NHS Grampian – Community Health and Care Village Project
OBC – Draft FIFTEEN November 2008
CONTENTS
1.0 Executive Summary Page 2
2.0 Introduction Page 5
3.0 Strategic Context Page 11
4.0 The Need for Investment Page 16
5.0 Project Objectives Page 19
6.0 Identification of Benefits & Options Page 23
7.0 Evaluation of Options (Benefits Appraisal) Page 37
8.0 Costs Page 39
9.0 Risk and Uncertainty Appraisal Page 55
10.0 Identification and Development of Preferred Option Page 58
11.0 Procurement Page 60
12.0 Sustainability Page 65
13.0 Implementation Plan Page 68
14.0 Project Management Arrangements Page 70
15.0 Management of Issues Affecting Deliverability Page 78
APPENDICES
Appendix One Consultation Exercise
Appendix Two Workshop Participants
Appendix Three Options Evaluation results sheets
Appendix Four Risk Management Workshop results
Appendix Five Accommodation Schedule
Appendix Six Project Programmes
Appendix Seven Indicative Site Plans for Preferred Option & Cornhill site
Appendix Eight Optimism Bias Workshop Templates
Appendix Nine Reference Group Accommodation Workshops - Outcomes
1.0 Executive SummaryIntroduction
The purpose of this Outline Business Case (OBC) is to formulate and appraise the options and to identify the preferred option for the investment required to achieve the creation of a Primary and Community Health Care “Village” designed to enhance accessibility to services for the people of Aberdeen.
Specifically, this document seeks to achieve the following:
· Identify and develop the preferred option for the proposed scheme
· Demonstrate that this has been achieved through a rigorous investment appraisal process (Please refer to Sections 6.0 – 10.0)
· Demonstrate that it is in response to a robust case for change and is in line with national and local strategies and priorities (Please refer to Sections 3.0, 4.0 and 5.0)
· Demonstrate that key stakeholders have been involved in formulating the options and are committed to the proposals (Please refer to Sections 6.0 and 7.0)
· Identify the revenue costs relating to dental education that will require funding commitment from the Scottish Government (Please refer to Section 8.0)
· Identify the share of revenue funding relating to the direct service provision to be funded by NHS Grampian (Please refer to Section 8.0)
Following the definition of the context and scope of the project (Sections 2.0 – 5.0) a benefits and options exercise was carried out, involving stakeholders from all of the partnering organisations (Please refer to sections 6.0 and 7.0). The clear preferred option arising from this exercise was Option 3B, a New Build in a city centre site.
All of the options had their capital costs built up (Please see section 8.0). The revenue implications for all options were similarly explored – particularly in regard to the preferred option.
Similarly, a risk identification/management workshop and exercise was carried out for all of the options (Please see section 9.0) with further development work undertaken to identify and manage the major risks affecting the preferred option (Please refer to Section 15.0)
Following these exercises, the original preferred option continued to represent the best outcome for the project.
The methodology of achieving the anticipated delivery dates are explored in Section 13.0 “Implementation Plan”, Section 15.0 and at Appendix Six which contains the project programme.
The management arrangements for this project are discussed at section 14.0.
The OBC overall Capital development cost for the project (assuming Option 3B, a New Build in a City Centre site – the Frederick Street site) is shown in the Capital cost Table below: -
Project component / CostNew Build Accommodation / £11,763,203.00
Oncosts at 60% / £7,057,922.00
Construction Total: / £18,821,125.00
Site Investigations / £55,000.00
Land Acquisition / £4,000,000.00[1]
Design and Project management fees / £2,258,535.00
Planning and Building Warrant fees / £100,000.00
Decant / £175,000.00
Furniture Fixtures and Equipment / £2,325,641.00 (Under review)
VAT[2] / £3,740,934.00
Project Total: / £31,476,235.00
Factor in optimism Bias @ 26% / £8,183,821.10
Total Project Costs at This Stage: / £39,660,056.10
However, it should be noted that this figure assumes all new equipment (an exercise will be carried out to determine the exact extent of equipment to be retained) and allows for Optimism Bias of 26%, reflecting current uncertainty over the final timings for the site for the project.
