the capital budgeting process workshop training materials

8/11/2019 The Capital Budgeting Process Workshop Training Materials

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AFRITAC East Regional Workshop

The Capital Budgeting Process

September 1 5, 2014, Entebbe/Uganda

Concept Note

The overarching aim of this workshop is to discuss all the major factors that need to be

taken into account to ensure that capital spending leads to the creation of productive

assets (tangible and intangible).Its central focus will be on how to increase the efficiency

and effectiveness of public investment spending. Public investment is generally regarded as

having a positive relationship with growth and therefore desirable in itself. However, the

literature has also emphasized the need to focus not just on quantitybut also on the qualityof

the capital spending (as for any other spending for that matter). For example, S. Gupta et al

point out that in countries with weak public investment management processes, public

investment expenditure is unlikely to translate fully into productive capital assets.1

Some of the seven AFRITAC East (AFE) member countries are currently allocating

significant amounts to capital spending.Capital expenditure in Rwanda, for example,

accounts for 12 percent of GDP, the highest among East African Community Partner states.

Similarly, Uganda is implementing an ambitious program of infrastructure development

which includes the construction of power plants, transmission lines and distribution network

together with roads and railway and an oil refinery, in anticipation of a significant increase in

revenue due to oil exports. In light of this and against the broad purpose mentioned above,

the workshop will set out to provide participants with a better understanding of the following

issues:

basic requirements for successful capital budgeting including appropriate institutional

arrangements

S. Gupta et al, Efficiency-Adjusted Public Capital and Growth, World Development 2014, Vol. 57, p. 164 1

78.


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key features of good practices of public investment management systems for efficient

and effective capital spending insights into the systems of at least two internationally recognized good practice

countries pros and cons of alternative financing and implementation modalities

macro-fiscal, project and other risks associated with capital spending and ways ofminimizing and/or managing them

improving the linkages between strategic planning and capital budgeting.


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Recent development in PFM has had a positive impact on the quality of public

investment spending.Three practices in particular have been so identified, namely, medium

term budgeting framework (MTBF), performance budgeting and accrual accounting .2

MTBFs facilitate the integration of investment spending within a more comprehensive

resource use framework. In its absence, planning documents tend not to be rooted in any

macro-fiscal framework. Performance budgeting (PB), in emphasizing results rather than the

nature of the spending (notably whether it is recurrent or capital), facilitates expenditure

prioritization and provides the basis to enforce accountability, helping to improve budget

outcome. PB can contribute to determine whether capital spending has been effective or not.

Accrual accounting provides a more comprehensive picture of a governments capital assets

than cash accounting.

The kind of MTBFs practiced by some countries, however, might not always bring

about the benefits expected.If forward estimates are merely indicative (meaning there are

large variations with the actual the following year), rather than binding, this will not result inthe necessary funding predictability required for successful capital budgeting. Even where

the forward projections are robust, as in advanced countries, the challenge has been to

reconcile the three or five year estimates with the far longer term horizon of some of the big

infrastructure projects. This has led some countries such as Ireland and UK to introduce

longer term commitment in particular sectors like transport, rather than specific projects. The

workshop will examine the fundamental issue of medium term budgeting as a key

requirement for productive capital spending.

An effective project cycle is also critical for successful public investment management.

The main stages are: Identification; Appraisal; Approval; Implementation; and Evaluation.

Some countries use fairly sophisticated techniques to carry out efficiently those stages. The

UKs Gateway model among advanced countries and Chiles National Investment Systems

among emerging economies are two such examples, both considered successful in their own

right. Both models will be presented during the workshop and participants will explore their

relevance and applicability to their respective countries. Each country delegation will be

required to present its capital budgeting system pointing out the respective strengths and

weaknesses and comparing against such best practices.

Israel Fainboim, Duncan Last, Eivind Tandberg, Managing Public Investment, in IMF, Public Financial2

Management and Its Emerging Architecture, p.313- 314


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There are several risks to the workshop not reaching its principal objectives.First, the

choice of participants attending might not be the most appropriate. Despite AFEs insistence

to member countries to avoid doing so, workshops are often seen by them as a sinecure to

reward not always meritorious staff rather than a learning exercise for those involved in the

relevant areas of work and in need of capacity building. Attempts are usually made to

minimize the risk by closely scrutinizing participants but they are not always successful.

Also, at times it is a delicate matter to refuse a participant who has been nominated by his/her

member country. The next risk relates to the tradeoff between the intensity of the workshop

and the responsibility to cover as much ground as possible to warrant the significant costs

involved in the preparation of such a workshop. Workshop organizers typically try to reach a

compromise between the need to cover key elements of the subject while seeking to avoid

making it too intensive. It has been the case with this workshop. Participants evaluation

forms will tell whether the risk was mitigated. The workshop is prioritizing a practical

approach to the topic. There are risks that it might not have succeeded and the workshop is

perceived as being too theoretical.

