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Flood and Coastal Erosion Risk Management Business Case Guidance

Flood and Coastal Erosion Risk Management

Business Case Guidance

Contents

Main Document

1 Introduction 5 1.1 Structure of FCERM-BCG document 51.2 Acknowledgements 6 2 Framework for appraisal of FCERM projects 7 2.1 Overview 72.2 Approach to project appraisal 82.3 Context of Business Case within the project lifecycle 92.4 Key terms 10 3 Strategic Outline Case (SOC) 12 Establish the Case for Change and scope of the project 3.1 Purpose of SOC 123.2 Strategic Case 123.2.1 FCERM strategic fit and context 133.2.2 Sustainability and well-being strategic fit and context 133.2.3 The flood or erosion problem(s) and current management arrangements 133.2.4 Investment Objectives 143.2.5 Summary of potential opportunities and benefits of investment 153.2.6 Summary of potential risk, constraints and dependencies for investment 153.2.7 Stakeholder engagement (Strategic Case) 163.3 Economic Case 173.3.1 Critical Success Factors (CSFs) 173.3.2 Approach to options assessment 173.3.3 Identify Long List 183.3.3.1 Using the Options Framework Filter to identify the Long List 183.3.3.2 Identify measures to deliver the Long List 203.3.3.3 Screening performance of each measure 213.3.4 Identify the Short List 223.3.5 Stakeholder engagement (Economic Case) 233.4 Commercial, Financial and Management Cases 243.5 Completing and finalising the SOC 24 4 Outline Business Case (OBC) 25 Identify the Preferred Option for investment 25 4.1 Purpose of OBC 254.2 Strategic Case 26

4.2.1 Revisit sections completed in the SOC 264.3 Economic Case 264.3.1 Revisit sections completed in the SOC 264.3.2 Assessment of Short List options 274.3.2.1 Engineering performance of Short List 274.3.2.2 Sustainability and well-being performance of Short List 274.3.2.3 Economic appraisal of Short List 284.3.2.4 Financial performance of Short List 294.3.3 Select the Preferred Option 294.3.4 Further development and testing of Preferred Option 304.3.4.1 Outline design and assessment of cost 304.3.4.2 Sensitivity Testing 304.3.5 Update summary of stakeholder engagement (Economic Case) 304.4 Commercial Case 314.4.1 Procurement Strategy 314.4.2 Key contractual terms & risk allocation 324.4.3 Stakeholder engagement (Commercial Case) 334.5 Financial Case 334.5.1 Financial scale and breakdown 344.5.2 Funding sources 344.5.3 Funding timescales 354.5.4 Financial summary 354.5.5 Stakeholder engagement (Financial Case) 354.6 Management Case 35 Project assurance, governance, and control 35 Organogram of team 35 Project Plan and Programme 35 Risk Management 35 Benefits realisation, lesson learnt and post project evaluation 354.6.1 Stakeholder engagement (Management Case) 364.7 Completing and finalising the OBC 36 5 Full Business Case (FBC) 37 Identify how the Preferred Option will be delivered 37 5.1 Purpose of FBC 375.2 Strategic Case 375.3 Economic Case 375.4 Commercial Case 385.5 Financial Case 385.6 Management Case 395.6.1 Benefits realisation 395.6.2 Risk Management and fall back position 395.6.3 Lesson learnt and post project evaluation 395.7 Completing and finalising the FBC 40 6 Business Justification (BJC) 41 Produce Business Case using a short form approach 41 6.1 Criteria for using BJC process 41

6.2 Proportionate application of FCERM-BCG for Business Justification 416.3 Business Justification Sections 426.3.1 Purpose 426.3.2 Strategic Context 426.3.3 Case for Change 436.3.3.1 Investment Objectives and Critical Success Factors (CSFs) 436.3.3.2 Benefits 436.3.3.3 Risks 436.3.4 Options 436.3.5 Preferred Option 446.3.6 Procurement route 446.3.7 Funding and affordability 446.3.8 Management arrangements 44 Glossary 45Annex A Supplementary Technical Notes 49STN01 Assessing Options 50STN02 Economic Appraisal 73STN03 Optimism Bias 86STN04 The Rapid Assessment of Damages (RAD) Tool 88 Annex B Business Case Review Checklist 114Annex C 135 Part 1: Business Case Template 136 Part 2: Business Justification Template 153

Flood and Coastal Erosion Risk Management — Business Case Guidance 5

Flood and Coastal Erosion Risk Management Business Case Guidance, referred throughout this document as FCERM-BCG, provides guidance on good practice for flood and coastal erosion risk management (FCERM) appraisals and producing Business Cases for investment decisions in Wales. The guidance should be used to support applications to the Welsh Government or Natural Resources Wales (NRW) for FCERM project funding.

FCERM-BCG complements the Welsh Government and HM Treasury Better Business Cases approach for Public Sector business cases. As such, it is compliant with Green Book (2018), HM Treasury’s manual for appraisal and evaluation. It should be used to help ensure that investment decisions for flood and coastal erosion projects are based on proportionate but robust business cases.

The principles of the Well-being of Future Generations (Wales) Act 2015 are embedded in FCERM-BCG which will ensure FCERM projects deliver improvements to the social, cultural, environmental, and economic well-being of Wales now and in the future.

1.1 Structure of FCERM-BCG document

FCERM-BCG is presented in as:

• Main Document, Sections 1 to 6 • Annex A: Supplementary Technical Notes • Annex B: Business Case Reviewer’s Checklist • Annex C: Business Case Templates

The main document provides key guidance for Risk Management Authorities (RMAs) when preparing or reviewing FCERM business cases. It has been structured to provide RMAs with a step-by-step guide for preparation of a FCERM business case.

Example of Main Document layout

Introduction1

X.Y.Z Guidance headings align with report template

The main document provides guidance on how to complete each section of the business case. The coloured sidecar on the right hand side of the page indicates which stage of the business case process is being discussed (SOC/OBC/FBC).

The sidebar also flags where the guidance aligns with Better Business Cases Actions and Workshops, and advises when to consider the Future Generations Commissioner’s Framework for the projects. WORKSHOP Z:

See Workshop Guidance

BBC ACTION X: See BBC Guidance

FGCW FRAMEWORK PartY – See Framework


Annex A contains three Supplementary Technical Notes (STNs) on:

• Assessing Options (STN01) • Economic Appraisal (STN02) • Optimism Bias (STN03) • The Rapid Assessment of Damages (RAD) Tool (STN04)

The STNs provide more detailed advice on the practical application of the Better Business Cases approach in FCERM projects. They provide links to external data sources that could be helpful for appraisals. Through time these may become outdated, and in which case appraisers should contact Welsh Government Flood & Coastal Risk Branch [email protected]

The Business Case Review Checklist in Annex B is intended to assist the review of FCERM Business Cases to ensure compliance with the Better Business Cases approach. However, it may also assist RMAs in preparing Business Cases as the checklist presents how the various stages of the Business Cases process link to each stage of the Better Business Cases Guidance.

Annex C provides templates for the three-stage and single-stage Business Cases. The headings in the template correspond with the headings in the main document.

For further information:

Flood & Coastal Risk BranchWelsh GovernmentCathays ParkCardiffCF10 3NQEmail: [email protected]

1.2 Acknowledgements

This guidance document has been prepared by Welsh Government with significant assistance from consultants Mott MacDonald. The guidance has also benefited from feedback and comments from colleagues at Natural Resources Wales, Local Authorities in Wales and consultants. Welsh Government are grateful to all colleagues who have taken the time to provide their input.


Framework for appraisal of FCERM projects2

2.1 Overview

The FCERM-BCG:

• Provides flood risk appraisal guidance, that can be used by all welsh RMAs, for all FCERM projects. • Embeds the principles of the Well-being of Future Generations (Wales) Act 2015. FCERM-BCG complements the Well-being of Future Generations (Wales) Act 2015 by providing advice on the practical application on FCERM-specific application of the Future Generation Framework for Projects. • Provides flood risk specific advice that complements Welsh Government’s established Better Business Cases approach. FCERM-BCG complements the Better Business Cases approach by providing advice on FCERM-specific application of the Better Business Cases approach. • Simplifies the appraisal process and facilitates and encourages more appraisal work to be undertaken by RMAs directly. • Promotes proportionate application of appraisal methods for projects of all scales and complexities. • Encourages the consideration of wider sustainability and well-being benefits, in addition to FCERM benefits. • Encourages the use of Natural Flood Management methods to address flood risk.

The FCERM-BCG does not:

• Replace any of the guidance provided by the Better Business Cases (BBC) approach and associated guidance documents such as “Guide to developing the Project Business Case” (Welsh Government, 2017). • Replace any of the guidance provided by the Future Generations Commissioner on Well-being of Future Generations (Wales) Act 2015, for example “Guidance on using the Future Generations framework for projects” (Welsh Government, 2018). • Provide information relating to funding applications, Business Case approvals or prioritisation of FCERM projects. This is provided in separate documentation such as the Welsh Government Memorandum relating to Flood and Coastal Erosion Risk Management Grants. • Provide guidance for producing Flood Risk Management Strategies. It is recognised that these can be a valuable tool for FCERM appraisal of complex flooding problems which warrant strategic-level consideration. Where needed, the Environment Agency FCERM-AG guidance and templates for FCERM Strategies should be used in the first instance. • Provide guidance for producing FCERM programmes of work. If a Business Case is required, the Better Business Cases Wales and associated guidance documents such as “Guide to developing the Programme Business Case” (Welsh Government, 2017) should be used in the first instance.


2.2 Approach to FCERM project appraisal

The general approach to appraisals provided in FCERM-AG (Environment Agency, 2010) and FCDPAG series (Defra, 2001) was to understand the problem, screen a Long List of options, and appraise a Short List of options in order to identify a preferred solution. This approach is still valid in FCERM-BCG.

Experience of using FCERM-AG and FCDPAG however indicated that the appraisal of FCERM projects would be enhanced by the reinforcement of “objective-led” appraisal principles.

An “objective-led” appraisal has the following features: • The desired and required outcomes are defined and agreed at the start of the appraisal. • Options should only be considered for Short List appraisal if they are likely to deliver all the required outcomes and at least some of the desired outcomes. • The Preferred Option should be selected on the basis of its anticipated ability to deliver the agreed desired and required outcomes. • The success of a project is measured on its delivery of the agreed desired and required outcomes and the benefits associated with these.

FCERM-BCG is designed to supplement the preparation of Business Cases using the Better Business Cases approach which draws upon HM Treasury “Five Case Model”. This approach divides Business Cases into five interconnected but distinct dimensions; strategic, economic, financial, commercial and management. Preparing these five cases will enable the Funding Organisation to ascertain that a proposal,

• is supported by a robust Case for Change – the Strategic Case; • has optimised Value for Money – the Economic Case; • is commercially viable – the Commercial Case; • is financially affordable – the Financial Case; and, • can be delivered successfully – the Management Case.

To report the consideration of these cases, the Better Business Cases approach provides two alternative Business Case development processes:

1) Three stage process (Strategic Outline Case (SOC), Outline Business Case (OBC) and Full Business Case (FBC)). 2) Short form process (Business Justification (BJC)).

The three-stage process of SOC, OBC and FBC is recommended for significant, complex, or contentious spending proposals.

A Strategic Outline Case (SOC) is prepared at the start of a project to provide the strategic case for change, identify the objectives of the project, identify and appraise a Long List of options to demonstrate the viability of a project. A Business Case developed to the SOC level is the basis from which a decision to progress to a fuller project appraisal can be taken.

The second stage of the three-stage process is the Outline Business Case (OBC) which summarises the appraisal of the Short List of options and the selection of the Preferred Option. A Business Case developed to the OBC level is the basis from which a decision to progress to further (more detailed design) and procurement of the Preferred Option can be taken. The combination of SOC and OBC stages is broadly equivalent to Project Appraisal Report (PAR) previously used in FCERM appraisals.


The final stage, the Full Business Case (FBC), contains the market prices obtained from the procurement exercise, final conditions of any legal agreements or consents, and a completed delivery and management plan.

To enable proportionate application of appraisal methods for smaller, simpler and less contentious FCERM projects, a Business Justification (BJC) process has been developed as an alternative to the full three-stage process for FCERM-BCG.

One of the key distinctions of the Better Business Cases approach is that it promotes integration of the consideration of environment and sustainability matters throughout the preparation of a business case.

Environmental assessment should be undertaken as part of the development of FCERM projects. To be effective, this will be integrated with project appraisal, design and delivery so that unsustainable options are identified and discounted at the earliest possibility. However, the environmental assessment should always be outcome-focussed and the scale of assessment should always be proportionate to the environmental risk. When undertaking environmental assessment, RMAs should consider the widest possible definition of the environment. This includes population, human health, social and cultural considerations as well as effects on the natural environment e.g. water, ecology, air quality etc. The interactions between all these environmental elements are key in evaluating the opportunities and constraints inherent in FCERM projects.

FCERM interventions should not be developed in isolation. Integration, collaboration and community involvement are essential themes in FCERM-BCG, and effective stakeholder engagement can de-risk a project and provide a greater chance of success. Headings in the templates (Annex C) direct RMAs to report how the views of stakeholders have been sought and considered throughout the development of the business case. BBC recommends the use of workshops to inform SOC and OBC stages, and these are also promoted in this document.

2.3 Context of Business Cases within the project lifecycle

Business Cases are initiated, reviewed and approved through the three stage SOC-OBC-FBC process or single-stage BJC process. Figure 1 shows a typical project lifecycle, indicating where FCERM-BCG applies.

However, this process may vary depending on the governance, reporting, assurance, and approval processes relevant to the RMA or agreed with the Funding Organisation. The review may take the form of Office of Government Commerce (OGC) “Gateway Reviews” (as BBC adopts) or may be reviewed against the Five Ways of Working (as the “Guidance on using the Future Generation Framework for Projects” Framework adopts). Any review should be taken as an opportunity for reflection, to develop or instigate practices to improve future stages of the project.


• Identify a project is needed. • Complete a mandate or brief for the project and identify the Funding Organisation’s content, governance, reporting, assurance and approval requirements.

• Commence the SOC • Gateway review 1 • Submit the SOC for approval

• Commence the Business Justification • Gateway review 1

• Gateway Review 2

• Gateway Review 3 • Submit the Business Justification for approval

• Commence the OBC • Gateway Review 2 • Submit the OBC for approval

• Prepare the FBC • Gateway Review 3 • Submit the FBC for approval

• Gateway Review 4 (Readiness for Service). • Gateway Review 5 (Operations Review and Benefits Realisation). • Feedback findings and return to Business As Usual.

FCER

M-B

CGBusiness Case stages and gateway assurance points

2.4 Key terms

A full glossary of FCERM-BCG terms is provided at the end of this document.

On 6 March 2018, the HM Treasury published an update to the “The Green Book Central Government Guidance on Appraisal and Evaluation” (hereafter referred to as “Green Book”). In order to comply with the new Green Book, Welsh Government has made two key changes to the way that FCERM appraisals are undertaken in Wales.

It is established practice in FCERM appraisals to consider both the ‘Do Nothing’ and the ‘Do Minimum’ options. While FCERM-BCG retains the principles of both options, the terminology does not align with Green Book 2018 and as such Welsh Government has taken the decision to rename both options as follows.

• The ‘Do Nothing’ option has been renamed the ‘Walkaway’ option. • The ‘Do Minimum’ option has been renamed the ‘Business As Usual’ option.


FCERM-AG and FCDPAG were drafted in accordance with the previous Green Book in 2003, which required appraisals to consider the comparison of options against a ‘Do Nothing’ baseline. For FCERM purposes, ‘Do Nothing’ was previously assumed to mean no action whatsoever, as below.

“In most cases the baseline will be do-nothing (defined as taking no action whatsoever; where there are existing assets, do-nothing assumes that no further maintenance or repair work is undertaken). This is because there is no legal right to any particular standard of protection from flooding or coastal erosion.” FCERM-AG (Environment Agency, 2010)

However, Green Book 2018 requires all impacts – social, economic, environmental, financial etc. – to be assessed relative to continuing with what would have taken place in the absence of intervention, referred to in the Green Book 2018 as Business As Usual.

As such any intervention can be compared with both the “Walkaway” and “Business As Usual” cases. In line with Green Book, the “Business As Usual” option is the baseline used to establish whether a given option represents value for money. The Walkaway option is an additional baseline that can be used in the economic assessment of FCERM projects.

Providing cost benefit ratios and net present values for options relative to a Business As Usual baseline will ensure that investment decisions have been made in accordance with HM Treasury Green Book principles. However, consideration of options appraised against a Walkaway baseline will enable Risk Management Authorities to also understand the implications of withdrawing investment. Provision of cost benefit ratios and net present values appraised using a Walkaway baseline also enables the comparison of projects by funding authorities when making programme-level investment decisions.


Links to FGCW & BBC Guidance3 Strategic Outline Case (SOC)

3.1 Purpose of SOC

Establish the Case for Change and scope for the project.

SOCs should include a suitable assessment of the flooding or erosion problem, define the Investment Objectives and culminate with an early indication of the types of FCERM measures that may be suitable and achievable.

At the completion of this stage, it is expected that the following will have been achieved:

• the Strategic Case to be completed in full but may be revised later; • the Economic Case to be completed to the options stage, with a recommended way forward and an initially recommended Short List for further examination at OBC stage; • the Commercial Case to address the fundamentals of any potential procurement and contracts; • the Financial Case to discuss affordability of the proposed Project; and, • the Management Case to outline how the project will be set up and managed.

The SOC should also summarise any stakeholder engagement activities undertaken so far, and scope the next stage(s) of the project.

Templates in Annex C provide a framework for completing a SOC. Guidance onthe content of each Section is presented below.

3.2 Strategic Case

The Strategic Case should:

• demonstrate a clear understanding of the flood and/or erosion problem/s and any existing management arrangements in place • include a statement of the business needs • include SMART Investment Objectives for the project • provide a statement of the associated risks, constraints, dependencies and potential benefits associated with the project.

Strategic Outline Case (SOC) 3



3.2.1 FCERM strategic fit and context

All relevant national and local strategies should be referenced. For example, this should set out why a project is linked or helpful in relating to:

• Addressing concerns regarding recent flooding or coastal erosion. • Modelled risk shown in NRW’s Flood Risk Assessment Wales (FRAW) NRW’s Communities at Risk Register (CaRR). • The policies it could support, for example, policies contained in flood risk plans, such Flood Risk Management Plans (FRMPs), Shoreline Management Plans (SMP) and Local Flood Risk Management Strategy (LFRMS). • The impact on other government policies and high-level objectives; for example, the National Strategy for Flood and Coastal Erosion Risk Management in Wales. • Other projects within the national FCERM Programme. How could the project be delivered as part of a wider programme of work?

3.2.2 Sustainability and well-being strategic fit and context

This should summarise how a project could achieve local well-being benefits and/or environmental enhancements, using data within:

• Local Well-being Plans and objectives (produced by Public Service Boards). • Other local authority or community plans. • NRW’s State of Natural Resources Report (SoNaRR) and associated data. • Local environmental plans or Local Development Plans.

3.2.3 The flood or erosion problem(s) and current management arrangements

Describe the problem/s and explain existing arrangements and why they are inadequate. This could utilise various sources of data (see STN01: Assessing Options, SOC1 for a list of potential data sources) to indicate:

• Predicted extent or number of properties or people at risk of flooding or erosion (using local evidence as well as national datasets like FRAW or CaRR). • Flood or erosion history. • Information on any current FCERM arrangements – for example, flood or coastal erosion protection measures, flood warning, and current maintenance activities. • How the problems may worsen in the future – for example, with climate changes or through deterioration of protecting assets. • Potential links with other sources of flood risk (e.g. is a watercourse or surface water drainage system susceptible to “tide locking” or otherwise unable to drain when receiving water levels are high?).

FGCW FRAMEWORK Part 2 – Five Ways of Working (Prevention)

BBC ACTION 1: Ascertain strategic fit

BBC ACTION 2: Agree strategic context

FGCW FRAMEWORK Part 1 – Well-being Objective

BBC ACTION 3: Determine the spending objectives, existing arrangements and business needs



3.2.4 Investment Objectives

Setting good Investment Objectives is vital for the success of a project. They identify the desired investment outcome, i.e. ‘where we want to be’ or ‘what do we want to achieve’.

Investment Objectives are different to, and should not be confused with, “Project Objectives”. Often set within Project Plans, Project Objectives relate to project outcomes, e.g. the delivery of a Business Case by a certain date, or a successful application for grant funding.

It should be clear how Investment Objectives link with the Strategic Fit and Context sections. Investment Objectives set at a project level should map across to any programme level objectives and they should also consider they can support the delivery of the local well-being objectives (identified by Public Services Bodies in the Local Well-being Plan) by making connections and integrating your project within the context of local well-being of the area.

In nearly all cases, it would be appropriate to include an Investment Objective/s that aspired to deliver a solution that works with natural processes (i.e. Sustainable Urban Drainage System (SuDS), NFM or coastal realignment).

Investment Objectives should also be SMART – specific, measurable, achievable, relevant, and time-bound. This will help facilitate the use of the Investment Objectives. in assessment of options and provide the foundation for post-implementation review and evaluation.

Investment Objectives should be aspirational, and not be so narrowly defined that they set limits on what is possible. For example, it is not appropriate to have an objective such as “provide a flood embankment with a 1% annual exceedance probability standard of protection to the local community”. A suitable objective here may be “reduce the risk (probability or consequences) of flooding to the local community by [date]”.

In all cases, Investment Objectives should be established in dialogue with stakeholders. As a minimum, the needs and aspirations of the various stakeholders should be considered when developing these objectives.

It is acknowledged that setting objectives can be an iterative process as at subsequent appraisal stages new information or revised project drivers may require that they are re-evaluated.

To assist with setting Investment Objectives, the following example areas for objectives are provided. These could act as a starting point for formulating SMART Investment Objectives:

FGCW FRAMEWORK Part 1 – Well-being Objectives

BBC ACTION 3: Determine the spending objectives, existing arrangements and business needs

FGCW FRAMEWORK Part 2 – Five Ways of Working (Integration)



• Reduce the risk to life associated with floods and coastal erosion • Address health and safety concerns associated with the operation of existing FCERM assets. • Reduce damage to property associated with floods and coastal erosion. • Do not increase damage to property associated with floods and coastal erosion (i.e. no unacceptable detriment to existing flood risk). • Reduce the cost of an existing FCERM service (e.g. invest to deliver lower cost maintenance of an asset). • Improve community resilience to flood events (sustainability and well-being). • Support achieving environmental enhancement, environmental regulatory requirements or targets including Natural Flood Management.

It is worth noting that Section 6 of the Environment (Wales) Act 2016 requires that all public authorities must seek to maintain and enhance biodiversity and promote the resilience of ecosystems. For example, an aspiration to “green” any traditional “grey” (existing or proposed) flood defence assets could help to achieve this (Integrated Green-Grey Engineering).

To assist with setting SMART Investment Objectives, it is suggested that the template table in Annex C is completed and presented as part of the Business Case.

3.2.5 Summary of potential opportunities and benefits of investment

The section should summarise the potential for flood risk, erosion and wider benefits that may be achieved by investing in the project.

For example, these could include: the biodiversity benefits of using NFM as part of a project; amenity or recreational benefits of improving parkland, the coastline or access for residents; or improved viability of an area for business or tourism. NRW have published maps that show where NFM measures could contribute towards reducing flood risk (for example, areas where potential tree planting is considered to bring flooding benefits) (see STN01 for further details).

Further advice is provided in the STN01: Assessing options.

3.2.6 Summary of potential risks, constraints and dependencies from investment

This section captures the key risks, constraints and dependencies associated with the proposed investment.

At SOC stage this should be an initial assessment (bullet point list should normally suffice) of the following:

BBC ACTION 4: Determine potential business scope and key service requirements

BBC ACTION 5: Determine benefits, risks, constraints and dependencies



• Risks, including risks that extend beyond the Business Case stage. • Constraints, including a check that the Business Case can be produced using this guidance. • Dependencies, for example, a funding constraint, or links to other projects. • Organisational constraints.

3.2.7 Stakeholder engagement – Strategic Case

A summary of the stakeholder engagement completed to inform the Strategic Case should be provided. BBC recommends that, at SOC stage, the Strategic Case should be completed following a “Case for Change” workshop to identify and agree Investment Objectives, key benefits, opportunities, risks, constraints and dependencies. For suggested workshop participants, please refer to page 26 of BBC guidance.

The Business Case should report the work undertaken to understand the needs and experiences of people who will be affected by the project, and how this will inform the project.

RMAs should set out how they intend to engage with stakeholders, that may have different forms of expertise, knowledge and backgrounds. This should include how the general public and those not represented by specific interest groups will be engaged and consulted. They key questions to ask are:

• How will stakeholders be involved in the design and development of the business case? • How will stakeholders be involved in the delivery and / or oversight of the business case?

RMAs should demonstrate that all stakeholder engagement is as inclusive as possible and show how their proposals meet the stakeholders’ needs.

RMAs should consider how their project can support other local and national duties to engage with different demographics. The following organisation can provide further guidance on this (see STN01).

• Children’s Commissioner • Equalities and Human Rights Commission • Welsh Language Commissioner • Older People’s Commissioner

For example, in 2011 Wales became the first country in the UK to incorporate children’s rights into domestic law with the introduction of the Rights of Children and Young Persons (Wales) Measure 2011. Research by Lancaster University (Children, Young People and Flooding: Recovery and Resilience, 2016) has found that children and young people can be acutely affected by the impacts of flooding. As such, they are likely to be key beneficiaries of proposed flood projects and care should be taken not to overlook them in stakeholder and community consultations.

FGCW FRAMEWORK PART 2 5 ways of Working (Collaboration)

WORKSHOP 1: Case for Change




3.3 Economic Case

This section of the Business Case focuses on the choices available for delivering the project. At SOC this should provide:

• A summary of the general approach used to appraise options; • A clear understanding of the project’s Critical Success Factors (CSFs); • A list of measures, which have been subjected to high level screening against CSFs; • Investment Objectives and relevant screening criteria; • A Short List of options, with indicative costs and benefits, that will be fully evaluated at OBC stage.

3.3.1 Critical Success Factors (CSFs)

Critical Success Factors (CSFs) are outcomes that are crucial (not desirable) to the successful delivery of the project. In this respect CSFs differ from Investment Objectives, which identify aspirational (desirable) outcomes.

Critical benefits, constraints and dependencies identified the Strategic Case may provide the basis for identifying the project’s CSFs. BBC guidance (page 28) provides a list of five generic CSFs (in blue) which provide a starting point for identifying and agreeing project CSFs. Guidance on how the generic CSFs can be adapted to become FCERM CSFs is provided below. Strategic Fit and Business NeedsHow does the proposed option fit with the local flood risk strategy? Potential Value for MoneyThe option should deliver a positive net present social value in terms of costs, benefits and risks.Supplier Capacity and CapabilityThe option must match the capacity to deliver of potential suppliers.Potential AffordabilityThe option can be funded from available resources, whilst aligning with the Funding Organisation’s resourcing constraints.Potential AchievabilityThe option must be physically possible to construct or deliver and the RMA must be able to maintain it in the long term.

It is worth noting that under Section 6 of the Environment (Wales) Act, all public authorities must seek to maintain and enhance biodiversity.

3.3.2 Approach to options assessment

In this section a summary should be provided of the approach used to identify potential FCERM measures/options and how they were appraised. Suggested approaches are provided within this Section and STN01. The option framework filter is a requirement of Better Business Cases and STN01 provides a worked example.

BBC ACTION 6: Agree critical success factors (CSFs)

FGCW FRAMEWORK PART 2 Five Ways of Working



In terms of considering NFM in option assessment, RMAs should: • Identify all possible Long List measures that work with natural processes first. • Always develop a Do Something option that incorporates NFM for Short List consideration.

3.3.3 Identify Long List

3.3.3.1 Using the Options Framework Filter to identify the Long List

Use the Options Framework Filter for potential scope, potential solution, methods or service delivery, implementation and funding sources.

The Options Framework Filter should be applied and identify reasonable limits of the Long List.

It is a useful tool for engaging senior management and other stakeholders to an agreed preferred way forward early on in the scoping and planning stage in the development of projects.

The framework considers the creation of options as a series of choices to be made in sequence. The first set of questions namely “Where” and “What” will assist the appraiser in identifying the potential scopes for a project which will include:

• the Walkaway option (previously referred to in FCERM-AG as Do Nothing); • the Business As Usual option (previously referred to in FCERM-AG as Do Minimum); • a minimum of two intermediate options; and • a Do Maximum.

The updated terminology aligns this FCERM guidance document with Green Book 2018.

Options should be ordered from least to most ambitious, in terms of outcomes. The framework then asks that appraisers identify and appraise the choices in relation to the “How”, “Who”, “When” and “Funding”.

BBC ACTION 7: Determine Long List options and SWOT analysis



FGCW FRAMEWORK PART 2 Five Ways of Working (Long Term)

BBC guidance FCERM specific guidanceScope “Where” Spatial Scale.

“What” What sources of flood risk, what Standard of Protection, in the present day and with climate change.

Service solution “How” in terms of delivering the potential scope of the project.

Current and Core Services: FCERM activitiesDesirable Services: NFM Optional Services: wider initiatives, e.g. regeneration, tourism, etc.

Service delivery “Who” in terms of delivering the potential scope of the project.

What type of contractor: local, national, international.

Service implementation

“When” in terms of delivering the potential scope of the project.

How soon will it be implemented?

Funding The “funding” required for delivering the potential scope, solution, service delivery and implementation path for the project.

Liaise with Welsh Government Flood Branch on potential funding mechanisms at the time. Consider potential for partnership funding contributions.



For each of the potential scopes identified in the framework the appraiser should filter choices to:

• Discount unrealistic options; • Carry forward reasonably practicable options, and; • Where possible, identify a preferred way forward.

The templates in Annex C provides a table for completing the Options Framework Filter. STN01 provides further advice on how to apply it and a worked example to illustrate the use of the options framework for filtering choices.

3.3.3.2 Identify measures to deliver the Long List

Within the limits identified by the Options Framework Filter, a range of potential measures should be identified. This should include measure that work with natural processes (i.e. SuDS, NFM or coastal realignment) and RMAs are encouraged to identify these first.

In developing this list of measures, RMAs may also wish to consider the “source-pathway-receptor” concept, as summarise below.

