Harbourtown Diagnostics Centre: Affordability Versus Value
Harbourtown NHS Trust has an Outline Business Case for a £24m community diagnostics centre, built over three years (£6m, £12m, £6m). Confirmed capital funding is £18m. The centre will generate £1.5m a year in avoided outsourcing costs, starting in year 3, and will cost £2.2m a year to run from year 3. The trust's capital resource limit is fully committed in years 1 and 2, and it has £1m of headroom in year 3. The scheme's economic NPV is strongly positive. The trust's finance director says the scheme is 'unaffordable' and wants it stopped.
1. Assess the affordability of the scheme, distinguishing between the funding gap and the cash-flow problem.
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These are two separate problems and the finance director has conflated them.
Funding gap: £24m - £18m = £6m of capital has no identified source.
Cash-flow and affordability: the capital resource limit is committed in years 1 and 2 and has only £1m headroom in year 3. So even the funded £18m cannot be spent on the planned profile; the scheme as phased is unaffordable in every year of the build.
Revenue: from year 3 the centre costs £2.2m and saves £1.5m, a net recurring pressure of £0.7m a year. Affordability depends on whether that is funded recurrently and whether the £1.5m is genuinely cash-releasing or merely notional.
The verdict is therefore not 'unaffordable, stop' but 'not affordable as currently structured', which is a design problem. The financial case must show a year-by-year funding and spend profile, the revenue consequences and the accounting treatment.
2. What options could close the gap without abandoning the scheme, and what should the revised financial case show?
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Options: phase construction across years 3-5 to fit the capital limit, accepting later benefits and re-running the NPV; reduce scope by deferring one modality; seek the £6m from the ICB, a system capital allocation or a partner; use a lease or managed service to convert capital into revenue, testing whole-life cost first (the trust already carries a £0.7m revenue gap, so this may not help); dispose of a surplus asset to release capital.
Recommend a combination: phased build plus a bid for the residual £6m, with a decision gate at the end of year 2.
The revised financial case should show sensitivity, for example a 20% shortfall in the £1.5m saving, which widens the revenue gap to £1.0m a year. The board needs options with numbers, not a binary stop or go.
3. The finance director argues that because the economic NPV is strongly positive, the scheme should proceed regardless of affordability. Is that correct?
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No, and neither is the finance director's own conclusion. The Five Case Model requires the economic and financial cases to be satisfied independently. Economic value for money does not create affordability; a scheme that cannot be funded cannot proceed however strong its NPV.
Equally, a strongly positive economic case justifies work to find funding rather than abandonment, because stopping forgoes net social value that has been demonstrated.
The finance director is right to refuse approval as presented, and wrong to stop the scheme. The correct output is a revised financial case with affordable options, or a documented decision to pause pending funding. If no affordable option survives that work, stopping is defensible.
Until then the defensible judgement is 'not yet approvable', which is a different thing from 'unaffordable'.