20100209 scaf workshop on ia

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20100209 scaf workshop on ia

  1. 1. SCAF WORKSHOP ON INVESTMENTAPPRAISAL – CURRENT POLICY ANDPRACTICE IN MOD9 FEBRUARY 2010NEIL V DAVIES, JOHN OGILVIE, PRABHAT VAZEMINISTRY OF DEFENCE Division of Economic Statistics and Advice
  2. 2. SLIDE 1VALUE FOR MONEY Value for Money (vfm) is optimal combination of  Economy – ie Cost of Inputs (1/M):Inputs/Money)  Efficiency – ie Ratio of Output to Inputs (O/I:Outputs/Inputs)  Effectiveness – ie Value of Outcomes from Outputs (V/O:Value/Outputs Hence vfm = Vfm is a relative not absolute construct
  3. 3. SLIDE 2OUR ROLES IN MOD INVESTMENT APPRAISALAND EVALUATION  Responsible for MOD policy on Investment Appraisal (IA) and Project Evaluation (PE) and ensuring MOD compliance with HM Treasury’s “Green Book” guidance  Provide advice and guidance on IAs and PEs eg JSP507  Scrutinise IAs/COEIAs, OBCs for all projects subject to Central Approval (eg Ministers, IAB, DEC)  Review sample of TLB IAs/PEs for Health of Financial Systems Review
  4. 4. SLIDE 3PURPOSE OF IA To ensure Value for Money is obtained from investment decisions Effective appraisal and evaluation are fundamental requirements of Treasury delegations
  5. 5. SLIDE 4MAIN FORM OF IA IN MOD: COSTEFFECTIVENESS OF ANALYSIS Compares the costs of alternative ways of producing the same or similar outputs, which are not given a monetary value While every effort should be made to quantify benefits, cost benefit analysis is not appropriate or feasible for most defence projects
  6. 6. SLIDE 5 COMBINED OPERATIONAL EFFECTIVENESS & INVESTMENT APPRAISAL (COEIA)Military E For D BBusinessEffectiveness C Options A 45º Whole Life Cost
  7. 7. SLIDE 6BASIC QUESTIONS FOR IA Why is it necessary to commit resources? What do we want to achieve? What options are available? How much will they cost?
  8. 8. SLIDE 7MODEL OUTLINE OF MOD IA establish requirement define objectives identify options quantify costs and benefits of (shortlisted) options compare these in NPV terms evaluate risks and uncertainties consider unquantifiable factors present results and make recommendation plan for Project Evaluation
  9. 9. SLIDE 8QUALITY OF TLB IAs Quality improving from a low base Numbers of IAs declining 01/02 02/03 2003 2004 2005 2006 2007 2008 2008 2008 2009 H1 H2 H1 Poor 72% 72% 49% 35% 42% 42% 44% 33% 47% 20% 27% Adequate 19% 23% 32% 44% 34% 38% 35% 56% 45% 66% 59% Good 9% 5% 19% 21% 24% 20% 21% 11% 8% 14% 14% Sample 22 87 78 96 137 74 98 82 38 44 51 of IAs Total No 1154 1355 1207 831 498 389 334 229 64 165 83 of IAs
  10. 10. SLIDE 9PRACTICAL ISSUES WITH IAs/COEIAsSUPPORTING CENTRALLY APPROVEDPROJECTS We have around 180-200 live projects at any time Most IAs at a high standard by the time they go to IAB But at draft stage main problems • vague/uncertain specification of requirement • limited consideration of alternative options/case written around preferred option • particular challenges with partnering • affordability often uncertain
  11. 11. SLIDE 10CHALLENGES1. Increasing competition for resources - Fiscal position means next comprehensive Spending Review will bring severe squeeze on spending - Defence will need to compete with other spending priorities2. Strategic Defence Review - This will provide long-term direction - Need for evidence on VFM to support direction - Can appraisal provide more for strategic decisions?3. Gray Review findings and appraisal - Highlights problems of Entryism and Optimism Bias - Findings include skills gaps and technical shortcomings - Poor information mixes with competing interests and incentives
  12. 12. SLIDE 11 WHERE WE MIGHT FOCUS:Training & GuidanceRequirements &options identificationOptimism biasIntegratesupplementaryguidanceExamples & betterpresentationTraining for managers& practitioners
  13. 13. SLIDE 11 WHERE WE MIGHT FOCUS:Training & Guidance EvaluationRequirements & Encourage moreoptions identification evaluationOptimism bias Share best practise on IA evaluationIntegratesupplementary Highlight feedbackguidance role into appraisalExamples & better Use existingpresentation evaluative results: optimism biasTraining for managers& practitioners
  14. 14. SLIDE 11 WHERE WE MIGHT FOCUS:Training & Guidance Evaluation Wider applicationsRequirements & Encourage more Could appraisal helpoptions identification evaluation at concept level?Optimism bias Share best practise on What role in planning IA evaluation round?Integratesupplementary Highlight feedback What IA evidence canguidance role into appraisal be used for prioritisation?Examples & better Use existingpresentation evaluative results: optimism biasTraining for managers& practitioners
  15. 15. SLIDE 12 ANY QUESTIONS?

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