Financial Case: Affordability and Funding
What the financial case must prove
The financial case demonstrates affordability: that the preferred option can be funded and will fit within the organisation's budget, cash limits and accounting framework. Candidates need budget and funding sources, capital and revenue treatment, cash-flow timing, balance-sheet impacts, contingent liabilities, whole-life cost profile and an affordability gap analysis. It is not the same as the economic case.
Traps
The classic trap is mixing value for money with affordability. An option can be good value yet unaffordable, or affordable yet poor value. Another trap is ignoring capital charges, depreciation, VAT treatment or the recurring revenue costs after implementation. Watch for a funding source described as 'to be confirmed': that is an unresolved affordability issue, not a financial case. Also check that costs are real cash flows and not merely budget transfers.
Worked example and rule of thumb
A project costs 4m capital in year one and 600k revenue each year. If the approved capital budget is 3.5m and the revenue budget has only 400k headroom, the gap is 500k capital and 200k recurring revenue. Rule of thumb: affordability must be tested year by year; a positive whole-period total can still hide an in-year cash breach.