Financial Case

The Financial Case examines the annual costs and revenues with a particular focus on the cash flows of Option 2 (Faithful Reinstatement) which provides the greatest overall value for money in Net Present Social Value terms. The cashflow over 10 years in terms of capital and revenue is shown below confirming that year 7 marks the point at which the investment begins to generate significant net additional revenue. It also examines the composition of the construction costs and given the nonstandard nature of the proposed project, a high level of optimism bias (see below) is factored into the overall project costs; and considers potential funding sources to deliver the Mackintosh Project and support its operation. The costs will be further developed as the project progresses and this includes the revenue costs. At this stage these are high level estimates only for comparison purposes.

Optimism Bias is an allowance that is recommended by HM Treasury, through their Green Book publication, to be included in the capital cost estimates for projects that are at an early stage of design development, where it is too early for risk management and risk mitigation tools to be successfully implement. The economic appraisals used in this SOBC have assumed that the Mackintosh Project is non-standard. As a consequence, a higher rate of optimism bias has been applied.

The Green Book recommends that at the outset of each project, the upper limit for each factor is applied and then adjusted accordingly through a managed process. Contributory Factors include items such as; design complexity; degree of innovation; inadequacy of Business case; large number of stakeholders; available funding; poor intelligence; environmental; skills of design team; skills of client team; site characteristics; political; technological advancements; markets etc.