Near the source, measure can alter the behaviour or frequency of the flood event or reduce or modify the energy impacting on the coast. Examples of source measures include:

• Changes in upstream land management to slow down surface flow or encourageinfiltration at source. • Formal flood storage, such as attenuation areas.

Alternatively, reshaping the river system or coast and its behaviour along the pathway, will alter the way in which the source interacts with the receptor(s). Examples of pathway measures include:

• Offshore breakwaters, reefs, headlands to alter sediment pathways, removal of coastal structures, beach recharge to re-establish or introduce sediment pathways. • Re-introduction of river meanders or and works to route flood water along alternative pathways.

Finally, measures that make receptors more resilient to flooding or erosion, are receptor measures and examples include:

• Property Level Protection (PLP) that either prevents water ingress (flood proofing) or makes properties more resilient to flooding. These types of measures can also be applied to infrastructure. • Emergency planning/response including flood warning. • Community flood awareness plans and initiatives. • A Local development planning policy. • Relocation or change of land use to a less flood-vulnerable use. • Emergency planning or response, including flood forecasting and warning.

BBC ACTION 7: Determine Long List options and SWOT analysis



In developing a list of measures, it may become evident that there are opportunities for delivery of multiple benefits at or near the study area. Wider or Multiple benefits may include, for example, those associated with transport infrastructure, regeneration or the environment. For further information on potential wider environmental benefits see STN01: Assessing options.

3.3.3.4 Screen the performance of each measure

Once identified, the performance of each measure should be screened. The aim of this is to reduce the list of potential measures to a shorter list of possible measures. This process can be completed in various ways, but the approach should always be appropriate to the scale and type of project being undertaken.

Following the objective-led appraisal approach, it is expected that this screening will in the first instance make reference to the Critical Success Factors and Investment Objectives. For a FCERM measure to be taken forward for Short List consideration it should:

• Be within the range provided by the Options Framework Filter. • Meet, or be likely to meet, all CSFs. • Achieve at least one of the Investment Objectives.It is recommended that a high-level assessment of the likely cost vs. the likely benefits is completed at this stage to provide an indication of economic viability. Guidance on how to obtain these estimates is provided in STN02 and STN03.

For coastal projects, it is important to consider the potential impact of each measure on connected habitats, especially any designated or protected areas. There are likely to be cost implications associated with the delivery and maintenance of habitat mitigation or compensation through the National Habitat Creation Programme. These costs should be considered as part of the economic case and discussed with NRW.

After the screening in relation to the CSFs and Investment Objectives, it may be necessary or desirable to subject the list of measures to other qualitative screening. For example, FCERM measures could be screened by using a strengths, weakness, opportunities, and threats (SWOT) analysis (See STN01 for further guidance).

It is possible that the screening of measures is completed in parallel with the finalisation of the CSFs and Investment Objectives, therefore consultation with stakeholders should also be undertaken at this time. BBC guidance suggests encourages the use of working parties or workshops at this stage, where senior managers, end users, technical specialists and other key stakeholders can input to appraisal. The approach should be proportionate and tailored to the particular project.

Consideration should be given to how the measure may provide a solution to address a local well-being issue, as identified in the Strategic Case (with reference to the Local Well-being Plan).

FGCW FRAMEWORK PART 3 7 well-being goals



It is essential that screening decisions are recorded in an auditable manner.

To assist recording the screening of measures, a template table has been provided in Annex C.

3.3.4 Identify the Short List

The Walkaway and Business As Usual options should be defined and agreed first.

The Walkaway and Business As Usual options are always taken forward on the Short List of options as they provide essential baselines with which intervention (Do Something) options are compared.

Walkaway means doing nothing, i.e. cease any and all current activities and walk away. Both the positive and negative impacts that would result from this scenario should be captured within the Business Case.

Identifying the Walkaway option correctly is important to the analysis and needs careful consideration. Further guidance is provided in STN01.

Business As Usual normally means sustaining the current FCERM arrangements and can include routine maintenance or inspections of flood and coastal defence systems. Alternatively, Business As Usual can mean doing the (bare) legal minimum where there is a statutory requirement to continue with FCERM activities. These may be:

• Statutory duty to carry out clearance and repair works to reservoirs (Reservoirs Act 1979). • Provision of surface water drainage (Water Industry Act 1991).

Note that the Business As Usual baseline should include costs to deliver Business As Usual activities and should be presented in the Business Case document and associated economic assessment.

Following the identification of Walkaway and Business As Usual baselines, the list of measures should then be used to establish intervention (Do Something) options for the Short List.

It is not possible to provide definitive guidance on how to undertake options development, and appraisal always requires experienced judgement, however in developing the Short List, the following should be considered:

• A single measure could represent a viable stand-alone Short List option. • Measures could be combined to create a Short List option. For example, Integrated Green-Grey Engineering, to provide both traditional flood risk benefits and wider environmental benefits.



• Suitable measures (or groups of measures) that provide gradually increasing levels of FCERM performance i.e. Standard of Protection. This guidance does not specify a requirement to achieve set design standards or standards of protection. However, for most FCERM projects, it will be appropriate to consider at least one option that provides a relatively high standard of protection, for example a 1% Annual Exceedance Probability (AEP) fluvial or 0.5% AEP tidal, with appropriate allowance for climate change. • Consideration should be given to options that can deliver wider benefits as well as FCERM benefits. This could include aligning or integrating the project with other initiatives outside of FCERM, such as agricultural payment projects, road, rail or bridge projects, private developments, or environmental enhancement projects. • Consider the spatial scale of the measure. For example, it may be appropriate to sub-divide a measure to raise a new flood defence into height band (raise by 0.5m, 1m, 1.5m, for example) if the height of the defence has been identified as a constraint (e.g. planners have advised raising above 1m would require planning permission, for example). • Consider the temporal scale of the measure. Taking the above case where NFM is combined with a traditional “engineered” solution, the former tackles short term needs and the latter provides mitigation for long term future climate change impacts. • The RMA may wish to complete an initial benefit and costs assessment of the Short List options to provide confidence that the options on the Short List will be economically viable. • How does an option maximise the RMA’s contribution across the seven WBFGA well-being goals (Prosperous, Resilient, Healthier, More Equal, Cohesive Communities, Vibrant Culture and Globally Responsible).

The number of short list options will vary according to the complexity and scale of a potential scheme but must include the Walkaway and Business As Usual and at least three Do Something options.

The key purpose of forming the Short List of options in the SOC is to provide confidence that worthy options exist. Short List options should be within the range provided by the Options Framework Filter. Options can be refined or changed at OBC or FBC stage and the effort in defining the Short List should be in proportion with the project’s scale.

Further guidance on options development is provided in STN01.

3.3.5 Stakeholder engagement (Economic Case)

RMAs should provide a summary of the stakeholder engagement completed to inform the Economic Case. BBC recommends that the SOC Economic Case should be completed following a “Identifying and assessing the options” workshop. This workshop can be used to identify and agree CSFs, identify and appraise the Long List and identify the Short List. For suggested workshop participants, please refer to page 39 of BBC guidance.


FGCW FRAMEWORK PART 1 Well-being objectives

BBC ACTION 8: Recommended preferred way forward

WORKSHOP 2: Identify and assessing the options



3.4 Commercial, Financial and Management Cases

These three cases should be brief and high level at SOC stage for most FCERM projects.

To support the Commercial Case, an outline Procurement Strategy will have been developed and would provide confidence that there is a viable means to obtain the technical support needed to produce the OBC and FBC Business Cases (especially where this is to be out-sourced). This should also include how sustainability and well-being have been considered in the procurement process.

The Financial Case should provide confidence regarding the expected costs for producing the OBC and FBC business cases. It should also provide the order of magnitude or range of potential costs for the delivery phase. The SOC should identify the likely funding sources for both the Business Case production and construction stages. Finally, an outline timeline of funding needs should be provided.

The Management Case should provide:

• A “route map” for the likely project assurance route for the Business Case (SOC-OBC-FBC). • Likely project governance, control and team organisation (organogram). • Arrangements for the next phase of Business Case development. • Preliminary Project Risk Register.

3.5 Completing and finalising the SOC

During production of the SOC, RMAs are expected to monitor spend and ensure that it remains within the bounds set by the Funding Organisation. The approved spend for a SOC may also include a risk budget.

When the SOC has been completed, and prior to the formal submission of the SOC to the Funding Organisation, the need for an independent review (e.g. Gateway review 1) should be considered. This will provide assurance to senior management, stakeholders and the Funding Organisation that the project can be successfully delivered.

Upon reviewing the SOC, the Funding Organisation may:

• Approve the SOC and agree to the next stage (i.e. development of the OBC).[OR] • Ask that the RMAs to: - Modify the scope of the project and include further options. - Undertake a pilot exercise to test key assumptions. - Postpone or abandon the project, because it is considered either too high risk or too expensive.

If these actions address the concerns of the Funding Organisation, the SOC may then be updated and re-submitted for approval.


OGC GATEWAY REVIEW 1: Business Justification


Links to FGCW & BBC Guidance4 Strategic Outline Case (OBC)

4.1 Purpose of OBC

Identify the Preferred Option for investment.

The purpose of this stage is to give confidence to funders and stakeholders that there is a viable Preferred Option to invest in. This includes:

• Ensuring the Preferred Option optimises value for money (VFM) and delivers the Investment Objectives. • A plan for funding and procuring the preferred option. • A management plan that gives confidence that sufficient oversight is in place for delivery of any initial BBC Actions (e.g. project construction) and the ongoing service delivery or maintenance of the Preferred Option once it is put in place.

This stage will build on the work carried out on the Strategic and Economic Cases at SOC stage. The Economic Case will be completed, Strategic Case refined (as needed) and further consideration will be given to the Management, Commercial and Financial Cases to provide project funders with confidence in the deliverability of the preferred option. As a consequence, at the end of OBC stage all five dimensions of the Business Case are relatively developed, as follows:

• the Strategic Case revisited and update from SOC version; • the Economic Case completed; • the Commercial Case outlines the envisaged contractual structure, clauses and payment mechanisms; • the Financial Case contains a detailed analysis of affordability and any funding gaps; and, • the Management Case demonstrates how the project will be delivered.

The Business Case template in Annex C provides a guide for completing a OBC. The Sections to be included in the OBC are as per cases of 5CM. Guidance on the content of each Section is presented below.

The preparation of the OBC is a mandatory part of the Business Case development process for all projects except those following the BJC route. Ordinarily the OBC stage will commence following completion (and approval) of a SOC (see section 3).

Outline BusinessCase (OBC)4



Occasionally, it may be desirable for the SOC and OBC to be produced in a single phase however RMAs should seek prior agreement for this from the Funding Organisation. 4.2 Strategic Case

4.2.1 Revisit sections drafted at SOC Stage

In most situations, the Strategic Case will have been well developed at SOC stage and the following activities (covered in Section 3) will have been completed:

• The flood or erosion problem/s and current management arrangements. • FCERM strategic fit and context. • Sustainability and well-being strategic fit and context. • Investment Objectives. • Summary of potential opportunities and benefits for investment. • Summary of potential risk, constraints and dependencies for investment.

It may be necessary to update the SOC version of the Strategic Case at OBC stage, usually because:

• New information has been obtained during the OBC stage that is directly relevant to the Strategic Case. This often comes from further technical work (e.g. environmental assessment) or engagement with project stakeholders in the OBC stage. • Approval of the SOC, and agreement to proceed with OBC, was conditional on some changes and adjustments to the Strategic Case.

Any changes made to the SOC version of the Strategic Case at OBC stage should be noted within the Comments section, at the front of the Business Case Template (Annex C).

In the case of a project that is proceeding via the BJC process or has proceeded straight to OBC, then the whole Strategic Case will need to be written at OBC stage. In this situation, guidance provided in Section 3 also applies.

4.3 Economic Case

4.3.1 Revisit sections drafted at SOC Stage

In most situations, the Economic Case will have been well developed at SOC stage and the following activities (covered in Section 3) will have been completed:

• Critical Success Factors (CSFs). • Options Framework Filter. • Screening the measures. • Defining the Walkaway, Business As Usual and Do Something options.

It may be necessary to update the SOC version of the Economic Case at OBC

BBC ACTION 9: Revisit SOC and determine short-list

BBC ACTION 9: Revisit SOC and determine short-list



stage, usually because:

• More detailed analysis of the problem has been completed, changing the SOC stage assessment of Walkaway, Business As Usual or Do Something options. • Approval of the SOC, and agreement to proceed with OBC, was conditional on some changes and adjustments to the Economic Case.

Any changes made to the SOC version of the Strategic Case at OBC stage should be noted within the Comments section, at the front of the Business Case Template in Annex C.

In the case of a project that is proceeding via the BJC process or has proceeded straight to OBC, then the first part Economic Case will need to be written at OBC stage, using the guidance provided in Section 3.

The following activities would normally be completed at OBC: • Assessment of Short List options. • Further development and testing of Preferred Option.

4.3.2 Assessment of Short List

This section of the Business Case provides summary information regarding key aspects of the options assessment work, culminating in the identification of a preferred option.

In general, the Business Case should assess the technical, sustainability, well-being and economic performance of each option. For each of these performance criteria, the Business Case should present the FCERM and wider benefits, opportunities, risk, constraints and dependencies. Each section should summarise the results in a succinct fashion, with details appended to the Business Case as needed. Detailed guidance regarding the assessment of Short List options is included in the STNs (Annex A).

4.3.2.1 Engineering performance of Short List

This should involve:

• Concept level design of option, including plans, assumptions, calculations, cross sections and other illustrations as needed. • An assessment of the number of people or properties that benefit from each option. • An assessment of the standard of protection each option provides. • An assessment of whether an option increases flood risk elsewhere (i.e. could it cause flood risk detriment elsewhere). How does an option affect other sources of flood risk?

4.3.2.2 Sustainability and well-being performance of Short List

BBC ACTION 10: Prepare the economic appraisal for Short Listed options



This section should provide a summary of how each option contributes towards environment, sustainability and delivery of the Well-Being of Future Generations Act goals. It should assess the performance of each option as follows:

• Does an option meet local well-being objectives? • How options have been developed following the FGCW 5 Ways of Working (long-term thinking, prevention, involvement, integration, collaboration). • How does each option maximise the RMA’s contribution across the seven FBFGA well-being goals (Prosperous, Resilient, Healthier, More Equal, Cohesive Communities, Vibrant Culture and Globally Responsible? • Performance of each option given climate uncertainty. • The adaptability and resilience of options to future change (i.e. ‘future proofing’ and avoiding solutions which alleviate risk in the short term, but increase risk long term). • Has appropriate environmental assessment been undertaken? • Have options been developed with Integrated Green-Green Infrastructure in mind?

4.3.2.3 Economic appraisal of Short List

The focus of this section is to identify which of the Short List options meet the required economic performance requirements which, for publicly-funded projects, are provided by the UK Treasury Green Book.

To summarise, in completing this section, the appraiser should undertake:

• An assessment of the appropriate Appraisal Period. • Whole Life Cost (WLC) assessment for each option. WLC should be expressed as “cash” costs and discounted to Present Value (PV). • Appropriate Optimism Bias and risk assessments. • (if appropriate) Contingency Provision. • Identification and monetisation of the benefits associated with each option (PV damages to derive PV benefits) against both baselines. • Produce the normal economic metrics that indicate Value for Money, such as Net Present Value (NPV) and Benefit-to-Cost Ratio (BCR) for both baselines.

Optimism Bias – There is a proven tendency for appraisers to be too optimistic about key project parameters, including capital costs, operating costs, project duration and benefits delivery. An Optimism Bias allowance should be added to the Whole Life Cost Estimate of each Short List Option. Detailed guidance on Optimism Bias allowance can be found in STN03.

Risks – These are specific uncertainties that arise in the design, planning and implementation of an option. Risk costs, associated with risks materialising, avoiding risks, sharing risks and mitigating risks, should be incorporated into the cost estimate for each Short List Option. Detailed guidance on risk allowances can be found in STN01.

BBC ACTION 12: Undertake Risk assessment

BBC ACTION 11: Undertake benefits appraisal

FGCW FRAMEWORK PART 1 Well-being Objectives

FGCW FRAMEWORK PART 2 5 Ways of Working

FGCW FRAMEWORK PART 3 7 well-being goals



Contingency Provision, if required by the Funding Organisation, should reflect the sum of measured risk (costs of risks avoided, shared and mitigated on an expected likelihood basis) and optimism bias adjustment estimated in nominal prices.

Baselines - The economic performance of each option can be assessed against two baselines: “Walkaway” and “Business As Usual” (see Technical Note for further details). The “Business As Usual” option is the baseline used to establish whether a given option represents value for money. The “Walkaway” option is an additional baseline that can be used in the economic assessment of FCERM projects.

Prior to FCERM-BCG, appraisals were conducted against a single, Do Nothing or Walkaway baseline. Following publication of Green Book 2018, investment decisions should be justified based on their value compared with a Business As Usual baseline. However, a comparison of options relative to a Walkaway baseline will enable Risk Management Authorities to also understand the implications of withdrawing current or planned investment. Consideration of cost benefit ratios and net present values derived relative to a Walkaway baseline also enables the comparison of schemes by funding authorities when making programme decisions.

Annex C provides templates for tables that may be used for the presentation of normal economic metrics.

In certain circumstances, the preferred option may be predetermined, to some extent, by a legal requirement. In such instances, Cost Effectiveness Analysis (CEA) should be used to determine the lowest cost method of delivering the preferred option. Further information on CEA can be found in STN02.

4.3.2.4 Financial performance of Short List

The options should be assessed against opportunities for wider funding contribution. Interventions that also provide wider benefits, especially community benefits, are more likely to be able to attract third-party funding.

4.3.3 Select the Preferred Option

The Preferred Option should be a balanced judgement based on the Net Present Social Value (NPSV), the Benefit Cost Ratio (BCR) and the level of risk involved. It should also meet the most Investment Objectives, and all of the CSFs. The Preferred Option must have a robust economic basis. However, “non-FCERM” factors developed in combination with key stakeholders (such as wider benefits and sustainability) can influence the selection of the Preferred Option. There are various ways this type of assessment can be completed, and some guidance on this is included in in STN02.

This section should conclude with a statement regarding the key benefits of the preferred option.

BBC ACTION 13: Select Preferred Option and undertake sensitivity analysis



4.3.4 Further development and testing of Preferred Option

This section should summarise the option development and testing that was completed following the initial identification of a preferred option. The detailed technical works should be appended to the business case.

4.3.4.1 Outline design and re-assessment of cost

It is expected that the design of the Preferred Option will be developed to “outline design” level of detail as a minimum, with the cost estimate and risk budget revisited to provide increased confidence. The outline design and refined cost and risk estimation work should be appended, with a brief statement included in the Business Case summarise the work completed.

Any recommended mitigations for risks, or further work, should also be summarised, including clear statements regarding expectations for the FBC stage. This could include permissions and consents that are outstanding or recommendations regarding ground investigations or environmental surveys needed to finalise design details or environmental mitigation. The cost associated with delivering risk mitigation measures should be included in the Business Case.

4.3.4.2 Sensitivity Testing

Sensitivity tests should be completed, exploring the potential consequences of the uncertainties in the analysis. This could include: • Economic considerations such as project costs, asset life, benefits. • Potential maintenance issues (e.g. the potential to create a significant maintenance liability). • The impact on standard of protection offered if alternative, but still reasonable, assessments of storm or flood conditions are used (e.g. hydrological uncertainty). • The robustness of the Preferred Option selection for alternative future climate change scenarios. • How sensitive is the estimated cost to the duration of works? If considered significant, consider applying “Duration of works” Optimism Bias (see STN03).

Commentary should be provided in this section of the business case, cross referencing details included in appendices.

4.3.5 Update summary of stakeholder engagement (Economic Case)

This section should have been completed at SOC. It is revisited and updated at OBC.

BBC recommends that the OBC Strategic Case should be completed following a “Assessing the short-listed options” workshop to validate the findings of the economic assessment, appraise the qualitative benefits and risks and identify the Preferred Option. For suggested workshop participants, please refer to page 60 of BBC guidance.

WORKSHOP 3: Assessing the Short Listed options

BBC ACTION 13: Select Preferred Option and undertake sensitivity analysis



Evidence of engagement with Local Planning Authorities and regulators should be provided. It is expected that some form of public engagement will have been completed. This is essential for higher profile or potentially contentious schemes affecting sensitive areas. Any negative opinion or feedback regarding a Short List or Preferred Option should be presented together with an explanation as to why (and, if necessary, how) the project team wishes to progress with the option despite this.

4.4 Commercial Case

The OBC stage requires further development of the (ordinarily very brief) Commercial Case provided at SOC stage. At OBC, the first full draft of the Commercial Case will be completed. This will be revisited and finalised at FBC stage.

As a reminder, the focus of this case is on how the envisaged construction works will be procured and the key commercial considerations within this.

4.4.1 Procurement Strategy

The Procurement Strategy should be identified at OBC stage. The Procurement Strategy should confirm the procurement route and tender evaluation criteria.

The Procurement Strategy should support the delivery of the principles set out in the Wales Procurement Policy Statement (WPPS) (June 2015) which is intended to help achieve the seven goals of the Well-being of Future Generations (Wales) Act.

Of particular relevance are the following principles:

• Present how the proposed approach will optimise the value (cost and quality). • The benefit that the procurement can bring to the community should be a considered, and any project valued at over £1M is required to undertake a community benefits assessment using the Welsh Government’s National Procurement Service (NPS) Communities Benefits Measurement Tool. • The strategy should encourage open and accessible competition. The chosen procurement approach should ensure that smaller, more local suppliers are not precluded from bidding for elements of the contract, either directly or through the supply chain. • The strategy should use simplified standardised processes for example e-procurement tools and payment mechanisms, to reduce process cost and burden to business. • The strategy should confirm that consideration has been given to use of any relevant frameworks let by NPS. NPS2 framework has two FCERM specialist consultancy lots (Flood Risk Mapping & Modelling Consultancy and Water Management Consultancy). • The proposed strategy should clarify how supplier engagement will be conducted to encourage innovative solutions which will support delivery of best value, sustainability and well-being. For example, the

BBC ACTION 14: Determine Procurement Strategy


BBC ACTION 15: Determine service streams and required outputs



supplier could be asked to provide ideas on Integrated Green-Green Infrastructure solutions. • The strategy should identify what skills are available for delivery of the procurement and subsequent contract management (and mapped to the Management Case proposal for project resource structure).

At the time of the publication of this guidance, all organisations that receive funding from Welsh Government, either directly or via grants or contracts, are expected to sign up to the Code of Practice on Ethical Employment in Supply Chains. Other organisations in Wales are encouraged to sign up.

Guidance regarding application of Wales Procurement Policy is available from the Welsh Government’s Commercial and Procurement Directorate [email protected]

Best practice is that the Procurement Strategy should be developed by senior managers (business input) and procurement specialists (technical input) and agreed by end users, technical specialists, and key stakeholders. Clearly, proportionality should be kept in mind and the approach should be tailored to the particular project.

This section can be completed by either:

• Referring to an appended Procurement Strategy. • Completing the relevant section of the Business Case template.

4.4.2 Key contractual terms and risk allocation

This section will outline the contractual arrangements for the procurement, including the use of the proposed form of contract (including variation to standard forms), the key contractual content and accountancy treatment.

This should provide a summary of the key areas to be agreed in the contracts with the supply chain (e.g. contract lengths, sub-contracting or others matters to be managed). Key considerations for contractual content include:

• the duration of the contract and any break clauses; • the service provider’s and procuring authority’s respective roles and responsibilities in relation to the proposed deal; • the payment – or charging – mechanism, including prices, tariffs, incentive payments etc.; • change control (for new requirements and updated services); • the organisation’s remedies in the event of failure on the part of the service provider to deliver the contracted services – on time, to specification and price etc.; • the treatment of intellectual property rights; • compliance with appropriate regulations, etc.;

BBC ACTION 15: Determine service streams and required outputs

BBC ACTION 17: Outline potential payment mechanisms

BBC ACTION 16: Outline potential risk appointment



• the operational and contract administration elements of the terms and conditions of service; • arrangements for the resolution of disputes and disagreements between the parties; • the agreed allocation of risk; • accountancy treatment, and; • any options at the end of the contract.

Explanation should also be given as to how risk will be apportioned between parties, and should cover design, construction and residual (operational) risks.

For further guidance on risk apportionment , please see page 63 of BBC guidance. This section should also outline how the promoting authority intends to pay for services provided within the contracts (e.g. a construction contract). For example, how will the other party to the contract be incentivised to continue to provide value for money? What is the payment mechanism and pricing structure? How will good performance be rewarded?

For further guidance on payment mechanisms, please see page 64 of BBC guidance.

4.4.3 Stakeholder engagement (Commercial Case)

The final section will summarise the stakeholder engagement undertaken during the Commercial Case. BBC recommends that the OBC Commercial Case should be completed following a ”Developing the Deals” workshop is held to develop a service specification, identify and apportion service risks and develop the contractual arrangements. For suggested workshop participants, please refer to page 68 of BBC guidance. Risk workshops and procurement strategy meetings are commonly held at this stage.

4.5 Financial Case

The Financial Case focuses on the affordability of the Preferred Option recommended within the Economic Case. Therefore, the aim of this section is to present information on how the Preferred Option is to be funded and confirm its affordability over the life span of the service, e.g. further appraisal at FBC stage, any capital funding needed for construction or delivery, and revenue funding for the operational (maintenance) phase. A high level of confidence is required for the delivery and operation phase cost estimates at OBC stage. Guidance on this is provided in STN01.

The costs appraised in the Financial Case provide an accountancy based perspective. The key activity for the Financial Case at OBC stage is the completion of three financial reporting tables containing information relating to the financial appraisal, funding sources and timescales. These tables are provided in the Wales FCERM Business Case Template.


WORKSHOP 4: Developing the Deals

BBC ACTION 18: Ascertain contractual issues and accountancy treatment



4.5.1 Financial scale and breakdown

This section provides the detail of the upfront investment costs and therefore the amount which is being sought for spending approval.

The main task for this section is to complete Financial Breakdown Table (template provided in Annex C). The Financial Breakdown Table provides a summary of the financial appraisal, including the whole life cash costs.

In deriving the risk budget for the Financial Breakdown Table, Monte Carlo Analysis method can be used.

Accompany the table, this section should provide a short explanation as to how the costs have been derived. The OBC should summarise the anticipated impact on revenue and capital budgets in relation to the project Whole Life Cost. This especially applies when the project will result in the creation of an asset that will need to be maintained. In such cases, this section of the OBC should state when the asset is likely to be created and what the financial implications of this may be.

4.5.2 Funding sources

At OBC stage the, Business Case should identify the source of funding for the FBC (including detailed design), and for delivering, maintaining, and operating the Preferred Option. The OBC should state any conditions placed on the extent or timing of funding, and also how future costs will be funded.

The RMA should revisit any opportunities for partnership contributions, in particular if there are significant third-party beneficiaries; both in terms of reduced flood risk and any wider benefits. These third-parties may include infrastructure operators, commercial business and private landowners. Letters of agreement from third-party funders should be included in the appendices.

This section should also refer to the potential for grant funding to be construed as State Aid. Such issues should have been identified early in the project, and resolved prior to drafting the Business Case, which should simply state why the funding mechanism is classed as State Aid. Further information on what constitutes State Aid is provided in Green Book 2018.

To complete this section of the OBC, the following information may also be required, and can be obtained from the Flood and Coastal Risk Branch in Welsh Government:

• Flood defence grant rate. • Prioritisation of WG grant for FCERM projects in Wales. • Identification and consideration of supplementary funding sources (i.e. outside of Flood Grant or Flood Risk Grant in Aid). • WG grant application process.

In the case of coastal or estuarine projects, estimated costs for potential

BBC ACTION 19: Prepare financial model and financial appraisals



compensatory habitat as a result of coastal squeeze due to sea level rise should be considered (at a project-level). This especially applies to options that implement the ‘Hold the Line’ policies as identified in an adopted Shoreline Management Plan.

4.5.3 Funding timescales

This section needs to demonstrate the overall affordability and a satisfactory cash flow for the project. This is done by comparing the timing of the costs with funding contributions needed over the lifespan of the investment.

If this indicates that in any given year there is a surplus or shortfall, justification for this should be provided.

4.5.4 Financial summary

RMAs should provide a summary or complete the Financial Summary Table provided in the templates in Annex C. This summarises the financial scale, breakdown, sources and timescales.

4.5.5 Stakeholder engagement (Financial Case)

The final section will summarise the stakeholder engagement undertaken as part of the Financial Case. This may include meetings with the Funding Organisation(s).

4.6 Management Case

The Management Case will vary depending on the scale of the project and the organisational structures of the RMA delivering the business case. 5CM promotes the use of PRINCE2 project management methods.

The Business Case template (Annex C) provides the following headings which should be used as a guide for completing this section. • Project management (including management of health, safety and well-being) • Change management • Benefits realisation • Risk Management • Post-project evaluation • Stakeholder engagement (Management Case)

The Management Case at OBC should in nearly all cases include:

• A statement on the intended project assurance process. This may take the form of Gateway reviews (as promoted by BBC, see section 1 of this document). • A project programme showing key activities. • A Risk Register and management plan. Guidance on risk management can be found on pages 79 to 81 of BBC guidance, which includes an example

BBC ACTION 21: Plan change management – strategy, framework and outline plans

BBC ACTION 20: Plan project management – strategy, framework and outline plans

BBC ACTION 22: Plan benefits realisation – strategy, framework and outline plans

BBC ACTION 23: Plan risk management – strategy, framework and outline plans

BBC ACTION 24: Plan post project evaluation – strategy, framework and outline plans




Risk Register (page 81). • Details of health, safety and well-being arrangements. • A summary of how the RMA will record and feedback lessons learnt on the project. It is best practise to feedback lessons learnt to the Funding Organisation or other RMAs. • A summary of how the RMA will monitor and evaluate the expected benefits of the project, including a draft Benefits Register. The RMAs plan for the ongoing management and delivery of benefits should be captured within the Benefits Register, which should be completed in full and attached to the FBC. It should cover all the benefits – financial, non- financial and qualitative – identified during the implementation and operational phases of the project. An owner for the Benefits Register should be identified. It should also be confirmed how the register will be reviewed (e.g. standing agenda item for progress meetings) and how the Benefits Register will be shared with the Funding Organisation upon project completion or post project evaluation. BBC guidance includes an example Benefits Register on page 78. • Building Information Modelling (BIM) Implementation and/or Data Management Plan.

