria (Section 8.2). Based on this comparison, the need for treatment can be considered.

8.5.1. Risk Allocation

Consideration of whether the public or private sector is responsible for, and who is best able to manage, the risk is critical. Traditional or PPP delivery should also be considered during both the qualitative and quantitative risk workshops. This is an important step in the risk analysis as it determines how the quantified risk values are applied to develop the risk-adjusted project cost.

Where a PPP is proposed and a value for money assessment is to be undertaken, the risk allocation analysis is used to determine which risks will be retained by the State or transferred to the private sector under a PPP arrangement. A percentage allocation is assigned to the public and private sector for each risk and is included in the risk register. This allocation is revisited and refined though the risk analysis process.

An assessment of whether the public or private sector is best placed to manage these risks is also required by the National PPP policy and supporting PAF guidelines. Allocation of risk should be summarised in a table that clearly identifies the risks retained by government or transferred to the private sector (Table 8).

Table 8: Template Risk Allocation Summary

RISK ALLOCATION

Item Total Risk (nominal $ million)

Total Risk as % of Raw Capex (%)

P50 Construction Risk

Retained

Transferred

TOTAL

P50 Operation Risk

Retained

Transferred

TOTAL

Benchmarking of the risk allocation should be undertaken against other precedent and similar projects (if available) to determine if the proposed risk allocation is broadly consistent. Benchmarking assists in providing further confidence to decision-makers that costs are realistic and not overly impacted by bias.

8.6. Risk Treatment

Consider the treatment of risk during the PBC stage. Risk treatment involves selecting one or more strategies for modifying risks, and implementing those strategies. Once implemented, treatments provide or modify the controls. Selecting the most appropriate risk treatment involves balancing the costs and efforts of implementation against the benefits derived, with regard to legal, regulatory, and other requirements such as social responsibility and the protection of the natural environment. Any costs involved in the treatment of risk should be reflected in the financial cash flow estimates.

Page 21: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 21

9. CONTROL POINT 1

Control Point 1 has now been reached. Before progressing with the PBC, complete the following checklist. If an item has not been completed an explanation should be included in the checklist.

CONTROL POINT 1

# Have the following tasks been completed for each option? Section Yes No

1 Review the SBC and/or other previous work. s4

2 Identify the problem (opportunity) and benefits sought. s5

3 Consider the potential initiatives that could solve the problem. s6

4 Generate list of options and determine the base case and options. s6.1

5 Filter the long list (if required) and generate a shortlist. s6.2

6 Assess risks associated with Sections 3, 4, 5, 6 and 7. s8

# Have the following outputs been produced for each option? Section Yes No

1 A summary of the project’s history including:

when the problem (or opportunity) was first identified

when a ‘project’ was selected for consideration

location of the project

scope and depth of previous investigations and studies

a summary of prior decisions

relevant maps and supporting graphics

the outcomes of the SBC and/or other previous work

a summary of any context or information that has altered since the SBC/or other previous work.

s4

2 A clear description of the problem (or opportunity) and the benefits sought (including noting any changes since the SBC).

s5

3 A summary of the full range of initiatives that can be implemented to address the identified problem.

s6

4 An Options Generation Table identifying and defining options. s6.1

5 A Shortlisted Options Summary Table identifying options (including documentation of the methodology adopted to filter the long list of options).

s6.2

6 A description of the shortlisted options detailing:

how they will address the identified problem and achieve the benefits sought

what they will and will not include (scope)

how they would be implemented.

s7

7 Documented risk criteria and risk matrix (approved). s8.2

8 Established risk register with risk assessment included for Sections 3, 4, 5, 6 and 7.

s8.4

Page 22: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 22

10. STRATEGIC CONSIDERATIONS

This section documents any relevant strategic considerations including strategic alignment to government programs and strategies and any agency or government policy considerations which may impact the shortlisted options. It includes assessment and comparison of potential impacts on the shortlisted options where appropriate.

10.1. Strategic Alignment

This section documents how the proposed project will fit with, or contribute to, strategic objectives of the agency, government and relevant national objectives and programs (where appropriate). The description of the strategic alignment should include how the project will align (or not align) and its potential contribution to that strategy, program or plan. Also consider the fiscal environment and industry context.

10.2. Policy Issues

The approach in this section is to:

describe the impact, if any, of existing policies and standards on the shortlisted options (or vice versa) within the government, agencies and relevant stakeholder environments

describe any limitations imposed by the policies and standards and the known effect on the shortlisted options, such as any impact to benefits.

The impacts and the limitations identified should be further characterised as either an advantage or a disadvantage. Any additional costs incurred to address specific policy or standard requirements should be shown in the PBC’s costing summary (Section 16).

11. LEGAL AND REGULATORY CONSIDERATIONS

This section documents legal and regulatory considerations and the potential impact of these considerations on the shortlisted options.

The impacts of such issues should be reflected in the environmental assessment, the social impact evaluation, the risk assessment and, if required, in the project cost estimates.

11.1. Legislative Issues

Identify any specific legislative requirements or legislative issues (both existing and foreshadowed) relevant to the shortlisted options, or the ongoing operation of the shortlisted options, that may prevent, impede or have a significant impact. This may include items such as state and federal government agreements, and planning, approvals, environmental, native title or cultural heritage considerations.

11.2. Regulatory Issues

Identify any regulatory considerations relevant to the shortlisted options that may prevent, impede or have a significant impact. This may include matters that influence market competition such as competition/pricing matters or jurisdictional responsibilities. Issues may include consideration of guidelines and existing or anticipated directives issued by a Regulator (e.g. Guidelines on Acceptable Flood Capacity for Dams issued by the Chief Executive of the Department of Energy and Water Supply). Other considerations may include matters that influence market competition or jurisdictional responsibilities.

Page 23: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 23

11.3. Approvals

Identify any approval processes which may impact the shortlisted options, noting any timing considerations or potential impediments to approvals.