The workshop will revolve around five thematic areas.They are as follows:

1. The basics in regard to the capital budgeting process.It has been pointed out in the

literature that getting the basics of the budget process right is fundamental. What is less clear

is what exactly basics are and what are not. The sessions here will propose two elements as

forming form part of the basics: (i) an MTFF/MTBF; and (ii) the integration of recurrent and

capital budgets (a related issue being what is the most appropriate institutional setup for

successful capital budgeting). As pointed out above (and in the reference article in thefootnote), putting the budget in a robust medium term framework helps to contain public

investment within a fiscally constrained environment (which could be based on explicit fiscal

rules). Previously (but still prevalent in some countries), Ministries of Planning prepared

ambitious public investment programs (PIPs) in disregard to any medium term fiscal

framework.

The integration of the current and development budgets - a major reform aimed at improving

budgetary management- has proved a challenge. The sessions would provide an opportunity

for participants to discuss why separate current and capital budgets have evolved over time

and what are the challenges posed by that. Participants would be exposed to the basic

principles of a unified budgeting system and identify the potential areas of improvements that

would underpin a sustained transition to it.


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2. Increasing the efficiency and effectiveness of Public Investment. Public investments are

increasingly viewed as unaffordable, insufficient and sometime unsustainable posing a

challenge to prudent fiscal management. The sessions would examine the current practices

that undermine the efficiency and effectiveness of capital budgeting. The overall objective

would be to identify the best practices within the region and global context that promote: (i)

systematic cost benefit or cost effectiveness analysis of investment proposals; (ii) adoption of

a clear and transparent criteria to guide project selection, as well as (ii) institutional

arrangements for monitoring the implementation of the investment Projects.

The sessions will also explore ways of ensuring best practices at each of the following stages

of Public Investment management: Identification; Appraisal; Independent Review; Approval;

Implementation; Evaluation.

3. Financing of Public Investment.There are different ways of financing public investment,

each with their own risks and benefits. Domestic revenue, donor financing, borrowing on

concessional and non concessional terms and PPPs are the different ways to do so. The

sessions will discuss them but PPP will feature most prominently for the reasons explained

above. Participants will also learn about best practices from countries that are experienced in

this area. It is expected that case studies will be presented.


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AGENDA(FINAL)


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GROUPPHOTOGRAPHOFPARTICIPANTS


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LISTOFPARTICIPANTS


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Program Presentation

Tawfik Ramtoolah

AFRITAC East PFM Adviser

Monday September 1, 2014


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Welcome to all ParticipantsWorkshop Objectives

Overarching aim: discuss the major factors that need to be taken into account to ensurethat capital spendingleads to the creation of productive assets. Specifically, theworkshop aims at providing participants with a better understanding of the following :

basic requirements for successful capital budgeting including appropriateinstitutional arrangements

key features of good practices of public investment management systems forefficientand effectivecapital spending

insights into the systems of at least two internationally recognized good

practice countries

pros and cons of alternative financing and implementation modalities

risks associated with capital spending and ways of managing them

improving the linkages between strategic planning and capital budgeting


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Five thematic areas to be covered

1. Getting the Basics Right2. Increasing the efficiency and effectiveness of Capital spending

3. Financing Public Investment

4. Public Investment practices in AFE member countries and elsewhere

5. Institutional and Capacity building priorities and Technical Assistance

It is expected that through the coverage of those five themes, participants arebeing provided with the skills and knowledge required to improve capital

budgeting in their countries


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Requirement for the workshop to be successful

Good time management arrive on time and start on time Participation is important interaction between delegates and resource person

encouraged

Fairly intensive program still try to have a balance b/n intensity and relaxing

Overlapping nature of some of the themes/topics

Program prepared on basis that topics relevant, relates to the work ofparticipants but may be not always so

Flash drive with all the PPT and reading list (no hard copy) Workshop evaluation important


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Theme 1: Capital Budgeting Getting the Basics Right

Session 1.1: What are the Basics?

Tawfik Ramtoolah

AFRITAC East PFM AdviserMonday September 1, 2014


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What are the Basics?

Outline

PIP (or Capital budget) v/s Acquisition of Non Financial Assets(ANFA)

ANFA v/s growth

Current v/s Capital spending

National Planning Strategy, MTFF and MTBF(needs v/s funding

availability)

The appropriate institutional setting (one unified central financeagency v/s two)


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PIP (or Development or Capital Budget) v/s Acquisition ofNonfinancial Assets Issue No. 1

Government seeks to build assets through spending in the budget. It takes theform of PIP or Capital budget.

Question: are all the spending in the Capital Budget or all the projects in thePIP really about building assets or some merely recurrent in nature?

If a large part consists of salaries, they cannot be included as Acquisition offixed assets

..\ICD & Others - Courses\GFS 2014 - Clasification of Expense.pdf

..\ICD & Others - Courses\GFS 2014 - NonFinancial asets (detail).pdf


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Acquisition of non-financial assets and growth - Issue No.2

Do all ANFA contribute to growth? Is the impact on growth the same from one asset to another?

The construction of a market can be expected to increase value added

How about the construction of a bridge leading to nowhere (while elephant)

What should be done to strengthen the link between capital spending,acquisition of non-financial assets and growth?


