Digital appraisal manual for Scotland: guidance

The Five Dimension Model

The Five Dimension/Case Model is a framework set out in HM Treasury’s The Green Book for considering the use of public resources in terms of five features of any investment or spending proposal. The model helps ensure that public resources are being used proportionately to the costs and risk involved, while also taking into account the context in which a decision is to be taken. As this is the recommended framework applied across central government in both Scotland and the UK, it provides consistency with other public interventions. The five dimensions covered are: strategic, socio-economic, commercial, financial and management. DAMS will use the five dimension framework to offer structured guidance in terms of these key dimensions for the basis of the appraisal process in relation to digital interventions. Using this model correctly ensures a defensible position when subject to challenge and review.

Strategic dimension

What is the case for change, including the rationale for intervention? What is the current situation? What is to be done? What outcomes are expected? How do these fit with wider government policies and objectives?

Economic dimension

What is the net value to society (the social value) of the intervention compared to continuing with business as usual? What are the risks and their costs, and how are they best managed?

Commercial dimension

Can a realistic and credible commercial deal be struck? Who will manage which risks?

Financial dimension

What is the impact of the proposal on the public sector budget in terms of the total cost of both capital and revenue?

Management dimension

Are there realistic and robust delivery plans? How can the proposal be delivered?

Source: HM Treasury The Green Book 2020 – The Five Case Model

Strategic

The strategic dimension sets out the existing situation and makes the case for change using established evidence (note that the evidence outlined here is not for a certain option, but rather the case for change). The steps undertaken in this section will establish the strategic fit of the intervention.

1. The business as usual (BAU) scenario should be outlined to highlight the implications of not going ahead with the intervention. The no intervention scenario can also be used as a benchmark to which the proposed intervention can be compared. As a result, the BAU scenario should be able to be measured in quantitative terms where possible.
2. Policy context should be set out to make clear the strategic case for intervention, including how the interventions fits within wider departmental/government objectives. It is also useful to show how the proposed intervention aligns with our other strategies. This can extend outside the digital remit and may overlap with other policy areas, such as health or education.
3. PESTLE should be addressed here to identify external factors outwith the intervention’s control. This analysis will identify dependencies (e.g. reliant on pre-existing infrastructure), constraints (e.g. geography, law, ethics) and risks related to the proposal for early consideration. It is also good practice to check if this intervention has potential impact on the operations, responsibilities or budgets of other public bodies in Scotland.
4. Strategic (SMART) objectives of the intervention should be confirmed at this stage to guide the next steps of the model. These should be long term outcomes that the intervention aims to achieve. The objectives should also have taken into account the DAMS criteria.
5. Identification of the changes that need to be made to bridge the gap from BAU to attainment of the SMART objectives. These are known as the business needs. An explanation of the logical change process, i.e. the chain of cause and effect whereby meeting the business needs will bring about the SMART objectives.

Socio-economic

The socio-economic dimension demonstrates the intervention’s value for money using analytical methods such as the cost benefit analysis (CBA). The socio-economic case is not simply about the benefits to the Scottish economy, but rather the net value to society (the social value). This section of the DAMS is key to a successful appraisal.

1. Identify the market failures driving the rationale for intervention identified in When to use. An example may be a lack of commercial demand to implement digital infrastructure in a rural area with a small population. Most common market failures include public goods, imperfect information, externalities and market power.
2. Set out the value for money – how well the intervention is expected to optimise social value (social, economic and environmental) in terms of potential costs, benefits and risks. A cost benefit analysis (CBA) can assess all relevant costs and benefits in monetary terms. The socio-economic dimension should also consider benefits and costs that cannot be quantified (e.g. resilience, fairness, inclusion). Indeed, the addition of these benefits may mean a project meets the objectives and presents value for money, even if the quantifiable benefits outweigh costs (i.e. the benefit to cost ratio is less than one).
3. Costs and benefits in appraisal of social value should be estimated in ‘real’ base year prices using net present value (NPV) so the effects of inflation are removed. This allows for the comparison of future values in terms of their value in the present. For more information on the technical concepts of socio-economic appraisal see the UK Government Green Book Guidance, which outlines government appraisal best practice.
4. To better understand and measure distributional impacts, you can apply distributional weights to increase the monetary value of benefits or costs that accrue to lower income individuals.
5. Risk and mitigation strategies should be set out in the event that any external factors negatively impact the intervention. Highlight any uncertainties using a sensitivity analysis. Make sure optimism bias has been addressed in the appraisal process which could lead to under budgeting and undeliverable targets.
6. Demonstrate that a full range of possible options have been considered. Set out long list options with description and analysis of each. Each option should be RAG rated using the critical success factors (see Longlist in Appraisal). Justify short list and final option when appropriate considering the above factors. A ‘no intervention’ reference case should be compared to short list.

Commercial

The commercial dimension focuses on the commercial deliverability of a project, including any procurement risks where a commercial contract is involved.

1. The first step is to develop the commercial strategy by considering the commercial feasibility of the proposed intervention in terms of deliverability, whole life costs and value for money. It is then helpful to gather market intelligence and soundings to assess the current appetite, capacity and capability for the intervention.
2. Work with the procurement team to identify relevant procurement approaches to develop the procurement strategy. Ensure procurement of the intervention has robust processes, including evaluation criteria and selection. Identify key contractual issues and risks, if any, at this stage to develop contingency. A pragmatic approach should be taken – market testing and intelligence should be used to inform procurement where necessary, and ensure the work required is not an unreasonable ask of the market.
3. Set out delivery structure, allocated responsibilities, key milestones and preliminary delivery dates for potential contractor. Expected scope of works, services or equipment is identified for procurement as well as a plan for managing potential business change.
4. The intervention’s agreed budget should be identified and should include the process for monitoring and reporting costs. The delivery strategy should be set out and finalised before going out to procurement, which includes: key objectives, constraints, proposed delivery structure and allocated responsibilities.

Financial

The finance dimension focuses on the intervention’s affordability and impact on the public purse. Unlike the socio-economic dimension where social value is taken into account, this is solely concerned with finances (public sector financial costs should be calculated using the international National Accounts statistical framework produced for the UK by the Office of National Statistics).

1. Outline the current budget situation and confirm whether full budget been secured and budgeted by all relevant parties. Detail any funding dependencies and how well the project can be financed from available public funds. Explain impact on income/expenditure account and on balance sheet where applicable. Ensure VAT implications have also been considered.
2. Prepare contingency to account for potential cost overruns. It is good to learn whether project is scalable at this stage if less funding were to be provided. Detail contingent liabilities of potential financial issues and how likely they are deemed to be at present.
3. Depending on the intervention, the financial dimension requires the completion of three financial statements. First is the budget statement that outlines resource and capital costs over the intervention’s lifetime. A cash flow statement sets out when cash or grant funding will be required. A funding statement shows who is expected to provide the resources and what approval is necessary.
4. Public sector organisations responsible for public expenditure are required to undertake cost monitoring, cost modelling and risk monitoring. Forecasting error and associated risks can be reduced by maintaining active cost monitoring systems and improving unit cost estimates by employing cost modelling techniques.

Management

The management dimension focuses on organisational capacity and capability to deliver the project.

1. Outline project management framework, including milestones and who is responsible for each action. Demonstrate that the preferred option can be delivered successfully using evidence gathered in dimensions one to four. Ensure the provision and management of resources required for practical delivery of the proposal.
2. Contingency/change management planning. Identify how risks will be managed within the organisation whether financial or not (e.g. ethical issue arises).
3. Cost management and benefit realisation plan which will involve outlining the monitoring and evaluation strategies including costs.