An approval matrix (Table 9) should be included to provide a summary of the permits, approvals or licenses that may be triggered during the project along with a description, timing and the responsible authority for each.

Table 9: Example Approvals Matrix

APPROVALS MATRIX

Approval Type Description Timing Responsible Authority

Approval 1 Permit

Approval 2 License

Approval …

As legislation and policy requirements will be revised after completion of the DBC, determining the actual suite of approvals permits and licences will require further revision of the approvals matrix as the project progresses through later delivery stages.

The impacts of such issues should be reflected in the social impact evaluation, the environmental assessment, the risk assessment and, if required, in the project cost estimates.

11.4. Other Legal Matters

Include any other legal matters which may influence the shortlisted options, for example:

standing agreements and existing contracts that may require renegotiation or payment of compensation or restrict actions of the government or agency (e.g. competitive dealings)

agreements or contracts in the process of being finalised or renegotiated

contractual disputes

claims by third parties including native title and cultural heritage

court decisions that may impact the legislative powers of government

legal or contractual issues associated with the proposed delivery strategy.

12. MARKET CONSIDERATIONS

This section outlines the key market considerations and assumptions relating to the shortlisted options. These considerations and assumptions will support decision-making when developing a preliminary procurement strategy and identifying opportunities and risks related to the procurement.

Information may include:

market information regarding the bid depth, market risk appetite, availability of contractors and any other major projects in the pipeline

feedback on matters such as project scope and specification using the shortlisted options, and any opportunities for design and construction innovation.

Page 24: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 24

12.1. Market Sounding Approach and Objectives

Document the market sounding objectives and approach, including the rationale for the particular approach adopted. Market sounding refers to the collection of activities undertaken to explore the range of solutions and determine the market appetite for involvement in the potential options.

For the PBC this will typically only involve desktop research and informal meetings. If required, a formal Request for Information (a formal structured engagement with industry) may be undertaken however, in most cases, a formal approach is most appropriate for a DBC.

12.2. Assessment of Market Capability

Provide a summary of the market capability as it relates to the shortlisted options or delivery options. Key information from this section should be used to inform the cost and risk assessment and the delivery model assessment.

Information provided by the market should be critically evaluated, in particular where there is different and inconsistent market feedback and responses.

13. PUBLIC INTEREST CONSIDERATIONS

This section provides an assessment on whether the shortlisted options are in the public interest. This will ensure that, on balance, each option will provide equitable outcomes for all stakeholders. The section must also identify any public interest deficiencies, the planned approach to address these deficiencies, and any alternative options. This typically includes an assessment of:

impacts on stakeholders of the project or activity

public access and equity

consumer rights

security

privacy.

These issues may be identified during a community consultation process, the environmental assessment, a social impact evaluation, a financial analysis or a regional impact analysis (where appropriate).

13.1. Impact on Stakeholders

Describe how the shortlisted options impact on stakeholders including affected individuals and communities. This will typically include a list of stakeholders and the area of interest/impact and any engagement actions required. Areas of public interest may include:

property impacts

environmental concerns

access or use changes.

The impacts of such issues should be reflected in the social impact evaluation, the environmental assessment, the risk assessment and, if required, in the project cost estimates.

Page 25: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 25

13.2. Community Consultation and ‘Social Licence’

Impacted stakeholders and the broader community should be provided with an opportunity to provide input through a community consultation process. This process involves confirming the impacts on stakeholders and understanding any new concerns that may not have been considered previously. The consultation process should seek to understand whether the project would be likely to receive a ‘social licence to operate’ from the community. If not, consider whether it is worthwhile to progress.

This section should describe the:

community consultation approach

community consultation activities undertaken—information sessions, surveys, working groups

social licence (disapproval, tolerance, endorsement or advocacy from the community)

overall engagement outcomes

any next steps or further consultation required.

13.3. Public Access and Equity

Identify any potential areas of public access and equity for each shortlisted option to ensure that any disadvantaged groups can also effectively realise expected benefits. This will typically include a list of disadvantaged groups who will use the infrastructure or service and how they will use it. If applicable, include the identification of any areas of potential inequity of access caused by the proposed location or pricing of services and any social and economic impacts.

13.4. Consumer Rights

Identify any potential consumer rights impacts for each shortlisted option. In particular, outline where each option does or does not provide sufficient safeguards particularly for those to whom government has a high duty of care. This is considered beyond any legal obligation given government’s broad responsibility to the community and service recipients. The impacts of these issues should be reflected in the social impact evaluation, the environmental assessment, the risk assessment and, if required, the project cost estimates.

13.5. Security

Identify any potential security and community safety issues. Particular areas to consider are corruption, crime, public health risk, quality and security of supply. Security of supply is a particular concern when the market is immature. The impacts of these issues should be reflected in the social impact evaluation, the environmental assessment, the risk assessment and, if required, the project cost estimates.

13.6. Privacy

Identify any potential privacy issues for each shortlisted option to provide assurance that user rights to privacy are protected. Government obligations, whether in relevant legislation or government policy, should also be highlighted. The impacts of such issues should be reflected in the social impact evaluation, the environmental assessment, the risk assessment and, if required, the project cost estimates.

Page 26: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 26

14. PRELIMINARY ENVIRONMENTAL ASSESSMENT

This section enables environmental impacts arising from the shortlisted options to be clearly identified and accounted for in the decision-making process. For the PBC, the environmental impacts of all options need to be identified and described in detail for comparison with the base case.

14.1. Approach

The approach to the preliminary environmental assessment should:

identify and review of information from relevant previous studies

identify all potential environmental issues and impacts

include a desktop assessment of how environmental issues and impacts may impact on the options.

14.2. Identification of Environmental Impacts

For each shortlisted option, identify and categorise the relevant environmental considerations and impacts. Table 10 outlines potential environmental considerations. At the PBC stage, the level of analysis aims to simply identify any critical issues which may impact on the viability of the option. Detailed analysis is to be undertaken during the development of the DBC.

