4.1  Constructing a PSC

The recommended process for the development of a PSC is illustrated in Figure 4-1.

Figure 4-1  The PSC Process

The role of the Output Specification in defining the scope of a PSC is discussed below. The remainder of this section provides guidance on calculation of the Raw PSC. Sections 5 to 8 discuss the remaining components:

•  Competitive Neutrality (Section 5);

•  identifying and valuing risk (Section 6);

•  calculating Transferred Risk (Section 7); and

•  calculating Retained Risk (Section 8).

General guidance on potential valuation techniques is provided in this section and throughout this technical note. Construction of the PSC should reflect government best practice, which may evolve over time and will be updated by practice notes.