The above should focus on delivery and operational stages not just the Business Case design stages.

4.6.1 Stakeholder engagement (Management Case)

The final section will summarise the stakeholder engagement undertaken for the Management Case. BBC recommends that the OBC Management Case should be completed following a Successful Delivery Arrangements workshop to develop and agree the project delivery plan. For suggested workshop participants, please refer to page 82 of BBC guidance.

4.7 Completing and finalising the OBC

When the final draft of the OBC is complete, and prior to the formal submission of the OBC to the Funding Organisation, the need for an independent review (e.g. OGC Gateway Review 2 Delivery Strategy) should be considered. This will provide assurance to senior management, stakeholders and the Funding Organisation that the project can be successfully delivered. The approved spend for a OBC may also include a risk budget.

OGC GATEWAY REVIEW 3: Delivery Strategy

WORKSHOP 5: Successful Delivery Arrangements



Links to FGCW & BBC Guidance5 Full Business Case (FBC)

5.1 Purpose of FBC

Identify how the Preferred Option will be delivered. Part three of three stage approach.

The purpose of this stage is to set out the detailed design, commercial and contractual arrangements for delivery of the project. The FBC should also confirm that the project can be funded, identify the market place opportunity that offer optimum value, and put in place the detailed management arrangements for the successful delivery, monitoring and evaluation of the project.

Much of the work involved in producing the FBC focuses upon revisiting and updating the conclusions of the OBC, particularly the Financial, Commercial and Management Cases. At the end of FBC stage, all five dimensions of the Business Case are fully developed.

Annex C provides a template for completing a FBC.

The preparation of the FBC is a mandatory part of the Business Case development process for all projects. However, projects will rarely (exceptionally) proceed straight to FBC stage other than via the BJC process (Section 6).

5.2 Strategic Case

An update or review for the Strategic Case at FBC stage should not normally be required on the condition that there is still confidence that the Case for Change remains.

5.3 Economic Case

Updates to the assessment of Short List options should only be undertaken at FBC stage if any updates to Financial, Commercial and Management Cases lead to a change in Preferred Option.

When more precise cost and design information has been obtained for the delivery stage of the project, it is advised that further testing of the Preferred Option is completed.

As a first step, the FBC should confirm that the conclusions of the OBC economic appraisal remain valid i.e. supplier side offerings, prices and costs obtained from the completion of the procurement stage (see Commercial Case) should be used

Full BusinessCase (FBC)5

BBC ACTION 26: Revisit the OBC options

BBC ACTION 25: Revisit the case for change



to update the normal economic metrics that represent Value for Money, such as Net Present Value (NPV) and Benefit-Cost Ratio (BCR).

The FBC should then update the sensitivity, risk, constraints, and dependencies analysis for the Preferred Option undertaken at OBC stage. Details of any consents obtained (e.g. Planning Permission, Flood Risk Activity Permit) and the constraints imposed by these, should be detailed in the FBC. The economic analysis should be updated and checked to ensure it is remains robust. RMAs should review and update the Optimism Bias (STN03), risk and/or Contingency Provision, as appropriate.

If any of these exercises create new information which effects the reasoning behind the selection of the Preferred Option, the FBC should demonstrate that the Preferred Option continues to meet the CSFs, most of the Investment Objectives, and is economically viable.

5.4 Commercial Case At OBC, the first full draft of the Commercial Case would have been completed and this should be revisited and refined at FBC stage.

The Commercial Case at FBC stage should summarise the work undertaken to implement the Procurement Strategy, meet sustainability and well-being procurement considerations and identify a preferred service provider for the Preferred Option identified in the OBC. It should provide:

• A list of the service providers which were contacted, and of those which expressed an interest. • A record of the preferred service provider(s) together with the reasons for their selection. • A summary of the Best and Final Offer (BAFO) and agreed risk allocation between the RMA and the service provider.

A procurement report may be attached to the FBC for this purpose. A copy of the proposed contract to secure the service provider should also be attached to the FBC.

Sustainability and well-being procurement considerations for post construction phases of the project should be detailed at FBC.

5.5 Financial Case

As more precise cost information has been obtained for the delivery stage, the overall affordability and funding arrangements for the project should be updated in the FBC.

BBC ACTION 27: Detail procurement process and evaluation of best and final offers

BBC ACTION 28: Set out the negotiated deal and contractual arrangements

BBC ACTION 29: Set out the financial implications of the deal



5.6 Management Case

This step requires revisiting and updating the management dimension of the Business Case to record the detailed management arrangements that have been put in place to ensure the successful delivery and evaluation of the project.

It is recommended the that structure of the Management Case utilised in the OBC is adopted, revisited and finalised at FBC.

5.6.1 Benefits Realisation

The FBC should revisit the benefits realisation arrangements and plans that were outlined in the OBC and explain what has been agreed and finalised for the delivery stage of the project.

The FBC should also outline how the benefits of the proposed scheme will be communicated to residents. It should also show how the analysis undertaken to date will be used to update resources such as Flood Risk Assessment Wales and the Communities at Risk Register.

5.6.2 Risk Management and fall back position

RMAs should revisit the risk management arrangements and plans that were outlined in the OBC. The strategy for the management of risks should be revisited and re-affirmed within the FBC. The RMA’s plan for the ongoing mitigation and management of risk should be encapsulated in full within the Risk Register, and attached to the FBC. The register should cover all the business and service risks identified during the design, build, implementation and operational phases of the project. An owner for the Risk Register should identified and it should also be confirmed how the Risk Register will be reviewed (e.g. standing agenda item for progress meetings).

The residual use of Optimism Bias to measure continued uncertainties should be minimal and generally no more than 6% for a standard FCERM capital project (STN03).

This section should also provide details of the event of the non-delivery of the contracted services or project i.e. what is the fall back position.

5.6.3 Lessons learnt and post-project evaluation

RMAs should revisit the post project evaluation arrangements and plans that were outlined in the OBC and identify what has been agreed and finalised for the successful delivery of the project in accordance with best practice.

The post-project evaluation review assesses how well the project has performed and the extent to which it has delivered the anticipated benefits. The review should occur after the scheme has been operational for an appropriate period of time, as specified by the funding organisation. This will make the assessment of its

BBC ACTION 30: Finalise project management arrangements and plans

BBC ACTION 31: Finalise change management arrangements and plans

BBC ACTION 32: Finalise benefits realisation arrangements and plans

BBC ACTION 33: Finalise risk management arrangements and plans

BBC ACTION 34: Finalise contract management arrangements and plans

BBC ACTION 35: Finalise post project evaluation arrangements and plans



benefits possible. These reviews may be undertaken separately or in conjunction with an independent review (e.g. Gateway Review 5 — Operational review and benefits realisation).

5.7 Finalising the FBC

Following completion of the FBC, and prior to the formal submission of the FBC to the Funding Organisation, the need for an independent review (e.g. Gateway Review 3 Investment Decision) should be considered. All parties should now be content for the project to proceed to contract signature, providing the above work has been completed satisfactorily and the resultant project is affordable.

OGC GATEWAY REVIEW 3: Investment Decision


Links to FGCW & BBC Guidance6 Business Justification (BJC)

BusinessJustification (BJC)6

Produce Business Case using a short form approach.

The BJC is a ‘lighter’, single-stage, Business Case that is intended to be used for the appraisal of smaller, simpler and less contentious FCERM projects.

6.1 Criteria for using the Business Justification (BJC)

RMAs should consider the following criteria when considering whether a BJC process could be adopted.

• Is the project likely to identify simple, single (FCERM) function solutions? • Are solutions likely to be novel or contentious? • Is there cost certainty? • Can delivery to be secured via a pre-competed arrangement (e.g. an established Welsh Government or local framework)?

BBC considers many projects where the upfront investment costs are less than £2 million to be suitable for the BJC process. In Wales, the costs threshold is likely to be lower, and decision on whether to adopt a BJC should be discussed with the Funding Organisation. Projects that benefit from multiple sources of funding or require complex collaborations are not normally suitable for the BJC process.

Larger catchment scale NFM projects will be complex and therefore should proceed via the SOC-OBC-FBC process. However, low value “pilot” projects could utilise the BJC process as, whilst considered novel, they should have minor consequences if benefits are not fully realised. Such projects and their potential for failure should be communicated to Welsh Government and any additional funding partners.

The project assurance route for a BJC is normally “short form” although this should be confirmed with the Funding Organisation before starting the business case.

6.2 Proportionate application of FCERM-BCG for Business Justification (BJC)

The BJC should adopt proportionate application of the guidance presented in Chapters 3, 4 and 5 and the STNs contained within Annex A. This may include streamlining areas of appraisal such as: • Not performing a Long List selection, Options Framework Filter and screening of measures (i.e. proceed straight to Short List). • Using existing NRW flood data to assess damages avoided (benefits),



instead of undertaking a full hydraulic modelling (see STN01). • Using qualitative appraisal techniques or Cost-Effectiveness Analysis instead of undertaking a full economic appraisal (see STN02). • Using an existing contract; a call-off contract or framework agreement for procurement. However, the BJC should always include: • Investment Objectives and Critical Success Factors. • Identification of the Walkaway and Business As Usual options. • Assessment of Short List performance against Investment Objectives and Critical Success Factors. • Whole Life Cost analysis and identification of upfront investment costs.

A template for BJC is provided in Annex C. Guidance on the content of each section of the BJC is provided below.

6.3 Business Justification (BJC) sections

The following section of this document provides advice on completing the eight sections of a BJC.

6.3.1 Purpose

This is a simple statement explaining why the BJC is being prepared. For example, a local authority grant application to Welsh Government would begin:

This Business Justification has been prepared in support of a grant funding application to Welsh Government for £XX to construct a flood alleviation project at XX.

6.3.2 Strategic Context

The Business case should summarise how the project will achieve local well-being benefits and deliver against local well-being objectives set by Public Service Boards. For further guidance on meeting the requirements of the Well-being of Future Generations (Wales) Act, please consult the ‘Future Generations Framework for Projects’ produced by the Future Generations Commissioner for Wales.

The case should also reference all relevant national and local strategies. For example, this should set out why a project is linked or helpful in relation to:

• Addressing concerns regarding recent flooding or coastal erosion supported by information contained in flood investigation reports. • Local information on flood risk. • Modelled risk shown in Flood Risk Assessment Wales (FRA Wales). • NRW’s Communities at Risk Register (CaRR). • The policies it could support, for example, policies contained in flood risk plans, such Flood Risk Management Plans (FRMPs), Shoreline Management Plans (SMP) and Local Flood Risk Management Strategy (LFRMS).



• The impact on other government policies and high-level objectives; for example, the National Strategy for Flood and Coastal Erosion Risk Management in Wales. • Other projects within the national FCERM Programme. How could the project be delivered as part of a wider programme of work?

6.3.3 Case for Change

6.3.3.1 Objectives and Critical Success Factors

The BJC should provide a convincing case for investment in the required services or assets, with reference to each of the following:

• Clearly defined SMART Investment Objective(s). • CSFs.

As with full Business Cases, setting appropriate Investment Objectives and CSFs for a BJC is essential to the success of a project.

For further guidance on setting Investment Objectives and CSFs, please refer to Section 3.

6.3.3.2 Benefits

A summary of the main benefits associated with the investment should be provided. RMAs should make use of the Rapid Assessment of Damages (RAD) tool for estimating the benefits associated with most BJC cases. See STN02 and STN04 for more information.

6.3.3.3 Risks

A summary of key risks, constraints and dependencies associated with the proposed investment should be provided. A summary of the key areas to be agreed in the contracts with the supply chain (e.g. contract lengths, sub-contracting or others matters to be managed) should also be provided.

For more information on contractual risk considerations, please refer to Section 4, Commercial Case.

6.3.4 Options

The BJC must consider the Walkaway and Business As Usual options, as well as the Do Something option(s). Each option should be subjected to a brief SWOT analysis (Strengths, Weakness, Opportunities and Threats). The analysis should explain whether each option meet (or partially meets) the Investment Objective(s). It should also detail why each option either meets or fails each CSF(s).



The BJC Template (Annex C) provides an example summary table for use when assessing shortlisted options. This should be completed for every BJC.

6.3.5 Preferred Option

A statement summarising why the Preferred Option has been chosen should be provided.

6.3.6 Procurement route

A prerequisite of a BJC is that Best and Final Offers can be obtained via a pre-completed framework. A summary of the anticipated construction costs, linked to the framework rates should be provided.

6.3.7 Funding and affordability

The following should be provided:

• A summary of the capital and revenue costs associated with the proposed investment. • A summary of who will contribute to the funding, as well as details of any affordability gap (if appropriate).

The Business Case template provides template table which can be used for this purpose.

6.3.8 Management arrangements

The Management Case should include:

• A statement on the intended project assurance route. • A project programme showing key activities. • A detailed project Risk Register. • Details of health, safety and well-being arrangements. • A summary of how the RMA will record and feedback lessons learnt on the project. • A summary of how the RMA will monitor the realisation of the expected benefits and evaluate the project outcomes.


Affordability An assessment of whether the proposals can be paid for in terms of cash flows and resource costs – see financial case.

(Economic) Appraisal An economic evaluation of the costs, benefits, risks and uncertainties of options before a decision is made.

Appraisal Period The timeframe over which an Appraisal is undertaken.

Assessment May refer to either an appraisal or wider evaluation.

Base Date The start date of the Appraisal Period.

Business As Usual This option provides a benchmark for comparing proposal options or intervention.

Business Case A management tool for scoping, planning and evaluating a proposal and repository for the evidence base.

Business Justification (BJC) A ‘lighter’, single-stage, Business Case that is intended to be used for the appraisal of smaller, simpler and less contentious FCERM projects.

Capital expenditure Expenditure on durable assets such as land, buildings and equipment.

Contingency Provision If required by the Funding Organisation, should reflect the sum of measured risk (costs of risks avoided, shared and mitigated on an expected likelihood basis) and Optimism Bias adjustment estimated in nominal prices.

Cost Benefit Analysis (CBA) Analysis which quantifies in monetary terms as many of the costs of proposal as feasible (financials), including items for which the market does not provide a satisfactory measure of economic value (non-financials).

Cost Effectiveness Analysis that compares the cost of alternative ways of producing the Analysis (CEA) same or similar outputs.

Critical Success Factors Outcomes that are crucial (not desirable) to the successful delivery of the project.

Discounting A method used to convert future costs or benefits to present values using a discount rate.

Glossary

Flood and Coastal Erosion Risk Management — Business Case Guidance

Glossary

46

Discount rate The annual percentage rate at which the present value of a £, or other unit of account, is assumed to fall away through time.

Do minimum option Term used in previous FCERM guidance documents to describe an option where the public sector takes the minimum amount of action necessary. Now referred to as ‘Business As Usual’.

Funding Organisation In the case of FCERM, this is commonly, but not exclusively, Welsh Government (Flood Grant) or Natural Resources Wales (Flood Defence Grant in Aid).

Future Generations The Future Generations Commissioner for Wales has a general duty to Commissioner for Wales promote the sustainable development principle in Wales.(FGCW) Evaluation Retrospective analysis of a project, project or policy to assess how successful (or otherwise) it has been, and to learn lessons for future improvement.

Integrated Green-Grey Innovations and practises that promote the “greening” (for improve Engineering outcomes for the environment) of traditional “grey” infrastructure assets that need to remain primarily “grey” for their essential function.

Investment Objectives The ‘targeted’ outcomes for the scheme, which reflect the rationale for the intervention and must be made SMART for the purposes of evaluation.

FCERM Flood and Coastal Erosion Risk Management.

Five case model A systematic framework for the development and presentation of the business case, comprising of the strategic, economic, commercial, financial and management dimensions of the Case.

Full Business Case (FBC) The completed business case and third stage in the development of a business case for a significant project, which identifies the most economically advantageous offer following procurement, confirms affordability and puts in place the detailed arrangements for successful delivery.

Long List (of FCERM Measures) The list of FCERM Measures, developed in line with the results of the Options Framework Filter, which can be screened and developed in a shortlist of options for appraisal.

(FCERM) Measure(s) A FCERM intervention(s).

Natural Flood Also known as natural flood risk management or working with natural Management (NFM) processes, this involves implementing measures that help to protect, restore and emulate the natural functions of catchments, floodplains, rivers and the coast.


Glossary

47

Net Present Value (NPV) The discounted value of a stream of future costs and benefits. The NPV provides the present values of the sum of a future costs and benefits. Opportunities Things that may help achieve an objective, and are “internal” to an organisation or project. Identified as part of SWOT analysis.

Optimism Bias The demonstrated systematic tendency for appraisers to be over- optimistic about costs, benefits and time taken to complete a proposal.

Options Assessment The process of defining objectives and examining options before a decision is made.

Options Framework Filter A systematic framework for the generation of a wide range of possible options to inform the preparation of a ‘Longlist of FCERM Measures’.

Outline Business Case (OBC) The ‘intermediate’ business case and second stage in the development of a business case for a significant project, which identifies the option offering best public value for spend, confirms the Deal and affordability, and puts in place the arrangements for successful delivery. Pathway The route the source takes to reach a given Receptor, in the Source- Pathway-Receptor model.

Qualitative benefits Benefits that are not readily measurable or monetised in economic appraisal.

Receptor Those impacted by flooding, in the Source-Pathway-Receptor model.

Risk The likelihood (measured by its probability) that a particular event will occur.

RAD Tool Rapid Assessment of Damages Tool, for use in economic appraisals.

Risk Management Authority As defined in the Floods and Water Management Act 2010.(RMA)

Sensitivity analysis Analysis of the effects on an appraisal of varying the projected values of important variables.

SMART Specific-Measurable-Achievable-Realistic-Time-bound

Source The cause or source of flood risk, in the Source-Pathway-Receptor model

Strategic Outline Case (SOC) The ‘early’ business case and first stage in the development of a business case for a significant project, which makes the case for change and appraises the available options.

Strategy The strategic context for the project, which demonstrates how the project aligns with other projects within the strategic portfolio to deliver


Glossary

48

the mission and vision of the organisation in the longer term.

Strengths Things that may help achieve an objective, and are “internal” to an organisation or project. Identified as part of SWOT analysis.

Sunk Costs Refer to expenditure or payments already incurred and should be excluded from economic appraisal.

SWOT Analysis on Strengths, Weakness, Opportunities and Threats.

Threats Things that may prevent achievement of an objective, and are “external” to an organisation or project. Identified as part of SWOT analysis.

Walkaway option Used as a baseline in economic appraisal, the Walkaway option means doing nothing, i.e. cease any and all current activities and walk away.

Weakness Things that may prevent achievement of an objective, and are “internal” to an organisation or project. Identified as part of SWOT analysis.

Whole Life Cost The cost for the project for the duration of the Appraisal Period.


Annex A: Supplementary Technical Notes

Annex A: Supplementary Technical NotesAA

STN01 Assessing Options STN02 Economic Appraisal STN03 Optimism BiasSTN04 Rapid Assessment of Damages (RAD)


Annex A: Supplementary Technical Notes STN01: ASSESSING OPTIONS

Supplementary Technical Note 01Assessing options

Introduction

1.1 Key Guidance

This document supports the main document in relation to the assessment of options undertaken as part of the Strategic and Economic Cases of a Business Case. Further guidance on assessing and appraising options in Flood and Coastal Erosion Risk Management (FCERM) projects is provided in HM Treasury Green Book guidance (referred to as the Green Book herein), last updated March 2018 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in-central-governent

This note complements STN02 (Economic Appraisal) which provides further information in relation to the economic appraisal of options, undertaken as part of the Economic Case of a Business Case.

1.2 Scale of assessment at different Business Case stages

FCERM-BCG advocates a proportionate approach to the assessment of options. Proportionality may be considered in relation to the following two criteria:

• the stage of Business Case development; and, • the anticipated scale of investment associated with a project recommended by the business case.

At the early stages of assessment, or for small scale investments, high-level assessment that uses readily available data is usually sufficient. As the assessment proceeds, or for larger scale projects, methods may need to be refined to support more specific and accurate decision-making.

At SOC stageAt SOC, the assessment should undertake an assessment of Long List measures. This will involve completing the Options Framework Filter. This stage will conclude by identifying a Short List of options, for assessment at the next stage.

At OBC stageAt OBC the assessment of a Short List of options will be completed and the Preferred Option identified.

At FBC stageThe assessment undertaken at OBC should be checked and refreshed if necessary, i.e. where significant changes in Preferred Option have occurred or changes to the assessment or data on which the Preferred Option was selected.



For BJCA complete options assessment is required, proportionate to the scale of the project and in line with the guidance contained herein. It may in some cases be appropriate to proceed straight to Short List options, and therefore not undertake Long List selection, Options Framework Filter or screening of Long List measures.

The cost of carrying out the options assessment should be proportionate to the scale of the likely investment. The actual cost of the options assessment will need to be incorporated into the Whole Life Cost of an option, so it is essential that options assessment is scoped with an appreciation of the overall likely project budget. This is particularly relevant for BJC.



2 Data for assessing options

The assessment of options, at any stage of the Business Case, either qualitatively or quantitatively (economic appraisal), requires a number of data sources to be reviewed.Links to key data sources are provided below.

The links and other information below are correct as of June 2018.

2.1 Lle Geo-Portal for Wales

This portal provides free (open source) geo-spatial Geographic Information Systems (GIS) data, including:

• NRW GIS open data: http://lle.gov.wales/catalogue?t=1&lang=en • Light Detection and Ranging (LIDAR) topographic data is available on this portal: http://lle.gov.wales/Catalogue?lang=en&text=lidar • Flooding and flood risk open data, including maps that identify potential areas for working with natural processes can also be obtained via: http://lle.gov.wales/Catalogue?lang=en&text=flood

The metadata on Lle for each dataset includes individual attribution statements required for use of the data.

2.2 NRW data

The NRW data access website includes information about how to access open and restricted licensed data and how to search an online catalogue for available data and reports: https://naturalresources.wales/evidence-and-data/access-our-data/?lang=enThis website also includes an online library.

Other published online NRW data includes:

• Flood Risk Maps https://maps.cyfoethnaturiolcymru.gov.uk/Html5Viewer/Index. html?configBase=https://maps.cyfoethnaturiolcymru.gov.uk/Geocortex/Essentials/REST/sites/ Flood_Risk/viewers/Flood_Risk/virtualdirectory/Resources/Config/Default “Detailed” view includes additional layers such as Reservoir Flood Risk, Shoreline Management Plan Coastal Erosion, etc. • Communities at Risk Register https://naturalresourceswales.sharefile.eu/d-s5f7c81d20d04f7f8

NRW data that is not published online, can be obtained by completing a data request form obtained from https://naturalresources.wales/evidence-and-data/access-our-data/?lang=en and sending to: [email protected]

The data that can be obtained via this request includes:

• NRW rain, river and sea gauge data. • Detailed hydraulic modelling data. If a NRW hydraulic model already exists in the area of interest, NRW can provide the model under licence and provide advice on the scope of any work that may be required to update the modelling to an acceptable standard for the proposed use. Please note that provision of models (Product 7) and pdf maps (Product 4) is chargeable.



Raw output data (Product 6) is available free of charge. If a hydraulic model does not exist at the area of interest, the NRW modelling team may be able to assist with defining the scope of the hydrological and hydraulic model required for a project. There may be a charge for this advice (see below). • NRW is currently developing Area Statements, a requirement of the Environment (Wales) Act. http://www.naturalresources.wales/about-us/corporate-information/area-statements/ area-statement-overview/?lang=en This includes ecosystem profiles and maps of Sustainable Management of Natural Resource (SMNR) opportunities https://naturalresources.wales/ media/678317/introducing-smnr-booklet-english.pdf however the latter is not yet available. • National Receptor Data (NRD). Intellectual Property rights in the NRD dataset means the data can only be licensed to certain organisations. RMAs should request it from NRW and then the licence can make provision for the data to be shared with third parties working for RMAs.

NRW may also be able to provide advice to RMAs on matters such as planning (flood consequences assessments). However there may be a charge this, if obtained via their “Discretionary Planning Advice Service” https://naturalresources.wales/guidance-and-advice/business-sectors/planning-and-development/advice-for-developers/our-service-to-developers/?lang=en

2.3 Other data

Other published online data includes the following:

• Potential areas for working with natural processes maps (see 2.1.1) can be viewed using an online map hosted by the JBA Trust. http://naturalprocesses.jbahosting.com/ • The National Biodiversity Network (NBN) Atlas is one of the largest collections of freely- accessible, online data on biodiversity. It allows users to interrogate species records and download maps https://records.nbnatlas.org/search#tab_spatialSearch • Ordinance Survey (OS) Open mapping data can be obtained freely at https://www.ordnancesurvey.co.uk/business-and-government/products/opendata.html Other OS products will require a PSMA licence (held by all LAs) or other licence (charges may apply). • Historic flood information can be found in “Section 19” Flood Investigation Reports, available from Lead Local Flood Authorities and may provide useful historical flood for any food that happened after 2010. • Utilities and services information can be access via free searching services such as DigDat http://www.digdat.co.uk/ • British Geological Survey has a “GeoRecords Plus+” web service where borehole data can be viewed on line free of charge http://mapapps.bgs.ac.uk/GeoRecords/GeoRecords.html • Children’s Commissioner for Wales has information on the United Nations Convention on the rights of a child (UNCRC) https:/www.childcomwales.org.uk/uncrc-childrens-rights/ • Equalities and Human Rights Commission (Wales) provides specific guidance and advice on equality and human rights in Wales and includes a library of publications produced by the commission https://www.equalityhumanrights.com/en/wales-advice-and-guidance • Welsh Language Commissioner promotes and facilitates the use of the Welsh language http://www.comisiynyddygymraeg.cymru/English/Pages/Home.aspx A list of professional translators held by Cymdeithas Cyfieithwyr Cymru (the association of Welsh translators and interpreters) can be found at https://www.cyfieithwyr.cymru/en/ • Older People’s Commissioner for Wales is an independent voice and champion for older people across Wales. The website includes guidance on how public services bodies can meet the needs of older people in preparation of Local Wellbeing Plans



http://www.olderpeoplewales.com/en/Publications/pub-story/16-10-05/Preparing_ Local_ Well-being_Plans_Guidance_for_Public_Services_Boards.aspx#.WifKbbSFijg as well as an engagement toolkit to help older people to ensure that their voices are heard by their Local Authorities http://www.olderpeoplewales.com/en/assistance/engagement_ toolkit.aspx • Extreme sea level estimates data set (2011) Webviewer http://www.arcgis.com/home/webmap/ viewer.html?url=https://services.arcgis.com/WQ9KVmV6xGGMnCiQ/ArcGIS/rest/services/ Coastal_Design_Sea_Levels/FeatureServer/1&source=sd • Shoreline Management Plans 2 http://gov.wales/topics/environmentcountryside/epq/ flooding/?lang=en • The Environmental Handbook is a useful source of economic data relating to environmental losses and benefits https://www.gov.uk/government/uploads/system/uploads/attachment_ data/file/487240/LIT_10352.pdf • Land Registry for landowner data https://www.gov.uk/government/organisations/land-registry

3 Define the Business As Usual option

Business As Usual normally means sustaining the current FCERM arrangements. This option reflects that RMAs have permissive powers to carry out flood and coastal risk management work. The Business As Usual option will identify things like routine maintenance or inspections of flood and coastal defence assets, flood warning or forecasting schemes, or property level protection, and consider any costs and residual flood risks associate with these, and how they may change with time.

In some circumstances, FCERM investment in an area may already be significant, and there may be clear opportunities for doing less. In this situation, the option for doing less should be the Business As Usual option, and the existing situation (often called “As Now”) is represented as a Do Something option, that would appear separately on the options Short List.

Alternatively, the Business As Usual option can also mean doing the legal minimum where there is a statutory requirement to continue with FCERM activities.

RMAs should check for statutory requirements and, if these apply, they would be included in the Business As Usual option. For FCERM, more common statutory requirements include the following:

• Harbours. The Harbours Act 1964 imposes obligations to sustain harbour assets. • Drainage in Internal Drainage Districts, where there may be statutory duties to maintain drainage and associate infrastructure such as pumps. • Reservoirs. The Reservoirs Act 1975 imposes obligations to sustain reservoir assets.

The Business As Usual option is the baseline used to establish whether a given option represents value for money. It is used to help understand what additional FCERM intervention may be appropriate.

As with the Walkaway option, the Business As Usual option can have adverse impacts on existing protected sites and species, but can also have positive impacts, particularly where highly artificial systems of assets are currently in place. Such impacts will need to be understood and documented in the options assessment.



4 Define the Walkaway option

The Walkaway option is defined as doing nothing, i.e. ceasing any and all current activities and walk away. This recognises that RMAs have permissive powers (but not a statutory duty) to carry out flood and coastal risk management work, and therefore the cessation of all current activity is a possible outcome.

Where there are no existing flood risk management actions, the consequences of a Walkaway option are usually more obvious; there is no intervention and “natural” processes prevail.

Where there is an existing FCERM asset, the consequences of a Walkaway option will be to abandon all associated maintenance and repair, allowing natural processes to prevail unhindered. For health and safety reasons, it may be necessary to take minimal steps to make any abandoned works safe and these costs should be taken into account, however continuing with maintenance and repair of the existing structure would be a positive Business As Usual or even sometime a Do Something option.

Where there is a flood warning or forecasting project, the operation of this project would cease (continuing with or altering the project would become a Do Something option).

Similarly, any activities to promote or support property level protection would cease under the Walkaway. It should be assumed that where property level protection exists, it may still be applied by homeowners. However, without a flood warning project, property level protection is likely to be significantly less effective.

The same applies regarding the environmental assessment of this option. A Walkaway option can have adverse impacts on existing protected sites and species, but can also have positive impacts, particularly where highly artificial systems of assets are currently in place. Such impacts will need to be understood and documented in the options assessment.

The Walkaway option is an additional baseline that can used in the economic assessment of FCERM projects. It represents a worst-case baseline which enables RMAs to understand the implications of totally withdrawing investment at a given location. Comparison against the Walkaway allows different projects at different locations to be compared. It may be useful to produce early information regarding the potential economic damages resulting from the Walkaway option as this helps with understanding the scale of investment that may be economically justifiable (refer to STN02 for suitable approaches).



5 Option assessment process

The overall option selection process (Long List – Short List – Preferred Option) is illustrated in the figure below.

5.1 Level of design and assessment

It is expected that each of the Short List options will be designed to a concept level of detail, which will provide indicative scales (height, length, volume, etc.) for each of the Short List options. This will provide the level of information required for key Short List activities, including cost and benefit assessment and public consultations.