Table 10: Identification of Environmental Impacts

ENVIRONMENTAL IMPACTS

Aspect Considerations

Legislation and Permit Requirements

identify and consider the impact of any legislative obligations and approvals required

perform high level cost and time calculations for each requirement.

Planning and Land Use review current land uses

consider potential changes to land use during construction and operational phases of the project (where appropriate)

describe the degree of alignment to relevant plans and how the project contributes to (or fails to contribute to) any environmental schemes.

Property Impacts identify and describe any impacts to public and private property.

Topography, Geology, and Soils

consider sediment and erosion control management

identify relevant matters in Environmental Management Register and Contaminated Land Register.

Water Quality consider both surface water and ground water

provide information on any existing management strategies as well as proposed infrastructure

describe strategies to manage existing or potential water quality issues.

Hydrology undertake high level hydrological and hydraulic investigation, analysis and assessment of any infrastructure options to assist in refining the design and provide input for the detailed planning and costing.

Page 27: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 27

ENVIRONMENTAL IMPACTS (CONTINUED)

Aspect Considerations

Flora and Fauna describe important flora and fauna (including aquatic flora and fauna if relevant)

identify strategies for habitat management

consider habitat connectivity

consider weed management implications

consider remnant vegetation management implications

consider storm water management implications.

Climate and Air Quality potential impacts of climate and seasonal variations on design and project delivery

potential impacts and strategies for managing air quality issues during project delivery.

Climate Change and Emissions

consider and describe how the project will mitigate climate change by contributing to a reduction in global carbon emissions.

Noise and Vibration potential impacts and strategies for managing noise and vibration issues during project delivery

potential impacts and strategies for managing noise and vibration issues (where appropriate) post project delivery.

Landscape and Visual Amenity

describe any impact of the project on visual amenity

identify strategies to respond to issues relating to visual amenity and landscape impacts during and post-delivery.

Cultural Heritage a statement of places with known or potential historical significance

strategies for managing any potential impact on cultural heritage.

Waste Management consider waste management during project delivery and operation.

14.3. Environmental Assessment

Community expectations and/or government policy, regulation or legislation may require some of the identified environmental impacts of a shortlisted project to be avoided, mitigated or offset. The costs associated with undertaking any avoidance, mitigation or offsetting should be included in the economic and financial analysis. The remaining (or residual) environmental impacts must then be assessed. These residual environmental impacts can be divided into three assessment categories and managed differently:

environmental impacts that can be quantified and monetised should be included in the CBA

environmental impacts that can be quantified and not monetised should be included in the quantitative environmental assessment

environmental impacts that cannot be quantified or monetised should be included in the qualitative environmental assessment.

Providing an estimate of the percentage of environmental benefits that fall under each category can inform decision-makers of the relevance of conducting an Environmental Impact Assessment. Table 11 illustrates the relationship between environmental impacts and approach taken.

Page 28: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 28

Table 11: The Relationship Between Environmental Impacts and Approach

RELATIONSHIP BETWEEN ENVIRONMENTAL IMPACTS AND APPROACH

Quantified Monetised Approach

Environmental Impacts CBA

Quantitative environmental assessment

Qualitative environmental assessment

Environmental impacts included in the CBA do not need to be considered in the Environmental Assessment. For environmental impacts included in the quantitative environmental assessment, a unit of measure needs to be proposed. Environmental impacts in the qualitative assessment should be described in detail.

All environmental impacts identified that can be monetised should be included in the CBA (Section 19). The results of the Environmental Assessment for impacts that cannot be monetised should be reflected in the risk assessment and incorporated in the multi-criteria assessment in Section 24 to assist in selecting an option to be carried forward to the DBC.

Environmental impacts of each option may be summarised (Table 12).

Table 12: Environmental Impact Assessment Option Summary Template

ENVIRONMENTAL IMPACT ASSESSMENT—OPTION 1

Impact Identified Description of Impact Evaluation Approach (CBA/Quantitative impacts/Qualitative impacts)

Impact 1

Impact 2

Etc.

Page 29: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 29

15. CONTROL POINT 2

Control Point 2 has now been reached. Before progressing with the PBC, complete the following checklist.

CONTROL POINT 2

# Have the following tasks been completed for each option? Section Yes No

1 Consideration of strategic alignment and any policy, legislation and regulations that may impact on options (or vice versa).

s10, s11

2 Market considerations. s12

3 Consideration of the impacts of options on stakeholders. s13.1

4 Consideration of the impacts of options on the public interest. s13

5 Consultation with community and impacted stakeholders. s13

6 Undertake a preliminary environmental assessment. s14

# Have the following outputs been produced for each option? Section Yes No

1 Documentation of the alignment of the project with relevant agency, government or national strategic objectives.

s10

2 Documentation of the impacts of, policies, standards, legislation and regulation on options (or vice versa).

s10, s11

3 A summary of market sounding activities and outcomes including:

the objectives of any market sounding undertaken

the market sounding approach used and its rationale

the market capability identified (as it relates to project and delivery options).

s12

4 A summary of the community and stakeholder consultation process and outcomes.

s13

5 Outcomes of a preliminary environmental assessment, including:

A summary table of all identified environmental issues and impacts

Documentation of all sources used for the assessment and assumptions made

Description of any mitigation, avoidance or offsetting activity proposed to be undertaken (including costs of these activities)

A summary table of the results of the assessment of residual environmental impacts.

s14.2

s14.2

s14.3

Table 11

6 Risk register has been updated to include risk assessments from Sections 10 to 14.

s8.4

Page 30: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 30

16. FINANCIAL AND COMMERCIAL ANALYSIS

The purpose of this section is to outline the financial implications and budgetary impacts by reviewing the pattern of related cash flows for each shortlisted option. A financial analysis incorporating an analysis of cash flows and risks associated with those cash flows, should be carried out for all options regardless of scale, because an understanding and quantification of financial flows is critical to investment decision-making.

