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4.1 General Principles

4.1.1Proposals involving financial assistance to the private, voluntary or community sectors should be appraised and evaluated with proportionate effort by the relevant Department or other funding body. Proportionate effort should be judged primarily on the basis of total NI public funds (including EU funds) involved over the life of the proposal under consideration.
4.1.2Financial assistance should not be approved in principle, nor should commitments to funding be given (e.g. through a Letter of Offer), prior to the completion of a satisfactory appraisal and business case. The importance of appraisal to the approval process is elaborated in section 9 below.
4.1.3The type of financial assistance offered should be tailored to the particular case at hand. There should be no presumption that financial assistance should take the form of grant aid in every case - alternative forms of assistance might be equally effective to tackle a particular market failure and at a lower cost to the exchequer. For instance where market failure is restricting a firm's access to capital this might be tackled more cost-effectively with financial assistance in the form of loans or equity.
4.1.4Appraisal should be applied not only to schemes for financial assistance when they are being established but also to individual grants or other assistance subsequently paid out under such schemes. The appropriate level and type of appraisal will be different when a scheme rather than a grant is appraised, bearing in mind the principle of proportionate effort. For example, a major appraisal may be appropriate when considering what scheme to introduce; a large grant or loan application may deserve quite a substantial appraisal; and a small grant or loan may be adequately appraised using a suitable application form or appraisal pro forma.
4.1.5Where a proposal involves more than one source of NI public funds (including EU funds), the relevant funding bodies can avoid duplication of effort by co-operating to produce a single appraisal. As a rule of thumb, the funding bodies should supply resources to the appraisal broadly in proportion to their proposed shares in the funding. It is often appropriate that the major public funder should take the lead in co-ordinating and ensuring completion of the appraisal. When it comes to the stage of assessing completed appaisals, cooperation between funding bodies is also likely to be beneficial.
4.1.6

Where assistance to the private sector is under consideration, there is a need to ensure an adequate private sector contribution to the funding of the proposed investment. One of the important lessons identified by the Committee of Public Accounts following their enquiry into the De Lorean project was that "there must always be a significant contribution of risk capital from the private sector." Further, it is an established principle that there must be at least £1 of private sector investment for every £1 of Government assistance. (Twenty-fifth Report of Session 1983-84, HC 127. Dr Rhodes Boyson, speaking on behalf of the Government in a debate on the De Lorean case on 1 May 1985, stated that for future projects there must be at least £1 of private sector investment for every £1 of Government assistance).

Strictly speaking, this applies only to the private sector, not to the voluntary or community sectors. The latter operate in a different environment and may not be expected to be able to match Government funding in every case, although they should be expected to contribute according to their ability to do so. Whatever the sector being assisted, public funding should generally represent the minimum assistance necessary to bring about the investment.

4.1.7It is good practice to advise applicants for assistance, from the outset, regarding the appraisal and approval procedures that will be necessary, the timescales that these may require, and the help that is available to them. Scheme documentation for applicants should contain this type of information.

Preliminary Screening

4.1.8It is generally appropriate for funding bodies to subject applications for assistance to preliminary screening. In its simplest form, this involves a basic assessment of the application to decide whether it is eligible for funding under the relevant scheme. More generally, preliminary screening offers the opportunity to test thoroughly the need for the project and its objectives, before committing resources to a full appraisal. It can be aided by the use of relatively simple scoring systems, in which applications are allocated scores by reference to relevant scheme criteria. Departmental economists can assist to establish suitable preliminary screening systems.
4.1.9Where preliminary screening indicates that a proposal is clearly unsuitable, it should be rejected, thus avoiding nugatory expenditure on an unnecessary full appraisal. Funding bodies should be satisfied that applications are eligible and offer a reasonable prospect of success before committing resources to a full appraisal.
4.1.10Preliminary screening may also be used to help decide what priority an application should carry in relation to other applications, in terms of the order in which all the eligible applications should be subjected to a full appraisal. This is particularly relevant where the resources available to undertake appraisals are scarce in relation to the numbers of eligible applications to be appraised.

