Financial models are a necessary part of the procurement process as they clarify issues concerning value for money and affordability.
They are also a good way of helping to focus the various stakeholders involved in the development of primary care premises on exactly how much money will be needed to fund the project.
A completed example of a typical financial model is available for download as an Acrobat pdf document.
To adapt the figures for a particular project, the Excel template worksheet used in the example is available for download.
Each row in the table has a reference letter (A to Z); a fuller explanation for each row is given below. For further clarification of how each figure affects the totals it is necessary to have a reasonable understanding of how to use an Excel spreadsheet. It is then possible to see how each cell is linked. To do this graphically, highlight the cell that is of interest, and open 'tools', 'audits' and 'precedents' or 'dependents'. Lines should then appear to show how this particular calculation has been generated, and what additional calculations it will affect.
Row A: Simply write in a project name and date here
Rows B & C: From your functional content information, list the spaces that have been identified for the various stakeholders – in this example, 1035 square metres for a GP surgery and 250 sq metres for other services (e.g. community services). There may be additional areas for the organisations listed within your 'review of possible services', carried out as part of your local strategic plan.
Row D: The design will dictate the gross to net area that can be achieved. The target figure for this is debatable, although third-party developers tend to aim to achieve a 90% plus ratio for one or two storey buildings, and an 85% ratio on taller buildings (as net areas are reduced by the need for additional lifts and staircases).
Row E: Since April 2002 the DV normally prefers any lease arrangement to be calculated over a 20-year period with the landlord being responsible for external repairs and insurance. Should a lease of a longer duration be agreed, this will reduce the annual rental (as the rental will be payable for a longer period of time).
Row F: Adds up the total GIAs and NIAs.
Row G: Multiplies these figures by the £ per sq metre figures, which will need to be agreed with the DV and set at a level to make the investment worthwhile to the funder as revealed by the yield on cost figure in row X.
Row H: This figure is either the known value of the site (the vendor's price once agreed with the DV), or can be inserted as the final 'affordable' figure once all the other figures in the model have been finalised.
Rows I – M: These figures are based on standard percentages of the land value. Agents' fees can be added as charged if applicable.
Row N: An addition of the land price and acquisition costs.
Row O: Build costs are often a key factor that will affect the affordability of a project. Grander projects by definition tend to be more expensive.
Row P: Contingency sums of 2-3% are usual for primary care projects.
Row Q: Extraordinary costs can cover items such as difficult land conditions, the need for archaeological investigations, costs for temporary accommodation, decontamination and similar site specific items.
Row R: This figure is to cover the cost of building car parks and other external works such as tree planting and landscaping as required by the planners and the design team.
Row S: Professional fees vary between 10% and 15% of building costs depending on the size of any particular project. This figure should cover the costs of all building professionals including architects, engineers and a project manager.
Row T: A total of all the costs relating to constructing any new building.
Row U: This figure will change according to both available sources of finance and current variable and fixed interest rates.
Rows V & W: As land is normally acquired before a building project gets underway, and finance has to be found during the period that a new building is under construction, the cost of this finance has to be calculated by multiplying the interest rate in row U by the applicable land and build costs. A total project cost figure can now be calculated by adding land assembly, build and interest (finance) costs together. In this example, this figure is £1.406 million.
Row X: This is the 'yield on cost', calculated by dividing the annual rental (£157,194, in this example) by the total project costs (£1,733,182) to give a figure of 9.07%. This is rather higher than current rates according to recent advice received from the DV's office.