Financial analysis has a different purpose to the economic analysis; financial analysis is focused on the financial costs (i.e. the net financial impact to government including cash flow implications) from an internal financing perspective. Economic analysis (Section 19) will be focused on the overall economic welfare of the community.

16.1. Approach

For each shortlisted option, undertake the following analysis:

1. Identify all of the revenues and costs (both capital and operating costs).

2. Generate a summary table of the revenues and costs in real Net Present Value (NPV) terms for each shortlisted option, together with any necessary commentary concerning specific associated issues. Calculate a real Financial NPV (FNPV).

3. Give preliminary consideration to budgetary impacts, as well as potential government (local, state and federal) funding sources for the shortlisted options.

4. Risk-adjust all revenues and costs to the P50 level. Report a P50 real FNPV.

16.2. Financial Net Present Value

16.2.1. Approach

The unadjusted FNPV is the output of a financial model that projects the cash flow profile (both revenues and costs) generated from a shortlisted project over its lifetime. The financial model must include all revenues generated by the project, capital costs, operating costs and residual values (in the last year of the project). By calculating the net cash flow balances in each year and discounting these at an appropriate rate, an unadjusted FNPV is produced for each shortlisted option.

The unadjusted FNPV represents the net financial impact to government in present dollars from an internal financing perspective. The FNPV calculated here is an ‘unadjusted FNPV’ as it does not take into account the risk profiles of the cash flows (Section 16.4).

Outline the approach undertaken to calculate an unadjusted FNPV including:

outline of assumptions and limitations

key data sources and inputs

outline of methodology used in the analysis.

16.2.2. Capital Costs

Identify all capital costs for each option in this section. Capital costs can be broken down into specific stages for key milestones of the project, stages or packages if required, but should include all costs relating to the design, construction and implementation of the shortlisted options. Costs should be based on the most accurate data available and should be as realistic as possible.

Accounting advice should be sought as early as possible to determine the likely accounting treatment of project costs under each option. For example, Australian Accounting Standards impose high level criteria as

Page 31: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 31

to which costs can be capitalised as assets rather than expensed. Queensland Treasury also provides relevant guidance through the Non-Current Asset Policies.

Where costs can be capitalised as assets, consideration must still be given to who will ultimately control the asset. In many circumstances, the asset (or a portion of it) may not be controlled by the Queensland Government and will have to be expensed as a grant. All capital costs should be summarised for each shortlisted option (Table 13).

Table 13: Capital Costs Summary Template

CAPITAL COST TABLE—OPTIONS

Initial Capital Costs Option 1 NPV ($ million)

Option 2 NPV ($ million)

Option 3 NPV ($ million)

Design

Build

Implement

TOTAL

Costs included above not eligible for capitalisation by Queensland Government

16.2.3. Initial One-off Operating Costs

Identify any one-off costs relating to ‘start-up’ of the service for each shortlisted option. Examples include: training costs, change management costs, relocation costs etc. All one-off operating costs should be summarised for each shortlisted option (Table 14).

Table 14: One-off Operating Costs Summary Template

ONE-OFF OPERATING COSTS TABLE—OPTIONS

Initial One-off Operating Costs

Option 1 NPV ($ million)

Option 2 NPV ($ million)

Option 3 NPV ($ million)

Training

Change Management

Relocation

TOTAL

16.2.4. Ongoing Costs (Whole-of-Life)

Identify the whole-of-life costs for each shortlisted option. These costs determine the total cost over the life of the capital asset which underpin capital asset proposals. All ongoing costs should be summarised for each shortlisted option (Table 15).

Page 32: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 32

Table 15: Ongoing Costs Summary Template

ONGOING (WHOLE–OF-LIFE) COSTS TABLE—OPTIONS

Ongoing Whole-of-Life Costs

Option 1 NPV ($ million)

Option 2 NPV ($ million)

Option 3 NPV ($ million)

Operations

Maintenance

TOTAL

16.2.5. Residual Values

Identify the residual values of the infrastructure (and any other assets) for the shortlisted options as at the conclusion of the period of analysis in real NPV terms. All residual values should be summarised for each shortlisted option (Table 16). The depreciation method adopted in calculating residual values should be outlined.

Table 16: Residual Values Summary Template

RESIDUAL VALUES—OPTIONS

Residual Value Option 1 NPV ($ million)

Option 2 NPV ($ million)

Option 3 NPV ($ million)

Infrastructure

Other Assets

TOTAL

16.2.6. Revenues

The financial analysis should also include estimates of any potential cash inflows to the government. These inflows include third party funding sources such as revenues from user charges (e.g. public transport fares or tolls) or revenues from value capture mechanisms. A value capture and user charging assessment must be undertaken. Queensland Treasury, Building Queensland, and the Department of Infrastructure, Local Government and Planning must be consulted before undertaking the assessment.

If shortlisted options are intended to generate cash inflows, the basis of derivation (e.g. benchmarks) and major underlying assumptions should be clearly documented (Table 17).

Table 17: Revenues Table for Options Template

REVENUES—OPTIONS

Revenues Option 1 NPV ($ million)

Option 2 NPV ($ million)

Option 3 NPV ($ million)

Operating Revenue

Other Revenues

TOTAL

Page 33: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 33

16.2.7. Analysis Summary

Provide a summary of the whole-of-life capital and operating costs and revenue in real NPV terms for each shortlisted option. Include any necessary commentary concerning specific associated issues. Ensure to report:

real FNPV outputs

cash flow impacts for each year over the project horizon

an assessment of financial sustainability (i.e. can a shortlisted option’s revenues cover its costs) and an assessment of funding sources for the project.

