University of Leeds
Guidelines on Investment Decision Making:
Building and Refurbishment Projects
Advice may be obtained from Clive Smith (Treasury Manager)
E-mail: c.r.smith@adm.leeds.ac.uk
Introduction
Sound decision-making processes are a fundamental aspect of good governance
and management in any organisation. This requires a clear identification of the need
or problem to be solved. It also requires objective evaluation of the alternative
options, if objectives are to be met and value for money secured. The outcome of
such decisions may have a significant impact on the University, both in the short and
long-term.
Decisions should be justifiable: the reasons for them should be analysed and
supported by evidence. To obtain maximum value from the evaluation process it is
necessary to understand the assumptions on which the decisions are based, and
also the circumstances that might lead to a different outcome. Consequently the
assessment of risk and uncertainty will be as important as the base estimates for
each option.
The University must follow both Treasury and HEFCE guidelines1 and is ultimately
accountable to the Committee of Public Accounts on the use of public monies. In
addition, grant awarding bodies require that the University demonstrates good
practice has been followed in respect of investment decision making. This is
particularly so when resources are scarce and when the University has to establish
value for money.
The HE Sector was subject to major criticism in 1998, following the publication of the
Committee of Public Accounts report on the management of building projects in
English higher education institutions (“HEIs”). This report arose from a National Audit
Office study into major capital projects. A key observation was that HEIs did not set
out clearly the objectives for a project, which meant it was unlikely that an accurate
assessment of the costs and benefits could be made. A crucial element in the
decision making process is the identification of objectives and their link with higher
level strategy.
The following guidelines combine the University and external requirements on
investment decision making. An illustrative case study is available on the Finance
web site.
1
Hefce Good Practice Guidance: Investment Decision Making (April 2003/17)
Investment Decision Making in the University of Leeds
These guidelines relate to all University building and refurbishment projects
except minor works projects.
For building and refurbishment projects costing up to £250,000 Estates will complete
a Project Detail Sheet. This should include as a minimum: identification of need,
outline cost, funding and benefits. The completed Sheet should be signed by the
Faculty Dean or Service Director, to evidence their agreement, and approval given by
the Director of Estates.
For building and refurbishment projects costing between £250,000 and £1 million, a
Short Business Case should be prepared the Faculty / Service Area Finance
Manager in conjunction with Estates. The Case should include the detailed academic
case (including consideration against the ten key criteria derived from the University
Strategy Map, which are shown at Appendix 1), an appraisal of the build options
(including NPV) and identification of the impact on the University and School/Service
area reserves. The completed Case should be signed by the Faculty Dean or Service
Director as project sponsor, to evidence their agreement, prior to going to Capital
Group. Capital Group2 approves all projects costing between £250,000 and £1
million, unless they consider that a particular project warrants a full evaluation,
whereupon it is treated the same as those over £1 million (see below).
For all building and refurbishment projects costing over £1 million, the University
undertakes a six-stage evaluation process to ensure they are financially viable and fit
both the Estates strategy and the longer-term academic direction of the University.
The six stages, which are detailed below, are as follows:1.
2.
3.
4.
5.
6.
Identification of need
Development of the prima facie case
Development of the full business case
Formal approval
Delivery and implementation
Post-project review
The Vice-Chancellor’s Executive Group (“VCEG”) will consider all building and
refurbishment projects over £1 million. VCEG can give formal approval for projects
up to £3 million but projects over this must be approved by Council. VCEG, in
scrutinising requests, are advised through decisions reached by Capital Group. The
rationale for including all projects above the threshold, irrespective of funding source,
is to cover areas where University funding maybe required, and more importantly, to
enable a risk assessment to be carried out as to any potential effect on the University
Accounts. In addition to the University’s guidelines, any additional requirements from
HEFCE and/or other funding agencies must be met.
2
Capital Group is chaired by the Deputy Vice-Chancellor and reports to VCEG. Membership
comprises the Director of Estates, the Finance and Commercial Director, the Treasury Manager, the
Estate Planning and Information Manager and the Estate Services Finance Manager. Quarterly the
Capital Group meeting is extended to include the Pro_Vice_Chancellors and the Deans of Faculty.
