Option appraisal is the process of identifying and considering various ways of solving a problem. The options considered should be practical alternatives, for example, building a new facility, refurbishing the existing one or doing nothing at this time. The last of these options, called the ‘Do Nothing’ options should always be considered as this provides a benchmark against which to compare the other possible solutions.
Where costs are considered, this is called an Investment Appraisal as the exercise considers alternative solutions and the costs associated with each.
In practice, the first stage is to consider different ways of solving a problem and meeting a need. For example, a piece of equipment is reaching the end of its life, there are a number of issues to be considered when determining the way forward
- Do Nothing – what will happen if the equipment fails and there is no alternative way of providing the service provided by that equipment. Is this an issue' If yes, then the Do Nothing option is not acceptable.
- Purchase new equipment – consider the future needs for the service provided and the use to which the equipment will be put' Will it still be needed in the future and for how long?
- Is alternative equipment available elsewhere in the institution or in another convenient organisation? Can you have access to it?
- Do you actually need the new equipment?
There will be a need to consider the potential costs of the various options. This may be at the start or later once a short-list of potential solutions has been devised. In this case, the ‘Financial’ dimension of the Whole Life Costing model can be used to collect and compare the costs of the various options. The model will calculate the estimated costs, over a stated time period, in terms of their value to-day. This will enable a like-for-like comparison to be completed. The model will also enable a comparison to be made of different financing methods for a requirement.