16.3. Potential Government Funding Sources

Preliminary consideration should also be given to budgetary impacts, as well as potential government (local, state and federal) funding sources for the shortlisted options. Queensland Treasury must be consulted.

16.4. Risk-Adjusted Financial Net Present Value

The outputs of risk assessments (Section 8) will allow for a probabilistic, Monte Carlo simulation to be used to provide the probability of various estimates of revenue and costs to a P50 level of confidence.

Provide a summary table of the risk-adjusted whole-of-life capital and operating costs and revenue in real NPV terms, together with any necessary commentary concerning specific associated issues. Ensure revenue or cost items that have changed as a result of the risk assessment are clearly identified. Report:

real P50 FNPV outputs

risk adjusted cash flow impacts for each year over the project horizon

a summary table of the risk adjusted whole-of-life capital and operating costs and revenue in outturn dollars.

Outturn dollars are the estimated dollar value for which the project will be completed assuming a given delivery period. Outturn dollars are calculated by escalating the estimated project cash flow for each year of the project to represent the actual project cost in future year dollars.

A P50 value is an estimate of the project revenue (or cost) based on a 50 per cent probability that the value will not be exceeded. P50 should be regarded as the minimum level of certainty achieved in the PBC.

Not all risks identified during a risk assessment will impact upon project revenues or costs. Some risks may, however, have implications for wider environmental, social or economic impacts and must be considered in Sections 14, 18 and 19.

Page 34: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 34

17. CONTROL POINT 3

Control Point 3 has now been reached. Before progressing with the PBC, complete the following checklist.

CONTROL POINT 3

# Have the following tasks been completed for each option? Section Yes No

1 Identification of all project generated revenues and costs. s16.2

2 Creation of a financial model that projects the cash flow profile generated from a project over its lifetime.

s16.2

3 A value capture and user charging assessment. s16.2.6

4 Consideration of budgetary impacts and potential funding sources. s16.3

5 Determine whether identified risks have consequences for the financial cash flow estimates and/or wider project benefit and cost estimates associated with the project.

s16.4

6 Consideration of whether the public or private sector may be responsible and best able to manage each identified risk.

s8.5.1

7 Perform a Monte Carlo simulation (e.g. @Risk) on the financial cash flow to a P50 level of confidence.

s16.4

# Have the following outputs been produced for each option? Section Yes No

1 A summary table of project revenues and costs reported in real NPV terms (including any necessary commentary).

s16.2.7

2 Net cash flow impact for each year over the project horizon. s16.2.7

3 A financial net present value (FNPV) for the project. s16.2.7

4 Documentation of the methodology applied, assumptions made, and information sources used to produce revenue and cost projections.

s16.2.7

5 Documentation of any limitations to the assessments performed. s16.2.7

6 A summary of budgetary impacts, as well as potential government funding sources.

s16.3

7 A summary of the outcomes of any structured review meetings, risk interviews and risk workshops held.

s16.4

8 A summary document demonstrating how each risk has been factored into a cost, revenue or benefit in the financial model.

s16.4

9 A real P50 FNPV. s16.4

10 Documentation of the risk adjusted cash flow impacts for each year over the project horizon.

s16.4

11 Summary table of risk adjusted costs and revenue in outturn dollars. s16.4

12 Risk register has been updated to include risk assessments from Section 16.

s8.4

Page 35: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 35

18. PRELIMINARY SOCIAL IMPACT EVALUATION

This section outlines the social impacts of the shortlisted options. This ensures that social impacts arising from the options are clearly identified and accounted for in the decision-making process. For the PBC, the social impacts of shortlisted options need to be identified and described in detail in comparison with the base case.

18.1. Approach

Four complementary approaches to identifying the social impacts (benefits or costs) that should be included in an SIE for shortlisted options include:

consideration of internationally accepted categories of social impacts

referencing previous projects and exploring existing literature

engaging identified stakeholders

categorising social impacts that can or cannot be monetised.

International literature groups project-related social impacts into eight categories: lifestyle impacts, cultural impacts, political systems, community impacts, quality of life impacts, health impacts, personal and property rights, and intergenerational impacts. As shortlisted options may be similar to previously delivered projects in Queensland or elsewhere, previous projects may also offer insight into social impacts of the proposed options.

Further detailed guidance on completing a social impact evaluation (SIE) including impact risk assessments (IRA) can be found in the Building Queensland Social Impact Evaluation Guide.

18.2. Stakeholder Engagement

Stakeholder engagement is critical for a social impact evaluation and is a key principle of the Social Return on Investment Analysis approach. Stakeholder engagement enables an understanding of the relationship between activities related to shortlisted options and the outcomes experienced by stakeholders. Table 18 illustrates how stakeholders might be engaged in an SIE.

Page 36: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 36

Table 18: Example Stakeholder Involvement

STAKEHOLDER INVOLVEMENT

Recommend Involvement Could be involved

Plan Establishing scope Identifying stakeholders Decide how to involve stakeholders

Develop analysis Identifying inputs

Valuing inputs

Clarifying inputs Data collection Collecting outcomes data

Establishing how long outcomes last Conduct analysis Putting a value on the outcome

Analysing deadweight and displacement

Attribution

Drop-off

Verification

Results Using the results

18.3. Evaluation

Identified social impacts can be divided into three assessment categories:

social impacts that can be quantified and monetised (include in the CBA)

social impacts that can be quantified and not monetised

social impacts that cannot be quantified or monetised.

The relationship between social impacts and the evaluation approach to be applied is illustrated in Table 19.

Table 19: Relationship Between Social Impacts and Approach

RELATIONSHIP BETWEEN SOCIAL IMPACTS AND APPROACH

Quantified Monetised Approach

Social Impacts CBA

Impact Risk Assessment

Impact Risk Assessment

Page 37: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 37

Ensure that the following tasks are completed for each shortlisted option:

determine whether each identified social impact can be quantified and monetised

determine the appropriate evaluation approach for each social impact

ensure all social impacts that can be monetised are incorporated into the CBA (Section 19)

ensure all social impacts that cannot be monetised undergo an impact risk assessment (Section 18.4).