Stage 1: Identification of Need
The University determines that there is a need to be satisfied (or a problem to be
solved) through strategic/ annual planning of Estates, Faculty or Service plans. This
need must be clearly defined, since it will form the basis of the whole evaluation. As
the evaluation develops it may call into question whether the need actually exists,
and if it does, the University should ensure it cannot be met from re-allocating
existing resources.
Confirmation of need is decided by VCEG, Strategy Group or annual Faculty/ Service
area reviews and it will be reflected in the annual 5-year capital expenditure forecast
and Estate Strategy, prepared by Estates.
Stage 2: Development of the Prima Facie Case
The prima facie case comprises two essential elements: the academic case and the
initial option appraisals. It is developed within the Faculty or Service area in
conjunction with Estates and the Treasury Manager. The Faculty Dean or Service
Director (or their nominee) is the person who “champions” the project, referred to as
the “Project Sponsor”. Estates maintain a Target Dates schedule which flags the key
dates in the approval process and highlights the required lead time.
The project sponsor is responsible for the preparation of the academic case and
issues to consider are attached at Appendix 2. Identification of the various build
options should be led by Estates in conjunction with the project sponsor. It is
important to consider as wide a range of options as possible, including a “do nothing”
option as the “base case”. Where doing nothing is not an option, for instance due to
statutory or regulatory changes, then a “do minimum” option should be included as
the base case. Some options can be discarded at an early stage, if there are good
grounds for doing so, but the reasons for rejection should be stated. The project
sponsor, in conjunction with Estates, should then consider each option against the
ten key criteria, derived from the University Strategy Map, which identify the strategic
context and objectives. These objectives set out what is to be achieved and provide
the criteria against which the various options will be judged, and against which the
success of the project will be evaluated.
The prima facie case is further developed by the project sponsor, with assistance
from Estates, to include identification of the outline cost and funding, sustainability
and recurrent business plan. Initial appraisal of the various build options is
undertaken by Estates in conjunction with the Faculty/ Service Area Finance
Manager.
An evaluation should contain a list of the factors to be considered in each option,
even when it is not possible to quantify them. It should assess, and where possible
quantify and value, all benefits and costs (including ongoing service and
maintenance costs). The values should be realistic and objectively assessed, as
being over-optimistic (or overly pessimistic) about values or dates can lead to the
wrong conclusion. Investment appraisals should be produced for each option, with a
calculated net present value (“NPV”)3.
At this stage the project sponsor, in conjunction with the Director of Estates, should
agree the preferred option or options, which as well as meeting the criteria, must also
be affordable and viable. The project sponsor, in conjunction with Estates, takes
responsibility for the prima facie case, which must include clearly articulated financial
assumptions and show the range of options open to the University, and the logic
behind the selection of the preferred option(s). The project sponsor submits the prima
facie case to Capital Group: it should be reviewed by them (including project scoring
using the criteria matrix attached at Appendix 3) and VCEG advised accordingly.
VCEG review the prima facie case and inform Council where they support the case
and project cost exceeds £3 million. At this stage VCEG may authorise the
commitment of fees associated with the project, as recommended by Estates.
A flowchart, showing development of the prima facie case, is attached at Appendix 4.
Stage 3: Development of the Full Business Case
The project sponsor develops the full business case, for the preferred option(s) and
the base case, with support from Estates and the Treasury Manager. The full
business case should be forwarded to the Treasury Manager for their review at least
two weeks prior to the Capital Group meeting.The amended case should then be
forwarded to Capital Group,four working days before the meeting. If Capital Group
approves the business case, it should be submitted to VCEG for their decision at
least four weeks before Council. A flowchart showing development of the full
business case is attached at Appendix 5.
The following steps should be undertaken in preparing the full business case:




3
Ensure the original assumptions remain valid.
Consider alternative procurement routes for the realistic options, each of
which will have different costs, benefits and risks.
