APPENDIX 1 |
APPRAISAL AND EVALUATION OF SMALL EXPENDITURES |
| |
|
Introduction |
| A1.1 |
|
Deciding on the right amount of effort to devote to an appraisal or an evaluation is largely a matter for case by case judgement. The decision should be based on for example, the experience gained over time through undertaking other appraisals and evaluations of similar scale and type. It is recognised that those undertaking appraisals and evaluations may sometimes find it difficult to judge what the appropriate effort should be, particularly where small expenditures are concerned. This Appendix seeks to give some practical assistance on the subject. Although it is couched largely in terms of appraisal, the principles generally apply also to evaluation. |
| A1.2 |
|
This guidance refers broadly to proposals involving public expenditures of less than £250,000 in total. Where financial assistance is in view, it may be taken to refer to total financial assistance (including, for example, all sources of PE, EU and IFI funding) of up to £250k over the whole life of the project. However, the £250,000 figure is indicative, and the need for judgement is required whatever the expenditure level.
|
| |
|
The Principle of Proportionate Effort |
| A1.3 |
|
Appraisals use up resources. It is therefore important to judge the level of input appropriate to any particular appraisal. The general rule is that the resources to be devoted to an appraisal should be proportionate with the scale and importance of the associated objectives and resource consequences. |
| A1.4 |
|
The effort that should go into an appraisal and the detail to be considered are a matter of judgement. When the right questions are asked the appropriate effort is often easy to see. Small expenditures generally justify less detailed appraisal than large expenditures, but small items can add up to substantial totals, and small expenditures can have big effects, and the principles of appraisal still apply. These same principles apply also to evaluation. |
| A1.5 |
|
In deciding the amount of effort required for an appraisal, it is appropriate to consider not only the costs and benefits to the public sector, but also those to the other sectors of the economy, since appraisal is about encouraging the best use of the nation's resources as a whole. The importance of a project to the national economy may be disproportionate to the public sector costs and benefits arising. For example, a small public grant to a private firm or voluntary body may represent only a small proportion of the total resource cost of the project; or a small pilot project may be undertaken in anticipation of a major new programme.
|
| |
|
The Steps of Appraisal |
| A1.6 |
|
The key steps of defining needs and objectives, identifying alternative options, and assessing their costs and benefits should always be undertaken, no matter how small the proposed expenditure involved. The reason for insisting upon this is that they represent a way of thinking which is indispensable. |
| A1.7 |
|
However, while these steps are always to be followed, discretion may be exercised on the amount of effort required on each of them. For example, it may be unnecessary to spend much time or effort on defining needs and objectives when the concern is simply to replenish stationery and other basic office supplies. |
| A1.8 |
|
It may not always be appropriate to calculate net present values for the smallest of proposed expenditures, particularly where there are no significant recurrent costs or benefits. The other steps of appraisal, such as assessing risk and uncertainty and post project evaluation, should usually be considered even on relatively small expenditure proposals. However, in general there is less likely to be a need for detailed analysis under these steps for small expenditures than for larger expenditures. For instance, although the use of sensitivity analysis is useful for most proposals, there may be no need for it in the case of the smallest expenditures. |
| A1.9 |
|
There is thus a great deal of flexibility in applying appraisal, particularly where small sums are involved. The use of appraisal principles to think through expenditure proposals represents a common sense approach which need not involve a lot of unhelpful bureaucracy.
|
| |
|
Costs of Appraisal |
| A1.10 |
|
It is impossible to provide a definitive norm in cost terms for the effort to be devoted to small appraisals, because the circumstances may vary widely. Nevertheless, the following should act as a rough guide. The cost of the resources devoted to appraisal should normally be expected to be up to 2% of the value of the public grant or expenditure under consideration. Where the cost significantly exceeds this level, say where it is 5% or more of the relevant value, the question of disproportionate effort may arise. |
| A1.11 |
|
In setting out this norm, it is emphasised that it represents a broad guideline rather than a rigid rule. There are likely to be many cases where appraisal will cost substantially less than 2% of the relevant expenditure, for instance, in simple decisions where the objectives are obvious, the options are very restricted and the costs, benefits and other factors are particularly transparent. |
| A1.12 |
|
More rarely, there may also be circumstances to justify committing larger costs to appraisal where, for example, the expenditure in view will have a disproportionate impact on the economy or where it will affect a politically or socially important issue. |
| A1.13 |
|
At the smallest end of the spectrum, involving expenditure of less than £10,000, appraisal should often require no more than one man-day of an experienced appraiser's time. However, different circumstances may justify more or less input.
|
| |
|
Documentation |
| A1.14 |
|
Documentation requirements will vary according to the size or importance of the appraisal in hand. Whether the proposed expenditure is small or large, it is wise to document each step of the appraisal process as and when it occurs, rather than to defer all the writing up to a later stage. |
| A1.15 |
|
Smaller scale appraisals should generally be documented in a step-by-step record, but need not meet the full requirements demanded of large submissions. For example, while risks and uncertainties and the need for post project evaluation should generally be considered, they may not require substantial documentation in small scale appraisals where these factors are considered unimportant. An appraisal concerning a small purchase may deserve a record extending to only a few pages. However, the key steps referred to at paragraph 4 should generally be recorded even in small expenditure appraisals.
|
| |
|
Pro Forma Documentation |
| A1.16 |
|
The use of standard 'pro forma' documentation can be helpful for appraising small expenditure proposals. A 'pro forma' approach is very useful where there are a substantial number of small appraisals with similar characteristics. 'Economic Appraisal: The Basic Steps' (see pages 9 & 10 above) serves as a summary of the kind of issues that should generally be addressed in a pro forma, but clearly there is a need to tailor forms specifically to suit particular programmes and projects. For example, the appraisal of small grants can be facilitated by designing application forms so that they provide the information that funding bodies need to appraise them. (See 4.1.11-13 above for elaboration). |
| A1.17 |
|
The pro forma approach has been applied in practice to small projects in numerous areas, and Departmental economists can assist with their design.
|
| |
|
Evaluation of Representative Samples |
| A1.18 |
|
It would be impractical and of limited use to conduct an ex post evaluation of every small expenditure. Where an activity consists of a large number of small scale expenditures it will normally be appropriate to select a representative sample for evaluation.
|
| |
|
Expert Advice |
| A1.19 |
|
There remains scope for case-by-case judgement on the issues addressed in this Appendix. Departments should make the most of the economic expertise available to them in arriving at the appropriate decisions. For example, Departmental economists can help design relevant pro forma documentation where this is considered appropriate, and will provide general advice on the effort appropriate to individual cases. |