18.4. Impact Risk Assessment

An IRA should be undertaken on the social impacts that cannot be monetised. The IRA should ideally be conducted for all the key stakeholder groups. Guidance on undertaking an IRA is provided in the SIE Guide. On completion of the IRA, strategies can be developed to address predicted negative social impacts and enhance potential positive impacts. An estimate of the remaining social impacts after implementation of these strategies should be reported for each option.

The results of the SIE (i.e. evaluation of social impacts that cannot be monetised) should be reflected in the overall risk assessment for options and incorporated in the multi-criteria assessment (Section 24) to assist in selecting an option to be carried forward to the DBC.

A quantitative SIE is not required for a PBC.

19. PRELIMINARY ECONOMIC ANALYSIS

This section outlines the economic implications and impacts of the shortlisted options.

19.1. Approach

The suitability of different to economic analysis depends on the purpose of the assessment and the availability of data and other resources. Fundamental to any economic analysis is the comprehensive identification (where possible) of all costs and benefits. These costs and benefits are characterised by impacts on people, rather than organisations or decision-makers and by observable consequences that are measureable.

A CBA must be undertaken for all infrastructure projects with capital costs exceeding $50 million. This requirement also extends to the inclusion of a preliminary environmental assessment (Section 14) and preliminary social impact evaluation (Section 18).

Reference should be made to Building Queensland’s Cost Benefit Analysis Guide in developing the economic case. A moderate degree of certainty (P50) surrounding the estimate of costs and benefits is required for a PBC. P50 is the minimum level of certainty required in the PBC.

Given the potential diversity of infrastructure investments that Building Queensland may consider, and the size of the capital programs likely to accompany each of these projects, consistent application of economic analysis and a consistent approach to selecting preferred options is important (Section 24).

Page 38: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 38

19.2. Methodology

Describe the methodology adopted for the economic analysis of the shortlisted options. This should include reference to, and documentation of:

assumptions underlying the analysis (e.g. base price year, discount rate, modelling and forecasting assumptions)

key inputs (e.g. costs, modelling) to the analysis

description of the base case and the options.

Data limitations may prevent all project costs and benefits being incorporated into a Benefit Cost Ratio (BCR). In such circumstances, analysis of non-monetised benefits are to be included in Sections 14 and 18.

The central case should be assessed using a discount rate of seven per cent with sensitivity testing conducted using four per cent and 10 per cent. Additional discount rates can be sourced from Queensland Treasury. Net Present Value (NPV) should be presented for all shortlisted options.

19.3. Benefits

Identify the benefits including any party positively or negatively impacted by the option. The purpose of estimating benefits is to consider whether an option’s benefits are worth its costs. The general rule is that benefits should be valued unless it is clearly not practicable to do so.

Key benefit streams such as improved service, increased productivity and reduced costs should be presented separately in a table or graph.

19.4. Costs

Identify the economic costs of the shortlisted options. For significant infrastructure projects, the relevant costs are likely to equate to the full economic cost of providing the associated goods and services over the lifecycle of the asset. For these proposals, the full economic cost should be calculated, net of any expected revenues for the shortlisted options. This includes direct and indirect costs, and attributable overheads. Note, in most cases a number of adjustments may need to be made to project costs in order to convert outturn estimates to real economic costs for application in the economic analysis.

An example is the removal of inflationary effects like escalation from the calculation within the CBA. Key costs should be summarised (Table 20).

19.5. Cost Benefit Analysis Results

Provide a summary of the value of incremental benefits and costs (at P50 level) and the resulting NPV and BCR, along with a discussion of the results for each shortlisted option.

Page 39: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 39

Table 20: Template Cost Benefit Summary Table

COST BENEFIT ANALYSIS RESULTS (P50)

Item 4% 7% 10%

Project Benefits

Total Benefits

Project Costs

Total Costs

Net Present Value

Benefit Cost Ratio

Page 40: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 40

20. CONTROL POINT 4

Control Point 4 has now been reached. Before progressing with the PBC, complete the following checklist.

CONTROL POINT 4

# Have the following tasks been completed for each option? Section Yes No

1 Identify, categorise and describe all the potential social impacts for each option (relative to the base case options).

s18.1 & SIE Guide

2 Determine whether identified social impacts can be quantified and/or monetised.

s18.3 & SIE Guide

3 Perform a cost benefit analysis (CBA) to a P50 level of confidence. s19 & CBA Guide

4 Assessment of any risks that may impact the project. s8

5 Consideration of whether the public or private sector may be responsible and best able to manage each identified risk.

s8

# Have the following outputs been produced for each option? Section Yes No

1 A summary of the social impact stakeholder consultation process and outcomes.

s18.2 & SIE Guide

2 Outcomes of a social impact evaluation documented, including:

identified social issues and impacts

all sources used for the assessment and assumptions made

results of the assessment including the evaluation approach and percentage of the estimated impacts allocated to the three evaluation approaches.

s18.3 & SIE Guide

3 Documentation of:

assumptions underlying the CBA analysis undertaken

key inputs to the analysis.

s19 & CBA Guide

4 A summary table of the value of incremental benefits and costs (based on a P50 level).

s19 & CBA Guide

5 A P50 Net Present Value (NPV). s19 & CBA Guide

6 A Benefit Cost Ratio (BCR). s19 & CBA Guide

7 Documentation of the risks to which a project could be exposed. s8

8 A summary of the outcomes of any structured review meetings, risk interviews and risk workshops held.

s8

9 Risk register has been updated to include risk assessments from Sections 18 and 19.

s8.4

Page 41: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 41

21. DELIVERY MODEL ANALYSIS

The purpose of this section is to outline and assess the range of possible delivery models by which shortlisted options could be procured and delivered. The objective of the assessment is to identify a delivery model that is likely to provide the best value for money (VfM) in meeting the identified service need.

