Requirements can arise in several ways. For example, an existing item or facility may be reaching the end of its life and needs to be replaced. Alternatively, there may already be a formal procurement arrangement in place, and that contract is reaching its end date.
The identification of this need is the first step in the tender (and for lower value requirements, the quotation) process. There are number of issues that must be addressed before embarking on either a tender or quotation process:
What is the estimated value of the requirement?
If approaching potential suppliers to seek an indication of the likely costs of a requirement, take care to ensure that there is no misunderstanding over the approach, i.e. the supplier should not be led to expect that an order will follow at some later stage.
Has a budget been approved or is other preparation work required before approval will be granted?
What is the proposed timescale for awarding a contract for the requirement?
Option appraisal
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
Doing nothing at this time
The last of these options, called the ‘Do Nothing’ option 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 several 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. IF this an issue, 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 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 a 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 period, in terms of its value today. 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.
School / MAT members - the information on this page aligns with the following ISBL Professional Standards: 3.25, 3.36, 3.27, 3.28