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Current and Capital expenditure: Is the distinction alwaysuseful? - Issue No. 3

If capital spending has to be efficient and effective, how about currentspending?

All spending must be useful whether current or capital

A fertilizer/farm input subsidy program, if well designed and targeted couldhave greater impact on growth that a capital project

Is fixing leakages in a water network better that building a new dam?

Policy issues can be tackled using either current or capital expenditure e.g.

lower female enrolment The distinction between current and capital is sometimes useful sometimes

counterproductive the quality of the spending is more important than thedistinction b/n the two types


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National Planning strategy and MTFF/MTBF: Needs v/sFunding availability Issue No 4

Importance of medium term fiscal framework in constraining investmentspending

Importance of medium term budget framework in providing for fundingpredictability (locks in the funding)

An example is provided

..\Eritrea\MTFF South Africa 2011 -15.pdf

..\Eritrea\MTBF South Africa 2011 -15.pdf


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Macro-FiscalApprovedBudget 2012/13

BudgetEstimates2013/14 2014/15 2015/16 2016/17 2017/18

Nominal GDP 55,574.03 62,322.97 69,631.08 77,818.64 87,488.28 98,250

DomesticResources 7,467.60 8,843.40 9,993.90 11,719.90 13,682.00 15,980

Nominal GDP (%growth) 12.14% 11.73% 11.76% 12.43% 12.30

DomesticResources (%

growth) 18.42% 13.01% 17.27% 16.74% 16.80

Tax Revenue (%

growth) 15.07% 17.49% 17.42% 16.86% 16.8

Budget support (%growth) -93.38% -16.94% 2.91% 3.07% 2.9

Project support (%growth) 17.05% -28.18% -20.50% 3.00% 3.0

DomesticFinancing (%

growth) -21.12% -33.09% -8.03% -62.78% 101.28

Comprehensiveness of the expenditure ceiling the case of Uganda


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Uganda - The resource envelope

ApprovedBudget2012/13

BudgetEstimates2013/14 2014/15 2015/16 2016/17 2017/18

Domestic Resources 7,467.60 8,843.40 9,993.90 11,719.90 13,682.00 15,

URA Revenue 7,284.70 8,382.20 9,848.30 11,564.30 13,514.40 15,

Non-tax revenue 171.1 461.2 145.6 155.6 167.6

Loan repayments 11.8 0 0 0 0

Budget support 749.5 49.6 41.2 42.4 43.7

Grants 480.7 49.6 41.2 42.4 43.7

Loans 268.8 0 0 0 0

Project Support 1,992.80 2,332.60 1,675.30 1,331.90 1,371.80 1,

Grants 762.1 805.5 722.6 622.3 641

Loans 1,230.70 1,527.10 952.7 709.6 730.8

Domestic Financing 988.6 779.8 521.8 479.9 178.6

Resource envelope (inc.projects) 11,198.50 12,005.40 12,232.20 13,574.10 15,276.10 17,


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Uganda - From resource envelope to expenditure ceiling


BudgetEstimates2013/14 2014/15 2015/16 2016/17 2017

Resource envelope (exc. Projects) 9,205.70 9,672.80 10,556.90 12,242.20 13,904.30 1

External debt repayments -250.4 -300 -303.2 -301.7 -326.2

Amortization -217.2 -272.5 -288.5 -295.7 -322.8

Exceptional Financing -9.4 -13.2 -14.7 -6 -3.4

Arrears -23.8 -14.3 0 0 0

Domestic debt repayments -9.7 -9.7 -9.7 -9.7 -9.7

Resource envelope (excl. debt repayment) 8,945.60 9,363.10 10,243.90 11,930.70 13,568.40 1

Domestic arrears 35 0 50 50 50

Resource envelope (excl. debt repaymentand Domestic arrears) 8,910.60 9,363.10 10,193.90 11,880.70 13,518.40 1

Interest payments 839.2 908.5 729.5 719.2 674.2

o/w domestic 712.8 785.1 615.9 603.6 566.7

o/w external 126.4 123.4 113.6 115.6 107.5

Resource envelope (net of interest, debt andarrears) Expenditure ceiling 8,071.40 8,454.60 9,464.40 11,161.50 12,844.20 1


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Uganda - From resource envelope to expenditure ceiling


BudgetEstimates2013/14 2014/15 2015/16 2016/17 2017

Resource envelope (exc. Projects) 9,205.70 9,672.80 10,556.90 12,242.20 13,904.30 1

External debt repayments -250.4 -300 -303.2 -301.7 -326.2

Amortization -217.2 -272.5 -288.5 -295.7 -322.8

Exceptional Financing -9.4 -13.2 -14.7 -6 -3.4

Arrears -23.8 -14.3 0 0 0

Domestic debt repayments -9.7 -9.7 -9.7 -9.7 -9.7

Resource envelope (excl. debt repayment) 8,945.60 9,363.10 10,243.90 11,930.70 13,568.40 1