It is expected that each of the Preferred Option will be designed to an outline level of detail, which will provide a firmer understanding of scale (height, length, volume, etc.). This will provide the level information required for key Preferred Option activities, including reviewing the cost and benefit assessment, risk and public or planning consultations.

Design are typically supported by a numerical model (i.e. hydraulic and/or sediment movement) to provide quantitative information on potential negative impacts associated with the options (e.g. that may be relevant for environmental impact assessment) and residual FCERM risk (e.g. what would happen if the design standard of protection offered by the option was exceeded).

At FBCstage

At OBCstage

At SOCstage

Develop Preferred

Option

Select Preferred Option

Identify Short List of Options

Screen Long List of Measures

Apply Options Framework Filter

Screen Short List of Options



As part of the outline design for the Preferred Option, consideration should be given to introducing “green” components to traditional “grey” built structures and assets. i.e. Integrated Green Grey Infrastructure. It has been demonstrated that such measures can provide wider social, environmental and economic benefits. For examples and case studies see:

• National Environmental Research Council (NERC) Green Infrastructure Research Programme http://www.nerc.ac.uk/funding/application/outcomes/awards/2015/green-infrastructure/ • Glasgow University “A Decision Framework for Integrated Green Grey Infrastructure” (IGGIframe) https://eprints.gla.ac.uk/150672/ • HR Wallingford “Green Approaches to River Engineering – Supporting Implementation of Green Infrastructure” http://eprints.hrwallingford.co.uk/1400/1/Green_approaches_in_river_engineering.pdf

It is important that all Do Something options are aimed at delivering a long-term vision for better and more sustainable FCERM in the local area. In general, options that perpetuate previous poor decision making (e.g. sensitive land uses in high risks area) are not sustainable and should not be included in the Short List.

There are various methods that may be used to complete the options assessment and identify a preferred option. It is important to capture the main factors influencing the decision and to avoid unnecessary levels of detail. The following approaches may be useful depending on the scale and complexity of the project.

1. A largely judgement-based qualitative assessment using broad screening criteria such as:

• Technical merit/performance. • Environmental, well-being and sustainability. • Economic performance. • Affordability.

This can be presented in a Red Amber Green (RAG) format which may include screening performance against Critical Success Factors and Investment Objectives.

2. A ‘scoring and weighting’ approach. This involves scoring the performance of each option against each of the Investment Objectives (and CSFs), and weighting the relative importance of the Investment Objectives. This allows a semi-quantitative approach to options selection, and can be useful it situations when reaching a consensus on a Preferred Option may be challenging.

3. An ecosystem services based approach, where the following guidance should be used: https://www.gov.uk/guidance/ecosystems-services

More detailed information regarding Appraisal Summary Tables and “scoring and weighting” is included on Green Book and FCERM-AG.

Whichever method is adopted, consideration should be given to collaboration and involvement of others in decision making, in line with on using the Future Generation Framework for Projects. In all but the smallest and least contentious of projects, the views of the local community and important stakeholders should be sought regarding the Short List options. As well as building trust and a sense of wider ownership of the potential project, this can also provide important information for the identification of the Preferred Option (e.g. if the local community has a strong preference for a specific option).



6 Options assessment

6.1 Options Framework Filter

The Options Framework Filter provides the mechanism for defining the potential scope of a project in terms of:

• “Where?” – i.e. the study area. • “What?” – what sources of flood risk, what Standard of Protection, in the current day and with climate change.

The primary study area is the area within which FCERM investment may have benefit. It should extend sufficiently to include the area at risk of erosion or flooding. Its extent should include consideration of the impacts of the Walkaway option and also the potential implications of climate change. Smaller, simpler FCERM projects often have an obvious single source of risk to be considered, for example an undersized culvert that tends to get blocked and spill into urban areas causing hazard and flood damage.

The extent of the study area should include areas of flood or coastal erosion risk that have clear connectivity that need to be considered in the project. For example, a fluvial focussed project study area may need to be extended to include the backwater extent affecting a drainage system, if the drainage outfall is locked in fluvial floods and this drainage impairment creates its own flood risk problems.

A further, more complex example often presents itself in coastal areas of Wales. There are various locations with large urbanised tidal floodplains that are exposed to risk from the sea, estuary, tide locked rivers and surface water drainage systems. In such situations the Options Framework Filter should be used to examine the potential scale of the scope and study area.

Through the Options Framework Filter, a wider study area should also be considered. This is the more extensive area where, if FCERM measures are located, they may have sustainability benefits and a positive FCERM impact within the primary study area. When applying the Options Framework Filter, it is often useful to consider the wider study area from the perspectives of others that have an interest in the use of rivers, floodplains and coastlines. This would normally be informed by a supporting environmental assessment, which may include:

• The local vision for delivering the goals of the Well-being of Future Generations (Wales) Act (provided in the Local Well-being Plans). • Current redevelopment and economic enhancement initiatives, local development aspirations, planning policy and initiatives (e.g. blue-green and green-grey infrastructure). • Protected habitats and species and enhancement aspirations. • The function of existing defences to others (e.g. a flood embankment that protects rail infrastructure).

Desk studies have merit but, clearly, collaboration and the involvement of others are the best ways to understand the relevant activities and aspirations of others. These ways of working are also expected by the WBFG Act. Linked to this, an FCERM project can be the catalyst for others (e.g. local planners) to consider how a coastline or river environment can add to a local vision for sustainable, climate change resilient, development. Although this may cause project delay (while waiting for land use policy to be developed) or expand the project scope, this is a very positive project outcome and is encouraged.



6.1.1 Example of applying the Options Framework Filter

A case study “Floodtown” is provided in Example A.

6.2 Consideration of Natural Flood Management

Natural Flood Management (NFM) involves implementing measures that help to protect, restore and emulate the natural functions of catchments, floodplains, rivers and the coast and reduce flood and coastal erosion risk.

The Environment Agency has published ‘Working with Natural Processes – the evidence base’ delivered under the Joint EA, Defra, WG and NRW FCERM research programme, and available at the following link:https://www.gov.uk/government/publications/working-with-natural-processes-to-reduce-flood-risk-a-research-and-development-framework

This publication summarises the latest understanding on the effectiveness of NFM measures as well as their wider ecosystem service benefits. This publication includes:

• A detailed literature review. • 65 case study examples. • 14 one-page summaries of each NFM measure. • Guidance on implementing NFM monitoring strategies.

It also provides “NFM maps” which identify areas where NFM could reduce flood risk. The mapping layers have been produced using open access data and can be downloaded free of charge (see section 1 above). The maps also provide a catalogue of projects where the concept of working with natural processes is being applied on the ground, or considered as an option, to help reduce flood risk.

These maps will complement the forthcoming opportunity mapping work that NRW is developing to help inform Area Statements. The opportunity maps for Area Statements take a broader look at environmental resilience. They identify the spatial extent of ecosystem services and identify places where enhancing the natural environment will have most benefit to ecosystem services. Note the opportunity maps for Area Statements do not use open data (see section 1 above).

In terms of considering NFM in option assessment, RMAs should:

• Identify all possible Long List measures that work with natural processes first. • Always develop a Do Something option that incorporates NFM for Short List consideration.

When screening Long List measures, a suggested approach is categorising them as follows: 1) clearly has significant FCERM potential to be a stand-alone option or as a beneficial addition to the eventual preferred option. 2) Fairly neutral in FCERM benefit but clearly has wider benefits. Perhaps such approaches are likely taken forward by others. 3) Negative in terms of FCERM (unacceptable flood risk results) and not taken forward for further consideration. It is important that others with an interest in NFM (e.g. NRW, Rivers Trusts and Local Authority environmental officers) are engaged in the process and see the results of this assessment.

When identifying a Do Something Short List option, NFM measures can be combined with a traditional “engineered” solutions to provide both traditional flood risk benefits and wider environmental benefits.



It is recognised that there are challenges with delivering options that include NFM measures. For example, the option may not be deliverable immediately, as often its implementation will require multiple actions over years or decades. Such an option may also result in opposition from some stakeholders, and this will create its own challenges. However, and to reinforce the points made above, if funding organisations do not see sufficient evidence of the consideration of NFM within the business case then it could be rejected on that basis.

The following documents also provide useful guidance on NFM approaches:

Scottish Environment Protection Agency’s “Natural Flood Management Handbook”https://www.sepa.org.uk/media/163560/sepa-natural-flood-management-handbook1.pdf

The Environment Agency’s “Ecosystems Services and Flood and Coastal Erosion Risk Management”http://evidence.environment-agency.gov.uk/FCERM/Libraries/FCERM_Documents/Ecosystem_Services_and_FCERM_PDF_3_01_MB.sflb.ashx

The Environment Agency’s “Ecosystems Services and Flood and Coastal Erosion Risk Management”https://www.gov.uk/government/publications/working-with-natural-processes-to-reduce-flood-risk

6.3 Adverse flood risk impacts options

No option that increases flood risk to people or property should be short-listed. The adverse impact could be from the same source of flood risk but located outside the primary study location (e.g. a scheme passes more flow downstream, increasing flood risk elsewhere) or related to interactions between different sources of risk (e.g. drainage impairment in a floodplain caused by increased water levels in a main channel). If this problem is encountered during initial option design, then mitigation measures will need to be included to address the issue. If mitigation is not practicable then the option should be rejected. A short-listed option may only increase the likelihood or consequences of flooding to commercial property or other land if the situation is agreed with the landowner and manage. For example, if an increase in flood risk to agricultural land is a consequence of an option that reduces flood risk to an urban area, then this change in risk will need to be presented to the relevant landowner and agreement reached regarding the change. This agreement could require financial (e.g. compensation) or non-financial (e.g. flood warning to allow relocation of livestock) management, which needs to be identified.

6.4 Health and safety

It is important that health and safety issues are considered at all stages of the options assessment process and thought should be given to the local community and to those who will need to construct, maintain, operate or use an asset provided as part of an option. The project team should consider the implications of relevant health and safety law and best practice, notably the Construction (Design and Management) Regulations 2015 or successor legislation.

It may be appropriate for health and safety considerations to influence preferred option choice, should there be fundamental differences in the risk profiles of the short-listed options. Linked to this, it may be appropriate to include health and safety criteria within the Investment Objectives.



6.5 Environmental assessment

Information obtained from options assessment also provides the basis for completing a broad environmental assessment of the wider benefits and impacts of the options.

In developing a list of measures, it may become evident that there are opportunities to deliver multiple benefits at or near the study area. The following list of questions should assist RMAs in identifying potential wider benefits.

• Are there any opportunities for community engagement or interpretation? • Can the project build in measures to slow the flow of water, which may have water quality benefits as well as flood risk benefits? • Can the project deliver Water Framework Directive benefits e.g. bank naturalisation, treatment of invasive non-native species, or hydromorphological improvements? • Where associated with Natura 2000 sites, can the project deliver any actions required under the Prioritised Improvement Plans or Natura 2000 site core management plan? • Where associated with SSSI sites, can the project deliver actions to bring SSSIs into favourable condition? • Can recreational or access opportunities be delivered through the project, including opportunities to connect communities and amenities? • Are there opportunities for planting native trees or shrubs? • Are there opportunities to promote simple changes to land management to provide food, shelter and nest sites for pollinators? • Are there opportunities for habitat improvement or creation, paying particular attention to resilience (connectivity, diversity, condition)? • Are there opportunities to improve protected species populations? • Are there opportunities to improve fish and eel habitat or passage? • Are there collaborative opportunities to deliver wider well-being benefits and objectives? • Are there opportunities to reduce greenhouse gas emissions associated with the project e.g. substituting materials, procurement targets, reducing transportation needs? • Are there opportunities to protect or enhance habitats of importance for carbon storage? • How can the project support other duties include, for example, the Public Sector Equality Duty, UN Convention on the Rights of the Child (CRC) or Welsh Language Standards?

It will be possible and relevant to quantify some of these impacts. The assessment of other impacts may remain qualitative in nature, and in many instances, this will be proportionate and appropriate given the scale of the project.

Sometimes the assessment may identify environmental ‘show-stoppers’ that would prevent the option being viable. What is more likely and common is that environment assessment will reveal which option delivers more in terms of benefits beyond flood risk reduction, or how an option could be modified to deliver more.

Section 6 of the Environment (Wales) Act requires that all public authorities must seek to maintain and enhance biodiversity and promote the resilience of ecosystems. Welsh Government has published frequently asked questions on this matter, at the following link:http://gov.wales/topics/environmentcountryside/consmanagement/natural-resources-management/environment-act/guidance-for-section-6/?lang=en



In the case of coastal or estuarine projects, project-level consideration should be given to the potential loss of intertidal habitat as a result of coastal squeeze due to sea level rise. This especially applies to options that implement the ‘Hold the Line’ policies as identified in the Shoreline Management Plan.

RMAs can seek advice from NRW on the likely extent of coastal squeeze and scale of compensation that may be required via a pre-application advice request (see section 2.1.2).

6.6 Funding

The options should be assessed against opportunities for wider funding contribution. Interventions that also provide wider benefits, especially community benefits, are more likely to be able to attract third-party funding. A list of potential additional funding sources relative for delivering FCERM projects in Wales is provided by NRW’s Funding Sheet (contact NRW for copy).



Supplementary Technical Note 01

Example A“Floodtown” — Options Framework Example

Floodtown is a small inland market town. The surrounding catchment is hilly in nature, comprised of a mixture of farmland and wooded areas. The surrounding catchment is hilly, comprising a mixture of farmland and wooded areas. The upper catchment is small, and entirely owned by a national charity.

An ordinary watercourse (the Nant), flows from its source in the steep upper catchment. It passes through a golf course, near to a small industrial estate, before entering culverted sections as it passes through a 1970s housing estate. The culverts within the housing estate are under-capacity and prone to blockage despite regular maintenance by the local authority.

There are a number of public bridleways which predate the golf course and link the town to the charity owned woodland located upstream of the golf course. The local community were opposed to the construction of the golf course when it was built 20 years hence, a proportion of it was located on ancient wood land. The local residents are keen to restore the biodiversity and amenity value of the local area, while the golf course is seeking to expand further at a different location nearby.

The watercourse discharges into the main river (the Afon) downstream of Floodtown.

The Issue

Floodtown has experienced four separate flood incidents in the last 20 years. Each of these four events is estimated to be between a 20% and 10% AEP (1 in 5 and 1 in 10 return period).

On two occasions the watercourse overtopped within the grounds of the golf course, with the resulting overland flows flooding properties within both the industrial estate and the housing estate. The floodwaters caused minor damage to the golf course.

The other two occasions saw debris block the entrance to one of the culverts, resulting in overland flows and the flooding of properties within the housing estate.

The existing hydraulic capacity in the Nant channel (and culverts) is sufficient to accommodate a 1 in 10yr return period event.

In its Flood Risk Management Strategy, the RMA has identified the area as being at high flood risk. The Local Authority has undertaken preliminary flood modelling and investigation in order to understand the level of risk.

There is no flood risk associated with the main river (the Afon).



Investment Objectives

• To reduce the flood risk posed by the Nant to Floodtown to an acceptable standard of protection within the next three years. • To use any construction works as a potential mechanism for providing the Floodtown community with wider benefits, such as new amenity areas or increased biodiversity, within the next three years.

Critical Success Factors

• Strategic Fit and Business Needs The proposed option should comply with the local flood risk strategy? • Potential Value for Money The option must represent value for money (i.e. benefits must outweigh costs). • Supplier Capacity and Capability The option should match the capacity to deliver of potential suppliers. • Potential Affordability The options should be fundable by both the identified Funding Organisation/s. • Potential Achievability The option must be deliverable by the RMA, and manageable in the long term.

(N.B. Critical Success Factors must be met in full or not at all. They cannot be met in part.)

The Options Framework Filter

This is a workshop exercise is facilitated by the RMA. It requires the input of key decision makers.

In this example, these included: RMA flood team, consultant engineers, Local Councillors, community representatives (business and residential), the golf course owners and the land owning charity.

The purpose of the workshop is to: • Confirm the Investment Objectives; • Agree the Critical Success Factors; and • Complete the Options Framework.

For FCERM Projects, the Options Framework is comprised of the following six elements, applied sequentially: (for further details refer to section 3.3.3 of Main Document) • Scope – Spatial Scale • Scope – Temporal • Service Solution • Service Delivery • Service Implementation • Funding



For FCERM Projects, ‘Scope’ has been subdivided into the spatial scale and the temporal scale.

• The spatial scale of an FCERM project refers to the geographical coverage of the project. The options considered for the framework below cover an increasingly wide area, from localised defences to properties themselves, to river basin catchment management. • The temporal scale of an FCERM project refers to the potential ‘Standard of protection’. The options considered for the example below provide a standard of protection against increasingly severe future weather events.

The Walkaway and Business As Usual options are automatically carried forward to the Short List as baselines.



Scope – Spatial scale

Walkaway Business As Usual

Do Something

Intermediate Option 1



Do Maximum

nil Assets in place (1 in 10 year service)

Property Level Protection

Flood defence asset system

River Catchment River Basin

Carried Forward Carried forward Carried forward Carried Forward Preferred Discounted

Investment Objective 1


Critical Success Factor 1





Key Meets in full Meets in part (Investment Objectives only)

Does not Meet

SWOT Analysis

Intermediate options 1, 2 and 3 have been carried forward as they all meet (or meet in part) the two 2 Investment Objectives. They also meet all of the Critical Success Factors.

A river catchment management option has been chosen as the Preferred Option as it offers the greatest potential to increase biodiversity and amenity at this location.

The River Basin ‘Do Maximum’ option has been discounted. It meets the Investment Objectives in part, it does not resolve the localised flooding issues which affect Floodtown. It is unlikely to be value for money, affordable or achievable, and has therefore been discounted.



SWOT Analysis

The 1 in 20 year SOP is not carried forward as it does not significantly improve the standard of protection and meet Objective 1. It would also fail to meet the local flood risk strategy.

The 1 in 1000 year SOP is not carried forward as it is likely to be prohibitively expensive and will not meet the value for money Critical Success Factor. It is also unlikely to be affordable or achievable.

Options 2 and 3 meet both Investment Objectives and all Critical Success Factors and are therefore carried forward. Option 2 is preferred as flood modelling conducted previously by the local authority suggests achieving a 1 in 100 standard of protection may be difficult.

N.B. The assumption at this stage is that allowances for climate change will be incorporated into the eventual shortlist. For some projects it will become apparent at the later stages of the business case that this may not be possible.

SWOT Temporal scale


Do Something




Do Maximum

nil Assets in place (1 in 10 year service)

1 in 20 year SOP (+CC)




Carried Forward Carried forward Discounted Preferred way forward

Carried forward Discounted









Does not Meet



“How” in terms of delivering the potential scope of the project. For FCERM Projects, this often refers to:

• Current and core services: FCERM activities • Desirable services: NFM • Optional services: wider initiatives, e.g. regeneration, tourism, etc.

SWOT Analysis

The 1 in 20 year SOP is not carried forward as it does not significantly improve the standard of protection and meet Objective 1. It would also fail to meet the local flood risk strategy.

The 1 in 1000 year SOP is not carried forward as it is likely to be prohibitively expensive and will not meet the value for money Critical Success Factor. It is also unlikely to be affordable or achievable.

Options 2 and 3 meet both Investment Objectives and all Critical Success Factors s and are therefore carried forward. Option 2 is preferred as flood modelling conducted previously by the local authority suggests achieving a 1 in 100 standard of protection may be difficult.

N.B. The assumption at this stage is that allowances for climate change will be incorporated into the eventual shortlist. For some projects it will become apparent at the later stages of the business case that this may not be possible.

Service Solution

Walkaway Business As UsualDo Something

Intermediate Option 1 Intermediate Option 2

Do Maximum

Current services: Stop maintaining of existing assets

Core Services: Maintain existing flood defences

Core + Desirable Services: Construct and maintain new flood defences

Core + Desirable Services: Construct and maintain new flood defences plus deliver NFM

Core + Desirable + Optional Services: Construct and maintain new flood defences plus deliver NFM plus create amenity area

Carried Forward Carried forward Carried Forward Carried Forward Preferred way forward









Does not Meet



SWOT Analysis

The three Service Delivery options are considered to capable of meeting the Investment Objectives. Although a question was raised as to whether local contractors would be capable of delivering the NFM aspiration expressed in Investment Objective 2.

Given the scale of the project, the Local Framework and Wales Framework are carried forward as they are most suitable for a project of this size.

The UK/EU framework option was discounted as it was considered to be a disproportionate approach given the size of the project. As a result, it did not comply with Critical Success Factor 3.

Service Delivery



Do Maximum

N/A Current arrangements: local Asset Management team

Local Framework: RMA project team plus local consultants and contractors

Wales framework: RMA project team plus Wales-wide consultants and contractors

UK/EU framework: RMA project team plus open tender and OJEU

Carried Forward Carried forward Carried Forward Preferred way forward Discounted









Does not Meet



SWOT Analysis

The project is likely to involve some capital works, although the precise nature of these will be decided at the Long List stage.

The <1 year option has been discounted as it does not provide a feasible implementation timescale. It therefore does not comply with Critical Success Factor 3 as suppliers are unlikely to have capacity at such short notice, and Critical Success Factor 5 as it is unlikely to be achievable.

Implementation periods of 1-2 years and 3-4 years are considered feasible, with the shorter option preferred. However 1-2 years is the preferred implementation period as it was more likely to meet Investment Objective 1 (reduce flood risk within 3 years).

Service Implementation


Do Something




Do Maximum

Continue Current Activities

< 1 year 1-2 years 3-4 years 5 + years

Carried Forward Carried forward Discounted Preferred way forward

Carried forward Discounted









Does not Meet



SWOT Analysis

All of the potential funding objectives would be able to deliver the two Investment Objectives in full.

Capital funding (public) has been carried forward as it is the established method of financing FCERM projects in Wales and would be an appropriate option in this instance.

Capital funding via an innovative finance mechanism has been discounted as it is there is no such funding stream available to Local Authorities in Wales. It is therefore unachievable and does not meet Critical Success Factor 5.

The Do Maximum is the preferred way forward as, in this instance, there appears to opportunities to seek further funding contributions from external sources (e.g. the golf course and/or the national charity).

SWOT Analysis



Do Maximum

Revenue funding (public)

Capital funding (public) Capital funding (public) via innovative funding mechanism (e.g. CRMP)

Capital funding (public) plus external contributions

Carried Forward Carried forward Carried Forward Discounted Preferred way forward









Does not Meet



Preferred way forward

As a result of the input received from key decision makers and stakeholders, the Options Framework Filter has now set the parameters for a preferred way forward for the development of a Long List of FCERM Measures.

Scope (Spatial)

Property Level Protection Flood defence asset system River Catchment

Carried Forward Carried forward Preferred way forward

Scope (Temporal)

1 in 75 year SOP (+climate change) 1 in 100 year SOP (+climate change)

Preferred way forward Carried forward

Service Solution

Core + Desirable Services: Construct and maintain new flood defences

Core + Desirable Services: Construct and maintain new flood defences plus deliver NFM

Core + Desirable + Optional Services: Construct and maintain new flood defences plus deliver NFM plus support regeneration

Carried forward Carried forward Preferred way forward

Service Delivery

Local Framework: RMA project team plus local consultants and contractors

Wales framework: RMA project team plus Wales-wide consultants and contractors

Carried forward Preferred way forward

Service Implementation

1-2 years 3-4 years

Preferred way forward Carried Forward

Funding

Capital funding (public) Capital funding (public) plus external contributions

Carried forward Carried forward


Annex A: Supplementary Technical Notes STN02: ECONOMIC APPRAISAL

Supplementary Technical Note 02Economic Appraisal

1. Introduction 1.1 Key guidance

This document supports the main document in relation to the economic assessment elements undertaken as part of the Economic Case of a Business Case. Definitive guidance on Flood and Coastal Erosion Risk Management (FCERM) economics is provided in the following documents:

• HM Treasury Green Book guidance (referred to here as the Green Book), last updated March 2018 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in- central-governent • Middlesex University Flood Hazard Research Centre’s Multi-Coloured Manual and Handbook for Economic Appraisal (referred to herein as the MCM) http://www.mcm-online.co.uk and http://www.fhrc.mdx.ac.uk

1.2 Key interpretations implemented in Wales

This guidance does not replace or supersede the MCM or Green Book, but instead provides advice on where there are distinct approaches or interpretations that apply in Wales. These are:

• The MCM refers to overarching Defra policy which does not apply in Wales. • The MCM provides guidance on options assessment (or project appraisal). However, the FCERM-BCG should be followed in the first instance. • The MCM advocates that economic appraisal is the fundamental decision-making tool for assessing options. However, the FCERM-BCG approach is that the Preferred Option should be the Short List option with the highest NPV, that meets the most Investment Objectives and all the CSFs. Following the FCERM-BCG approach, provided an option has a robust economic basis, other factors such as wider benefits and sustainability can play a crucial role in deciding the Preferred Option. • Incremental Benefit Cost Analysis (IBCA) can be used to demonstrate that the Preferred Option provides better value for money compared with the Business As Usual option. Alternatively, it can be used to explore the optimum design standard of protection to be offered by the Preferred Option, to test whether the additional benefits of providing a higher standard of protection outweigh the additional costs. • Distributional impact and social equity analysis are not required for economic appraisals in FCERM projects. • The MCM “overview” and “initial” methods should be sufficient for most economic appraisals. • Should recreational impacts be included in an economic assessment, then an “initial study stage” assessments is usually appropriate, including the use of “secondary source data and desktop methods”.

VERSION: 01 DATE: 2018



• The limitations applied in England regarding the exclusion of development built after January 2011 in damage assessments do not apply in Wales. • Regarding environmental impacts, the MCM states that: “An appraisal should aim to assess all the costs and benefits, including those environmental costs and benefits which are not straightforward to value in monetary terms.” In contrast the FCERM-BCG advocates that environmental costs and benefits can normally be incorporated qualitatively via an objective-led process. Economic appraisal of environmental impacts and benefits may be warranted where projects are driven by environmental Investment Objectives and CSFs. Supplementary HM Treasury Green Book guidance covers the consideration of environmental impacts in economic appraisal https://www.gov.uk/government/publications/green-booksupplementary-guidance- environment • The Do Something options can be compared with both the Walkaway and Business As Usual options. • In line with Green Book, the Business As Usual option is the baseline used to establish whether a given option represents value for money. The Walkaway option is an additional baseline option that can used in the economic appraisal of FCERM projects.

The remainder of this STN provides further guidance on the application of economic assessment in Wales and links to other sources of supporting information available.

2 Setting out the economic appraisal

2.1 Determining the most appropriate form of economic analysis An question to address at an early stage of the project is “what type of economic analysis is required?”. A Cost Effectiveness Analysis (CEA) simply explores which option provides the lowest Whole Life Cost, whereas Cost Benefit Analysis (CBA) looks at the option’s Whole Life Costs and benefits.

CEA is most commonly adopted where there is a legal imperative to complete a project i.e. in situations where economic justification serves no purpose as the work must be done. This generally falls into 2 categories:

• Where there is a legal duty to maintain a certain standard of service, such as maintaining a specific standard of protection in reservoirs; or • Where there is a pre-existing legal agreement in place which must be met. Such as provision of water supply from a reservoir.

CEA may also be adopted on projects where there is an approved overarching Business Case already in place, which included a CBA, and then CEA is undertaken as a “check” against the overarching business case.

Cost Benefit Analysis (CBA) is the calculation of the Benefit to Cost Ratio (BCR)

Projects with a BCR greater than 1 are considered economically viable.

Whole Life benefits

Whole Life costs = BCR




FCERM-BCG advocates a proportionate approach to economic appraisal. Proportionality may be considered in relation to the following two criteria:

• The stage of Business Case development. • The anticipated scale of investment associated with a project recommended by the Business Case.

At the early stages of assessment, or for small scale investments, readily available data is usually sufficient. As the project proceeds, or for larger scale projects, data may need to be refined to support more specific and accurate decision-making.

At SOC stageAt SOC, the assessment should be sufficiently extensive to show with reasonable confidence whether it is worth adopting the preferred way forward identified by the Options Framework Filter. The project team may choose to limit the level of detail of assessment. However, for efficiency and to give confidence in the Economic Case, it may be appropriate to establish fully resolved Walkaway and Business As Usual economic appraisal baselines at SOC.

At OBC stageAt OBC the complete economic appraisal is required, proportionate to the scale of the project and in line with the guidance contained herein. The appraisal should include sensitivity tests of the impact of changes in anticipated benefits.

At FBC stageAt FBC the assessment undertaken at OBC should be checked and refreshed if necessary, i.e. where significant changes in costs or benefits have occurred and these lay outside the economic tolerances indicated by sensitivity tests undertaken at OBC.

For BJCsA complete benefits appraisal is required, proportionate to the scale of the project and in line with the guidance contained herein. The RMA should also undertake sensitivity tests to indicate sensitivity to changes in anticipated benefits.

The cost of carrying out the benefits analysis will vary depending on the types of impacts that are appraised and the precision required. For example, it may cost as much to economically appraise recreational benefits of a small recreation enhancement as a large one. The cost also depends on the extent to which available data sources can be used. Key economic appraisal data are given in Section 6 of this document.

The cost of carrying out the benefits analysis should be proportionate to the scale of the likely investment.

The actual cost of the benefits analysis will need to be incorporated into the Whole Life Cost of an option, so it is essential that benefits analysis is scoped with an appreciation of the overall likely project budget. This is particularly relevant for Business Justifications.



Welsh Government expects RMAs to make use of the RAD Tool when estimating the benefits associated with BJC cases. In certain circumstances it may be acceptable to undertake a much more simplified assessment, as detailed in para 2.3 below.

2.3 High level economic assessment

Green Book states that “typical damage per property, per flood event varies from around £7,000 to £10,000 for a flood of less than 0.1 metres in depth, to between £37,000 and £42,000 for a flood in excess of 1.2 metres in depth.” These figures may be adopted for high level economic assessment.

2.4 Defining the Appraisal Period

Costs and benefits considered should be assessed over a lifetime. This is the “Appraisal Period”.

Unless particular project considerations indicate otherwise, it is recommended that a 100-year Appraisal Period is adopted for most FCERM projects. This allows a sufficient look forward, that ensures whatever is proposed is reasonably sustainable and allows for future costs or benefits to be taken into consideration.