Business Case Documentation

4.1.11All proposals involving financial assistance should be supported by an independent assessment document which addresses the issues covered in section 4 of NIGEAE. This document should confirm that proposals are economically efficient, viable, additional and cost-effective, and should cover affordability and appropriate arrangements for management, monitoring, evaluation and benefits realisation. When submitting cases for approval, Departments should confirm that the proposals offer value for money and are affordable.
4.1.12Proportionate and appropriate effort should be applied in all cases. Large expenditures may require substantial business case documents including thorough economic appraisals. Smaller expenditures are likely to require more modest documents such as pro formas or checklists. (See Use of Forms and Checklists below).
4.1.13Note that the guidance on SOCs, OBCs and FBCs in section 8 of NIGEAE is designed primarily for procurement projects and does not generally suit assistance to the private, voluntary and community sectors.
4.1.14DFP does not generally require a separate free-standing business case document in financial assistance cases. A perceived need to have free-standing business cases may have caused excessive duplication in the past, but DFP accepts that there is generally no such need. For example, for some programmes, acceptable business case documentation may comprise an application form, a business plan and a brief pro forma or checklist recording independent assessment of the applicant’s proposals. These documents together can constitute the business case.
4.1.15Minimal information is required on background and strategic context. Many business cases have contained excessive background material on relevant policies, strategies and so on. Sometimes DFP has seen cases with 20 or more pages of such material. This is an unnecessary waste of time and resources. DFP guidance was altered in 2013 to state that business cases should not generally contain more than 2 pages of this type of information. In financial assistance cases, all that is generally required is a very brief reference to the relevant programme under which the assistance is sought.
4.1.16Duplication of effort and documentation is unhelpful and should be avoided. It is not necessary to repeat all the material provided in applicants’ application forms or business plans in a separate business case document. While the funding body should complete a separate form, checklist or other document to record independent assessment, duplication is discouraged. For example, if an applicant has made a case for the need for its project, the funding body should not generally need to reproduce it; it may be sufficient to record that the applicant’s need assessment has been considered and that it is accepted or rejected.
4.1.17Thus economical use of documentation is generally recommended for financial assistance programmes. However, it is recognised that there may be some types of projects or individual cases for which Departments will require a more substantial business case document to be developed, such as, for example, particularly large or difficult cases.

The Use of Pro Formas and Checklists

4.1.18The appraisal of financial assistance cases should be facilitated by designing application forms so that they provide as much as possible of the information that funding bodies need to appraise them. This can help reduce subsequent documentation requirements substantially.
4.1.19As noted above, financial assistance cases do not necessarily require lengthy or free-standing business cases. Forms (or ‘pro formas’) and checklists will be adequate in many cases and particularly for relatively small expenditures. These may be taken to include cases involving total financial assistance (including for example all sources of NI public funding, including EU and IFI funds) of up to £1m over the whole life of a project. In some cases, depending on the nature of the programme, forms or checklists may be acceptable for larger expenditures.
4.1.20The recommended approach in most financial assistance cases is for funding bodies to supplement information provided by applicants with brief forms or checklists recording independent assessment. Pro formas and checklists  should be designed to address the issues in this section of NIGEAE, specifically economic efficiency, additionality, displacement, viability and cost-effectiveness. They should also allow for appropriate consideration of affordability, and arrangements for management, monitoring, evaluation and benefits realisation.
4.1.21It is normally the funding bodies who should be doing the appraising using appraisal pro formas and checklists. Applicants may complete application forms, but they should not be expected to appraise their own proposals critically. Appraisals in forms, checklists and (where required) business cases must reflect an independent and unbiased view of proposals.
4.1.22Departments should be satisfied that the relevant application forms, pro formas and checklists in use for each particular programme contain adequate information to enable the funding body to appraise expenditures. They should also ensure that funding bodies have suitable procedures in place to actually appraise the information submitted by applicants.
4.1.23As emphasised above, while funding bodies are encouraged to use pro formas or checklists to record independent assessment of applications, they need not duplicate material contained in applicants’ documents such as application forms or business plans. The focus of the independent assessment document should be to add value by recording assessment according to NIGEAE appraisal criteria, not by regurgitating applicants’ information.

Funding of Consultants

4.1.24DFP does not recommend extensive use of external consultants to complete business cases for financial assistance cases.  In-house appraisal should be sufficient for most cases, using suitable pro forma documentation or checklist-style documents. Departments should seek to reduce reliance on external consultants by this means.
4.1.25There may be some cases where it is necessary to employ external consultants to assist with appraisals, for instance in large or complex cases. However,  this should only be considered when it offers VFM and following the approval of an external consultancy business case in accordance with FD(DFP)07/12 and its associated guidance; and FD(DFP)13/12 in the case of relatively large scale, complex or innovative assignments.
4.1.26The use of external consultants does not guarantee good quality business cases. It can result in many exchanges between funding bodies and other stakeholders before projects are accepted and approved. This may raise questions such as whether consultants are being given adequate terms of reference, whether they are being managed effectively, and in some instances whether they are capable of delivering satisfactory business cases. Departments should consider the scope to improve processes by providing better terms of reference, by managing consultancy assignments more effectively and by not re-employing consultants who have performed badly.
4.1.27Critical to success is ensuring that consultants are given effective terms of reference (ToR). The ToR should be specific and detailed. For example, it is not generally sufficient to ask consultants to 'conduct a Green Book appraisal' for a proposal. This is too broad, allowing consultants too much scope for interpretation and excessive effort. The specific requirements for each key element of the business case should be spelt out in detail to suit the case in hand and minimise effort and cost.
4.1.28For instance, depending upon the case in view, the ToR may stipulate that a maximum of 2 pages is devoted to background/strategic context; that alternative options should not be considered; that non-monetary factors should just be listed and described; that duplication of applicants’ information should be avoided; that reports should be no more than a certain length; and so on.
4.1.29Different stipulations may be included for the minority of larger/complex cases where Departments require formal option appraisal. The key point is that the ToR for assignments should be carefully designed to suit the cases in view and avoid excessive effort. Departmental economists can assist with the design of suitable ToR.
4.1.30At one time, Departments provided funding to project promoters to employ consultants to undertake appraisals. It has long been recognised that a more independent appraisal will be obtained if the funders rather than the promoters employ the consultant. For instance, this encourages greater objectivity and allows more direct control over the quality of the appraisals provided by consultants. This approach is now generally recommended.