Domestic arrears 35 0 50 50 50

Resource envelope (excl. debt repaymentand Domestic arrears) 8,910.60 9,363.10 10,193.90 11,880.70 13,518.40 1

Interest payments 839.2 908.5 729.5 719.2 674.2

o/w domestic 712.8 785.1 615.9 603.6 566.7

o/w external 126.4 123.4 113.6 115.6 107.5

Resource envelope (net of interest, debt andarrears) Expenditure ceiling 8,071.40 8,454.60 9,464.40 11,161.50 12,844.20 1


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The appropriate institutional settingfor best practice Capital budgeting Issue No. 5

Issue: Is it better to have one unified central agency (e.g. Ministry ofFinance, Planning and Econ Dev) or two (Finance; Planning or NatPlanning Commission) or more (an Independent agency)?

Compare the case of South Africa and Tanzania


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The need to prepare the Current and Capital budgets together:Issue No. 6

Importance of preparing the 2 budgets together to ensure that recurrent costsof capital spending are included in the budget

Avoid building schools and not having teachers to teach or electricity or water

The issue is closely linked to the institutional fragmentation of the budgetprocess having different agencies involved could complicate it (becomesmore difficult to budget for recurrent costs)


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To summarize

Ensure PIP or Capital spending translate into productive assets Productive assets should have as large an impact on value added as possible

All spending should be useful whether current or capital the distinction b/nthe two is useful at times but could be counterproductive in other times

MTFF/MTBF are critical instruments to constrain capital spending andprovides an anchor to otherwise overambitious planning documents

Institutional set-up is important one agency might be better than two or

more (except for an independent one) Preparing current and capital together is better


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CAPITAL BUDGETINGWORKSHOP, ENTEBBEIndependent and Quasi-Independent

InstitutionsSimon Groom

[email protected]


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Reasons for establishingindependent or quasi-independent

institutions Objectivity/impartiality

Promoting good practices

Compensating for skill shortages byconcentrating capacities

Strategic guidance on capital investment

priorities

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Overview

S. Korea: PIMAC

UK: Major Projects Authority

South Africa: Planning Commission

Ireland: CEEU

European regional organisations

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Status of PIMAC

PIMA merged with Private InfrastructureInvestment Centre in 2005 - consistent withintroduction of unified framework for PPPproject appraisal

PIMAC is a statutory organisation under thePPP Act (as amended 2005)

PIMAC is an affiliated body of the KoreanDevelopment Institute, an independent think-tank under the tutelage of the MOSF.

Korean Development Institute comes under

Government Funded Research Institute Act

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A Unified Framework for PPP Project Appraisal

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Project Initiation(Solicited / Non-Solicited)

FeasibleProject?(PFS)

VFM Test

Formulation of PPP Alternative

STOPGO thru PPP

N

Y

NY

Phase 1

Phase 2

Phases 3

GO thru Government Project

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Organization Chart for PIMAC

85 staff in 3 divisions

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Policy ResearchUnit

Public InstitutionEvaluation Unit

ProgramEvaluation Unit

Executive Director

PFS Unit 1 RSF Unit PPP Policy UnitPPP ProjectUnit

Finance & IntlCooperation U

Policy and Research Division(21)

Public Investment Evaluation Division(32)

Public-Private Partnerships Divisio(30)

Conduct and manage PFS andRSF and RDF

Policy research on PIM

Research on Methodology ofProject Evaluation

Program Evaluation andPerformance Management ofPublic Investment Projects

Appraisal for SOE Projects

Formulate PPP Annual Plan anddevelop PPP guidelines

Conduct Evaluation of PPP Projec Researches on PPP Financing and refinancing PPP Capacity building training Infrastructure DB management

PFS Unit 2


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Role of PIMAC

Researcher Theoretical and policy studies on infrastructure

development and management

Research on evaluation methodology

Formulation of the Annual PPI Plan

Project Appraiser/Evaluator

PFS on large-scale government projects/programs PFS on large SOE projects

RSF (re-assessment study of feasibility) onongoing projects

VfM tests on PPP projects

EBP (in-depth evaluation of budgetary program)

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Impact of PIM System ReformsImplemented by PIMAC

Preliminary Feasibility Studies PFS performed for 528 projects 1999-2011, of

which 61.6% found to be feasible

Total Project Cost Management Average cost increase requested fell from 26.4% in

1996-99 to 4.4% in 2000-03

Agreed cost increases fell from 11.1% in 1996-99to 1.0% in 2000-03

Re-assessment Study of Feasibility 24 out of 140 projects subject to RSF were stopped

2006-2010

Total project cost savings of 18% made (compared

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Why is PIMAC Interesting?