However, the 100-year Appraisal Period should not be adopted without consideration of its appropriateness in terms of project specific factors, such as: • The length of time the project is required to function for. This may be defined by reference to the FCERM policy. For example, a coastal project may be aligned to implementing the current Shoreline Management Plan policy, but be against the future policy for defence provision. As such it should logically be evaluated for the period until the future policy is likely to be adopted. • Where the design life of the proposed asset is relatively short. Design life is determined by the durability of the materials to be used or key components of the overall asset. In particular, it is recognised that a number of NFM measures (such as woody barriers) have a short design life. • In situations where more than one option or asset is being assessed, and they have different design lives, usually the longer period is usually chosen. Reconstruction/capital refurbishment costs would be included in the Whole Life Cost for the asset or option with the shorter design life. • For capital maintenance projects, the residual life expectancy of the existing asset may be an appropriate choice of Appraisal Period.

2.5 Defining a common Base Date for costs and benefits

Costs and benefits are defined to a common Base Date. All costs and benefits should be expressed as monetary values valid at this Base Date.

Where values are used that were generated in the past (e.g. cost data from a similar project), then such data should be adjusted by use of appropriate cost/price indices. The Consumer Prices Index (CPI) may be relevant for building contents and BCIS Tender Price Indices for building fabric costs.

UK inflation and price indices may be found at the following links:

https://www.ons.gov.uk/economy/inflationandpriceindiceshttp://www.rics.org/uk/knowledge/bcis/online-products/bcis-online/

Where values are used that are expected to occur in the future, these are subject to economic Discounting (see Section 2.6 below) in order to provide equivalent valid values expressed at the Base Date.



2.6 Discounting

Discounting is used to equate the perceived value of future costs, damages or benefits with those occurring at present. Discounting converts all future costs, damages and benefits to a ‘Present Value’ (PV) equivalent (at the Base Date).

The PV of a cost or benefit is calculated in accordance with the recommendations of the Green Book using the formula:

Value (cost, damage or benefit) in year “n” / (1 + r / 100)^n

where

“n” is the year in which the cost or benefit occurs (the Base Date is taken as year n = 0) “r” is the discount factor expressed as a fraction, which in January 2017 is taken as: • Year 0-30: 0.035 (3.5%) • Year 31-74: 0.03 (3.0%) • Year 75-100: 0.025 (2.5%)

Note the above are periodically re-assessed by HM Treasury and the most up-to-date values should be adopted for FCERM projects. Welsh Government Flood and Coastal Erosion Branch will provide guidance on current values.

2.7 Treatment of agricultural land

Guidance on how to treat agricultural land in economic appraisals is provided by Flood and coastal defence appraisal guidance: economic appraisal. Supplementary note to operating authorities: valuation of agricultural land and output for appraisal purposes (Department for Environment, Food and Rural Affairs (Defra), 2008). https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181440/treat-land.pdf

The John Nix Farm Management Pocketbook provides a comprehensive source of business information for UK agriculture and is updated annually.

https://www.thepocketbook.co.uk/

3 Damages avoided (benefits) assessments

3.1 Assessment of local benefits

Economic assessment for FCERM project does not normally require assessment of local benefits. However, the assessment of local economic benefits (e.g. local Gross Value Added analysis) may be required when seeking contribution from other (non-FCERM) sources. Such work requires specialist input and is beyond the scope of this guidance.



3.2 Risk and value of loss of life

In some situations, flooding and coastal erosion is a risk to life. This may be particularly relevant when investigating Walkaway scenarios, where flood warning and emergency response activities cease to operate. Guidance on this subject is provided by:

Flood and Coastal Defence Appraisal Guidance Supplementary Note to Operating Authorities, Assessing and Valuing the Risk to Life from Flooding, Defra, 2008.

http://archive.defra.gov.uk/environment/flooding/documents/policy/guidance/fcdpag/risktopeople.pdf

3.3 Determining the flood events to examine

For economic appraisal of FCERM options, the valuation of benefits and damages is often undertaken for a range of flood events, from those that occur frequently through to extreme events, with less than a 1% Annual Exceedance Probability (AEP).

The choice of events to be appraised should be tailored to the specific flood risks of the location. Information from historical events may assist in this process. It is important to capture the event that triggers the onset of flooding to properties or the event that just exceeds any existing assets standard of protection. It is recommended that at least one extreme event (e.g. with a lower than a 1% AEP) is considered when assessing the residual damages associated with a Do Something option.

Overall, appropriate consideration should be given to the events which generate a step change in the damages caused by flooding and, for ease of analysis, consistent event probabilities should be used for all options.

3.4 Writing off or capping property damages

Properties without flood resilience measures which flood more frequently than once every three years should be considered as “written off”, as it is not considered viable to repair the property before the next flood. In other cases, properties should normally be “capped” if the Present Value damages exceed the risk-free market value of the property (capping value). As an approximate guide for residential property, any properties with an annual probability of flooding of 10% or greater are likely to be “capped” within the economic analysis.

3.5 Damages to non-residential receptors

While the primary focus should be on reducing flood risk to life and residential property, some FCERM Business Case may need to incorporate the assessment of wider sources of flood or erosion damages and benefits. This can include commercial property, utilities and telecommunications, habitat creation, amenity value, transport infrastructure, schools, hospitals, etc. Please refer to the MCM for suitable guidance on how to include damage to such receptors within a FCERM economic appraisal.

It may be useful to obtain traffic count data for road assessments from the following data set.

http://www.dft.gov.uk/traffic-counts/download.php



It is recommended that project teams only assess damages to such receptors in economic terms when this is required to demonstrate the economic value of the Preferred Option. Otherwise, such damages can be captured in the wider, qualitative aspects of option assessment.

3.6 Double counting benefits

When project locations are subject to flood risk from multiple sources, care should be taken to ensure that the damage to receptors is not counted more than once. To prevent double-counting, RMAs can use one of the following two approaches:

• develop options that address all sources of risk and include all costs and damages/benefits in the economic analysis, or; • develop options that only address certain sources of risk and apportion the overall damages appropriately.

3.7 Treatment of mobile homes and caravans

This is often a consideration for projects within coastal settings.

For temporary and semi-permanent dwellings, the real economic value of losses may be very different from current market values. For example, in the case of coastal erosion, the economic value of a static caravan includes the cost of transporting the caravan to the site and of establishing the site, not just the value of the unit itself (as this could be retained if it were relocated elsewhere).

Residential mobile homes are treated differently to other types of caravan as they cannot be easily moved and may be written off at flood depths of over 60cm. The MCM provides further guidance on the types of dwellings.

3.8 Temporary defences and Property Level Protection (PLP)

Where flood risk management options include the provision of flood warnings and/or temporary measures that are deployed in a flood event (e.g. demountable barriers, individual property-level measures), the benefits (damage averted) by providing such measures need to include for the risk of such measures not being deployed successfully or at all. Also, given the limited life and associated protection typically offered by PLP (circa 10 years), generally any existing PLP should be ignored within benefits assessment.

Guidance and methodologies for evaluating benefits in this respect can be found in both the MCM and by reference to Environment Agency research guidance on quantifying the benefits of flood risk management actions and advice flood incident management and property level responses, provided in the following link:

http://evidence.environment-agency.gov.uk/FCERM/Libraries/FCERM_Project_Documents/Quantifying_the_benefits_of_flood_risk_management_actions_and_advice_report.sflb.ashx

Alternatively, Scottish Government has published a useful guide on assessing the flood risk management benefits of property level protection provided in the following link.http://www.gov.scot/Topics/Environment/Water/Flooding/resources/research



3.9 Incorporating sewer flooding

Sewer flooding can often contribute to surface or pluvial flooding events. Natural Resources Wales and Environment Agency have supported the UK Water Industry Research programme work to produce guidance on incorporating sewer flooding in FCERM economic appraisals provided in the UK Water Industry Research guidance on collaboration with sewerage undertakers is available at the following link:

http://evidence.environment-agency.gov.uk/FCERM/Libraries/FCERM_Project_Documents/SC150010_report.sflb.ashx

3.10 Treatment of freeboard

Freeboard is a tool that is used to account for residual uncertainty, and is often incorporated into options that propose new FCERM assets, especially ones of a traditional (flood defence) form.

In terms of calculating damage (benefits) in economic appraisals: • No additional benefits should be included in the economic analysis, that result from inclusion of freeboard. • The treatment of expected future climate change is not the same as freeboard. If an allowance is made for future climate change, this become part of this Do Something option, and the benefits (and additional costs) should be included in the economic analysis.

Guidance on freeboard is provided in Environment Agency/Defra R&D guidance on accounting for residual uncertainty (freeboard) (February 2017) is found here:

https://www.gov.uk/government/publications/accounting-for-residual-uncertainty-an-update-to-the-fluvial-freeboard-guide

4 Whole Life Cost estimates

Preparation of cost estimates for use within economic assessments should identify all costs that apply to each option over the Appraisal Period, providing the Whole Life Costs for each option.

Typically, this should include costs associated with: • Delivering the option – surveys, investigations, the cost of obtaining approvals (e.g. planning, obtaining marine consents if applicable), design, tendering, procurement, supervision and construction, etc. • Maintaining the option – routine/reactive maintenance. It may also be necessary to include future capital refurbishment, improvement or re-construction costs that fall within the Appraisal Period. This may be applicable if the Appraisal Period is longer than the design life of key components of the option or where climate change impacts are to be addressed by modifications implemented in the future. • De-commissioning, if appropriate. This may be applicable if the risk management policy varies throughout the Appraisal Period. • Delivering and maintaining compulsory habitat mitigation or compensation through the National Habitat Creation Programme (coastal projects), if applicable.



• All required land purchase costs or compensation to landowners or tenants. Any costs incurred as part of preparing the current Business Case should be noted in the business case, but are considered to be Sunk Costs and not included in the economic assessment.

Cost estimates should be expressed as values valid for the appraisal Base Date (section 2.5) and Discounting applied (section 2.6).


The certainty of cost estimation should increase as the Business Case is developed. At SOC stage, a broad-brush approach is sufficient. At OBC stage a more refined assessment should be carried out. By FBC, the normal expectation is that costing will be available from those who will deliver the works (e.g. tender pricing from a contractor). There is a wide range of information available to support definition of option costing and it is useful to keep in mind the stage of the Business Case development when making choices on the approach to use, as outlined below.

At SOC stageCost estimates can be established using information from previous works of similar nature carried out nearby. Such information will not always be readily available so enquiries to neighbouring authorities may help with obtaining specific data. Published FCERM costing tools include:

Environment Agency, R&D programme project SC080039. Long Term Costing Tool for Flood and Coastal Risk Management:

https://www.gov.uk/government/publications/long-term-costing-tool-for-flood-and-coastal-risk-management

Joint Defra and Environment Agency R&D Programme — Guidance on determining asset deterioration and the use of condition grade deterioration curves, May 2009:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/291126/scho0509bqat-e-e.pdf

An alternative is to use costs from similar historical FCERM schemes as a benchmark.

Whatever is used, appropriate allowance for “Optimism Bias” should be included (refer to STN03). Known risks should be identified and reflected in the “risk budget”, although it is recognised that the risks may not be well understood at this stage.

At OBC stageDepending on the scale of the works, estimates based on similar projects or standard FCERM cost databases may still be appropriate, particularly for initial options Short List assessment. However, once a Preferred Option is chosen, it is very likely that bespoke scheme-specific cost estimates will be required, with the primary focus being on key components where changes to quantities or rates is likely to have the greatest effect on overall cost. Advice from a suitably experienced and professional qualified contractor, consulting engineer or quantity surveyor should be sought for such cost assessments. At this stage it may be appropriate to use published cost databases such as Spon’s Civil Engineering and Highway Works Price Book are likely to be used at this stage. Within this, it is important that due consideration is given to how



the works will be constructed, e.g. specific access requirements, local materials availability, risk of having to carry out additional investigations or costs to deal with contaminated land.

FCERM scheme costs databases should be used for benchmarking these bespoke estimates. The appraisal should also include sensitivity tests to identify the sensitivity of estimates to changes in anticipated costs.

Optimism Bias allowance can normally be reduced downward at this stage. (refer to STN03). Known risks should be identified and reflected in the “risk budget”. Advice on risk management (identification, quantification and analysis) for economic appraisal at OBC stage is provided in BBC pages 24-26.

At FBC stageThe expectation is that, ordinarily, cost estimates may be obtained from those who will build the proposed works (e.g. tender pricing from a contractor). This would normally be supplemented by an assessment of uncertainties in the construction stage, with associated costing.

Optimism Bias allowance can normally be reduced to the lowest limit at this stage. (refer to STN03). Known risks should be identified and reflected in the “risk budget” and any proposed contractual arrangements for delivery.

For Business Justification (BJCs)A complete cost assessment is required, proportionate to the scale of the project and in line with the guidance above. The appraiser should also undertake sensitivity tests to indicate sensitivity to changes in anticipated benefits.

4.2 Treatment of freeboard

Appropriate freeboard should be included as part of the design and costing. Current best practice should be adopted when doing this. Costs that are incurred by incorporating freeboard should be included within the Whole Life Cost analysis.

5 Climate change

As a result of climate change the following are likely to increase over the Appraisal Period:

• Frequency of floodplain inundation and associated impacts or costs. This obviously includes residential and commercial property, but could also include other damages such as that to habitat (e.g. the value of the loss of saltmarsh caused by sea level rise). • Risk of defence overtopping, leading to increased flood damages. This significant in both fluvial and coastal settings. For example, in coastal settings wave heights reaching the shoreline are limited by water depth. Sea level rise can increase near-shore waves depths, and therefore lead to a significant increase in wave action on the shoreline. • Risk of defence failure/breaching. Again, this is a particularly a problem in coastal setting where sea level risk allows high waves to reach coastal defences. • Risk of erosion of natural defences. e.g. dunes or soft cliffs.

The impacts of climate change need to be considered within economic assessment in relation to:

• Valuation of future damages and of benefits associated with the options.



• Inclusion of allowances in cost estimates, e.g. to allow for easy adaptation of defences to sustain a particular standard of service.

In evaluating the impacts of climate change reference should be made to the Welsh Government guidance, Adapting to Climate Change: Guidance for Flood and Coastal Erosion Risk Management Authorities in Wales (December 2017):

http://gov.wales/topics/environmentcountryside/epq/flooding/nationalstrategy/guidance/climateguide/?lang=en

5.1 Impact of climate change on damages and benefits

It is not always necessary to include climate change in benefit (damages) analysis. For simple benefit appraisals it can be ignored and this is a conservative assumption.

However, where the RMA considers it worthwhile capturing the increase in damages due to climate change, the change in damages needs to be evaluated for several time horizons in the Appraisal Period. This process requires re-assessment of the damages at each time horizon. Generally, in addition to a “present day” assessment, one to three time horizons are considered appropriate for appraisals undertaken over periods of between 50 and 100 years. The dates at which a change in risk should be evaluated should be determined on a project-basis, based on current climate change evidence, judgement and initial qualitative consideration of the impacts.

5.2 Impact of climate change on costs

Considering how options are designed to deal with climate change requires examination of when and how it is most appropriate to mitigate against the increasing risk. In general, new FCERM projects should not be designed for predicted climate change. More commonly a “Managed Adaptive” approach is adopted, where appraisals consider the flood risk management measures that are not necessary now but may be in the future. These may include consideration of: • The standard of protection that projects offer based on current conditions, but include as relevant, measures that will allow adaptation in the future (e.g. oversized flood wall foundations to allow raised walls in the future). • Monitoring changes in flood and coastal hazards. • Relocating property or investment to make properties more resistant or resilient for anticipated future flood levels.

6 Data, tools and tips to support economic appraisals

6.1 Data

The following data may assist RMAs with economic appraisals. • Flood Source data such as hydrometrics (rainfall, flow and river level data). • Flood Pathway data such as that for river channels and floodplain topography, overland flow routes. • Flood Pathway data regarding existing FCERM assets, including the residual life, crest level/ capacity offered and the potential for failure during flood events. • Flood Pathway data regarding the potential for channel, bridge or culvert blockage, especially for a Walkaway option.



• Predicted flood extents and hazard created by a range of storm conditions. Generally, published flood risk mapping data will not deliver flood depths and some further assessment comparing flood levels with ground levels is needed (e.g. digital ground models and flood propagation modelling is required to determine specific depths at individual receptors). • Knowledge of Receptor conditions and impacts, such as: - Receptor type (such as the Environment Agency National Receptor Dataset (NRD)) and economic consequences of flooding (e.g. depth damage data from the MCM, readily quantifiable environmental damage or benefit). - Property values. - Commercial activities, including vulnerability to flooding and the national importance of the product or service. - Vulnerability to flooding and risk to life. - Receptor flood threshold levels. - Receptor flood resistance or resilience measures. - Existing flood warning and emergency planning arrangements. - Importance and vulnerability of any infrastructure potentially at risk. • For coastal or tidal locations, the following may also apply: - Knowledge of “source” hydrodynamic parameters, including geomorphological and geological data, estimated rates of erosion, estimated extreme sea levels, wind and wave conditions, joint probability analysis of waves and water levels and likely overtopping volumes. - Predicted flood extents and hazards created by a range of storm conditions.

Links to data sources are provided in STN01.

6.2 Economics calculation spreadsheets

The Environment Agency’s Flood and Coastal Erosion Risk Management Appraisal Guidance (FCERM-AG) provides a spreadsheet template for economic appraisal that may be used to calculate cost and benefit streams and provide comparison of the economic viability of the options considered.

Flood and Coastal Defence: developing a project Business Case – FCERM economic appraisal spreadsheet (Environment Agency, March 2014, Updated December 2015):

https://www.gov.uk/guidance/flood-and-coastal-defence-appraisal-of-projects/

RMAs should note that the spreadsheet template includes calculation of the Incremental Benefit Cost Ratio as interpreted for FCERM in England. It also includes for calculating the NPV and BCR when third party contributions are available. These elements of the spreadsheet can normally be ignored in Wales.

6.3 Tips for FCERM economic appraisal

The following tips are provided to assist RMAs with economic appraisal. • Read the Multi-Coloured Manual Handbook. This well established and relatively easy to read document explains the main principles of economic assessment for FCERM projects. It also includes numerous suggestions that those completing economic assessment will find helpful. • Provided an option has a robust economic basis, other factors such as wider benefits and sustainability can play a crucial role in the decision making of the Preferred Option. • Focus on assessing the main flood or erosion damages and those that are easy to quantify.



• Only include more unusual or difficult to determine damages if the economic performance of options is weak (i.e. a BCR near or below 1). • Likewise, when checking the quality of the economic appraisal, focus any review on the key cost elements or larger receptor damages. • Take care when selecting storm event probabilities to include in the analysis. Identifying the event that starts to cause flooding to property is key. • In general, avoid using black box proprietary economic assessment tools. It makes the outputs difficult to check. Spreadsheet-based analysis is more transparent, and often suitable for most FCERM projects. However, larger scale or strategic projects can benefit significantly by using GIS-based tools, which are often more efficient at this scale. • In fluvial situations, channel blockage is easily overlooked as a key source of flood damages. Blockage risk assessments should be completed in such instances. The nature of the catchment land use and size of the channel (or structure such as bridges in the channel) are key aspects of this assessment. A Business As Usual option may significantly reduce the risk of blockages and this should be captured in the analysis. • Recent storm events in the UK have demonstrated the fragility of some parts of our infrastructure. Railway lines have been undermined, important highway bridges have collapsed and utilities damaged. These are all valid and potentially high value areas for inclusion in economic assessment, particularly when collaborative projects are formed and options developed that reduce such risks in the future. • In cases of coastal erosion, it is not necessary to wait until properties fall into the sea to claim the damages within the assessment. The key test is when the access or utilities servicing the property are lost, or when the property becomes unusable for safety or other reasons. As coastal erosion is often dominated by unpredictable large storm events, properties could be abandoned many years before they are lost to the sea. It is not possible to provide definitive guidance on what safety margin to adopt, as it will depend on various local factors (e.g. geology and cliff height). However, records of retreat associated with historical erosion events will provide a sensible starting point. A minimum value of 5m from the main building is recommended. • Calculating losses of road, rail or utilities infrastructure (e.g. due to coastal erosion) requires identification of potential temporary diversion routes or permeant alternative routes. Specific information to support valuation of these elements can be obtained from relevant public and private bodies, e.g. Sewerage Undertaker, Network Rail, Welsh Government or the relevant Highway Authority. • Remember to check for legal requirements that may mean a Business As Usual baseline for economic assessment is required. For example, in cases of land drainage, a RMA may be committed to provide rural land drainage to an area by a longstanding contract or Act of Parliament. In coastal settings, harbour authorities are sometimes obliged by an Act of Parliament to maintain a breakwater and this structure may be a key FCERM asset.


Annex A: Supplementary Technical Notes STN03: OPTIMISM BIAS

VERSION: 01 DATE: 2018

Supplementary Technical Note 03Optimism Bias

1 Introduction

This document supports the main document in relation to the application of Optimism Bias in FCERM Business Cases. Project appraisers a tendency to be over optimistic. Explicit Optimism Bias adjustments (uplifts) should therefore be made to the estimates of a project’s costs, benefits and duration.

Optimism Bias is not the same as risk: • “Known unknowns” should be included through a risk budget. • “Unknown unknowns” should be included through Optimism Bias.

This STN provides uplift percentages for appropriate for most FCERM projects. In preparing these values, the following guidance on Optimism Bias was reviewed:

• HM Treasury Green Book guidance (referred to here as the Green Book), last updated March 2018 https://www.gov.uk/government/publications/the-green-book-appraisal-and-evaluation-in- central-governent • Green Book supplementary guidance: Optimism Bias https://www.gov.uk/government/ publications/green-book-supplementary-guidance-optimism-bias (last accessed April 2018)

The uplift values presented in this STN should be used rather than those provided in the FCDPAG3 Supplementary Note to Operating Authorities, March 2003.

2 Optimism Bias uplift values for capital expenditure

Note on application for Risk Management Authorities (RMAs):

• Values are provided for “non-standard civil engineering projects” (Green Book) and these are appropriate for most FCERM projects. Other types of project should refer to relevant uplift values provided in Green Book Annex 5 or supplementary guidance. • The Upper Value may be reduced, following methods provided in Green Book supplementary guidance: optimism bias (section 1 above). • The Lower Value is the minimum permissible value of Optimism Bias. • Unless otherwise agreed with Welsh Government or the funding organisation for the project, these uplifts should be applied to the Present Value (PV) costs of a measure or option, and prior to calculation of the standard economic matrix such as Net Present Value (NPV) and Benefit Cost Ratio (BCR). • For the works duration uplifts, please refer to relevant uplift values provided in Green Book Annex 5 or supplementary guidance. • The Northern Ireland Department of Finance and Personnel has an optimism bias spreadsheet calculator, based on Green Book supplementary guidance, that can be used for bespoke calculation of uplift values, https://www.finance-ni.gov.uk/publications/optimism-bias-calculators


Annex A: Supplementary Technical Notes STN03: OPTIMISM BIAS

Table 1: Optimism Bias uplift values for capital expenditure in FCERM projects

Optimism Bias uplift (%)

Stage

Design Option assessment Project Business Case

66(Upper Value)

Feasibility Long List Gateway review 1 Strategic Outline Case (SOC)

30 Concept or Outline Short List Gateway Review 2 Outline Business Case (OBC)

6 (Lower Value)

Detailed Preferred Option Gateway Review 3 Full Business Case (FBC)


Annex A: Supplementary Technical Notes STN04: RAPID ASSESSMENT OF DAMAGES

Supplementary Technical Note 04Rapid Assessment of Damages

1 Introduction

1.1 Background

This technical note presents the “Rapid Assessment of Damages” (RAD) method. The RAD was commissioned by the Welsh Government to provide RMAs with a proportionate technique for assessing flood damages for smaller scale investments in Wales. RAD is similar in scale and suitability to the Multi-Coloured Handbook’s (Flood Hazard Research Centre, 2018) (MCH) Weighted Annual Average Damages (WAAD). WAAD was initially developed in 1986 to support the appraisal of direct flood damage to property where there was limited information on flood risk. The assumptions within WAAD relating to flood depth at properties mean that it is most applicable to fluvial flooding assessments. Also, WAAD does not provide prescriptive guidance on evaluating damages to vehicles, evacuation, risk to life, intangible impacts to health, and emergency response. Because of these limitations, there is a common perception amongst FCERM practitioners that WAAD typically underestimates flood damages when compared to the more comprehensive methods presented in the MCH.

To address these limitations, the RAD method seeks to provide a flexible framework for considering all types of flooding while incorporating allowances for the additional damage types without burdening the user with further work.



1.2 Intended applications

The RAD method has been developed for the following intended applications:

• Estimation of potential flood damages (benefits) for early-stage economic appraisals, e.g. Strategic Outline Case (SOC) for flood and coastal erosion risk management (FCERM) projects. • Estimation of potential flood damages (benefits) for economic appraisals on smaller, low risk, non- contentious FCERM projects that are using the BJC route. • Estimation of potential flood damages due to fluvial, surface water, and coastal/tidal flooding. RAD does not support the assessment of coastal erosion damages.

1.3 Guiding principles

The RAD method has been developed in line with the following guiding principles:

• Easy and rapid to use. • Does not require the users to access licenced data (e.g. MCH Online subscription or National Receptor Dataset) and uses Open Source or readily-accessible data where possible. • Aligns with current Flood and Costal Erosion Risk Management – Government Business Case Guidance (Welsh Government, June 2018) and Green Book (HM Treasury, 2018) principles over outgoing Flood and Coastal Erosion Risk Management – Appraisal Guidance (Environment Agency, 2010). • Provides broadly consistent flood damages to the methodologies presented within the MCH, therefore allowing projects to progress from using the RAD method to more detailed methods within the MCH, with minimal risk of generating significantly different output. The RAD method has been developed with specialist advice from Dr John Chatterton, co-author of the MCH.

1.4 Overview of RAD This RAD method assesses economic flood damages, i.e. the loss to the nation due to flooding. It utilises economic impact data from three past flood events (2007, 2013-14 and 2015-2016) as reported in Estimating the economic cost of the 2015 to 2016 winter floods (Environment Agency, 2018), referred to in this document as the 2015-16 Cost of Floods report. While much of this data is obtained from post event analysis of flooding events that occurred in England, it is considered representative of the typical of damages throughout the United Kingdom including Wales. Additional economic damage data has been sourced from Accident and casualty costs (RAS60) (Department for Transport, 2018) and FCDPAG3 Economic Appraisal Supplementary Note to Operating Authorities – Revisions to Economic Appraisal on – socio-economic equity in appraisal and appraisal of human related intangible impacts of flooding (DEFRA, 2004).

The following flood damage categories are covered by this method:

• Residential property related damages: - Direct property damage - Temporary housing - Vehicle damage - Health impacts - Risk to life



• Non-residential property related damages (noting the limitations presented in Section 2.2 of using a single mean value for non-residential property damages given the potential wide variation in non-residential damages between properties): - Direct property damage • Emergency response: - Local Authority costs (excluding roads) - Emergency services - Flood management assets and services

The RAD method focuses on determining residential property damages. It does offer some support for assessing damages to non-residential properties, but this is limited to the provision of a single non-residential sector average damage. The RAD method does not support the assessment of local financial damages and as such excludes lost business profits or other “transferred” losses. Further information on this limitation is presented in Section 2.2. For assessing damages to other receptor types and for appraisals that are reliant on significant benefits derived from non-residential properties, practitioners are directed to the published guidance within the MCH.

As advocated by FCERM-BCG, all property related damage is to be capped to the “risk free market value”. Generalised residential capping values have been derived using the Welsh national average house price based on the UK House Price Index (Land Registry, 2018), and the Non-Domestic Business Floor Space Tables (Valuation Office Agency, March 2016) has been used to derive indicative capping values for a range of typical non-residential property types.

1.5 Document structure

This technical note is structured as follows:

• Estimation of flood damages to residential properties (Section 2.1); • Estimation of flood damages to non-residential properties (Section 2.2); • Details of the estimation of emergency response costs (Section 2.3); and • Lookup table of uncapped and capped Present Value damages for a range of appraisal periods and annual exceedance probabilities (Section 2.4).The following also accompany this technical note. • Guidance notes (Appendix A). • Worked examples (Appendix B).

1.6 Data

Section 6.1 of FCERM-BCG’s Annex B provides general guidance on flood risk appraisal data. The RAD method can be used where there is limited project data. However, the method will not compensate for poor or inaccurate data.

Key to the accurate assessment of economic flood damages, and hence an accurate assessment of economic benefits, is securing accurate estimates of the number of residential properties (and the floor area of non-residential properties) at risk of incurring flood damage for each flood event probability. Inaccurate assessment of either the count (or floor area) for a given event probability, or the frequency of flooding, will result in an inaccurate assessment.



Below is a suggestion of sources of information to assess the number, floor area and classification of properties at risk.

• Property data. - The National Receptor Dataset represents the most reliable source of property information. Risk Management Authorities (RMAs) can access this dataset via Natural Resources Wales. Organisations are encouraged to use this dataset where possible. - A site walkover is often an effective means of collecting accurate numbers of properties at risk. It is recommended that a site walkover is undertaken even when the National Receptor Dataset is available, to verify the data. - There are various mapping products which could assist. Ordnance Survey Master Map or AddressBase datasets have been found to be the most useful. - Online “street-view” photography is available freely from various providers. This can be used where it is not practicable to undertake a site walkover to validate other address datasets. - Council Tax valuation data https://www.gov.uk/council-tax-bands could be used to confirm the number of residential properties within a postcode. - Rateable Value data https://www.gov.uk/correct-your-business-rates could be used to estimate the number, floor area and classification of non-residential properties. • Flood risk data. - Existing (national or local) flood extent or depth maps. - Data contained within “Flood Risk Assessment Wales” (due for publication in spring 2019). - Observations made from past flood events, e.g. which properties are known to have flooded (and how often) and which properties are known to have not flooded.

Regardless of whether flood depth information is available, obtaining information on property threshold levels can be invaluable. For example, where property step heights are high, it is unlikely that shallow flowing surface water would cause internal flood damage to a property. Users should give due consideration to the probable depth of flooding together with property step heights when estimating the number of properties at risk. Care should be taken to identify upstairs properties which generally do not experience flood damage. The National Receptor Dataset provides information on “floorlevel”, e.g. “pU” being a probable upper. Otherwise, the following approaches could be used to estimate property thresholds:

• A topographic survey is the ideal dataset; however, it is accepted that this may not be available in all cases. • LiDAR data together with an assumption on step height (can be made by counting the number of steps between street level and threshold level or by counting the number of bricks below the air vent) can be used to estimate threshold levels. • Manual approximations of typical step heights can be used in combination with LiDAR data. The adopted step height should be selected based on observations made on site or from online “street-view” photography.



