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Option appraisal

By Anna Stewart,2014-11-26 17:04
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Option appraisal

S3.2 - OPTION APPRAISAL

     April 2008

     IPF

     Web: www.fmsis.info Web: www.ipf.co.uk Email: financial.management@dcsf.gov.uk Email: info@ipf.co.uk

     S 3.2 Option appraisal 10-3-08 1

SUMMARY OF GOOD PRACTICE LINKS

    Why Option Appraisal is important

     Option appraisal is a decision making tool for use in:

    ; Identifying objectives; For more help on effective option appraisal

    Click Here (R24). This will take you to ; Identifying the different ways in which they can be achieved; “Getting the Best from Your Budget” (2000) a ; Examining all the important factors before taking a decision. guide to the effective management of school

    resources by the Audit Commission. Therefore, effective option appraisal will help to answer three important questions: Reference is made to option appraisal in ; Have all relevant factors been taken into account in deciding what the project should be? sections C, D, and E of the guide.

    ; Should the project go ahead?

    ; What is the best way to carry out the project?

    Option appraisal should be carried out when planning projects for which there are a number of

    possible different approaches to meeting the desired objectives. This is to ensure the final decision and subsequent actions represent good value for money.

     The Benefits of Effective Option Appraisals

     A thorough and robust option appraisal will:

     ; Enable informed and transparent decisions to be taken

     ; Provide a consistent approach to decision making

     ; Help achieve maximum effectiveness and best value

    For more help on applying option appraisal ; Provide a clear basis for future reviews of the cost effectiveness techniques Click Here (R25). This will take ; Ensure that the option selected is more likely to meet the desired objectives you to “Finding the Right Solution” a guide

    to option appraisal: DCSF May 2002. It is a Option appraisal is important, as it:

    guide to option appraisal that focuses on ; Is one of the key ways by which school governors can exercise their strategic role in making capital projects, but highlights the generic decisions for the benefit of the School‟s pupils steps of option appraisal. Notably it details

    how projects/decisions should link in with ; Aids the consideration and appraisal of a number of alternative courses of action to ensure S 3.2 Option appraisal 10-3-08 2

SUMMARY OF GOOD PRACTICE LINKS

    that a desired outcome can be achieved in the most economic, effective and efficient way strategic plans (SDP or AMP) and then

    possible explains the following key steps of option

    appraisal: ; Allows for new initiatives to be carefully appraised in relation to all potential costs and

    ; Define objectives benefits and their financial sustainability before being approved by the governing body.

     ; Develop the options

    Summary of Good Option Appraisal Practice ; Information gathering

    ; Assessing the options Although the scale and nature of a project or a decision will influence the level of detail that you will need to build into your appraisal, any technique should incorporate steps that ensure you ; Analysing the options have:

    ; Choosing the preferred option ; been clear about what you are hoping to achieve Set clear objectives

    ; Consultation ; thought about the different ways in which they could be achieved Generated a range of

    ; Reporting options

    ; Decisions ; assessed the costs and benefits of the different options Assessed cost effectiveness

    ; Implementation ; considered relevant risks and sensitivities and have contingency plans- Prepared for

    optimistic and pessimistic scenarios ; Post implementation evaluation

    ; considered what represents the most appropriate option and best value use of resources in line with objectives Chose well

    In particular see Figure 1 „Option Appraisal in It is important to understand that option appraisal also requires the professional judgement of Context‟ at page 8 of the guide, as it is useful. the head teacher or other staff to assess the potential benefits, costs and risks of identified The guidance also contains some useful options. It is seldom an exact science and, to be effective, a range of people should be involved practical case studies showing how the good in the appraisal process. practices recommended can be applied in

    practice. Options should not be viewed in isolation, as there are times when the benefits of one option can have a negative impact elsewhere. Therefore, a good option appraisal methodology will prompt For an update on the discount rate quoted in decision takers to ask this question before their decision is finalised. the book and an example spreadsheet for

    option appraisal Click Here (R44). This will

    take you to the Teachernet page for asset

    management that covers a wide range of

    property related issues including option S 3.2 Option appraisal 10-3-08 3

SUMMARY OF GOOD PRACTICE LINKS

    appraisal.

    In addition, there is an update on the discount

    rate to be used in option appraisal.

S 3.2 Option appraisal 10-3-08 4

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