Consider the alternative financing options and their associated costs. Is there
third-part funding available, and if so are there any “strings attached” and/or
any time constraints? How does the forecast funding pattern compare with
the spending pattern? What is the internal funding requirement and how is it
to be met? What is the impact on the University cashflow and would this
require any short or long-term borrowing?
Reassess the relative costs, benefits, timings, risks and uncertainties of each
of the realistic project options, together with the base case, using investment
appraisals and NPV calculations.
The discount rate to be applied is that recommended by Hefce (currently 3.5%). This is a real rate and
it reflects the “social time preference rate” of money- the fact that normally people would rather have
cash now than later, and would prefer to pay bills later rather than sooner. It must not be confused with
inflation.






Consider the risks and uncertainties associated with the different
combinations of project, procurement and funding options. Undertake
sensitivity analysis of the key assumptions, identify those that are critical to
success and confirm the preferred solution.
Identify the impact of the preferred solution on the University’s financial
forecasts. In particular on the School/Service area reserves and the
University Income & Expenditure Account, reserves and cashflow. If the
preferred solution appears unaffordable then the assumptions will need
revisiting.
Plan for monitoring during implementation and post-project review upon
completion (where relevant), including putting in place mechanisms to enable
monitoring and measurement of progress, and specification of the monitoring
data which will be collected in the course of implementation. Capital Group
should be involved in the preparation of this section and, both project sponsor
and Capital Group should understand and agree the timing of such reviews
and the criteria and indicators being used to assess project outcomes.
The project sponsor forwards the full business case plus all appendices, to
the Treasury Manager for review at least two weeks prior to the Capital Group
meeting.
The Treasury Manager passes any comments back to the project sponsor
who then forwards the amended case plus all appendices, to Capital Group
for their review.
Once Capital Group is satisfied, the project sponsor will be asked to submit a
paper, plus key appendices, to VCEG (if the project costs more than £3
million this will be a draft Council paper and an illustrative example is used in
the case study on the Finance web site). If approved by VCEG, and the
project costs more than £3 million, the project sponsor will need to submit a
first version of the Council paper, plus key appendices, to the University
Secretary at least 7 days ahead of the Council meeting. The approving
committee, VCEG or Council, need to understand the logic behind the choice
of preferred solution, and the risks and sensitivities associated with it,
therefore the business case should be sufficiently detailed to enable this. It
should show clearly the need or problem to be solved, which project option
represents the best value and whether that option is affordable. If after
approval any of the assumptions are invalidated, then the approving
committee should be informed, as this may alter the decision reached.
As a general rule the project sponsor should not bid for external funding until
approval of the full business case. It is however recognised that in certain
circumstances the timescales involved do not allow production of the business case
in advance of the bid, and therefore, subject to reporting to Council, the ViceChancellor can approve such a bid. The business case must follow and be approved
prior to announcement of funding, and in the event of a failed bid, there is no
supposition that the University will fund the gap.
Stage 4: Formal Approval
VCEG are authorised to approve projects costing up to £3 million based on the paper
plus key appendices. For projects costing more than £3 million, which are supported
by VCEG, the project sponsor should submit the final paper plus key appendices to
Council for their approval. An illustrative example is used in the case study on the
Finance web site.
Stage 5: Delivery and Implementation
Estates delivery is ultimately the responsibility of the Director of Estates, but day to
day implementation is undertaken by an Estates Project Manager. Business delivery
is ultimately the responsibility of the Faculty Dean or Service Director, but
responsibility for day to day implementation can be delegated.
Every project over £1 million should have a steering group made up of interested
parties which undertakes monitoring of the project and reports to Capital Group by
exception.
Any project under spends will automatically be released and cannot be used to
improve the project specification without prior approval from Capital Group.
Stage 6: Post-Project Review
Post-project review (“PPR”) is an essential aid to improving project performance,
achieving best value for money, improving decision making and learning lessons.
PPR is mandatory for all projects costing more than £3 million4 and the project
sponsor should understand both the timing of such reviews and the criteria and
indicators being used to assess project outcomes.