Demonstrates potentially significant impactthat impartial, non-conflicted institutions canhave on improving value for money

Illustrates proportionality in appraisal effort

Shows how a unified approach to PPP can bestrengthened through organisationalarrangements

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Origins of MPA

Origins lie in a critical report by the NationalAudit Office, Assurance for High RiskProjects, instigated because of some highprofile project failures:

Defines assurance as independent assessment ofwhether required elements to deliver projects

successfully - good project management practicesand appropriate funding and skills - are in placeand operating effectively

Found that:

High-risk projects often large-scale, innovative andreliant on complex relationships between stakeholders

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Main Activities of MPA

Develop and maintain the first (!) system formonitoring Government Major ProjectPortfolio (GMPP):

Annual Report on progress around 200 projects

Traffic-light warning system for deliveryconfidence

Instigate mandatory Starting Gate Reviewprocess decision-step before any publicannouncement

Introduce system of Integrated Assurance andApproval Plans schedule of assurance

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Delivery Confidence Ratings for Major Projects

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Completeness of Submissions from Spending Ministries

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Why is MPA Interesting?

Illustrates usefulness of independent view onthe overall portfolio and systems

Identified need for MPA illustrates:

Potential loss of central oversight over capitalprojects in decentralised, performance-orientedbudgeting systems [consultants opinion!]

Recognition of high risk of many public sectorinterventions

Role of organisation highlights:

Insufficient attention to deliverability in thetraditional interplay between spending ministries

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Functions of NPC

Lead the development and periodic reviewSouth Africa Vision 2030 and long-termnational strategic plan

Lead investigations into critical long-termtrends

Advise on key economic and social issues

Assist with mobilising society around thenational vision

Contribute to reviews of implementation orprogress in achieving the objectives of thenational plan

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Activities of NPC

Prepared diagnostic Overview (June 2011)setting out key challenges in combattingpoverty and inequality and led consultations

Draft National Development Plan Vision for2030 (November 2011)

Undertook national dialogue on draft nationalplan, including sub-national governments andcivil society

Prepared revised National Development Plan(September 2012)

Currently advising government on

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NDP and Capital Budgeting

Diagnostic Overview includes MaterialConditions Diagnostic, which in turn coverssocial and economic infrastructure, identifyingcurrent provision, demand growth and gaps

Chapter 4 of NDP deals with economicinfrastructure, identifying key policy issues

and priorities in each sector -

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Why is the NDP Interesting?

Provides an example of an independent think-tank developing the kind of strategic guidancenecessary for identifying and prioritisingpublic capital investment

No role in budgeting, so no risk of dualbudgeting problems

Other AFE countries have planningcommissions, but sometimes more directlyinvolved in capital budgeting, potentiallyundermining the advantages of integratedbudgeting:

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Ireland: Central ExpenditureEvaluation Unit

Began in 1996 as Central Evaluation Unit(CEU) with finance ministry, but has alwaysoperated more or less independently

As late as 1990, Ireland had no systematicprocess for public investment management

Driver was the need to set up good systems forplanning capital investment projects fundedthrough EU Structural Funds and then theextension of these systems to domesticallyfunded projects.

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Functions of the Central Evaluation Unit

The functions of the original CEU were definedas: Assist ministries with developing (outcome-

oriented) performance indicators by which they areassessed;

Undertake interim evaluations of ministry plans,

including investment plans; Offer advice on and set standards for cost-benefitanalysis; and

Offer advice on wider evaluation issues, e.g., expost evaluations.

The Unit led the process of developing the

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Functions of the CentralExpenditure Evaluation Unit

The CEEU was created in 2006 with a widerremit than the CEU:

Verification of the application of the 2005 CapitalAppraisal Guidelines;

Co-ordination of overall implementation of thecomprehensive program of value for money and

policy reviews agreed by the Government in 2006;

Preparation and rollout of program evaluationsunder the National Development Plan 2007-2013;and

General remit to promote value for money acrossthe system including through the provision, as

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Why is the CEEU Interesting?

Example of a quasi-independent organisationoperating under the finance ministry (and from2011 the ministry for public expenditure andreform)

Demonstrates that a small, focused unit with agood deal of independence can be very

influential: original CEEU had staff of 10,including 6 specialist evaluators

Decentralised approach to improving capitalbudgeting: CEEU promotes good practice

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Regional Institutions to Fill Capacity Constraints:Joint Assistance to Support Projects in European Regions

(JASPERS)

Managed by European Investment Bank andco-sponsored by EC, EBRD and KfW

Provides advice to 13 New Member States aswell as candidate countries

Provides technical support to prepare majorinfrastructure schemes financed by EUStructural and Cohesion Funds

Improves to improve the quantity and qualityof requests for funding

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Regional Institutions to Fill Capacity Constraints:Western Balkans Investment Framework (WBIF)

Joint initiative of the EU, internationalfinancial institutions (EIB, EBRD & WB),bilateral donors (KfW) and governments of theWestern Balkans

Provision of small grants which are used to

attract larger amounts of loan finance(leverage)

Grants largely used for technical assistance inpreparing bankable projects for investors tomake their investment decision. TA provided

by contracted teams of consulting experts

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Edgardo S. Mimica ([email protected])1

Through time the NIS has achieved a high level of legitimacy in its:

TECHNICAL- ECONOMICAL DIMENSION due to its success in filtering the

bad and finding the best projects among 0.5 million alternatives that arerevolving in the data base. This gain in efficiency has helped to solve more

social demands with the limited, available public funds

ETHIC DIMENSION for the increasing transparency and availability of

contemporary information regarding the public investment process. Any proje

in the Integrated Bank of Projects has been made public through the Internet

See: www.bip.mideplan.cl/bip-consultas/inicio_ie.htm

DEMOCRATIC DIMENSION for the increasing participation of civil society in

discussion of investment decisions process. Private and non-governmental

organizations may also propose and formulate investment projects, but they

must coordinate through the Provincial or Local governments in order for them

to apply indirectly for public funding

POLITICAL DIMENSION for the coordination of government policies and

strategies

LEGITIMACY OF THE NATIONAL INVESTMENT

SYSTEM


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The National Investment System (NIS

strategic planning and budgeting for

public investment

Content of this PresentatioContent of this Presentatio


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In Chile (since 1973):

State Enterprises

Ministries

Organisms depending

from Ministries

Local governments

Majors Municipalities

Provincial Governments

Governors Formulate & appraisprojects, but.. accordi

to Ministry of Planni

regulations

To verify if Investment Initiatives are attractive, means:

Performing an Economic or SOCIAL Project Appraisal

(i.e Evaluation from the point of view of the entire Nation)

MINISTRY of PLANNINGdoes not formulate projects, they only REVIEW and MONITOR the

appraisal of projects


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National Investment System (NIS)

legal framework (summary)

Laws: Financial Administration of the Nation

Laws: Planning Ministry

Laws: Budget of Public Sector

Laws: Provincial Governments

Regulations: Office of the Budget

NOTE: A National Investment System must be overwhelmingly rooted in the National Legal

System of a country. Hopefully, requiring Constitutional amendment


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PURPOSE OF THE NATIONAL INVESTMENT SYSTEM

Contribute to increase the general welfare of the communi

To provide the public authorities with a plentiful portfolio of good investme

projects, so that they can choose those suited as more convenient for society as

whole

Investment projects must comply with quality standards in terms of elaboratio

evaluation and analysis, they are controlled and monitored according to uniform a

transparent rules and with an adequate democratic participation of both the pub

institutions and the organized community or civil society (interest groups, ngo

private sponsors, etc)

Purpose: To increase the quality of National Public Investment


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PROJECTS HAVE TO FOLLOW THE NATURAL DEVELOPMENT

CYCLE TO BE APPROVED

The N.I.S has been designed toimpose projects to go through th

Project Life Cycle, starting from the identification of a proje

idea/concept to the final operation and ex-post evaluation stage

The project development cycle is a continuous and dynamic proces

with a great deal of overlap, interaction and feedback among th

various phases. Many of the activities are inter-related and cannot b

confined to one particular phase (*)

This interrelationship is particularly strong among the phase

preceding the implementation. There is a considerable interactiobetween the implementation phase and the evaluation phase as th

lessons ofex-post evaluationare constantly used to suitably mod

the operations of the project

* Note: From Glenn P. Jenkins Project Appraisal Manual


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Identification of an unresolved problem, possible benefits, geographic localiza

and objectives

Collect additional data and check previous information. Examine technical

institutional alternatives, establish first cost assessments for investm

operation, project life and other requirements. Do a preliminary evaluation

Get all the detailed information needed. Eliminate certain unviable alternati

and evaluate the rest. Pre-arrange for financing. Study all modules: market

demand, technical, environmental, human resources, institutional. Do financ

economic and distributional appraisals. Do also sensitivity and risk analy

Find the best alternative

Detailed engineering design, blue prints and specifications, define all

logistics, do final adjustments previous to execution stage, draft bidding propo

Develop the chosen alternative and reduce the uncertainties to acceptable limdefine its parameters. Arrange final financing scheme. Go deeper into study

modules with the highest risks, check all the assumptions you made

Idea

Profile

Pre

Feasibility

Feasibility

Design

Components of NIS Project Cycle: Pre-Investment Stag


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Flux Diagram of a Project Life CycleIdea

Profile

Pre-Feasibility

Feasibility

Detailed design & Execution-Construction $$$.$$$.$$$

Operation $.$$$.$$$

Wait Reject

RejectWait

Reject

Reject

Wait

WaitExecution

Execution

Go deeper $$$

Go deeper $$.$$$

Go deeper $.$$$.$$$

Ministry of Finance


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Processes for appraising investment

projects ex-ante

Content of this PresentatioContent of this Presentatio


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1st) SYSTEMATICALLY KILL BAD PROJECTS AND

TO DO IT AS SOON & EARLY AS POSSIBLE,

DURING THE PRE-INVESTMENT STAGES

Politics & civil society enter the investment decision

discussion or start lobbying only after the NIS pre-investment process is terminated.