21.1. Approach

Describe the methodology adopted for the delivery model assessment of shortlisted options. This should include documentation of:

assumptions underlying the analysis

project characteristics (e.g. objectives. scope, timelines, stakeholders)

project key inputs (e.g. costs, risks, market sounding, financial analysis) to the analysis

literature used to inform the assessment, in particular, current issues and case studies on delivery of similar projects in Queensland and other jurisdictions

packaging opportunities and scenarios

project items not considered as part of the analysis

criteria and measures for analysis including the importance of the criteria

evaluation and mitigation of risks.

21.2. PPP Delivery Model Assessment

Undertake an assessment of the potential for the Queensland Government to achieve VfM by delivering a project under a PPP arrangement with private finance rather than traditional delivery.

For the PBC, the VfM assessment is completed on a qualitative basis only. The assessment is limited to whether a PPP arrangement provides the potential to deliver VfM as opposed to an assessment of the relative merits of the range of PPP models available. VfM drivers may include, but are not limited to:

project scale

risk allocation

whole-of-life costing

innovation

improved asset utilisation

economies of scale

competitive process.

Generate a summary of the assessment (Table 21).

Page 42: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 42

Table 21: Example Value for Money Assessment Summary

VFM ASSESSMENT SUMMARY

Driver Score Description

Project Scale

Risk Allocation

Whole-of-Life Costing

Innovation

Improved Asset Utilisation

Economies of Scale

Competitive Process

Overall Assessment: There is a [low/moderate/high] possibility of a PPP providing value for money

Further guidance on undertaking a qualitative VfM assessment can be found in the PAF and the National PPP Guidelines. Workshops may be required to facilitate discussion and robust assessment. The results of the VfM assessment should be included in the multi-criteria assessment in Section 24.

In the event a shortlisted option is recommended to proceed to DBC, a recommendation on whether the option should proceed as a potential PPP must be made. Any option assessed as having a moderate or high potential for VfM from PPP delivery should receive a recommendation to proceed as a PPP project.

At the end of the PBC stage, if an option is deemed to be affordable, a priority, and potentially appropriate for delivery as a PPP, the development of a detailed business case for the project would proceed following the National PPP Guidelines in conjunction with the Queensland PPP supporting guidelines. The Building Queensland DBC template and guidance may still provide a useful basis for this business case, as a similar structure would apply. The methodology for detailed analysis should be undertaken with reference to the National PPP Guidelines, in accordance with the PAF.

If the project is recommended to proceed but not deemed potentially appropriate for PPP delivery, it should proceed to the DBC stage.

21.3. Traditional Delivery Model Assessment

Outline which delivery models were assessed. These may include:

design and construct (D and C)

design then construct (D then C)

design, construct and maintain (D, C and M)

design, construct, maintain and operate (D, C, M and O)

alliance

competitive alliance

early contractor involvement (ECI)

early tenderer involvement (ETI)

managing contractor.

Page 43: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 43

Describe the delivery models considered for each option and component/s of each option (if applicable) and key considerations (precedent projects, risk allocation) and undertake an assessment against the evaluation criteria. Workshops may be required to facilitate discussion and robust assessment.

A summary of a traditional delivery model assessment is provided in Table 22.

Table 22: Example Traditional Delivery Model Assessment

TRADITIONAL DELIVERY MODEL ASSESSMENT

Option Component Preferred Traditional Delivery Model

Option 1 Component 1

Component 2

Option 2 Component 1

Component 2

Component 1

Option 3 Component 2

Component 3

22. AFFORDABILITY ANALYSIS

This section brings together the range of discussions in preceding chapters of the PBC to outline affordability considerations for each shortlisted option. The purpose is to present all relevant information to allow decision-makers to assess whether each option is affordable over the whole of its life by taking into account all sources of existing revenue, as well as additional income from other sources.

22.1. Approach

Project affordability is measured by the expected risk-adjusted finance net cost to the State of delivering the options through traditional delivery. Describe the methodology for the affordability assessment.

22.2. Affordability Assessment

Provide an indication as to the affordability of the project and the relative affordability of the shortlisted options.

This could include an assessment of staging options, revenue sources (if applicable), preferred delivery options and funding availability (in terms of both capital and operating costs), and conditions and timing—acknowledging that the delivery options under consideration will have implications for funding profiles.

Page 44: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 44

23. CONTROL POINT 5

Control Point 5 has now been reached. Before progressing with the PBC, complete the following checklist.

CONTROL POINT 5

# Have the following tasks been completed for each option? Section Yes No

1 A qualitative assessment of a range of potential delivery models (traditional and PPP) to determine which delivery model is likely to deliver the best value for money.

s21

2 Consideration of the affordability of each option (taking into account all the previous analysis performed in the PBC).

s22

3 Identification of any risks that might impact the project. s8

4 Consideration of whether the public or private sector may be responsible and best able to manage each identified risk.

s8

# Have the following outputs been produced for each option? Section Yes No

1 Documentation of the methodology adopted for the delivery model assessment.

s21

2 A summary of the outcomes of a VfM PPP Assessment. s21

3 A summary of the outcomes of a traditional delivery model assessment.

s21

4 Documentation of the methodology adopted for the affordability assessment.

s22

5 A summary of the outcomes of an affordability assessment (including documentation of the relative affordability of each option).

s22

6 Risk register has been updated to include risk assessments for Sections 21 and 22.

s8.4

Page 45: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 45

24. PREFERRED OPTION FOR FURTHER DEVELOPMENT

The purpose of this section is to undertake an assessment of the shortlisted options to identify a preferred option for further development in the DBC.

24.1. Approach

Describe the assessment methodology adopted for option assessment.