Continuation Funding of the Voluntary Sector

4.1.31Bodies operating in the voluntary sector often receive financial assistance for a specified time period. They will sometimes seek renewed funding for a further period, and in the case of well established organisations, this process may be repeated several times over. This is commonly known as ‘continuation funding’.
4.1.32It is good practice to make continuation funding conditional upon a satisfactory independent evaluation of the activities undertaken during the previous funding period, in addition to a fresh forward-looking appraisal covering the term for which continuation funding is sought.
4.1.33The term for the continuation funding will depend upon the individual circumstances of the project.  A term of 3 years is typical for established projects that are expected to have a continuing useful life, but shorter or longer time periods may be more suitable in particular cases. Where DFP approval is required, the appropriate time period should be agreed with the relevant DFP Supply Division.
4.1.34Each fresh application for funding should be considered to be a wholly new project and treated accordingly for purposes of appraisal, evaluation and delegated limits.
4.1.35Accordingly, expenditure from previous funding periods should not be counted as a cost in any appraisal of future funding, nor should it be counted when deciding whether the continuation project exceeds a delegated limit. However, it should be considered when evaluating the success of the project in the previous funding period.

Ex Post Evaluation and Benefits Management / Realisation

4.1.36Evaluation involves ex post examination of outturns to ensure that lessons are learned and fed back into the decision-making process. Departments should generally have arrangements in place to measure outturns, compare them with initial estimates and use the results to consider how to improve the quality of assumptions in future appraisals, including, for example, estimates of costs, benefits and risks. All programmes, including those involving financial assistance, should be evaluated.
4.1.37However, there is room for flexibility over details of how evaluation is carried out and excessive effort should be avoided. It is good practice to record outturns for all financial assistance cases, but evaluation may in some cases be focused at programme level without conducting detailed evaluations of individual projects. Substantial free-standing evaluation reports should only be required for the largest projects. NIGEAE indicates that where a programme consists of a large number of small scale projects or activities, it may be appropriate to select only a representative sample of them for detailed evaluation. This may apply to a number of financial assistance programmes.
4.1.38Benefits management and realisation are generally important, since delivery of benefits is crucial to the success of any project. Programme managers should actively seek to ensure that financially-assisted projects are implemented and actually deliver the benefits claimed for them.
4.1.39Again, there is room for flexibility over details and excessive effort should be avoided. Departments should note the availability of a simplified ‘Benefit Profile for Small Projects’ template, which can enable all the benefits of a project to be profiled on a single sheet. This is located at the Successful Delivery NI templates page. For large projects, the standard ‘Benefit Profile’ template (available at the same page) should continue to be used for each individual benefit claimed.

The Scope of the Appraisal

4.1.40Appraisals of applications for financial assistance should generally cover the whole of the project for which financial assistance is sought, not just the financially-assisted elements of it. For instance, an appraisal should detail all the sources of funding, and should cover all the costs and all the benefits associated with the proposal, including those falling to the private and voluntary sectors as well as to the public sector. This is to enable a judgement of the overall value for money and viability of the proposal. The same principles apply to ex-post evaluations of financially-assisted projects.
4.1.41

Appraisals of financial assistance to the private, voluntary and community sectors should assess VFM primarily from a broad NI perspective, like appraisals in general. Any significant impacts elsewhere in the UK should also be weighed into the investment decision. The appraisals should generally seek to ensure that four criteria are satisfied. These are:

  • Economic Efficiency;

  • Additionality;

  • Cost-Effectiveness; and

  • Viability.

The meaning of these criteria, and how to assess them, is explained below.

Read on to Economic Efficiency

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