This is, public discussion is only on the portfolio of projects th

approved the NIS process

TWO GENERAL PURPOSES OF THE NATIONAL INVESTMENT SYSTEM (NIS

If this is successfully done, then


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2nd) TO SLOW DOWN THE INVESTMENT DECISIO

PROCESS BY INTRODUCING GRADUALISM

THROUGH A MANDATORY PROJECT LIFE CYCLE

TWO GENERAL PURPOSES OF THE NATIONAL INVESTMENT SYSTEM (NIS

If this is successfully done, then

The NIS becomes the anchor ofthe financial system; it provides

stability, forcing to approach the

desired end by gradual stages


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CAPITALBUDGETINGWORKSHOP,

ENTEBBETheme 1: Getting the Basics Right

Recap of the Days Presentation


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What are the basics?

Ensure PIP or Capital spending translate intoproductive assets

Productive assets should have as large an impact onvalue added as possible

All spending should be useful whether current orcapital the distinction b/n the two is useful attimes but could be counterproductive in other times

MTFF/MTBF are critical instruments to constraincapital spending and provides an anchor tootherwise overambitious planning documents

Institutional set-up is important one agency might

be better than two or more exce t for an


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Case for Independent Institutions:

Is there a place for an independent pre-appraisalprocess like S. Koreas? Do AFE countries have thesame sort of problems that S. Korea was trying toovercome? What would be the constraints in termsof human resource capacities and financing?

Are there advantages from the planning commission

model in terms of developing realistic plans anational consensus about the future direction ofinvestment? What are the potential disadvantages interms of mission creep and embedding the capital-current budgeting dichotomy?

Is the small, independent evaluation unit a possible


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Chiles National InvestmentSystem

NIS applies to all levels of government and hasstrong legal basis

MOP does not prepare capital budget: it maintainsand polices the NIS and is the ultimate arbiter indeciding which projects go forward during pre-investment stage

Clear allocation of roles and responsibilitiesbetween MOP , MOF and other actors

Rigorous, sector-specific methodologies economic analysis techniques, supported bypublished parameter values

NIS is iant filter screenin out ro ects at idea


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CAPITALBUDGETINGWORKSHOP,

ENTEBBEInvestment Project Cycle Ensuring good practice

& country examples

Simon Groom

[email protected]


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Introduction


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What is a Project?

UK definitionAproject has definite start and finish dates, a clearlydefined output, a well defined development path, anda defined set of financial and other resourcesallocated to it; benefits are achieved after the projecthas finished, and the project plans should include

activities to plan, measure and assess the benefitsachieved by the project.


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Project Cycle

Formalised sequence of activities and decision-making with feed-back loop

Moving from one stage to the next should notbe automatic and projects can be stopped atany time

Where necessary, Departments and public bodies should be prepared at any stage,despite costs having been incurred in appraising, planning and developing aproject, to abandon it if, on balance, continuation would not represent value formoney. (Irish Public Spending Code)

Number of stages not as important as thediscipline a formal project cycle structurebrings to the public investment management


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Indicative Project Cycle

Preparation

Appraisal

IdentificationEvaluation &Audit

FundingApproval

Implementation& Monitoring


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Project Cycle: Linksto Budgeting and

Strategic Planning

Preparation

Appraisal

IdentificationEvaluation &

Audit

FundingApproval

Implementation& Monitoring

StrategicPlanning

StrategicPlanning

Budgeting

Budgeting

Budgeting


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UK Project Cycle

Stage 1 Scoping the proposal andpreparing the Strategic Outline Case (SOC) Making the case for change

Exploring the preferred way forward

Stage 2 Planning the scheme andpreparing the Outline Business Case (OBC) Determining value for money

Preparing the potential deal

Ascertaining affordability and funding requirement

Planning for successful delivery

Stage 3 Procuring the solution and


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Ireland: Decisions and Approvals Linked to ProjectStages


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No Inventory No strategicfilters; weak

projectscreening

Low allocation; Newfavored overcompletion

Consistentunder

execution;incomplete

projects

Sporadic audit,evaluation


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Project Identification

(& Strategic Guidance)


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Identification: Key Elements

Authoritative and operational strategicguidance to guide identification

Credible = realistic

Operational = not so vague that it is subject tointerpretation

Authoritative = supported at the highest politicallevel

Formal projection initiation process, involving:

Preparation of project profile/concept note

Preliminary screening


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Where Do Project Concepts Come From?

Sector strategies

Problem and stakeholder analysis (framed by sector strategies)

Identification of appropriate project ideas to address anidentified problem (including non-engineering solutions)

Asset management systems

Spontaneously from politicians through consultation withconstituents origin of some good ideas, but also of many

potential white elephants NEED TO FOLLOW SAMEPROJECT CYCLE AS ALL OTHER PROJECTS


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Strategic Guidance

Starting point for identifying project concepts Basis for prioritisation

Investment strategies better when costed,framed by realistic resource constraints andspecific (not visions)

No blueprint for strategic planning:

National development strategies/plans withinvestment/infrastructure components

National investment/infrastructure strategies

Sector investment strategies - better if part of

13


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Ireland

Economic and Social Infrastructure OperationalProgramme of 7-year National Development Plan2000-06 (linked to EU funding cycle)

Sector investment strategies, e.g., Transport 212006-2015 (within NDP 2007-13)