The previous estimate of capital has been provisionally incorporated in NHS Grampian’s fifteen year capital plan as follows –
NHS Grampian – Extract from Fifteen Year Capital Plan
2008/09 / 2009/10 / 2010/11 / 2011/12 / 2012/13£m / £m / £m / £m / £m
0.010 / - / 7.000 / 10.000 / 19.990
The provisional insert in the capital plan is based on a previous estimate of the capital cost. The latest estimate is in excess of this by £2.7 million due to an expected increase in the cost of land acquisition and the knock on impact on optimism Bias.
Net additional revenue costs associated with the preferred option amount to £2.097 million, including capital charges. The latter, based on the above capital estimate, is £1.693 million. Additional running costs are estimated at £0.404 million. Both have been calculated after allowing for contributions from the closure of existing facilities. Please refer to section 8.7 for comparison of options and the summary in section 8.11 (Affordability Analysis) for the additional cost of the preferred option using the Full Cost Capital Model.
Allowing for a revised capital valuation by the DV, which is less than the capital cost above, reduced capital charges would apply giving a net additional revenue cost of £1.555 million. Detail is provided in the summary of section 8.11 (Affordability Analysis).
hub
The current position on procurement for the project is that a Guaranteed Maximum Price (GMP) mechanism will be used with design work being initially led from the Board’s side. However, the upcoming impact of the hub initiative is not overlooked within this OBC and there is discussion, with comparative timescales and costs, for integration of this project into the upcoming hub “pathfinder” projects initiatives.
While recent dialogue with Scottish Government representatives suggests there is scope for different models to apply within hub it is presumed for this purpose that procurement would be through a Private route.
Therefore, as a hub initiative, the impact for NHS Grampian will be in revenue rather than capital terms. The revenue assumptions of the project proceeding as a hub initiative are: -
The District Valuer’s opinion is that NHS Grampian could expect rental levels of £22 – £25 per Sqft or £237 - £269 per Msq. For the purposes of this Outline Business Case we shall assume the worst case scenario and base all calculations on the upper of these rates.
Therefore £269.00 per Msq for the entire facility would be as shown below: -
(25x10.763) = £269 per Msq x 7134 (Functional Area) = £1,919,046.00 PA rental. This assumes the lease can be accounted for “off balance sheet” and does not attract interest.
On to this NHSG would have to factor additional rates at approximately £152,000.00 based on information from the internal Estates Department. Other additional costs would be incurred relating to the running and upkeep of the building. For this purpose it is assumed these will be consistent with those for the capital cost model but excluding rates and external maintenance, ie £243,000.00. Figures are after allowing for contributions from the facilities that will close, ie additional revenue.
The overall additional annual cost therefore, is considered to be of the order of £2,314,046.00 per annum. This is predicated on the lease being treated as “off balance sheet” which has still to be demonstrated.
Further attention will need to be given to costing the hub option as it is not entirely clear how this initiative will work at this stage. However, initial calculations suggest it could be a more expensive option than a straight capital project.
2.0 IntroductionThe purpose of this Outline Business Case (OBC) is to formulate and appraise the options and to identify the preferred option for the investment required to achieve the creation of a Primary and Community Health Care “Village” designed to enhance accessibility to services for the people of Aberdeen. The preferred option arising from this Outline Business Case shall be demonstrated to have been brought forwards through an objective investment appraisal process.
This process of arriving at the preferred solution shall represent the decision making process in order to best meet NHS Grampian’s strategic objectives.
Therefore the main objectives of this Outline Business Case (OBC) are to:
· Identify and develop the preferred option for the proposed scheme
· Demonstrate that this has been achieved through a rigorous investment appraisal process
· Demonstrate that it is in response to a robust case for change and is in line with national and local strategies and priorities; and
· Demonstrate that key stakeholders have been involved in formulating the options and are committed to the proposals
2.1 Purpose and Structure of OBC
The Outline Business Case should convincingly demonstrate that the project is economically sound, financially viable and will be well managed. Within the Healthcare environment the business case should clearly identify the benefits for patients and service providers. Therefore this document contains the objectives of the investment, the short listed options (including the costs, benefits and risks related to each option), the preferred option and the impact on the Board’s position in the provision of Primary and Community Healthcare and their ability to meet financial and service objectives.