2 Estimation of flood damages 2.1 Residential damages in a single event

A summary of the estimated residential related property flood damages is presented in Table 1. Damages for all categories (direct, vehicles, temporary housing, risk to life, and health) are reported on a “per residential property” basis. This means that users do not need to separately estimate the number of vehicles damaged, the number of households temporarily rehoused or the number of fatalities. For additional simplicity, a single residential property type is assumed. Providing damages for a single property type (and capping value) improves equitability between different socio-economic groups.

Table 1: Residential-related property flood damages per flood event per flooded property.

Damage category Damage per event per flooded property (£, 2019 prices)

Total residential property related damages 41,241

Source: Mott MacDonald, 2018

Further notes on the derivation of residential flood damages are presented in Appendix A.1.

2.2 Non-residential damages in a single event

A summary of the estimated non-residential related property flood damages is presented in Table 2. Damage (direct damage only) is reported per unit floor area (m2) of non-residential property flooded. Flood damages to non-residential properties are very dependent on property types and RAD should only be used where non-residential properties are considered “typical”. This method should also only be used where non-residential damages (and hence benefits) are not a significant proportion of the total scheme damages. It is recommended that the procedures within the MCH are used where more than approximately 10% of the scheme benefits are derived from non-residential properties, or where non-residential property types which are likely to generate significantly higher flood damages (e.g. data centres, hospitals, schools, sub-stations, or distribution centres) or significantly lower flood damages (e.g. multi-storey car parks, sports stadia, or livestock markets) are present.

Table 2 Summary of the estimation of non-residential related property flood damages per flood event per unit floor area.

Damage category Damage per event per flooded m2 of property flood (£, 2019 prices)

Total non-residential property damages per unit floor area £ 309.41 /m2

Source: Mott MacDonald, 2018

Further notes on the derivation of non-residential flood damages are presented in Appendix A.3.



2.3 Emergency response costs The RAD method includes a high-level approach for estimating the significant additional expenditure incurred by organisations responsible for responding to flood events. The additional costs include not only the overtime of the traditional emergency service personnel (e.g. police and fire & rescue) but also the additional costs incurred by RMAs to support affected individuals and operate and reinstate damaged defences.

A similar approach to that advocated by the MCH has been used to estimate emergency response cost. For ease of application the approach is based on a 10% uplift to the “total property related damages” by including temporary housing, vehicle, risk to life, and ill-health, in addition to direct damage for both residential and non-residential properties. Appendix A.4 provides further notes on the derivation of the emergency response uplift rate.

2.4 Annual Average Damages and Present Values

The calculated Annual Average (AAD) and Present Value damages for residential and non-residential properties are presented in Table 3. The table presents economic damages for a range of flood frequencies, and Present Values (HM Treasury, 2018) are summarised for a wide range of appraisal periods. All damages are exclusive of emergency response uplift. For ease of use capped residential damages are presented alongside uncapped damages.

A series of worked examples on the use of RAD are presented in Appendix B.



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3 References

CBRE. (2013). UK Prime Rents and Yields Market View.

DEFRA. (2004).FCDPAG3 Economic Appraisal Supplementary Note to Operating Authorities – Revisions to Economic Appraisal on – socio-economic equity in appraisal and appraisal of human related intangible impactsof flooding.

Department for Transport. (2018).Accident and casualty costs – RAS60.

Environment Agency. (2010).Flood and Coastal Erosion Risk Management Appraisal Guidance.

Environment Agency. (2018).Estimating the economic cost of the 2015 to 2016 winter floods.

Flood Hazard Research Centre. (2018).Flood and Coastal Erosion Risk Management – Handbook for Economic Appraisal.

HM Treasury. (2018).The Green Book – Central Government Guidance on Appraisal and Evaluation.

Land Registry. (2018).UK House Price Index. http://landregistry.data.gov.uk/app/ukhpi

Office of National Statistics. (n.d.). Consumer Price Index.https://www.ons.gov.uk/economy/inflationandpriceindices/datasets/consumerpriceinflation

Property Industry Alliance. (2017).Property Data Report – Facts and figures about the UK commercial property industry to year-end 2016.

Valuation Office Agency. (March 2016).Non-domestic rating: Business Floorspace England and Wales.

Welsh Government. (June 2018).Flood and Coastal Erosion Risk Management – Business Case Guidance – Trial Version.



Appendices



A Guidance notes

A.1 Accuracy and precision The RAD method utilises values to the best available accuracy that the source data permits. However, the precision given in these figures should not be interpreted as accuracy.

It is therefore recommended that the final reported flood damages and benefits calculated by the RAD method are stated as (whole) thousands, to two or three significant figures.

A.2 Residential damages

The “Damage Category” classifications are as per the 2015-16 Cost of Floods report. Residential damages presented in Section 2.1 include the following damage categories.

• Direct damage to residential properties. • Temporary accommodation: the costs of temporary accommodation for households affected by flooding. • Damage to vehicles: Described by the 2015-16 Cost of Floods report as the physical damage to vehicles. • Risk to life. • Intangible impacts: Described by the 2015-16 Costs of Floods report as “Public Health” and is based on an estimate of the additional psychological distress caused to households as a result of flooding. • Emergency response costs.

Table 4 summarises the derivation of residential flood damages. (see next page)



Table 4: Summary of the estimation of residential property flood damages per flood event per flooded property.

Damage category

Damage per event per flooded property (£, 2019 prices)

Percentage of total residential property damages

Source

Direct property damage

21,060 51% Estimated average economic damage to 74,500 residential properties flooded in 2007, 2013-14 and 2015-16. Table 5 of 2015-16 Cost of Floods (Environment Agency, 2018).

Vehicle damage 2,795 7% Estimated economic damage to vehicles in 2007, 2013-14 and 2015-16 using Table 6 of 2015-16 Cost of Floods (Environment Agency, 2018) divided by the estimated number of residential properties with direct damage reported in Table 5 of the same report.

Temporary housing

10,964 26% Estimated economic cost of temporary housing in 2007, 2013-14 and 2015-16 using Table 7 of 2015-16 Cost of Floods (Environment Agency, 2018) divided by the estimated number of residential properties with direct damage reported in Table 5 of the same report.

Risk to life 428 1% Reported number of deaths attributed to flooding in 2007, 2013-14 and 2015-16 using Table 8 in 2015-16 Cost of Floods (Environment Agency, 2018) monetised using traffic fatality rate (Department for Transport, 2018) divided by the estimated number of residential properties with direct damage reported in Table 5 in the Cost of Floods report.

Health impacts 5,993 15% The estimated annual average intangible impact of flooding on ill-health (DEFRA, 2004) converted to a “per event” value, assuming a typical property has a 5% Annual Exceedance Probability (not based on observed data).

Total residential property related damages

41,241* 100%

Source: Mott MacDonald, 2018. * Rounding means that the sum of the printed residential property damages by sub-category in the above table does not equal the total presented. This is not an error.



A.3 Non-residential damages

The physical damage to non-residential (including business) properties and contents is calculated as per Table 5.

Table 5: Summary of the estimation of non-residential related property flood damages per flood event per unit floor area.

Damage category Value (in 2019 prices) Source

Average direct property damage £ 91,848/event Estimated average economic damage to 15,100 non-residential properties flooded in 2007, 2013-14 and 2015-16. Table 5 of 2015-16 Cost of Floods (Environment Agency, 2018).

Average indirect economic damage £ 0/event No data

Total non-residential property related damages

£ 91,848/event

Average non-residential property floor area 296.8 m2 Mean floor area taken from the Non-Domestic Business Floor Space Summary (Valuation Office Agency, March 2016). Note that this average considers all non-residential properties, i.e. includes properties not on the ground floor. It also is not adjusted for multi-floor properties.

Total non-residential property damages per unit floor area

£ 309.41/m2

Source: Mott MacDonald, 2018.

Transferable losses such as business that is expected to transfer to other businesses elsewhere in the nation are not included in this assessment.

A.4 Emergency response cost

The RAD method includes a high-level approach for estimating the significant additional expenditure incurred by organisations responsible for responding to flood events. The additional costs include not only the additional time of the traditional emergency service personnel (e.g. police and fire & rescue) but also the additional costs incurred by RMAs to support affected individuals and operate and reinstate damaged defences. It therefore includes:

• Emergency service costs (e.g. additional staff time, fuel and equipment wear). • Local authorities (e.g. emergency shelters, cleaning public spaces, distribution of sandbags etc). • Additional RMA staff time, equipment running costs, disposal of debris and emergency repairs to flood defence assets. • Mobilisation of military. • Natural Resources Wales (e.g. additional staff time for flood warning in addition to discharge of flood risk management authority duties).

A similar approach to that advocated by the MCH has been used to estimate emergency response cost. For ease of application the approach is based on an uplift to the “total property related damages” by including temporary housing, vehicle, risk to life, and ill-health, in addition to direct damage for both residential and non-residential properties. Table 6 summarises the estimated property related economic



flood damages for a range of past flood events (Environment Agency, 2018). Table 7 summarises the estimated emergency response costs for a range of past flood events (Environment Agency, 2018). Table 8 summarises the estimation of the uplift factor for estimating the cost of emergency response.

Table 6: Summary of the estimated total property related economic damages for a range of past flood events.

Damage category

2007 flood event (£M, 2015 prices)

2013-14 flood event (£M, 2015 prices)


Source

Direct residential property damage

1,250 314 350 Table 5 of 2015-16 Cost of Floods (Environment Agency, 2018).

Direct non-residential property damage

750 265 513 Table 5 of 2015-16 Cost of Floods (Environment Agency, 2018).

Vehicles 98 37 36 Table 6 of 2015-16 Cost of Floods (Environment Agency, 2018).

Temporary housing


Risk to life 25 - 6

Health 100 29 43

Total property related damages*

2,340 695 985

Source: Mott MacDonald, 2018. *Rounding means that the sum of the printed residential property damages by sub-category in the above table does not equal the total presented. This is not an error.

Table 7: Summary of the estimated total emergency response costs for a range of past flood events.

Damage category

2007 flood event (£M, 2015 prices)



Source

Local authority costs (excluding roads)

85 29 37 Table 10 of 2015-16 Cost of Floods (Environment Agency, 2018) assuming 50% of costs relate to betterment.

Emergency Services


Flood management asset and service


Total property related damages*

119 179 111




Table 8: Derivation of emergency response cost uplift.

Category2007 flood event (£M, 2015 prices)



Combined for all three events (£M, 2015 prices)

Total “property related damages” 2,340 695 985 4,020

Total “emergency response” costs 119 179 111 408

“Emergency response” costs as a percentage of “property related damages”

5.1% 25.7% 11.2% 10.1%*

Source: Mott MacDonald, 2018. *It is recommended that for RAD, the uplift is rounded to the nearest whole integer, i.e. 10%.

To avoid unintended discrimination against deprived community groups, the emergency response costs should be calculated as an uplift on the uncapped “total property related damages” and should not be included in the capping of properties. A single rate is advocated for all “types” of flooding (unlike the MCH which recommends different rates for rural and urban floods). In the absence of research on the willingness of households to forego government support during flooding, emergency response costs should not be included within the capping of property damages.

A.5 Capping of flood damages

As with FCERM-BCG, all property damages should be capped to the “risk free market value”. There is no published guidance on how property damage categories should be capped. For ease of application, the RAD method recommends that the sum of all property related damages (direct, in-direct, evacuation, vehicles, risk to life and health) are capped to the “risk free market value”.

Where flood frequency is high, properties should be “written off” using the capping value. Once a property is written off, no further damages should be identified relating to that property, including emergency response.

Generalised residential capping values have been derived using the Welsh national average house price based on the UK House Price Index (Land Registry, 2018) and the Non-Domestic Business Floor Space Summary (Valuation Office Agency, March 2016) has been used to derive indicative capping values for a range of typical non-residential property types.

It is recommended that users adopt a single residential property capping average based on the Welsh national average. Adopting a single property capping value improves equitability between socio-economic groups. This figure can be updated using the UKHPI http://landregistry.data.gov.uk/app/ukhpi (Land Registry, 2018).

Table 9: Recommended residential capping value.Value Source

Welsh national average residential property value (April 2018) £153,874 UKHPI (Land Registry, 2018).

Recommended residential capping value -Assumed Welsh national average residential property value (2019)

£157,721 Assuming a 2.5% annual increase.

Source: Analysis by Mott MacDonald



This damage assessment method is primarily targeted at supporting simple flood damage assessments of residential properties although limited support is also provided for assessing non-residential damages. Where non-residential damages are significant it is recommended that the more detailed methods presented within the MCH are adopted.

To support the assessment of non-residential damages capping values for a range of generic non-residential property types are presented in Table 10. These have been derived using Non-domestic rating (NDR): Business Floorspace England and Wales (Valuation Office Agency, March 2016). The NDR, which is published for a reference date of 1 April 2008, has been inflated to 2019 using the Consumer Prices Index including owner occupiers’ housing costs (CPIH) (Office of National Statistics) with an assumed future growth rate of 2.5%. Based on Property Data Report (Property Industry Alliance, 2017) the income yield on rented commercial property is approximately 6% per annum supporting the multiplication of rateable valuations by 16.7.

Table 10: Summary of the NDR for Welsh properties.

VOA 2016 property sector Average of Total Area (sqm)

Average of Total Rateable Value (£ 2008 prices) (£/yr)

Count of Properties

Average property capping value £/sqm (2008 prices)

Average property capping value £/sqm (2019 prices)

Retail 214 25,497 29,070 1,989 1,989

Office 200 16,992 16,460 1,415 1,470

Industrial 674 18,299 27,120 453 471

Other 265 15,237 14,350 961 998

Total* 289 22,234 109,300 1,284 1,333

Source: (Valuation Office Agency, March 2016)*Includes “Excluded Sectors”

A.6 Appraisal scenarios

Appraisals must be structured in compliance with the guidance on appraisal scenarios presented in the FCERM-BCG, namely:

• Walkaway (i.e. do nothing, cease all activities) • Business as Usual (normally taken as sustaining the current FCERM arrangements, in some cases the legal minimum can be adopted) • Do Something – Intermediate 1 • Do Something – Intermediate 2 • Do Something – Maximum

As detailed in Section 2.4 of the guidance all Do Something options should be compared against both the “Walkaway” and the “Business as Usual”. Options should be ordered from the least to most ambitious.



A.7 Year of prices

All prices in this document relate to 2019 unless otherwise stated. The CPIH (Office of National Statistics) has been used to inflate historic prices to 2019 with the available series extended using an assumed 2.5% annual growth which could be used for inflating into the near future. It is accepted that sub-damage categories should ideally be inflated using more targeted inflation indices; however, for assessments that require this level of detail, the more detailed methods presented in the MCH are appropriate.

A.8 Appraisal duration and discounting

Appraisal periods should be selected based on the guidance within the latest version of FCERM-BCG. Unless there are particular project considerations a 100-year period should be selected. All benefits (and costs) should be discounted following current HM Treasury Guidance. Further details are available within FCERM-BCG. Table 11 provides the sum of Discount Rates for appraisal periods commonly adopted in FCERM schemes.

Table 11: Sum of Discount Rates for appraisal periods commonly adopted in FCERM schemes.

Appraisal duration Sum of Discount Rates

10 years (year 0 to 9 inclusive) 8.608





Source: Green Book Central Government Guidance on Appraisal and Evaluation (HM Treasury, 2018)

A.9 Other damages

Flood damage to receptors other than residential and non-residential properties is beyond the scope of this method. Flood damage types include: • Transport infrastructure • Utilities • Tourism and recreation • Public services • Cultural heritage • Agriculture • Ecosystem services • Nationally important importing and exporting industries

This does not preclude practitioners from including allowances for these categories. However, users should revert to the MCH and HM Treasury Green Book for guidance on how to do this.



A.10 Multiple sources of flooding

The RAD method assumes that properties are at risk of flooding either, • from a single source, e.g. fluvial or surface water, or; • that the probability from all sources has been combined to a single frequency of flooding before using the RAD method, e.g. a home that has a 10% AEP of flooding from fluvial sources and a 5% AEP of flooding from surface water has a combined 14.5% AEP of experiencing flooding in any one year assuming both sources of risk are fully independent (i.e. the probability of the property not flooding in a single year).

Should it not be practicable to have definitive information on all sources of flood risk, less experienced practitioners should seek advice from an appropriate specialist. An approach to consider is the apportionment of benefits between sources by only claiming a proportion of benefits. This can be achieved by reducing the capping value, e.g. if an area is at approximately equal risk of both fluvial and tidal flooding then 50% of the potential benefits could be allocated to the respective sources. The benefit of implementing only tidal defences could then be calculated using a 50% reduction in capping value. The project team should liaise with the Welsh Government’s Flood and Coastal Risk Branch prior to undertaking apportionment to agree the approach.

A.11 Asset deterioration and time varying flood risk

Where flood defence assets are expected to change with time, i.e. due to asset deterioration, the appraisal can be broken into a series of “epochs”. The present value damages occurring in each epoch can then be combined and capped.

Climate change is a specific example of time varying flood risk and is discussed in more detail in section A.14.

A.12 Flood warning

There is not adequate data to permit the inclusion of a reduction in flood damages as a result of the provision of flood warning within this method. However, it should be noted that the underlying data is based on real world economic damages, hence the damages indicated by this method will already incorporate a reduction due to the provision of flood warning at some of the locations that experienced flooding.

A.13 Property Level Protection and Resilience

There is not adequate data to permit the inclusion of guidance on the impact that Property Level Protection (PLP) and Property Level Resilience (PLR) measures have on flood damages. However, the underlying data is based on real world economic damages, hence the damages indicated by this method will already incorporate a reduction due to the provision of PLP and PLR at some of the locations that experienced flooding.

A.14 Climate change

Annex B of FCERM-BCG provides guidance on the treatment of climate change in appraisals. The guidance highlights that it is not always necessary to include climate change in benefit (damages)



analysis. For simple benefit appraisals the effect of climate change on flood damages can be ignored. Not accounting for climate change when assessing benefits is generally a conservative assumption (underestimates benefits).

The RAD method can be used to appraise flood damages over a series of epochs (see Example 3 in Appendix B).

A.15 What is a “flooded property”?

Properties are normally considered to be “flooded” once a significant volume of flood water crosses the threshold of the property’s lowest inhabited (residential) or used (non-residential) floor. As a word of caution, it is common for properties to be raised above the surrounding ground level therefore not all properties within a given flood extent should be considered as flooded. Conversely, windblown waves or bow waves from vehicles moving through flood water can locally raise flood water above “still water” levels.

A.16 Comparison of RAD and MCH

A comparison of the flood damage calculated using the RAD method and the MCH’s “Overview” and “Full-Scale” methods has been undertaken. The “Overview” method incorporates WAAD (Flood Hazard Research Centre, 2018) and is presented in Table 12. This shows that RAD generates significantly larger flood damages than the MCH Overview method. It should be noted that WAAD, which is used to calculate direct damages only, operates on a different data requirement in that it requires a simple count of the number of properties inside the flood extent. WAAD does not require prior knowledge of the number of flooded properties and instead WAAD has in-built assumptions on the proportion of properties with above floor flooding. Table 12: Comparison of residential economic flood damages for a single flood event, generated by RAD and MCH Overview (incorporates WAAD) method.

MCH Overview method (£) RAD (£) MCH Overview values as percentage of RAD values

Residential direct damage 10,624* 21,060 50%

Residential evacuation 4,395# 10,964 40%

Vehicles 868^ 2,795 31%

Intangible 2,380% 5,993 40%

Risk to life excluded 428 N/A

Total damage per property 18,267 41,241$ 44%


$ Rounding means that the sum of the printed residential property damages by sub-category in the above table does not equal the total presented. This is not an error.* Derived using WAAD reported AAD for 10% AEP event.# “Evacuation per household: temporary accommodation costs (£842) plus alternative accommodation costs (£3,533)”.^ Assumes the number of cars damaged is 28% of number of homes, cars valued at £3,100.% Assumes that the average £238 per year intangible impact and a 10% AEP frequency of flooding.

The equivalent depth of flooding required to generate the total property damage per event identified by RAD (£41,241) for a range of property and flood types using the “Full-scale” 2018 MCH Online depth damage curves is presented in Table 13. The reported values include residential direct, residential



evacuation, vehicles, intangibles, and risk to life. All values are uncapped and do not include emergency response uplift or Distributional Impact adjustment. The analysis shows that flood depths of between 0.24m and 0.98m are required to generate £41,241 damage depending on flood and property type.

Table 13: Summary of flood depths required to generate £41,241 of flood damage per event using “Full-scale” MCH Online depth damage curves for a range of property types.

MCH property class Depth of flooding required to produce £41,241 damage (m)

Typical Detached (mcmcode = 11), fluvial, no warning, short duration flooding 0.34

Typical Semi-Detached (mcmcode = 12), fluvial, no warning, short duration flooding 0.85

Typical Terrace (mcmcode = 13), fluvial, no warning, short duration flooding 0.98

Typical Bungalow (mcmcode = 14), fluvial, no warning, short duration flooding 0.39

Typical Flat (mcmcode = 15), fluvial, no warning, short duration flooding 0.86

Typical Residential (mcmcode = 1), fluvial, no warning, short duration flooding 0.73

Typical Residential (mcmcode = 1), fluvial, no warning, long duration flooding 0.25

Typical Residential (mcmcode = 1), fluvial, <8hr warning, short duration flooding 0.75

Typical Residential (mcmcode = 1), fluvial, <8hr warning, long duration flooding 0.27

Typical Residential (mcmcode = 1), fluvial, >8hr warning, short duration flooding 0.76

Typical Residential (mcmcode = 1), fluvial, >8hr warning, long duration flooding 0.27

Typical Residential (mcmcode = 1), salt, no warning, short duration flooding 0.73

Typical Residential (mcmcode = 1), salt, no warning, long duration flooding 0.24

Typical Residential (mcmcode = 1), salt, <8hr warning, short duration flooding 0.68

Typical Residential (mcmcode = 1), salt, <8hr warning, long duration flooding 0.24

Typical Residential (mcmcode = 1), salt, >8hr warning, short duration flooding 0.68

Typical Residential (mcmcode = 1), salt, >8hr warning, long duration flooding 0.24

Source: Mott MacDonald using MCH Online data (Flood Hazard Research Centre, 2018)

Notes: • Vehicle thresholds equal the property threshold. Each house has on average 1.15 vehicles averaging £3,100. 25% of these vehicles are removed ahead of the flood event. • Risk to life has been calculated using an inferred flood hazard estimated using velocity from manning’s equation (n=0.1, s = 0.01). A reference value of £1.8m has been used and national averages for household population, proportion of sick and elderly, flood warning and area types. • Average MCH floor areas for residential properties has been used. • The duration of temporary housing has been based on MCH guidance and the rental costs from MCH indicative national average values. • Mott MacDonald’s standard in-house flood damage assessment tool has been used to undertake this assessment. This tool has been subject to ongoing in-house development over three years and has been utilised on over 50 appraisal projects by teams across the UK. It has been reviewed by Dr John Chatterton and has been validated against output produced by other consultants.



B. Examples of RAD applications

B.1 Example 1

The culvert conveying a small watercourse has collapsed and five residential properties are considered to be at increased flood risk. The collapsed culvert means two of the properties are estimated to flood in the 20% AEP (Annual Exceedance Probability) fluvial event, and the other three properties are estimated to flood in the 10% AEP fluvial event. If the culvert was replaced, it is estimated that properties would only flood in events equal or greater to the 1% AEP.

RMA Cymru wishes to assess the benefit (flood damage avoided) of repairing the culvert. A 100-year appraisal period is used as this reflects the expected lifespan of the new culvert. The baseline Walkaway and Business as Usual cases are both represented by the existing case i.e. the collapsed culvert not being repaired.

This is a simple application of RAD and therefore the flood benefits can be calculated using either of the following approaches:

1. Using the damages for residential and non-residential properties in the “Look-Up” table presented in Table 3 in Section 2.4, and hand calculation (Section B.1.1).2. Using the RAD method spreadsheet tool.



B.1.1 Using the lookup table and hand calculation

Walkaway = Business as Usual = Appraisal Baseline

Baseline Present Value damages (uncapped and capped) are: PVd,uncapped,walkaway = (2 x homes @ 20% AEP) + (3 x homes @ 10% AEP) = (2 x A) + (3 x B) PVd,uncapped,walkaway = (2 x £245,898) + (3 x £122,949) = £491,796 + £368,847 = £860,643 PVd,capped,walkaway = (2 x C) + (3 x D) = (2 x £157,721) + (3 x £122,949) = £315,442 + £368,847 = £684,289 PVd,walkaway with emergency response = PVd,capped,walkaway + 10% PVd,uncapped,walkaway = £684,289 + (0.1 x £860,643) = £770,353 (nearest whole £)

Repair of culvert, Present Value damage (capped) is: PVd,opt = 5 x homes @ 1% AEP = 5 x E PVd,opt = 5 x £12,295 = £61,475 PVd,opt with emergency response = 1.1 x £61,475 = £67,623 (nearest whole £)

Repair of culvert, Present Value benefits (capped) is: PVb,opt = PVd,walkaway with emergency response - PVd,opt with emergency response PVb,opt = £770,357 - £67,622 = £702,735

The culvert repair would deliver approximately £703k of flood damage benefits over a 100-year period.



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B.2 Example 2

RMA Cymru is proposing a new flood defence scheme to manage risk of fluvial flooding in a currently undefended residential area comprising 20 houses. A catchment-wide flood mapping study in 2007 indicated that all of the houses are likely to be within the extent of the 2% AEP (Annual Exceedance Probability) flood event; however, no houses are likely to be within the extent of the 4% AEP flood extent. The RMA is considering two Do Something (DS) options for the flood defence scheme in addition to the baseline cases:

• Walkaway and Business As Usual – assume all 20 houses first flood in the 2% AEP. • Do Something A – Construct a new defence reducing the onset of flooding to the 1% AEP. • Do Something B – Construct a new defence reducing the onset of flooding to the 0.1% AEP.

The options are being considered for a 100-year appraisal period. The baseline Walkaway and Business as Usual cases are both represented by the existing case i.e. undefended watercourse with no regular RMA maintenance.

This is a simple application of RAD and therefore the flood benefits can be calculated using either of the following approaches:

1. Using the damages for residential and non-residential properties in the “Look-Up” table presented in Table 3 in Section 2.4, and hand calculation (Section B.2.1).2. Using the RAD method spreadsheet tool. B.1.3 Using the lookup table and hand calculation

Baseline Walkaway/Business as Usual, Present Value damage (uncapped and capped) PVd,uncapped,walkaway = PVd,capped,walkaway = 20 homes @ 2% AEP = 20 x A PVd,uncapped,walkaway = PVd,capped,walkaway = 20 x £24,590 = £491,800 PVd,walkaway with emergency response = PVd,capped,walkaway + 10% PVd,uncapped,walkaway = £491,800 + (0.1 x £491,800) = £540,980

Options, Present Value damage (capped) PVd,DS,A = 20 homes @ 1% AEP = 20 x B = 20 x £12,295 = £245,900 PVd,DS,A with emergency response = 1.1 x £245,900 = £270,490 PVd,DS,B = 20 x homes @ 0.1% AEP = 20 x C = 20 x £1,229 = £24,580 PVd,DS,B with emergency response = 1.1 x £24,590 = £27,049

Present Value benefits (capped) PVb,DS,A = £540,980 - £270,490 = £270,490 PVb,DS,A = £540,980 - £27,049 = £513,931

The approximate flood damage benefits are £270k for Option Do Something A and £514k for Option Do Something B.



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Annu

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Pr

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20 yr

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B.2 Example 3

An existing 100m long culvert conveys a small watercourse under a village square. A recent inspection by RMA Cymru identified significant structural defects with the culvert, and it was assessed that the culvert will be in danger of collapse if it is not repaired in the next few years. Detailed hydraulic modelling is not available at this location; however, older residents remember that six houses on the village square flooded in the mid-1960s shortly after the culvert was built. It is also understood that two of these six houses flooded in 2006 (and nearly flooded again in 2014) due to surface water running off from the village square.

Due to the absence of detailed hydraulic modelling it is assumed that, in its existing hydraulic condition, the culverted watercourse will cause the four houses to flood once every 50 years on average (2% AEP) with the flooding to the two surface water affected properties occurring once every 10 years on average (10% AEP).

Based on site inspections it is anticipated that, once the culvert has failed (blocked or collapsed), the onset of flooding for the four non-surface water flooded properties would be the 50% AEP event, and for the two other properties the onset of flooding would be 20% AEP event.

The RMA wishes to make a simple assessment of five flood risk management options that are being considered. These are:

• Walkaway i.e. stop all maintenance activities. It is assumed the culvert would become completely blocked or collapse within 2 years. • Business as Usual i.e. continue with current maintenance activities. Undertake no capital works, so it is assumed the culvert would collapse within 5 years. • Do Something A – Repair the culvert by slip-lining. This will secure its structural integrity for 50 years. However, it will also reduce the hydraulic capacity of the culvert. Due to the absence of detailed hydraulic modelling, it is assumed that the frequency of flooding for the four houses currently at risk in the 2% AEP would increase to 3.33% AEP. It is assumed the proposed slip- lining would have no impact on surface water flood risk. • Do Something B – Replace the culvert. This secures the structure and capacity of the culvert for 50 years. • Do Something C – “Daylight” (i.e. de-culvert) the watercourse. The new open channel would reduce the onset of flooding from the watercourse to the 0.1% AEP event, and would also intercept and store surface water runoff to prevent flooding of those properties up to the 0.1% AEP event.

A 50-year appraisal period has been selected based on the estimated lifespan of the Do Something options.

This example requires an advanced application of RAD and therefore the flood benefits should be calculated using the RAD method spreadsheet tool. See “Example 3” spreadsheet.



B.3 Example 4

Last year, high tides and storm damage of a tidal embankment led to flooding of a mixed-use area comprising 150 residential flats (in 3-storey blocks, including 50 ground floor flats) and 10,000 sqm of retail units.

The development is on reclaimed land with the entirety of the site relying on a pumped drainage system as ground levels are approximately equal to Mean High Water Springs. RMA Cymru’s flood investigation report estimated that the embankment is expected to fail in the next two years (from now) if no repairs are undertaken.

