Making the business case: classic challenges and new horizons
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Transcript of Making the business case: classic challenges and new horizons
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Making the business case:classic challenges and new horizons
Ian Gambles(Director, Forestry Commission England)
(Author, “Making the Business Case”)
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What I’ll be talking about
• A few key forest facts
• Old problems
• New horizons
• Staying relevant
• Questions and discussion
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Forest facts
• Forestry Commission manages the public forest estate in England on behalf of the Secretary of State
• 250,000 hectares - 2% of the land area
• More than 25% SSSI
• 40 million visitors each year
• Cost to taxpayer c.£20m
• Timber and visitor income c.£50m
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Classic challenges
• Selection of familiar problems– Important issues in their own right– Raise wider questions of relevance
• Negative NPV
• Future costs
• Decision momentum
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Negative NPV
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Negative NPV?
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Negative NPVs – key points
• Some things just have to be done
• Never appraise against a static background
• Non-monetary benefits can outweigh a negative NPV – eg social capital
• To ignore or to manipulate – is that the question?
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Future costs - predictable
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Future costs - unpredictable
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Future costs – hard to quantify
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Future costs – key points
• Business case must consider:– Operating costs– Decommissioning costs– Risk-adjusted future costs
• Neglecting future costs will:– Pass costs on to future years or generations– Restrict the choices of future decision makers
• But should they change the decision?
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Decision momentum
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Decision momentum
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Decision momentum – key points
• Sometimes the business case is irrelevant to the main decision
• Shun the post hoc business case
• Find the decision not yet made and the factors which can and should shape it
• But does that push the business case into the margins?
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Casting about for relevance?
• Are we wasting our time?
• Is decision making in reality so irrational that all our rigorous calculations are beside the point?
We must continually strive for relevance, innovate, and reflect changing ideas
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New horizons – Natural Capital
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What is natural capital?
• Natural capital refers to the elements of nature that produce value to people, such as the stock of forests, water, land, minerals and oceans.
• These benefit us in many ways, by providing us with food, clean air, wildlife, energy, wood, recreation and protection from hazards.
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Stocks, flows and benefits
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This is no longer a sideshow
• Natural Capital Committee – independent advisor to Government
• Office of National Statistics - Roadmap for development of Natural Capital Accounts published December 2012
• Defra - formal environmental accounts to be complete before 2020.
• United Nations - the UN System of Environmental-Economic Accounting (SEEA) sets the relevant International Standard
• Increasing relevance in corporate reporting
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Role of Environmental Accounts
• To quantify the value of benefits flowing from the natural capital that we have in order to inform and prioritise investment in its protection and enhancement
• To extend economic accounts to include environmental considerations, specifically to include depletion of non market natural capital assets (and to quantify any expenditure needed for maintenance and/or restoration).
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Impact on the business case
• Challenges the definition of capital
• Gives structure to a vast category of non-monetary benefits
• Helps to identify future costs
• Provides a language for factors which will – and should – increasingly influence decisions
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NCC example: where to plant woods
• Hypothesis: 250,000ha of new woodland in GB
• Scenario A: chosen to optimise market values only
• Annual cost to taxpayer: £134m
• Non-market benefits: £68m
• So annual net social value = (£66m)
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NCC example: where to plant woods
• Hypothesis: 250,000ha of new woodland in GB
• Scenario B: chosen to optimise social value
• Annual cost to taxpayer: £287m
• Non-market benefits: £833m
• So annual net social value = £546m
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A rather different decision!
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Piloting PES in the public forest• How much should the Public Forest Estate cost?
• By investing in our natural capital, we generate many ecosystem services. Just a few examples:
– Restoring Ancient Woodland– Creating and maintaining Open Habitat– Promoting biodiversity and species conservation– Providing community woodland– Improving water quality and mitigating floods
• These services produce benefits, but not income. Indeed they can displace income generating activity.
• Do they belong in a business case? Who should pay for them?
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Staying relevant
• The business case is a tool for decision makers
• Analysing the impacts of decisions matters – even if actual decisions differ
• If a factor is important to decision makers, and to the economy and society within which they operate, it belongs in the business case
• Keep your tools sharp!
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Sources
• The following sources are acknowledged. Anyone wishing to reproduce text or images from these sources is responsible for checking and respecting copyright:
– Slides 5, 8, 9, 13 – Forestry Commission– Slide 6 – Library of Birmingham– Slide 10 – Guardian News and Media Ltd– Slide 12 – Scottish Parliamentary Corporate Body– Slides 16-18, 22-24 – Natural Capital Committee
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This presentation was delivered at an APM event
To find out more about upcoming events please visit
our website www.apm.org.uk/events