3. Commercial, Financial and Management Case
3. Commercial, Financial and Management Case
The purpose of the Strategic Business Case is to provide a Rationale for Intervention and provide enough evidence for a scheme or project to be allowed to proceed to development. At this stage of the project, it would be inappropriate to develop detailed information on the commercial, financial, and management arrangements for particular interventions. The section below does, however, set out expectations for the criteria of each and how these will develop over time.
Once a clear Investment Case is established there will be a requirement to develop a robust Commercial Case. This will outline the proposed deal in relation to the preferred option or options identified by the Investment Case.
This strategy summarises the best way of achieving the objectives of the project and value for money, taking account of the risks and constraints, leading to decisions on the most appropriate funding mechanism and asset ownership of the High Speed cross-border railway. The aim of the procurement strategy is to achieve the optimum balance of risk, control and funding.
Through the development of the project to the Outline Business Case stage a number of procurement routes will be identified as having the potential to achieve the objectives of the project and value for money in accordance with the relevant guidance. The cost, risk and benefits associated with these routes will be analysed and presented to investment decision makers. The project could be financed in several ways, including capital grant financing, private financing, Network Rail Regulatory Asset Base (RAB) financing, or a combination of the three. In their recent report into high speed rail options Network Rail rule out the option of RAB financing based on the experiences of High Speed 1 (the Eurostar link) and similar international projects.
This financial case sets out the forecast cost and revenue implications of the preferred option (as set out in the investment case section), the proposed options for financing the costs as described in the commercial case, and the affordability impact . It will confirm whether the project is affordable to Transport Scotland and the Department for Transport. At this stage the cost to Government and the apportionment of the cost is unknown. This will be identified through the work-stream lead by High Speed 2 and subsequent negotiations between the UK and Scottish Governments. Evidence from Network Rail and Greengauge suggest the cost of constructing a dedicated high speed rail network, including cross-border line, will vary between £30 billion to over £100 billion, depending on alignments.
The impact on Transport Scotland’s income will be calculated by preparing an outline cost plan (OCP) which estimates all required capital and operational expenditure.
At this stage management arrangements are also unknown. As the scheme proceeds to development of an Outline Business Case the management case will be developed to set out the actions required to ensure the successful delivery of the scheme in accordance with best practice, and in a manner consistent with the procurement strategy established.
Project management arrangements
The nature of the project will require clear management arrangements, including roles and responsibilities, to be agreed with the Department for Transport. The project will, however, be managed in accordance with project management principles and practices as set out in the Association for Project Management Body of Knowledge (PMBOK).
A Project Execution Plan (PEP) will be developed to ensure that planning, cost control, change control progress measurement and status reporting is managed with agreed processes and procedures.
As likely principle funders and authorised undertakers of the project, the Department for Transport and Transport Scotland will oversee the development of the programme and business case, and ensure these are maintained and developed throughout the life of the project.
Benefits realisation is central to the production of a business case. Achieving real benefits is the sovereign objective of any intervention, and that the pursuit of benefits should be the starting and end point of every stage of project development. At the Outline Business Case stage a benefits realisation plan will be developed to:
- Establish exactly what is to be evaluated and how it is to be measured; this should stem directly from the project objectives;
- Establish when benefits are to be evaluated. For long-term projects this should be an ongoing process, beginning six to twelve months after the scheme becomes operational, and continuing every four to five years until scheme closure;
- Define what resources are to be spent on the evaluation, whether there are any constraints on their availability, how long the evaluation process will take, and who will bear the cost; and
- Establish who will be responsible for carrying out the evaluation.
Outline arrangements for risk management
A risk management strategy will be developed which seeks to ensure the efficient use of resources and to minimise waste by ensuring that risk is allocated to the party best placed to manage it.
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