The PPR has three parts:The first part will be undertaken by Estates one year after completion and specifically
cover the Estates delivery. The report should go to Capital Group.
The second and third parts are interim and final reviews of the business delivery and
should be undertaken by the Treasury Management section in conjunction with the
Faculty/ Service Finance Manager two years and five years respectively after
completion. They should test the assumptions set out in the business case and
cover: the extent to which the objectives were met; any time and cost overruns;
comparison of estimated and actual costs, benefits and risks, and any implications
for future decisions. The report should be reviewed by Capital Group then submitted
to the Faculty Management group (“FMG”) and Audit and Risk Management
Committee.
4
The limit was £1 million until it was increased at Council on 16 th November 2006.
Appendix 1: The Ten Key Criteria
The ten key criteria, split by responsible party and showing the Strategy Map
reference, are as follows:Project Sponsor
1. Academic development and performance (in research)
 Deliver international excellence in all areas of our research (T4)
 Develop selected peaks that deliver world-leading performance (T5)
 Aggressively grow research income (F1)
 Proactively attract and retain high quality staff (S3)
2. Student support and experience
 Provide an exceptional student experience (T8)
3. Academic development and performance (in learning and teaching)
 Deliver excellent and inspirational learning and teaching (T7)
 Provide an exceptional student experience (T8)
4. Internationality and enhance enterprise and knowledge transfer
 Develop, promote and publicise our international profile (T1)
 Increase recruitment and participation of international students (T2)
 Develop a strong international research culture (T3)
 Enhance performance and value derived from enterprise and
knowledge transfer (T10)
 Contribute to the enrichment of society on a local to global scale (T11)
5. Financial sustainability – business plan and option appraisal
 Manage resources to deliver strategic priorities (F3)
 Ensure all faculties and schools are able to generate surpluses for
reinvestment (F4)
6. Making it happen – logistics/ timing and leadership/ risk management
 Improve core systems and processes (E4)
 Manage organisational performance (E5)
Estates
7. Existing business and fitness for purpose, backlog maintenance
 Provide first class facilities (E2)
8. Optimum space utilisation
 Provide first class facilities (E2)
 Manage resources to deliver strategic priorities (F3)
9. Campus vision, best location/ fit
 Provide first class facilities (E2)
Capital Group
10. Source of capital funds
 Manage resources to deliver strategic priorities (F3)
 Grow additional sources of profitable income to invest in our future
(F2)
 Ensure all faculties and schools are able to generate surpluses for
reinvestment (F4)
Appendix 2: Preparation of the Academic Case
Suggested format / contents:
1. Short summary
2. Context setting: Faculty, School or Service Vision. Links to Strategy Map
3. Explanation of the need to be satisfied. This may include information on one
or more of the following :a. Need for expansion e.g. student numbers, new programmes,
increased research, staffing etc
b. Quality of facilities
Offensive or defensive move e.g. growing markets or protecting markets?
Supporting market analysis? Quality as well as quantity of students. Relevant
peer university comparatives.
