Options Appraisal in Context

Option appraisal is not a new process. Equally, it is not exclusively to support the Procurement process and should be practiced routinely as part of good management and planning.

Before looking at the role of option appraisal within the procurement process, it is useful to consider general questions in relation to option appraisal. Option appraisal defines and assesses different potential options to achieve required outputs or outcomes. It assists in making decisions on whether to proceed with a project and in identifying the best option for procuring and delivering a project.

Why would public sector organisations use option appraisal?

Decision making in the Public Sector is becoming increasingly complex. As the rate of change increases and the number of options widens, decisions based on intuition and historical reference have less credibility. A more analytical, objective and defensible decision making process is needed. In addition, public bodies are required to deliver Value for Money in the use of resources and delivery of services.

Use of option appraisal enables informed and transparent decisions to be made and provides a consistent, systematic approach to decision-making. This provides a clear basis for review and links various corporate planning processes such as capital planning and service planning.

Situations where Option Appraisal could be used:

Public sector organisations should consider an option appraisal approach to decision making in the following scenarios:

When there are doubts as to whether to go ahead with a project or programme
To help achieve maximum effectiveness and Value for Money
If a project/programme could meet other, wider objectives
If a project/programme has a high level of risk or uncertainty
If a project/programme impacts on many stakeholders
Where transparency is required in decision making
To provide a consistent approach to decision making
If a project involves the council and partner organisations
Where the long term approach to a project/programme may differ from the short term

Examples of practical situations where option appraisal could be used include:

Appraisal of procurement options for a capital programme
Appraisal between capital proposals where there is limited budget
Decisions on which contractor should be used for a particular capital project
Deciding on specific individual projects within a broad spending programme
Lease versus purchase eg lease or buy a car, building, photocopier
Capital versus revenue eg new build or refurbishment
Public Private Partnership compared to traditional procurement

Why Option Appraisal is important

Option appraisal is a decision making tool for use in:

Identifying objectives;
Identifying the different ways in which they can be achieved;
Examining all the important factors before taking a decision.

Therefore, effective option appraisal will help to answer three important questions:

Have all relevant factors been taken into account in deciding what the project or programme should be?
Should the project or programme go ahead?
What is the best way to procure the services or works?

Option appraisal should be carried out when planning projects for which there are a number of possible different approaches to meeting the desired objectives. This is to ensure the final decision and subsequent actions represent good value for money.