The report identified that the RMA’s usual post storm low-cost maintenance repair of the embankment would reasonably be expected to delay failure to 10 years from now. The embankment was repaired 15 years ago, and had a crest elevation of 4.0m above ordinance datum (AOD) after it was repaired. It was estimated that the onset of flooding was 1.33% AEP after it was repaired. A topographic survey has shown that the crest has settled to 3.9m AOD, and the onset of flooding is the 2% AEP event.

RMA Cymru wishes to make an initial assessment of five flood risk management options that are being considered as part of the preparation of a Strategic Outline Case. These are:

• Walkaway i.e. stop all maintenance activities. Switch off the pumped drainage system and assume the defence will be breached within 2 years. • Business as Usual i.e. continue with current maintenance activities. Undertake the RMA’s usual post storm low-cost maintenance repair of the embankment, at its current level, to delay failure to 10 years from now. • Do Something A – Fully repair the embankment, but do not increase the crest level. Equates to a 2% AEP onset of flooding now, reducing to 50% AEP by 2080. Assume this is representative of flood risk in the second half of the appraisal period. • Do Something B – Fully repair the embankment, and increase the crest level to the original elevation (4m AOD). Equates to a 1.33% AEP onset of flooding now, reducing to 10% AEP by 2080. Assume this is representative of flood risk in the second half of the appraisal period. • Do Something C – Fully repair the embankment, and increase its crest level to 4.7m AOD. Equates to better than a 0.1% AEP standard of protection now (taken as no risk of flooding), reducing to a 1% AEP by 2080. Assume this is representative of flood risk in the second half of the appraisal period.

The options are being considered for a 100-year appraisal period.

This example requires an advanced application of RAD and therefore the flood benefits should be calculated using the RAD method spreadsheet tool. See “Example 4” spreadsheet.


Annex B: Business Case Review Checklist

Annex B: Business Case Review ChecklistAB

Introduction

The Business Case Review Checklist is intended to assist the review of flood and coastal risk management (FCERM) business cases developed using the 5 Case Model approach. It may also assist Risk Management Authorities (RMAs) and FCERM practitioners in preparing Business Cases.

The checklist is designed to assist with the review of projects at the different stages of development, i.e. Strategic Outline Case (SOC), Outline Business Case (OBC) and Full Business Case (FBC). It references the Better Business Cases Project Guidance.https://gov.wales/docs/caecd/publications/180608-project-business-case.pdf

Chapter 1: Strategic Outline Case 112

Strategic Case 112 Economic Case 115 Commercial Case 117 Financial Case 117 Management Case 117

Chapter 2: Outline Business Case 118


Chapter 3: Full Business Case 127




2

Stra

tegi

c Out

line

Case

2.1

Over

view

The

purp

ose

of th

e St

rate

gic O

utlin

e Ca

se (S

OC) is

to co

nfirm

the

strat

egic

cont

ext o

f the

pro

posa

l and

to m

ake

a rob

ust c

ase

for c

hang

e, pr

ovidi

ng st

akeh

older

s an

d cu

stom

ers w

ith an

ear

ly ind

icatio

n of

the

Pref

erre

d W

ay Fo

rwar

d (no

t Pre

ferre

d Op

tion).

This

stage

align

s with

the

Cabin

et O

ffice

Gat

eway

Rev

iew p

oint 1

(BJC

) and

com

prise

s the

follo

wing

bus

iness

case

dev

elopm

ent f

ram

ewor

k act

ivitie

s:

• St

ep 2

: mak

ing th

e ca

se fo

r cha

nge.

•

Step

3: e

xplor

ing th

e pr

efer

red

way f

orwa

rd.

The

SOC

prov

ides s

enior

man

agem

ent a

nd st

akeh

older

s with

a go

od in

dicat

ion o

f the

robu

stnes

s of t

he p

ropo

sal a

nd fu

ture

dire

ction

of t

rave

l.

Stra

tegi

c Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

1.1Is

the

prop

osed

sche

me

an in

tegr

al pa

rt of

the

orga

nisat

ion’s

bus

iness

stra

tegy

?• E

xtra

cts f

rom

bus

iness

and

oth

er

rele

vant

stra

tegi

es• R

efer

ence

to re

leva

nt g

over

nmen

t and

or

ganis

atio

nal p

olici

es

Actio

n 1

• Rev

iew

of n

atio

nal a

nd lo

cal F

CERM

po

licie

s and

stra

tegi

es• U

nder

stan

ding

of w

ider

wel

l-bei

ngbe

nefit

s and

/or e

nviro

nmen

tal c

onte

xt

FCER

M-B

CG

3.2.

1 FCE

RM st

rate

gic fi

t and

cont

ext;

and

3.2.

2 Su

stain

abilit

y and

wel

l-bei

ng

stra

tegi

c fit a

nd co

ntex

t

1.2Is

the

prop

osed

sche

me

suffi

cient

ly lar

ge a

nd se

lf-co

ntain

ed to

form

a pr

ojec

t or w

ould

it m

ore

sens

ibly

be u

nder

take

n as

par

t of a

noth

er

prog

ram

me

or p

roje

ct?

• Rel

evan

t ext

ract

s fro

m b

usine

ss a

ndot

her s

trate

gies

• Ref

eren

ce to

scop

ing d

ocum

enta

tion

• Rel

evan

t ext

ract

s fro

m st

rate

gy b

oard

m

inute

s

Actio

n 2

• Ove

rvie

w of

FCE

RM p

rogr

amm

esto

und

erst

and

whet

her t

he p

roje

ct

could

be

deliv

ered

as p

art o

f a w

ider

pr

ogra

mm

e of

wor

k

FCER

M-B

CG3.

2.1 F

CERM

stra

tegi

c fit a

nd co

ntex

t; an

d3.

2.2

Sust

ainab

ility a

nd w

ell-b

eing

st

rate

gic fi

t and

cont

ext



Stra

tegi

c Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

1.3Is

the

scop

e fo

r pot

entia

l cha

nge

to

curre

nt se

rvice

s and

bus

iness

pro

cess

es

clear

ly de

fined

?

• Cle

ar st

atem

ent o

f bus

iness

out

com

es

and

serv

ice o

utpu

ts• S

tate

men

t of a

ny se

curit

y and

co

nfide

ntial

ity is

sues

Actio

n 3

• Des

crip

tion

of th

e pr

oble

m/s

and

exist

ing a

rrang

emen

ts• E

xplan

atio

n as

to w

hy th

e ex

isting

ar

rang

emen

ts ar

e ina

dequ

ate

• Exp

lanat

ion

as to

how

the

prob

lem

s m

ay w

orse

n in

the

futu

re

FCER

M-B

CG

3.2.

3 Th

e flo

od o

r ero

sion

prob

lem

/s an

d cu

rrent

man

agem

ent a

rrang

emen

ts

1.4Ar

e th

e inv

estm

ent o

bjec

tives

and

un

derp

inning

bus

iness

nee

ds d

efine

d cle

arly

and

supp

orte

d by

the

key

stak

ehol

ders

and

custo

mer

s?

• SM

ART i

nves

tmen

t obj

ectiv

es• E

viden

ce o

f sta

keho

lder

and

custo

mer

inv

olve

men

t and

supp

ort

Actio

n 3

• Ide

ntify

the

outco

mes

that

are

de

sirab

le fo

r the

pro

ject

, and

iden

tify

the

desir

ed In

vest

men

t Obj

ectiv

es• I

nves

tmen

t Obj

ectiv

es a

re a

ligne

d wi

th

rele

vant

pro

gram

me

obje

ctive

s• T

he In

vest

men

t Obj

ectiv

es in

clude

an

obje

ctive

to w

ork w

ith n

atur

al pr

oces

ses /

del

iver N

atur

al Flo

od

Man

agem

ent (

NFM

) sol

utio

ns• E

viden

ce th

at th

e In

vest

men

t Ob

ject

ives h

ave

been

est

ablis

hed

in co

nsul

tatio

n wi

th st

akeh

olde

rs

FCER

M-B

CG3.

2.4 I

nves

tmen

t Obj

ectiv

es



Stra

tegi

c Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

1.5Ha

ve th

e m

ain b

enefi

ts be

en cl

early

de

fined

by k

ey st

akeh

olde

rs a

nd

custo

mer

s, alo

ngsid

e ar

rang

emen

ts fo

r th

eir r

ealis

atio

n?

• Out

line

of b

enefi

ts re

alisa

tion

plan

• D

irect

and

indi

rect

ben

efits

to th

e or

ganis

atio

n an

d wi

der p

ublic

sect

or• C

ash

(£) a

nd n

on-c

ash-

rele

asing

• Ran

king

of b

enefi

ts by

key s

take

hold

er

Actio

n 5

• Des

crip

tion

of th

e pr

oble

m/s

and

exist

ing a

rrang

emen

ts• E

xplan

atio

n as

to w

hy th

e ex

isting

ar

rang

emen

ts ar

e ina

dequ

ate

• Exp

lanat

ion

as to

how

the

prob

lem

s m

ay w

orse

n in

the

futu

re

FCER

M-B

CG

3.2.

5 Su

mm

ary o

f pot

entia

l op

portu

nitie

s and

ben

efits

of in

vest

men

t

1.6Ha

ve th

e m

ain ri

sks b

een

iden

tified

, alo

ngsid

e ar

rang

emen

ts fo

r the

ir m

anag

emen

t and

cont

rol?

• Out

line

of ri

sk m

anag

emen

t stra

tegy

• Bus

iness

risk

s• S

ervic

e ris

ks• L

ikely

prob

abilit

ies a

nd im

pact

(hig

h,

med

ium o

r low

)

Actio

n 5

• Ide

ntify

the

outco

mes

that

are

de

sirab

le fo

r the

pro

ject

, and

iden

tify

the

desir

ed In

vest

men

t Obj

ectiv

es• I

nves

tmen

t Obj

ectiv

es a

re a

ligne

d wi

th

rele

vant

pro

gram

me

obje

ctive

s• T

he In

vest

men

t Obj

ectiv

es in

clude

an

obje

ctive

to w

ork w

ith n

atur

al pr

oces

ses /

del

iver N

atur

al Flo

od

Man

agem

ent (

NFM

) sol

utio

ns• E

viden

ce th

at th

e In

vest

men

t Ob

ject

ives h

ave

been

est

ablis

hed

in co

nsul

tatio

n wi

th st

akeh

olde

rs

FCER

M-B

CG3.

2.6

Sum

mar

y of p

oten

tial r

isks,

cons

traint

s and

dep

ende

ncie

s of

inves

tmen

t; an

d3.

2.7 S

take

hold

er E

ngag

emen

t –

(Stra

tegi

c Cas

e)

1.7Ha

ve th

e ke

y org

anisa

tiona

l con

stra

ints

and

busin

ess d

epen

denc

ies b

een

iden

tified

?

• Evid

ence

of c

ritica

l pat

h• R

elat

ed p

rogr

amm

es a

nd p

roje

cts

• Ass

essm

ent o

f inte

rnal

and

exte

rnal

cons

traint

s

Actio

n 5

• An

initia

l ass

essm

ent o

f pot

entia

l co

nstra

ints a

nd d

epen

denc

ies

asso

ciate

d wi

th th

e pr

opos

ed

inves

tmen

t• E

viden

ce e

ngag

emen

t with

key

stak

ehol

ders

has

bee

n un

derta

ken

to

infor

m th

e as

sess

men

t of c

onst

raint

s

FCER

M-B

CG3.

2.6

Sum

mar

y of p

oten

tial r

isks,

cons

traint

s and

dep

ende

ncie

s of

inves

tmen

t; an

d 3.

2.7 S

take

hold

er E

ngag

emen

t –

(Stra

tegi

c Cas

e)



Econ

omic

Case

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

2.1

Have

the

Criti

cal S

ucce

ss Fa

ctor

s (CS

Fs)

for o

ptio

ns a

ppra

isal b

een

iden

tified

?• R

elev

ant p

erfo

rman

ce m

easu

res

Actio

n 6

• Ide

ntifie

s the

out

com

es th

at a

re cr

itica

l to

the

succ

essfu

l del

ivery

of t

he

proj

ect

FCER

M-B

CG

3.2.

5 Su

mm

ary o

f pot

entia

l op

portu

nitie

s and

ben

efits

of in

vest

men

t

2.2

Has a

suffi

cient

ly wi

de ra

nge

of o

ptio

ns

been

iden

tified

and

ass

esse

d wi

thin

the

long

list?

• Use

of t

he o

ptio

ns fr

amew

ork fi

lter f

or:

- pot

entia

l sco

pes

- pot

entia

l sol

utio

ns- m

etho

ds o

f ser

vice

deliv

ery

- im

plem

enta

tion

- fun

ding

sour

ces

Actio

n 7

• App

licat

ion

of th

e Op

tions

Fram

ewor

k Fil

ter

• Ide

ntify

a ra

nge

of p

oten

tial m

easu

res.

• Ide

ntify

pot

entia

l mea

sure

s tha

t wor

k wi

th n

atur

al pr

oces

ses fi

rst

FCER

M-B

CG3.

2.6

Sum

mar

y of p

oten

tial r

isks,

cons

traint

s and

dep

ende

ncie

s of

inves

tmen

t; an

d3.

2.7 S

take

hold

er E

ngag

emen

t –

(Stra

tegi

c Cas

e).

2.3

Has a

pre

ferre

d wa

y for

ward

bee

n id

entifi

ed fo

llowi

ng ro

bust

analy

sis o

f th

e av

ailab

le op

tions

?

• SW

OT a

nalys

is of

opt

ions

aga

inst:

- inv

estm

ent o

bjec

tives

- crit

ical s

ucce

ss fa

ctor

s- b

enefi

ts cr

iteria

- evid

ence

of li

kely

supp

ort f

rom

key

- sta

keho

lder

s

Actio

n 8

• Scr

eenin

g of

the

perfo

rman

ce o

f ea

ch m

easu

re (s

cree

ning

met

hod

to

be a

ppro

priat

e to

scale

and

type

of

proj

ect)

• Scr

eenin

g of

mea

sure

aga

inst

achie

vem

ent o

f CSF

s and

Inve

stm

ent

Obje

ctive

s• E

viden

ce o

f eng

agem

ent w

ith ke

y st

akeh

olde

rs• R

ecor

d of

scre

ening

dec

ision

s

FCER

M-B

CG3.

3.3

Iden

tify L

ong

List /

Scr

eenin

g th

e Pe

rform

ance

of e

ach

Mea

sure

;3.

3.8

Stak

ehol

der e

ngag

emen

t (E

cono

mic

Case

); and

STN0

1-Opt

ion

Asse

ssm

ent



Econ

omic

Case

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

2.4

Has a

shor

t list

with

indi

cativ

e ne

t pr

esen

t valu

es b

een

prep

ared

for

furth

er e

xam

inatio

n an

d ap

prais

al?

• Mini

mum

of t

hree

to fo

ur o

ptio

ns,

includ

ing:

- Sta

tus q

uo- P

refe

rred

way f

orwa

rd- B

usine

ss A

s Usu

al (if

diff

eren

t)- P

ublic

Sec

tor C

ompa

rato

r (if

requ

ired)

Actio

n 8

• Ide

ntifie

s and

defi

nes t

he W

alkaw

ayan

d Bu

sines

s As U

sual

optio

ns th

at

will p

rovid

e th

e ec

onom

ic ap

prais

al ba

selin

es• R

esul

ts of

mea

sure

scre

ening

use

d to

iden

tify D

o So

met

hing

optio

ns

• Evid

ence

that

mea

sure

s tha

t wor

k with

na

tura

l pro

cess

es h

ave

been

co

nsid

ered

alo

ngsid

e or

in

com

bina

tion

with

trad

ition

al “e

ngine

ered

” sol

utio

ns• I

f app

ropr

iate,

an

initia

l ben

efit a

nd

cost

s ass

essm

ent o

f the

Sho

rt Lis

t to

prov

ide

confi

denc

e th

at th

e op

tion

will

be e

cono

mica

lly vi

able

FCER

M-B

CG3.

3.4 I

dent

ify th

e Sh

ort L

ist; a

ndST

N01-O

ptio

n As

sess

men

t



Com

mer

cial C

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

3.1Ha

s a h

igh-

leve

l ass

essm

ent o

f the

po

tent

ial d

eal a

nd it

s like

ly ac

cept

abilit

y to

the

supp

ly sid

e be

en u

nder

take

n?

• De

scrip

tion

of p

oten

tial d

eal

• M

arke

t sou

nding

s•

Exist

ing se

rvice

pro

vider

s

Actio

n 8

• Evid

ence

that

sust

ainab

ility a

nd

well-

being

are

cons

ider

ed in

the

proc

urem

ent p

roce

ss

FCER

M-B

CG3.

4 Com

mer

cial, F

inanc

ial a

nd

Man

agem

ent C

ases

Fina

ncia

l Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

4.1Ha

s a h

igh-

leve

l ass

essm

ent o

f aff

orda

bilit

y and

sour

ce(s)

of r

equir

ed

fund

ing b

een

unde

rtake

n?

• In

dica

tive

cost

s (£)

• Lik

ely s

ourc

es o

r org

anisa

tiona

lfu

nding

Actio

n 8

• Ide

ntifie

s the

likel

y fun

ding

sour

ces f

or

both

the

busin

ess c

ase

prod

uctio

n an

dco

nstru

ctio

n st

ages

FCER

M-B

CG3.

4 Com

mer

cial, F

inanc

ial a

nd

Man

agem

ent C

ases

Man

agem

ent C

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

5.1

Has a

hig

h-le

vel a

sses

smen

t of t

he

achie

vabi

lity a

nd d

elive

rabi

lity o

f the

pr

ojec

t bee

n un

derta

ken?

• Ind

icativ

e tim

e-sc

ales

• Use

of s

pecia

l adv

isers

• Fea

sibilit

y stu

dy• P

eer r

evie

w

Actio

n 8

-non

e-FC

ERM

-BCG

3.4 C

omm

ercia

l, Fina

ncial

and

M

anag

emen

t Cas

es

5.2

Are

all th

e ne

cess

ary a

rrang

emen

ts in

plac

e fo

r the

succ

essfu

l com

plet

ion

of

the

next

pha

se?

• Out

line

Prog

ram

me

and

Proj

ect B

oard

and

repo

rting

arra

ngem

ents

• Pro

ject

man

ager

and

team

• Pro

ject

plan

and

agr

ee d

elive

rabl

es• B

udge

t allo

catio

n an

d re

sour

ces

Actio

n 8

• A ‘r

oute

map

’ for

the

likel

y FCE

RMpr

ojec

t ass

uran

ce ro

ute

for t

he

busin

ess c

ase

(SOC

-OBC

-FBC

)

FCER

M-B

CG3.

4 Com

mer

cial, F

inanc

ial a

nd

Man

agem

ent C

ases



3 Outline Business Case 3.1 Overview

The purpose of the Outline Business Case (OBC) is to revisit earlier SOC assumptions and to identify a Preferred Option that will deliver the best public value. It also sets out the likely financial deal, demonstrates its affordability, and details the supporting procurement strategy, together with management arrangements for the successful delivery of the scheme.

This stage aligns with the Cabinet Office Gateway Review point 2 (delivery strategy) and comprises the following business case development framework activities:

• Step 4: determining potential Value for Money • Step 5: preparing for the potential deal • Step 6: ascertaining affordability and funding requirement • Step 7: planning for successful delivery

The OBC documents the results of the analysis undertaken so far and forms the basis for senior management’s approval to proceed to the procurement phase of the project.



Stra

tegi

c Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

1.1Ar

e th

e SO

C inv

estm

ent o

bjec

tives

and

pl

annin

g as

sum

ptio

ns st

ill va

lid?

• Are

the

inves

tmen

t obj

ectiv

es se

t at a

nap

prop

riate

leve

l and

SM

ART:

- spe

cific

- mea

sura

ble

- ach

ieva

ble

- rel

evan

t- t

ime-

boun

d• S

till s

uppo

rted

by st

akeh

olde

rs a

nd

custo

mer

s

Actio

n 9

• Upd

ate

if the

app

rova

l of t

he S

OC,

and

agre

emen

t to

proc

eed

with

OBC

, wa

s con

ditio

nal o

n so

me

chan

ges a

nd

adjus

tmen

ts to

the

Stra

tegi

c Cas

e• I

dent

ify w

heth

er a

ny n

ew in

form

atio

n ha

s bee

n ob

taine

d du

ring

the

OBC

stag

e th

at is

dire

ctly

rele

vant

to th

e

St

rate

gic C

ase

• Cha

nges

mad

e to

the

SOC

vers

ion

of th

e St

rate

gic C

ase

at O

BC st

age

shou

ld b

e no

ted

with

in th

e Co

mm

ents

sect

ion,

at th

e fro

nt o

f the

Bus

iness

Case

Tem

plat

e

FCER

M-B

CG4.

2.1 R

evisi

t sec

tions

com

plet

ed in

th

e SO

C

1.2Do

the

serv

ices t

o be

pro

cure

d in

the

SOC

still

prov

ide

best

fit in

relat

ion

to

orga

nisat

iona

l nee

ds?

• Org

anisa

tiona

l con

text

• Exis

ting

and

futu

re ch

ange

s in

need

s• E

xpec

ted

chan

ges i

n vo

lumes

and

mix

of se

rvice

s• O

ther

exis

ting,

plan

ned

or p

ossib

lese

rvice

s• S

ecur

ity a

nd co

nfide

ntial

ity is

sues

Actio

n 9

1.3Ha

ve a

ny o

utst

andi

ng d

iffer

ence

s at

SOC

stag

e be

twee

n st

akeh

olde

rs a

nd

custo

mer

s bee

n sa

tisfa

ctor

ily re

solve

d?

• Con

tinue

d st

akeh

olde

r com

mitm

ent

and

invol

vem

ent

• Com

mun

icatio

n st

rate

gy

Actio

n 9

1.4Ha

s the

ass

essm

ent o

f like

ly be

nefit

s, ris

ks, c

onst

raint

s and

dep

ende

ncie

s in

the

SOC

been

revis

ited

and

exam

ined

in fu

rther

det

ail?

• Upd

ated

ben

efits

crite

ria –

ben

efits

study

• Upd

ated

risk

ass

essm

ent –

risk

stud

y• O

ngoi

ng a

sses

smen

t – b

usine

ssst

rate

gies

and

plan

s

Actio

n 9



Econ

omic

Case

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

2.1

Wer

e th

e lo

ng-li

sted

optio

ns in

the

SOC

revis

ited

and

subj

ecte

d to

furth

er sc

rutin

y?

• New

opt

ions

• CSF

s rev

isite

d• O

ptio

ns ra

nked

, wei

ghte

d, a

nd sc

ored

Actio

n 9

• Upd

ate

if the

app

rova

l of t

he S

OC, a

nd a

gree

men

t to

proc

eed

with

OB

C, w

as co

nditi

onal

on so

me

chan

ges a

nd a

djus

tmen

ts to

the

Long

Lis

t or S

hort

List i

dent

ified

in th

e SO

C Ec

onom

ic Ca

se• I

dent

ify w

heth

er a

ny n

ew in

form

atio

nha

s bee

n ob

taine

d th

at is

dire

ctly

rele

vant

to th

e Ec

onom

ic Ca

se• C

hang

es m

ade

to th

e SO

C ve

rsio

nof

the

Econ

omic

Case

at O

BC st

age

shou

ld b

e no

ted

with

in th

e Co

mm

ents

sect

ion

at th

e fro

nt o

f the

Bus

iness

Cas

e Te

mpl

ate

FCER

M-B

CG4.

2.1 R

evisi

t sec

tions

co

mpl

eted

in th

e SO

C

2.2

Wer

e th

e sh

ort-l

isted

op

tions

in th

e SO

C re

visite

d an

d su

bjec

ted

to ro

bust

analy

sis?

• Eco

nom

ic ap

prais

als fo

r sho

rt-lis

ted

optio

ns, in

cludi

ng:

- Walk

away

or B

usine

ss A

s Usu

al- P

SC

- PPP

solu

tion(

s)• U

se o

f app

ropr

iate

tool

s:• C

ost B

enefi

t Ana

lysis

(CBA

)• S

ensit

ivity

ana

lysis

• Risk

(£) q

uant

ificat

ion

Actio

n 10

Actio

n 11

Actio

n 12

• Ass

essm

ent o

f the

tech

nical,

sust

ainab

ility,

well-

being

and

eco

nom

ic pe

rform

ance

of e

ach

optio

n• D

iscus

s the

FCE

RM a

nd w

ider

ben

efits

, opp

ortu

nitie

s, ris

k, co

nstra

ints,

and

depe

nden

cies

• Con

cept

sket

ches

or d

esig

ns o

f Sho

rt Lis

t opt

ions

• Con

sider

atio

n of

whe

ther

an

optio

n co

uld in

crea

se flo

od ri

sk

else

wher

e (an

d th

e co

st of

miti

gatio

ns re

quire

d)

• Con

sider

atio

n of

how

the

optio

ns m

ay co

ntrib

ute

to a

chie

ving

the

seve

n we

ll-be

ing g

oals?

• Con

sider

atio

n of

how

the

optio

ns m

ay b

e ab

le to

ada

pt a

nd b

e re

silie

nt to

futu

re ch

ange

• Who

le Lif

e Co

st As

sess

men

t for

eac

h op

tion

• Are

ther

e an

y opp

ortu

nitie

s for

wid

er fu

nding

cont

ribut

ions

?

FCER

M-B

CG4.

3.2

Asse

ssm

ent o

f Sh

ort L

ist o

ptio

ns



Econ

omic

Case

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

2.4

Does

the

pref

erre

d op

tion

prov

ide

best

publ

ic va

lue?

• Rig

orou

s use

of in

vest

men

t app

raisa

l to

ols a

nd te

chniq

ues

• All a

ssum

ptio

ns re

cord

ed• A

chie

vabl

e be

nefit

s stre

ams

• Sta

keho

lder

s and

custo

mer

s sup

port

Actio

n 13

• The

Pre

ferre

d Op

tion

shou

ld b

e id

entifi

ed b

ased

on

how

well i

t mee

ts th

e In

vest

men

t Obj

ectiv

es a

nd C

ritica

l Suc

cess

Fact

ors

• Out

line

desig

ns o

f the

Pre

ferre

d Op

tion

shou

ld b

e pr

epar

ed• S

ensit

ivity

test

s sho

uld b

e co

mpl

eted

• Rec

omm

enda

tions

for r

isk m

itiga

tions

• Det

erm

ine ri

sk b

udge

t (Op

timism

Bias

reco

mm

ende

d)• S

tate

men

t on

expe

ctat

ion

for F

BC st

age

• Und

erta

ke a

nd p

rovid

e ev

iden

ce o

f eng

agem

ent w

ith Lo

cal P

lannin

g Au

thor

ities

and

regu

lator

s• U

nder

take

and

pro

vide

evid

ence

of p

ublic

cons

ulta

tion

FCER

M-B

CG4.

3.4 F

urth

er

Deve

lopm

ent a

nd te

sting

of

Pre

ferre

d Op

tion



Com

mer

cial C

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

3.1Ha

s the

pro

cure

men

t st

rate

gy fo

r the

su

cces

sful d

elive

ry o

f th

e re

quire

d se

rvice

s be

en co

nsid

ered

and

pr

epar

ed in

suffi

cient

de

tail?

• Con

sider

atio

n of

pro

cure

men

t opt

ions

inc

luding

:• u

se o

f EC

dire

ctive

s• u

se o

f pre

ferre

d bi

dder

• dra

ft OJ

EU n

otice

• eva

luatio

n cr

iteria

• neg

otiat

ion

stra

tegy

• pro

cure

men

t plan

and

tim

etab

le

Actio

n 14

• Pro

vide

Evid

ence

of c

ompl

iance

with

org

anisa

tiona

l com

mer

cial

stra

tegy

FCER

M-B

CG4.4

Com

mer

cial C

ase

/ Pr

ocur

emen

t Stra

tegy

3.2

Is th

ere

suffi

cient

sc

ope

for a

pot

entia

l de

al, w

hich

mee

ts or

ganis

atio

nal n

eeds

wh

ile o

fferin

g be

st VF

M?

• Pot

entia

l for i

nnov

atio

n wi

thin

the

prov

ision

of s

ervic

es a

nd so

lutio

ns• P

oten

tial fo

r risk

tran

sfer i

n De

sign,

Bu

ild, F

inanc

e, O

pera

te st

ages

• Pot

entia

l for n

ew b

usine

ss a

nd

alter

nativ

e re

venu

e st

ream

s• L

ikely

cont

ract

leng

th

Actio

n 16

• For

all p

roje

cts o

ver £

1m a

Com

mun

ity B

enefi

ts As

sess

men

t usin

g th

e Co

mm

uniti

es B

enefi

ts M

easu

rem

ent T

ool is

requ

ired

(appe

nd to

Bu

sines

s Cas

e)

FCER

M-B

CG4.4

Com

mer

cial C

ase

/ Ke

y con

tract

ual te

rms &

ris

k allo

catio

n



Com

mer

cial C

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

3.3

Has t

he p

oten

tial d

eal

been

cons

ider

ed in

su

fficie

nt d

etail

? The

‘h

ow’ r

athe

r tha

n th

e ‘w

hat’

• Pre

para

tion

of O

utpu

t Bas

ed

Spec

ificat

ion

(OBS

)• C

ore,

des

irabl

e an

d op

tiona

l ser

vices

• Del

ivery

tim

e-sc

ales (

phas

ed

impr

ovem

ents

etc.)

• Pot

entia

l pay

men

t mec

hanis

ms

• Own

ersh

ip o

f res

idua

l ass

ets

• Ser

vice

leve

ls an

d pe

rform

ance

m

easu

res

Actio

n 15

• This

may

inclu

de a

Proc

urem

ent S

trate

gy m

eetin

g or

Risk

Wor

ksho

pFC

ERM

-BCG

4.4 C

omm

ercia

l Cas

e /

Key c

ontra

ctua

l term

s &

risk a

lloca

tion

4.4 /

Stak

ehol

der

enga

gem

ent

(Com

mer

cial C

ase)

3.4

Is th

ere

a cle

ar

unde

rsta

nding

of

the

busin

ess c

hang

e ag

enda

?