4. Identification of the benefits of investment
5. Consequences of doing nothing – the base case.
University of Leeds
Project Name:
Prepared by:
Investment Decision Making
Department:
Key Criteria Scoring Matrix
Faculty/ Service area:
Date:
Reviewed by
Capital Group:
Appendix 3
Option Scoring
Assessment Criteria
Option Scoring (Weighted)
Weighting
1
2
3
4
5
1
2
3
4
5
Project Sponsor
1 Academic Development and Performance (Research)
10
0
0
0
0
0
2 Student Support and Experience
10
0
0
0
0
0
3 Academic Development and Performance (L&T)
10
0
0
0
0
0
4 Internationality and enhance Enterprise/ Knowledge Transfer
5
0
0
0
0
0
5 Financial Sustainability- Business Plan and Option Appraisal
10
0
0
0
0
0
6 Making it Happen- Logistics/ Timing/ Leadership/ Risk Mgmt
10
0
0
0
0
0
7 Existing Business and Fitness for Purpose, BLM
20
0
0
0
0
0
8 Optimum Space Utilisation
10
0
0
0
0
0
9 Campus Vision, best location/ fit
5
0
0
0
0
0
10
0
0
0
0
0
0
0
0
0
0
Estates
Capital Group
10 Source of Capital Funds
100
OPTION SCORES
OPTION RANKINGS
Appendix 4: Development of the Prima Facie Case
Identify need or problem
Need or problem reflected in
annual 5-year Capital
Expenditure Forecast and
Estate Strategy
Prepare timeline
Prepare academic case
Identify options
Evaluate options
against criteria matrix
Discard options
Prepare Initial option
appraisals
Identify preferred solution(s)
Submit case to
Capital Group
Not supported
Submit case to VCEG
Not supported
Proceed to full
business case
Appendix 5: Development of the Full Business Case
Confirm assumptions of
preferred option(s) plus
base case
Consider alternative procurement
routes for the realistic options,
and associated timescales
Assess alternative financing options
and their associated costs
Select a preferred
financing solution
Prepare risk allocated
option appraisal
Undertake sensitivity analysis
and confirm preferred solution
Identify the impact of the preferred
solution on the University's financial
forecasts and assess sustainability
Plan for monitoring during
implementation and post
project review
Submit full business case
plus all appendices to
Treasury Manager
Forward assessment and full
business case plus all
appendices to Capital Group
Not supported
Submit paper (draft
Council paper) plus key
appendices to VCEG
Not Approved
< £3m
Submit paper plus key
appendices to Council
Not Approved
Monitor implementation and keep
assumptions under review
Changed Circumstances
Post Project Review
(Estates Delivery)
Post Project Review
(Business Delivery)
Appendix 6: Responsibilities in Investment Decision Making
The project sponsor will:
 Review the Project Detail Sheet or Short Business Case, and sign as
evidence of agreement, for projects costing less than £250,000 or £1 million
respectively.
 Prepare the academic case for the faculty/ service area and liaise with
Estates to identify the associated building and refurbishment needs.
 Prepare a timeline to project approval stage with agreement from Estates.
 Develop the prima-facie case with assistance from Estates and Finance, and
submit to Capital Group.
 Develop the full business case with support from Estates and Finance, and
submit to the Treasury Manager at least two weeks prior to Capital Group.
 Submit Paper (plus key appendices) to VCEG (and Council where required).
 Sit on the project steering group which receives reports from the Estates
Project Manager.
 Assist Estates with the Estates delivery PPR.
 Assist with the business delivery PPR two years and five years after
completion (if required).
Estates will:







Undertake meetings with faculties/ service areas to identify building and
refurbishment needs and reflect in the annual 5-year capital expenditure
forecast and Estate Strategy.
Maintain the Target Dates schedule.
Undertake any build option appraisals within the prima facie case in
conjunction with the project sponsor.
Recommend the fee commitment for projects going to the full business case.
Provide advice to the project sponsor on the feasibility of the selected option
in the full business case.
Undertake the project management issues of construction.
Undertake the Estates delivery PPR one year after completion.
Treasury Manager will:



Assist identification of funds and preparation of the prima facie and full
business cases when requested.
Review the full business case plus all appendices and advise the faculty/
service area of any proposed amendments.
Undertake the business delivery PPR two and five years after completion,
with assistance from the project sponsor.
Capital Group will:




Review the prima facie case and advise VCEG accordingly.
Review the full business case plus all appendices and advise VCEG
accordingly.
Receive the Estates delivery PPR report.
Review the Business delivery PPR report and forward to FMG.
VCEG will:
 Review the 5-year capital expenditure forecast and Estate Strategy and, once
agreed, forward to Council for approval.
 Review prima facie cases and, where supported, agree the fee commitment
and, advise Council, where project cost exceeds £3 million.
 Receive paper (draft Council paper where cost exceeds £3m) plus key
appendices for approval.
Council will:



Approve the 5-year capital expenditure forecast and Estate Strategy.
Receive notification of prima facie cases where project cost exceeds £3
million.
Receive Council paper plus key appendices for approval for projects over £3
million.