The OBC has been divided into 15 sections as follows:
Section 1.0: / Executive Summary; A summary of the Outline Business Case content.Section 2.0: / Introduction; Setting the scene, the methodology followed in the preparation of this OBC
Section 3.0: / The Strategic Context; Examination of the National and local issues and priorities in Healthcare with an emphasis on shifting the balance of care.
Section 4.0: / The Need for Investment; Examination of current accommodation and circumstances, identification of shortfalls in accommodation and constraints on future service delivery.
Section 5.0: / Project Objectives; Following on from the above, the objectives that need to be achieved by the project generated from this OBC
Section 6.0: / Identification of Options; Summary of the Options exercise and detail of the options chosen
Section 7.0: / Evaluation of Options (Benefits Appraisal); Details the Options Evaluation methodology, exercises and results, all in relation to the benefits of each option.
Section 8.0: / Costs; Detail on the costs of each of the options
Section 9.0: / Risk and Uncertainty; Methodology, exercises and results of the risk workshops for each of the options.
Section 10.0: / Identification and Development of the Preferred Option; This section draws all of the previous evaluation steps together, identifies the Preferred Option and outlines the subsequent steps taken to develop the Preferred Option further.
Section 11.0: / Procurement; Examines the most efficient methodology to procure the project
Section 12.0: / Sustainability; Discusses sustainability issues around the implementation of the Preferred Option
Section 13.0: / Implementation Plan; Details the Programme and the Phasing for the project
Section 14.0: / Project Management Arrangements; Details the manner in which the Board shall ensure that the project is managed in accordance with good governance.
Section 15.0: / Management of Issues Affecting Deliverability; This section will examine any issues that are liable to affect the deliverability of the project, and outline the steps being taken to ameliorate these issues.
The figures and analysis underlying the calculations and the conclusions are displayed within the main body of the OBC and within the Appendices.
Process to OBC Delivery
The process to delivery of the Outline Business Case entails 8 key steps. The general principles and the process followed within this OBC are in line with the key stages of the Scottish Capital Investment Manual (SCIM) and are outlined in the flow chart below. Additionally, the layout and methodology of the OBC conforms to the requirements of the Scottish Executive Health Department for Capital Investment (HDL (2002) 87).
The main process steps that were followed in this Outline Business Case are described below and should be followed in conjunction with the flow chart displayed on the previous page.
Step 1 – Establish Strategic Context
The first stage in developing this OBC was identifying and gaining an appreciation of the strategic context of the proposed investment. The purpose of this stage was to ensure that the proposed capital expenditure is consistent with the Board’s wider objectives. This also included the consideration of the effects of the proposed investment in achieving their wider objectives.
The main areas investigated and documented included:
§ The main service objectives of the Board
§ Market analysis
§ Affordability
The main Outputs from Step 1:
§ A clear and concise documentation of the Board’s overall service objectives
§ A demonstration of an understanding of the region within which the Board operates and assessment of the Board’s own strengths and weaknesses within the region
§ A demonstration of the affordability of any investment to the Board
§ An outline description of the services which the Board intends to provide in the future
§ Identification of specific service developments that are required
Step 2 – Define Objectives and Benefit Criteria
Following the identification of the Board’s wider objectives and service environment in the previous step it was possible to focus on the identification of specific objectives, the ranking of those objectives, their constraints and the identification of relevant benefits criteria.
It is vital that the areas identified in the list below for investigation are covered within this OBC. This process ensures that the objectives identified are purposeful. Ranking of the objectives was implemented in order to assist with option selection. Constraints were identified and documented in order to gauge their impact upon specific objectives. The benefits criteria set will allow for the careful selection and evaluation of the options.
The main areas identified and reviewed were:
§ Service Objectives
§ Investment Objectives