24.2. Selection of Preferred Option

The multi-criteria assessment used to select the preferred option (Table 23) is informed by criteria generated by the Building Queensland Prioritisation Framework for the purposes of prioritising projects across government.

The criteria across four areas (strategic, economic and financial, social and environmental, and deliverability) are weighted equally in this process. Where criteria cannot be quantified, a qualitative scope of each option’s level of contribution towards each criterion will be applied. Rules would be developed to convert quantitative and qualitative data into a score in the multi-criteria assessment.

Table 23: Example Option Assessment Summary

OPTION ASSESSMENT OPTION 1 OPTION 2 OPTION 3

Strategic Appraisal

Alignment to objectives (state, community, agency, project including the State Infrastructure Plan (SIP).

Low Medium Medium

Established project need/benefits sought Low Low Medium

Option aligns with SIP priorities (Reform, Better Use, Improve Existing, New)

Medium Low High

Economic and Financial Appraisal

Benefit Cost Ratio (BCR) n/a 1.1 1.2

Net Present Value (NPV) n/a

Social and Environmental Appraisal

Social Impacts Negative (Medium) Negative (Medium) Positive (Low)

Environmental Impacts Negative (Low) Negative (Low) Negative (Low)

Deliverability Appraisal

Risk Medium High Medium

Financial NPV (FNPV)–P50 n/a $70m $120m

Potential for VfM from PPP delivery n/a n/a Low

Ranking 4 3 1

Page 46: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 46

24.3. Impacts of Preferred Option

24.3.1. Strategic Impact

Describe the strategic impact of the preferred option.

24.3.2. Economic Impact

Describe the economic impact (quantitative and qualitative) of the preferred option.

24.3.3. Social and Environmental Impact

Describe the social and environmental impact of the preferred option.

24.3.4. Financial and Commercial Impact

Describe the financial and funding impact of the preferred option.

24.3.5. Procurement Approach

Describe the proposed procurement approach and delivery model of the preferred option.

24.4. Criteria for Success

Include an outline of what is required to successfully achieve the outcome sought. Criteria should be measurable and realistic. Criteria for success will vary according to the outcome sought but may include:

performance levels and availability

development and running costs

major functions and operation

accuracy, reliability and ease of use

appearance and amenity

security and safety.

24.5. Priority

Document the priority of the project, including a description of the key impacts if the project does not proceed.

25. CONCLUSIONS

The purpose of this section is to summarise the service need or problem, outcome and benefits sought, options analysis, and preferred option.

Taking into consideration the estimates of the preferred option’s costs and benefits, depth of technical investigations, sensitivity analysis, market sounding, and preliminary procurement strategy, discuss how the preferred option is likely to deliver value for money and be affordable over the life of the option.

Page 47: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 47

26. PLANS

26.1. Detailed Business Case Plan

If the PBC is recommending a preferred option progresses to a DBC, a detailed project plan and resource plan to develop the DBC is required. The plan should include an examination of the requirements to implement the project including:

governance

project plan

resource requirements

cost estimate.

This material is to be detailed and should explain how implementation will be managed and delivered.

Identify the key project milestones and for each milestone, record the date and responsible person. Clarify what is in scope and out of scope.

27. RECOMMENDATIONS

The purpose of this section is to:

recommend whether the preferred option should progress to DBC or conclude at this point

recommend whether the preferred option should proceed as a potential PPP

recommend a preferred traditional delivery model for the preferred option (this recommendation should be made regardless of whether the preferred option has been identified as a potential PPP)

if the recommendation is to proceed, seek approval for the DBC plan

highlight significant issues or risks for decision-makers, if appropriate.

28. REFERENCES

AS/NZS ISO 31000:2009 Risk Management–principles and guidelines

Australian Government (2015), National PPP Policy Framework

Queensland Government (2015), Project Assessment Framework: Business Case Development

Queensland Government (2015), Project Assessment Framework: Preliminary Evaluation

Queensland Government (2015), Project Assessment Framework: Queensland PPP supporting guidelines

Queensland Government (2016), State Infrastructure Plan.

Page 48: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

Building Queensland Preliminary Business Case 48

29. CONTROL POINT 6

Control Point 6 has now been reached. To conclude the PBC, complete the following checklist.

CONTROL POINT 6

# Have the following tasks been completed? Section Yes No

1 An assessment of options and identification of a preferred option. s24

2 Identify the key impacts of the preferred option. s24

3 Consider what is required for the preferred option to successfully achieve the outcome sought.

s24

4 Consider the priority of the preferred option and the implications associated with not proceeding.

s24

5 Prepare a detailed project and resource plan for the preferred option.

s26

6 Summarise all of the analysis, prepare a concluding statement, recommendations and an executive summary.

s2, s25, s27

# Have the following outputs been produced? Section Yes No

1 Documentation of all sources used, assumptions made and methodology adopted for selecting a preferred option.

s24

2 A summary of the multi-criteria options assessment. s24

3 Descriptions of:

the key impacts associated with the preferred option

the priority of the preferred option

the implications of not proceeding with the preferred option.

s24

4 A detailed project and resource plan for the detailed business case. s26

5 Recommendations, including:

whether the preferred option should progress to the DBC

whether the preferred option should proceed as a potential PPP

the preferred traditional delivery model for the preferred option.

Recommendations must be accompanied by:

a request for approval of the DBC Plan

documentation of any significant issues or risks for decision-makers.

s27

6 A concluding statement. s25

7 An executive summary. s2

8 Risk register has been updated to include risk assessments from Sections 21 and 22.

s8.4

Page 49: PRELIMINARY BUSINESS CASE - Building Queenslandbuildingqueensland.qld.gov.au/wp-content/uploads/2016/05/... · Preliminary Business Case Social Impact Evaluation ... The PBC follows

T 07 3237 7500 E [email protected] Level 30, 12 Creek St, Brisbane QLD 4000

buildingqueensland.qld.gov.au