Building Financially Sound Business Cases: An In-Depth Look at Funding, Cost Estimation, and Feasibility in the Public Sector

Developing a robust business case is critical for any large-scale public sector project. Around the world, including the UK, Australia and New Zealand, this process must address a range of financial considerations to ensure that investments are sound, affordable, and deliver real benefits to society.

This article provides a deep dive into key financial aspects—covering financial case essentials, cost profiling, deliverability and feasibility (including resource/capital mix), budget and cash flow statements, and financial modeling techniques—using examples and best practices relevant to UK government projects.

Financial Case Essentials

The financial case is a central part of any business case, as it determines the affordability and funding requirements of a project. From a UK government perspective, financial appraisals must demonstrate that public funds are used wisely and that the project will deliver value for money. This involves a detailed assessment of affordability, which includes verifying that the expected benefits outweigh the costs and that funding sources—such as government grants, loans, or public-private partnerships—are secure. The guidance provided in HM Treasury’s Green Book (HM Treasury, 2014) stresses that every project must pass rigorous financial scrutiny before public investment is approved.

Cost Profiling

Understanding and analyzing different cost categories is another vital element of building a financial case. Cost profiling breaks down expenditures into categories such as capital costs (one-time investments in assets), revenue costs (ongoing operational expenses), fixed costs, and variable costs. For example, a UK government housing project might have significant capital costs for construction and infrastructure, alongside revenue costs for ongoing maintenance and management.

Detailed cost profiling ensures that every expense is accounted for, reducing the risk of unexpected overruns. Studies like those by Flyvbjerg, Holm, and Buhl (2002) have highlighted that underestimating costs can lead to major financial setbacks. A thorough cost profile, therefore, provides a roadmap for understanding financial commitments throughout a project's lifecycle.

Deliverability and Feasibility: Resource/Capital Mix (RDEL/CDEL)

Deliverability and feasibility are closely related to ensuring a project can be executed successfully. In the public sector, assessing feasibility means evaluating not only if a project is technically possible, but also if it can be delivered on time and within budget. A key aspect of this is the resource/capital mix, often referred to in industry terms as RDEL/CDEL. This mix evaluates the balance between physical resources (such as materials and labor) and financial capital.

For instance, large-scale housing projects or local growth initiatives in the UK often require a heavy capital investment (CDEL) combined with the efficient use of resources (RDEL). The National Infrastructure Commission (2016) emphasizes that balancing these inputs is crucial for project deliverability. Proper management of RDEL/CDEL ensures that projects not only have the necessary funds but also the operational capacity to execute them. This balance is critical in achieving project objectives, especially under time constraints and evolving market conditions.

Budget Statements and Cash Flow

Budget statements and cash flow analyses are fundamental tools in the financial appraisal of public sector projects. UK Government guidelines require detailed budget statements that itemize expected costs and revenues over the life of a project. These statements must clearly differentiate between one-off capital outlays and recurring revenue expenditures. Cash flow statements further illustrate when money will be received and spent, ensuring that the project remains financially viable throughout its lifecycle.

For example, when planning a local growth initiative, detailed cash flow analysis will show whether funding gaps exist at any stage and whether contingency reserves are adequate. This approach is reinforced in the HM Treasury’s Green Book (HM Treasury, 2014) and the Australian Government Department of Finance’s Business Case Guidelines (2013), which underscore the importance of aligning cash flow projections with realistic project timelines and funding cycles.

Financial Modeling for Large-Scale Projects

Large-scale projects require sophisticated financial modeling techniques to forecast outcomes and assess risk. In the public sector, financial models incorporate historical data, probability distributions, and scenario analysis to predict potential cost overruns, delays, and revenue shortfalls. Techniques such as Monte Carlo simulation are used to run thousands of scenarios, offering a probabilistic view of the project’s financial performance. Deloitte’s (2018) industry report on financial modeling highlights how these models help decision-makers understand uncertainties and set realistic contingency measures.

Financial models also support the iterative process of business case development—from the early Outline Business Case (OBC) to the fully detailed Full Business Case (FBC). These models are updated as new data becomes available, ensuring that forecasts remain current and reflect actual project conditions. This dynamic approach is essential for large CDEL-heavy projects in sectors like housing and local growth, where the stakes are high and timelines are critical.

Conclusion

Building financially sound business cases in the public sector requires a comprehensive approach that covers affordability, detailed cost profiling, deliverability and feasibility through an appropriate resource/capital mix, precise budget and cash flow statements, and robust financial modeling. By following UK Government guidelines such as those outlined in HM Treasury’s Green Book and drawing on best practices from Australia and New Zealand—where agencies like the Australian Government Department of Finance and New Zealand’s Treasury provide similar frameworks—project planners can create business cases that are realistic, transparent, and capable of securing public investment. These rigorous processes not only help avoid costly overruns but also ensure that public funds are invested in projects that deliver lasting value and contribute to sustainable economic growth.

References

• HM Treasury. (2014). The Green Book – Central Government Guidance on Appraisal and Evaluation. Retrieved from https://www.gov.uk/government/publications/the-green-book
• HM Treasury. (2003). Business Case Guidance: The Five-Case Model.
• Office of Government Commerce. (2007). Managing Successful Programmes.
• Association for Project Management (APM). (2019). APM Body of Knowledge, 7th Edition.
• National Audit Office. (2012). Public Spending: Cost Estimation and Value for Money.
• AACE International. (2011). Total Cost Management Framework, Section on Cost Estimating and Budgeting.
• Oxford Global Projects. (2020). Updating the Evidence Behind the Optimism Bias Uplifts for Transport Appraisals. Retrieved from https://assets.publishing.service.gov.uk
• National Infrastructure Commission. (2016). Infrastructure and Economic Growth: International Lessons for the UK.
• Australian Government Department of Finance. (2013). Business Case Guidelines. Canberra, Australia: Australian Government.
• New Zealand Treasury. (2018). Better Business Cases for Government Investments: Guidelines and Best Practices. Wellington, New Zealand: New Zealand Treasury.
  
• Smith, J., & Brown, L. (2017). Resource and Capital Mix in Delivering Large-Scale Public Projects: A UK Perspective. International Journal of Project Management, 35(4), 500–512.
• Deloitte. (2018). Financial Modeling and Analysis for Large-Scale Projects: Best Practices in the Public Sector.