• Cha

nge

man

agem

ent p

lans

• Pro

pose

d m

echa

nism

s and

mile

stone

s• A

sses

smen

t of p

erso

nnel

impl

icatio

ns

3.5

Is th

e po

tent

ial d

eal s

till

likel

y to

be a

ccep

tabl

e an

d ba

nkab

le wi

thin

the

priva

te se

ctor

?

• Mar

ket r

esea

rch

and

surv

eys

• Use

of s

tand

ard

cont

ract

ual te

rms a

nd

cond

ition

s• B

ench

mar

ks –

sim

ilar p

roje

cts

Actio

n 17

Actio

n 18



Fina

ncia

l Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

4.1Is

the

solu

tion

still

likel

y to

be

affor

dabl

e?• F

inanc

ial a

ppra

isals

for p

refe

rred

optio

n, in

cludi

ng fu

ll ass

essm

ent o

f:• c

apita

l and

curre

nt re

quire

men

ts• n

et e

ffect

ive o

n pr

ices

• bala

nce

shee

t im

pact

• inc

ome

and

expe

nditu

re a

ccou

nt• s

take

hold

er a

nd cu

stom

ers’

agre

emen

t

Actio

n 19

• Pre

sent

info

rmat

ion

on h

ow th

e Pr

efer

red

Optio

n is

to b

e fu

nded

• Com

plet

ion

of F

inanc

ial B

reak

down

Tabl

e an

d Fin

ancia

l Sum

mar

y Ta

ble

• Det

erm

ine ri

sk b

udge

t (Op

timism

Bias

reco

mm

ende

d)• L

ette

rs o

f agr

eem

ent f

rom

third

par

ty fu

nder

s sho

uld b

e inc

luded

in

the

appe

ndice

s• I

s the

re a

satis

fact

ory c

ash

flow

“for t

he p

roje

ct?

• Sum

mar

y of s

take

hold

er e

ngag

emen

t, wh

ich m

ay in

clude

mee

tings

wi

th th

e Fu

nding

Bod

y/s

FCER

M-B

CG4.

5 Fin

ancia

l Cas

e /

Finan

cial s

cale

and

brea

kdow

n4.

5 / F

undi

ng so

urce

s, Ch

apte

r4.

5 / F

undi

ng ti

mes

cale

s, Ch

apte

r4.

5 / S

take

hold

er

enga

gem

ent (

Finan

cial

Case

)



Man

agem

ent C

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

5.1

Are

all th

e ne

cess

ary

arra

ngem

ents

in pl

ace

for t

he su

cces

sful

com

plet

ion

of th

e ne

xt

phas

e?

• Pro

gram

me

Met

hodo

logy

(MSP

)• P

roje

ct m

etho

dolo

gy (P

RINC

E2)

• pro

ject

boa

rd a

nd st

ruct

ure

• pro

ject

man

ager

and

team

• pro

ject

plan

• pro

ject

reso

urce

s and

bud

get

• rep

ortin

g m

echa

nism

s• U

se o

f ext

erna

l adv

isers

• leg

al• fi

nanc

ial• o

ther

• Out

line

arra

ngem

ents

for:

• ben

efits

study

and

reali

satio

n pl

an• r

isk m

anag

emen

t stra

tegy

and

pl

an• c

hang

e m

anag

emen

t stra

tegy

and

pl

an• c

ontra

ct m

anag

emen

t• A

rrang

emen

ts fo

r eva

luatio

n:• p

eer r

evie

ws• O

GC g

atew

ay re

views

(if re

quire

d)• p

roje

ct im

plem

enta

tion

revie

ws• p

ost-e

valua

tion

revie

ws• C

ontin

genc

y plan

s

Actio

n 20

Actio

n 21

Actio

n 22

Actio

n 23

Actio

n 24

• A su

mm

ary o

f the

inte

nded

pro

ject

ass

uran

ce ro

ute

• A p

roje

ct p

rogr

amm

e• A

Risk

Reg

ister

• A su

mm

ary o

f how

the

RMA

will e

nsur

e, m

onito

r and

feed

back

less

ons

lear

nt o

n the

pro

ject

and

how

the

expe

cted

ben

efits

wll b

e m

onito

red.

• Foc

us o

n de

liver

y and

ope

ratio

nal s

tage

s not

just

the

busin

ess c

ase

or d

esig

n st

ages

FCER

M-B

CG4.6

Man

agem

ent C

ase

/ Pro

ject

ass

uran

ce,

gove

rnan

ce, a

nd co

ntro

l;4.6

/ Pr

ojec

t Plan

and

Pr

ogra

mm

e4.6

/ Ri

sk M

anag

emen

t 4.6

/ Be

nefit

s rea

lisat

ion,

le

sson

lear

nt a

nd p

ost

proj

ect e

valua

tion

4.6 /

Stak

ehol

der

enga

gem

ent

(Man

agem

ent C

ase)



4 Full Business Case 4.1 Overview

The purpose of the Full Business Case (FBC) is to revisit and, where required, rework the OBC analysis and assumptions building in and recording the findings of the formal procurement.

The FBC recommends the “most economically advantageous offer”, documents the contractual arrangements, confirms funding and affordability, and sets out the detailed management arrangements and plans for successful delivery and post-project evaluation.

This stage aligns with the Cabinet Office Gateway Review point 3 (investment decision) and comprises the following business case development framework activities: • Step 8: procuring the Value for Money solution • Step 9: contracting for the deal • Step 10: planning for successful delivery

The development of the business case across all five dimensions of the Five Case Model is completed at FBC.



Stra

tegi

c Cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

1.1Do

es th

e re

com

men

ded

deal

still

prov

ide

syne

rgy a

nd b

est fi

t wi

th o

ther

par

ts of

the

orga

nisat

ion’s

bus

iness

st

rate

gy?

• Not

ificat

ion

of a

ny ch

ange

s dur

ing

nego

tiatio

ns• O

ngoi

ng e

valua

tion

of b

usine

ss

stra

tegi

es a

nd p

lans

Actio

n 25

• Was

app

rova

l of t

he O

BC, a

nd a

gree

men

t to

proc

eed

with

FB

C, co

nditi

onal

on so

me

chan

ges a

nd a

djus

tmen

ts to

the

Stra

tegi

c Cas

e?• H

as n

ew in

form

atio

n be

en o

btain

ed d

uring

the

FBC

stag

e th

at is

dire

ctly

rele

vant

to th

e St

rate

gic C

ase?

Any c

hang

es m

ade

to th

e OB

C ve

rsio

n of

the

Stra

tegi

c Cas

e at

FB

C st

age

shou

ld b

e no

ted

with

in th

e Co

mm

ents

sect

ion,

at

the

front

of t

he B

usine

ss C

ase

Tem

plat

e.

FCER

M-B

CG5.

2 St

rate

gic C

ase

1.2Do

es th

e re

com

men

ded

deal

still

satis

fy O

BC

inves

tmen

t obj

ectiv

es

and

busin

ess n

eeds

?

• SM

ART i

nves

tmen

t obj

ectiv

es

(revis

ited)

• Not

ificat

ion

of a

ny ch

ange

s dur

ing

nego

tiatio

ns• W

ritte

n co

nfirm

atio

n of

agr

eem

ent o

n pa

rt of

stak

ehol

ders

and

custo

mer

s

Actio

n 25

1.3Do

es th

e re

com

men

ded

deal

still

prov

ide

all o

f th

e re

quire

d se

rvice

s –

both

curre

nt a

nd fu

ture

?

• Cle

ar st

atem

ent o

f ser

vice

requ

irem

ents

and

outp

uts

• Cha

nge

cont

rol a

rrang

emen

ts• N

otific

atio

n of

any

chan

ges d

uring

neg

otiat

ions

• add

ition

al se

rvice

s• a

gree

men

t of s

take

hold

ers a

nd u

sers

• BJC

Actio

n 26



Econ

omic

Case

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

2.1

Was

a wi

de ra

nge

of

bids

rece

ived

from

se

rvice

pro

vider

s?

• Ass

essm

ent o

f ear

lier a

ssum

ptio

ns• U

se o

f eva

luatio

n cr

iteria

• lon

g lis

t of s

uppl

iers

• sho

rt lis

t of s

uppl

iers

• Des

crip

tion

of e

ach

bid

for w

hich

a Bes

t and

Fin

al Off

er (B

AFO)

is su

bmitt

ed• M

etho

d of

trea

tmen

t for

vary

ing b

ids

• Bas

is fo

r sel

ectio

n of

pre

ferre

d bi

dder

(if

appl

icabl

e)

Actio

n 27

• Upd

ates

to th

e as

sess

men

t of S

hort

List o

ptio

ns sh

ould

on

ly be

und

erta

ken

at F

BC st

age

if any

upd

ates

to F

inanc

ial,

Com

mer

cial a

nd M

anag

emen

t Cas

es le

ad to

a ch

ange

in

Pref

erre

d Op

tion

FCER

M-B

CG5.

3 Ec

onom

ic Ca

se

2.2

Was

the

mos

t ec

onom

ically

ad

vant

ageo

us o

ffer

sele

cted

?

• Pre

para

tion

and

asse

ssm

ent o

f eco

nom

ic\

a

ppra

isals

for:

• Walk

away

/Bus

iness

As U

sual

• rev

ised

publ

ic se

ctor

com

para

tor

• Bes

t and

Fina

l Offe

rs a

nd/o

r• p

refe

rred

bidd

er (if

sele

cted

)• U

se o

f app

ropr

iate

tool

s:• s

ensit

ivity

ana

lysis

• risk

(£) q

uant

ificat

ion

• eva

luatio

n of

qua

litat

ive b

enefi

ts• U

se o

f CBA

Actio

n 27

• Sup

plie

r sid

e off

ering

s, pr

ices a

nd co

sts o

btain

ed fr

om th

e co

mpl

etio

n of

the

proc

urem

ent s

tage

(see

Com

mer

cial C

ase)

sh

ould

be

used

to u

pdat

e th

e no

rmal

econ

omic

met

rics –

e.g

. NP

V an

d BC

R• U

pdat

e ris

k bud

get (

Mon

te C

arlo

reco

mm

ende

d)



Com

mer

cial c

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

3.1W

as th

e pr

ocur

emen

t un

derta

ken

in ac

cord

ance

with

ac

cept

ed b

est p

ract

ice?

• Ove

rvie

w of

pro

cure

men

t pro

cess

:• D

eviat

ions

from

pro

cure

men

t stra

tegy

• Use

of le

gal a

nd p

rocu

rem

ent a

dvice

(inte

rnal

and

exte

rnal

advis

ers)

Actio

n 28

• A P

rocu

rem

ent R

epor

t may

be

atta

ched

to th

e FB

C fo

r this

pu

rpos

e FC

ERM

-BCG

5.4 C

omm

ercia

l Cas

e

3.2

Can

the

sele

cted

serv

ice

prov

ider

del

iver t

he

requ

ired

deliv

erab

les

and

serv

ices?

• Out

line

of th

e ag

reed

dea

l:• s

ervic

es –

curre

nt a

nd fu

ture

• del

ivery

tim

esca

les

• des

ign

• buil

d• o

pera

te• p

aym

ent m

echa

nism

s• p

erfo

rman

ce a

nd av

ailab

ility

• vol

ume

and

usag

e• i

ncen

tives

• fut

ure

chan

ge• n

ew b

usine

ss a

nd a

ltern

ative

reve

nue

stre

ams

• own

ersh

ip o

f res

idua

l ass

ets

• ser

vice

leve

ls an

d pe

rform

ance

mea

sure

s• B

usine

ss, t

echn

ical, a

nd cu

ltura

l fit –

trac

k rec

ord

Actio

n 28

3.3

Have

neg

otiat

ions

re

sulte

d in

a rob

ust

and

lega

lly e

nfor

ceab

le co

ntra

ct?

• Use

of s

pecia

list a

dvise

r(s)

• Use

of s

tand

ard

term

s and

cond

ition

s• K

ey co

ntra

ctua

l term

s agr

eed

Actio

n 28

3.4

How

will b

usine

ss

and

serv

ice ch

ange

be

del

ivere

d an

d im

plem

ente

d su

cces

sfully

ove

r the

life

span

of t

he co

ntra

ct

perio

d?

• Ass

essm

ent o

f kno

wn a

nd e

xpec

ted

chan

ge• F

orm

ula fo

r han

dling

une

xpec

ted

chan

ge• b

ench

mar

king

• mar

ket t

estin

g ar

rang

emen

ts

Actio

n 28



Fina

ncia

l cas

e

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

4.1Is

the

prop

osed

inv

estm

ent s

till

affor

dabl

e?

• Fina

ncial

app

raisa

ls fo

r rec

omm

ende

d de

al,

includ

ing fu

ll ass

essm

ent o

f:• c

apita

l and

curre

nt re

quire

men

ts• n

et e

ffect

on

price

s• i

mpa

ct o

n ba

lance

shee

t • i

ncom

e an

d ex

pend

iture

acc

ount

• Sta

keho

lder

and

custo

mer

s agr

eem

ent

• Con

firm

atio

n of

finan

ce d

irect

orat

e

Actio

n 29

• Upd

ate

the

thre

e fin

ancia

l rep

ortin

g ta

bles

with

pre

cise

cost

infor

mat

ion

• Upd

ate

risk b

udge

t (M

onte

Car

lo re

com

men

ded)

FCER

M-B

CG5.

5 Fin

ancia

l Cas

e



Man

agem

ent c

ase

Ref

Revi

ew cr

iteria

Mai

n ev

iden

ce re

quire

dBB

C Ac

tions

FCER

M e

vide

nce

requ

ired

Evid

ence

loca

tion

5.1

Have

the

busin

ess a

nd

cultu

ral im

plica

tions

of

the

inten

ded

serv

ice

been

fully

und

ersto

od

and

take

n int

o ac

coun

t?

• Agr

eed

prog

ram

mes

for:

• cha

nge

man

agem

ent

• bus

iness

pro

cess

re-e

ngine

ering

• Sta

ff-sid

e re

pres

enta

tion

• Per

sonn

el im

plica

tions

Actio

n 31

• Det

ailed

Ben

efits

Reali

satio

n pl

an• C

oste

d Ri

sk R

egist

er (a

s per

FBC

Fina

ncial

Cas

e)• P

ost-O

BC E

valua

tion

and

Less

ons L

earn

ed

FCER

M-B

CG5.

6 M

anag

emen

t Cas

e

5.2

Are

all th

e ar

rang

emen

ts in

plac

e fo

r the

succ

essfu

l im

plem

enta

tion

and

deliv

ery o

f the

requ

ired

serv

ices?

• Con

tract

man

agem

ent s

trate

gy, in

cludi

ng d

isput

es

reso

lutio

n pr

oced

ures

• Skil

led

cont

ract

man

agem

ent t

eam

• Agr

eed

sche

dule

s for

serv

ice st

ream

s and

out

puts

Actio

n 30

5.3

How

will t

he b

enefi

ts be

del

ivere

d an

d as

socia

ted

busin

ess a

nd

serv

ice ri

sks m

anag

ed

thro

ugho

ut th

e life

span

of

the

serv

ice?

• Det

ailed

ben

efits

reali

satio

n pl

an• R

obus

t risk

man

agem

ent s

trate

gy• M

onito

ring

and

repo

rting

arra

ngem

ents

- reg

ister

s an

d re

gular

aud

its

Actio

n 32

Actio

n 33

Actio

n 34

5.4

Are

all th

e ne

cess

ary

arra

ngem

ents

in pl

ace

for p

ost-p

roje

ct

evalu

atio

n?

• Agr

eed

arra

ngem

ents

for e

valua

tion:

• pee

r rev

iews

• OG

C ga

tewa

y rev

iews

(if re

quire

d)

• p

roje

ct im

plem

enta

tion

revie

ws

• p

ost-p

roje

ct e

valua

tion

revie

ws

Actio

n 35

5.5

Are

cont

ingen

cy p

lans

in pl

ace

shou

ld th

e re

com

men

ded

deal

fail

at a

ny st

age?

• Con

tinge

ncy p

lans

• Arra

ngem

ents

for r

egula

r rev

iew

Actio

n 35


Annex C: Templates

135

Annex C: TemplatesACPart 1: Business Case Template

Part 2: Business Justification Template

Business Case and Business Justification Templates

These templates are provided to assist RMAs compile Business Cases and Business Justifications, and to encourage consistency in the layout and style of documents sent to funding organisations for approval. The templates will provide a suitable format for most FCERM projects to follow, and it is recommended that the structure provided by the headings should be followed. However, this is not a rigid requirement and headings can be amended if appropriate to present projects efficiently and effectively.

Headings and sub-headings within the business case template contain colour coded references: (Strategic Outline Case (SOC), Outline Business Case (OBC) and Full Business Case (FBC)). These indicate what information should be included at each stage of the business case development.

The length of a Business Case or Business Justification will vary dependent on how complex the project is and the scale of the investment sought, but a concise document is more efficient to prepare and easier to review. It should usually be possible to prepare a Business Case in less than 30 pages excluding appendices and a Business Justification in less than 20 pages with minimal additional appendices.

The Business Case and Business Justification should include tables wherever they are appropriate and help to present information concisely or effectively. This volume provides suggested templates for key tables.

Supporting information should be appended to the Business Case or Business Justification. The appendices should be used to provide background to the statements presented in the main document. The reader should not have to refer to the appendices to be satisfied that the Business Case or Business Justification is thorough and reliable.

Additional approval, sign off or project assurance sheets may be inserted at the front of the Business Case or Business Justification as required.

Any text in grey is included as a guide and should be deleted prior to the Business Case or Business Justification being submitted.


Annex C: Templates

136

Part 1: Business Case Template


Annex C: Templates

[Insert project title]

Strategic Outline Case / Outline Business Case / Full Business Case

[delete as appropriate]

[Insert RMA name]

Photo


Annex C: Templates

Issue and revision record

Revision Date Originator Checker Approver Description

A xx/xx/xxxx [name] [name] [name] [description]

Comments sheet

Changes from SOC to OBC

e.g. the Investment Objectives identified at SOC were revised at OBC following public consultation on the Short List options.

Changes from OBC to FBC

e.g. costs received via tender exercise were higher than those assumed at OBC. The economic assessment of the Short List was updated at FBC which confirmed that the Preferred Option still provides the best Value for Money.


Annex C: Templates

Contents Page Executive Summary

1. Strategic Case

1.1 FCERM strategic fit and context 1.2 Sustainability and well-being strategic fit and context 1.3 The flood or erosion problem/s and current management arrangements 1.4 Investment Objectives 1.5 Summary of potential opportunities and benefits from investment 1.6 Summary of potential risks, constraints and dependencies from investment 1.7 Stakeholder engagement (Strategic Case)

2. Economic Case

2.1 Critical Success Factors (CSFs) 2.2 Approach to options assessment 2.3 Identify Long List 2.3.1 Using the Options Framework Filter to identify the Long List 2.4 Screen the performance of each measure 2.5 Identify the Short List 2.6 Assessment of Short List 2.6.1 Engineering performance of Short List 2.6.2 Sustainability and well-being performance of Short List 2.6.3 Economic performance of Short List 2.6.4 Financial performance of Short List 2.6.5 Select the Preferred Option

2.7 Further development and testing of Preferred Option 2.7.1 Outline Design and reassessment of costs 2.7.2 Sensitivity Testing 2.7.3 Detailed Design and reassessment of costs

2.8 Stakeholder engagement (Economic Case)

3. Commercial Case

3.1 Procurement Strategy 3.2 Key contract terms and risk allocation 3.3 Stakeholder engagement (Commercial Case)


Annex C: Templates

4. Financial Case

4.1 Financial scale and breakdown 4.2 Funding sources 4.3 Funding timescales 4.4 Financial summary 4.5 Stakeholder engagement (Financial Case)

5. Management Case

5.1 Project management (including management of health, safety and well-being) 5.2 Change management 5.3 Benefits realisation 5.4 Risk Management 5.5 Post-project evaluation 5.6 Stakeholder engagement (Management Case)


Annex C: Templates

Executive Summary

• 1 page for simpler projects or those seeking less than £2m funding.• 2 pages for more complex projects or those seeking greater than £2m funding. • Should provide a high-level summary of all five cases.


Annex C: Templates

Strategic Case

Completed at SOC stage but reviewed in OBC and FBC stages

1. FCERM strategic fit and context SOC

2. Sustainability and well-being strategic fit and context SOC

3. The flood or erosion problem/s and current management arrangements SOC

4. Investment Objectives SOC

Investment Objectives table SOC

SMART Objective description Indicator Timescale

1 Reduce the consequences of flooding to people, property and infrastructure

The Present Value of flood damages

Project operation in by [date]

5. Summary of potential opportunities and benefits from investment SOC

6. Summary of potential risks, constraints and dependencies from investment SOC

7. Stakeholder engagement (Strategic Case) SOC


Annex C: Templates

Economic Case

Largely split between SOC and OBC stage. Updates to the assessment of Short List options should only be undertaken at FBC stage if any updates to Financial, Commercial and Management Cases lead to a change in Preferred Option FBC.

1. Critical Success Factors (CSFs) SOC

2. Approach to options assessment SOC

3. Identify Long List SOC

3.1 Using the Options Framework Filter to identify the Long List SOC


Annex C: Templates

Optio

ns Fr

amew

ork F

ilter T

able

SOC

FCER

M sp

ecifi

c gui

danc

eW

alka

way

Busin

ess A

s Us

ual

Do S

omet

hing

Inte

rmed

iate

Op

tion

Inte

rmed

iate

Op

tion

Inte

rmed

iate

Op

tion

Do

Max

imum

Scop

e“W

hat”

Po

tent

ial c

over

age

of th

e pr

ojec

tSp

atial

Sca

le

Tem

pora

l Sca

le (e

.g. S

tand

ard

of

Prot

ectio

n)

Serv

ice so

lutio

n“H

ow” i

n te

rms o

f del

iverin

g th

e po

tent

ial s

cope

of t

he p

roje

ctCu

rrent

and

Cor

e Se

rvice

s: FC

ERM

activ

ities

.De

sirab

le Se

rvice

s: NF

M.

Optio

nal S

ervic

es: w

ider

initi

ative

s, e.

g. re

gene

ratio

n to

urism

, etc.

Serv

ice d

elive

ry“W

ho” i

n te

rms o

f del

iverin

g th

e po

tent

ial s

cope

of t

he p

roje

ct

Serv

ice

impl

emen

tatio

n“W

hen”

in te

rms o

f del

iverin

g th

e po

tent

ial s

cope

of t

he p

roje

ct

Fund

ing

The

“fun

ding

” req

uire

d fo

r del

iverin

g th

e po

tent

ial s

cope

, sol

utio

n, se

rvice

de

liver

y and

impl

emen

tatio

n pa

th fo

r th

e pr

ojec

t

Liaise

with

Wel

sh G

over

nmen

t Flo

od

Bran

ch o

n po

tent

ial fu

nding

sour

ces

and

prio

ritisa

tion


Annex C: Templates

3.2 Identify measures to deliver the Long List SOC

4. Screen the performance of each measure SOC


Annex C: Templates

Long

List

scre

ening

table

SOC

Gr

een

= P

ositiv

eRe

d

= N

egat

ive

Mea

sure

Cons

truct

abili

tyCo

stEn

viro

nmen

tal I

mpa

ctM

aint

enan

ceOt

her

e.g.

New

flood

bu

ndCa

n be

co

nstru

cted

us

ing st

anda

rd

earth

work

s eq

uipm

ent.

Pote

ntial

di

fficu

lties

co

nstru

cting

and

ha

uling

ove

r sof

t gr

ound

.

ssEa

rthwo

rks

sens

itive

to h

igh

wate

r lev

el ev

ents

.

Low

cost

optio

n,

howe

ver,

cost

may

incr

ease

sh

ould

loca

lly

avail

able

sour

ce

not b

e av

ailab

le wh

ich fu

lfils

chem

ical a

nd

engi

neer

ing

crite

ria.

Oppo

rtuni

ty fo

r rev

eget

atio

n of

em

bank

men

t slo

pe a

nd to

re

duce

visu

al im

pact

.

3m w

ide

cres

t pat

h ca

n ac

com

mod

ate

foot

path

com

forta

bly,

would

nee

d to

be

incre

ased

to a

ccom

mod

ate

cycle

way.

Perm

anen

t los

s of c

irca 5

m sw

athe

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Annex C: Templates

5. Identify the Short List SOC

6. Assessment of Short List OBC 6.1 Engineering performance of Short List OBC 6.2 Sustainability and well-being performance of Short List OBC 6.3 Economic performance of Short List OBC

Benefits summary table OBC FBC

Damage Category Business As Usual (Baseline)(PV£)

Option 1 (PV£) Option 2 (PV£) Option 3 (PV£)

Flood damages

Flood damages avoided (Benefits)

0

Damage Category Walkaway (Alternative Baseline) (PV£)

Option 1 (PV£) Option 2 (PV£) Option 3 (PV£)

Flood damages

Flood damages avoided (Benefits

0

Whole Life Cost summary table OBC FBC

Whole-life cash cost (£) of Short List option or Preferred Option

Costs to OBC:

Staff costs

Site investigation and surveys

Consultants’ fees

Contractors’ fees

Other costs (specify)

Optimism Bias

Subtotal

OBC to construction:

Staff costs

Site investigation and surveys

Consultants’ fees

Contractors’ fees



Annex C: Templates

Optimism Bias

Subtotal

Construction costs:

Environmental enhancement

Environmental mitigation

Staff costs

Consultants’ fees

Site supervision

Land purchase & compensation


Optimism Bias

Subtotal

Risk contingency:

Risk budget item 1

Risk budget item 2

Risk budget item 3, etc.

Subtotal

Future costs:

Maintenance

Future construction

Optimism Bias

Whole life project cost:

6.4 Financial performance of Short List OBC 6.5 Select the Preferred Option OBC

7. Further development and testing of Preferred Option OBC 7.1 Outline Design and reassessment of costs [OBC] 7.2 Sensitivity Testing [OBC] 7.3 Detailed Design and reassessment of costs [FBC]

8. Stakeholder engagement (Economic Case) SOC OBC


Annex C: Templates

Commercial Case

Include consideration of the following in proportionate fashion, depending on whether at SOC OBC FBC.

1. Procurement Strategy SOC OBC FBC

• Provide confidence that there is a viable route for procurement of the Business Case production (if outsourced.) [SOC] • Provide confidence in a commercial approach that achieves best “value for money” when delivering the Preferred Option. Strategy to include outline procurement timescales. [OBC] • Evidence of implementation of Procurement Strategy and include Procurement Report. [FBC]

2. Key contract terms and risk allocation OBC FBC

• Outline contract terms and risk allocation for any construction contract to deliver the Preferred Option. [OBC] • Re-evaluate risk allocation after tender. [FBC]

3. Stakeholder engagement (Commercial Case) SOC OBC FBC


Annex C: Templates

Financial Case

Include consideration of the following in proportionate fashion, depending on whether at [SOC] [OBC] [FBC].

1. Financial scale and breakdown SOC OBC FBC

• Provide statement on the confidence on scale of costs involved for the Business Case production and indicate order of magnitude for the delivery. [SOC] • Give greater confidence in the delivery & operation phase cost estimates. Complete the • Financial Breakdown Table. [OBC] • Update the Financial Breakdown Table. [OBC] with final tender values. [FBC]

Financial Breakdown Table SOC FBC OBC

Cash Costs (£s)

Previously approved costs (up to OBC/FBC)

Investigation work

Business Case development

Design/development

Engineering/construction works

Land purchase and compensation

Internal staff costs

Other costs

Total

2. Funding sources SOC OBC FBC

• Include funding sources for Business Case production and suggested sources for construction and operation. [SOC] • Provide evidence of support “in principal” for funding remaining work on Business Case and delivering, maintaining, and operating the preferred option. [OBC] • Confirm accountancy arrangements for delivery phases. [FBC]

3. Funding timescales SOC OBC FBC

• Provide outline timeline of funding needs for Business Case development. [SOC] • Give funding timeline for remaining work on Business Case and delivering, maintaining, and operating the preferred option. [OBC] • Provide accountancy arrangements for delivery phases. [FBC]


Annex C: Templates

4. Financial summary OBC FBC

• Complete the Financial Summary Table

Financial Summary Table OBC FBC

Funding Source

Funding needs (£)

Year 0 20xx

Year 1 20xx

Year 2 20xx

Year 3 20xx

Year 4+ Total

Grant in Aid/Grant

Other 1

Other 2

Sum of funding requirement per year

5. Stakeholder engagement (Financial Case) SOC OBC FBC


Annex C: Templates

Management Case

Include consideration of the following in proportionate fashion, depending on whether at [SOC] [OBC] [FBC]:

1. Project management (including management of health, safety and well-being) SOC OBC FBC

2. Change management SOC OBC FBC

3. Benefits realisation SOC OBC FBC

4. Risk Management SOC OBC FBC

5. Post-project evaluation SOC OBC FBC

6. Stakeholder engagement (Management Case) SOC OBC FBC


Annex C: Templates

153

Part 2: Business Justification Template


Annex C: Templates

[Insert project title]

Business Justification

[delete as appropriate]

[Insert RMA name]

Photo


Annex C: Templates

Issue and revision record

Revision Date Originator Checker Approver Description

A xx/xx/xxxx [name] [name] [name] [description]

Comments sheet

Changes from SOC to OBC

e.g. the Investment Objectives identified at SOC were revised at OBC following public consultation on the Short List options.

Changes from OBC to FBC

e.g. costs received via tender exercise were higher than those assumed at OBC. The economic assessment of Short Lists was updated at FBC which confirmed that the Preferred Option still provides the best Value for Money.


Annex C: Templates

Contents Page 1. Purpose

2. Strategic Context

3. Case for Change 3.1 Investment Objectives and Critical Success Factors (CSFs) 3.2 Benefits 3.3 Risks

4. Options

5. Preferred Option

6. Procurement route

7. Funding and affordability

8. Management arrangements

9. Funding contributions


Annex C: Templates

1. Purpose

2. Strategic Context

3. Case for Change 3.1 Investment Objectives and Critical Success Factors (CSFs)

Combined Investment Objectives and CSF table

CSF description Indicator

1 e.g. Deliver an economically-viable solution Positive Net Present Value of flood damages

Investment Objective description Indicator Timescale

1 e.g. Reduce the consequences of flooding to people, property and infrastructure

The Present Value of flood damages

Project operation in by [date]

3.2 Benefits 3.3 Risks

4. Options

5. Preferred Option

6. Procurement route

7. Funding and affordability

8. Management arrangements

9. Funding contributions


Annex C: Templates