United Kingdom National Infrastructure Plan 2013 a new

instrument for UK

Previously, ministry investment strategies

Netherlands

Examples of Advanced CountryStrategic Guidance

14


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Focus on the role of the publicsector in a mixed marketeconomy

Based on realistic estimates ofresource availability, includingEU Structural Funds

Integrated planning

Factors in the Success of IrelandsNDP 2000-2006

15


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Ireland: Process for Identifying NationalInvestment Priorities

16


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Structure of UK National InfrastructureStrategy 2013


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Ireland Preliminary appraisal for projects >!5 million to

assess case for in-depth appraisal of fully preparedproject:

Sets out project objectives; assesses needs; and identifiesoptions for in-depth analysis

United Kingdom

Strategic Outline Case for projects prepared withan emphasis on the Strategic Case:

Examines strategic priority; identifies project options forin-depth analysis; and assesses affordability.

Examples of Formal Project Initiation Processes

19


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Each of 5 thematic cases is given more or lessemphasis at different stages of projectdevelopment:

1. Strategic Case: sets out rationale forproposed investment, making the case at the

strategic level2. Economic Case: assesses economic costs

and benefits of the proposal to society as awhole, and spans the full life cycle of theproject

20

UK: 5 Thematic Cases to Be Developed andMonitored at Each Stage of the Project Cycle


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Strategic Outline Case Outline Business Case Full Business Case

Strategic Case Completed in full but maybe revised later

Revisited. Revisited and revised if required.

Economic Case Completed as far as reviewof a long-list of options,recommended way forwardand an initial short-list forOBC stage

Completed according tomethodological guidance onappraisal and evaluation incentral government (theGreen Book).

Findings of procurementincluded in the economicanalysis and recorded.Economic case re-assessed.

Commercial Case Addresses the fundamentalsof any potentialprocurement or deal, e.g.,initial identification ofpotential PPP options.

Outlines envisaged dealstructure/s and any contractualclauses and paymentmechanisms.

Recommended deal writtenup.

Financial Case Discusses likely affordabilityof the proposed project

Detailed analysis ofaffordability and any fundinggaps.

Affordability and fundingissues resolved.

Management Case Outlines how the project willbe set up and managed

Develops in more detail howthe project will be deliveredwith an outline of theproposed project managementplan.

Detailed plans for deliveryand arrangements forrealization of benefits, themanagement of risk and expost evaluation are recorded

21

UK: Strategic Outline Case


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1. Business case basics

a. Aims & objectivesb. Options is there a proposed option and will it

achieve the aim/s?

c. What are the fallbacks/other options?

d. What must be taken into account and/or cannotbe ignored?

2. Timeline

3. Team capability

4. Finances estimated cost and availablebudget

5. Risks

22

UK: Starting Gate Reviews for Major Projects


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Examples of Formats for Project Profiles

South Africa:

The problem that has given rise to the need forthe project

The statistical data, baseline information andservice-delivery indicators pointing to the needat this time

The extent and urgency of the need

The consequences if the need is not met

The proportion of the need a given request isintended to meet

How the project fits into the ministrys long-


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Logical Framework Approach

Sets out hierarchy of project objectives based oncause and effect (internal project logic):

Overall Goal

Project purpose

Outputs

Activities

Identifies measurable indicators of achievement andmeans of verification

Identifies assumptions and risks (external projectlogic)


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Preparation & Appraisal


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Preparation & Appraisal: KeyElements

Regulated process with main steps, decisionsand allocation of roles and responsibilitiesclearly defined and understood by participants

Rigorous methodologies, applied consistently,but proportionately

Independent review or assessment


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Project Preparation

Project concept developed sufficiently to verifygood use of public money

More than an engineering analysis; less than adetailed design (at least for appraisal decision)

Crucial to identify and analyse project

alternatives Involves:

Technical design and costing

Feasibility studies economic/financial &technical/engineering

Pre-feasibility studies for major/complex projects

27


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Ireland

Project preparation process regulated by Part B Appraisal & Planning - of the Public SpendingCode setting out appraisal steps, approvalsrequired and roles and responsibilities -http://publicspendingcode.per.gov.ie/appraisal-and-planning/

The Central Expenditure Evaluation Unit of theDepartment (Ministry) for Public Expenditure andReform is responsible for system design andpromoting use of good practice

Spot checks required to ensure good process has

been followed

Examples Regulated Project Preparation Processes

28


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Strategic Outline Case Outline Business Case Full Business Case

Strategic Case Completed in full but may berevised later

Revisited. Revisited and revised ifrequired.

Economic Case Completed as far as review ofa long-list of options,recommended way forwardand an initial short-list forOBC stage

Completed according tomethodological guidance onappraisal and evaluation incentral government (theGreen Book).

Findings of procurementincluded in the economicanalysis and recorded.Economic case re-assessed.

Commercial Case Addresses the fundamentals ofany potential procurement ordeal, e.g., initialidentification of potential PPPoptions.

Outlines envisaged dealstructure/s and anycontractual clauses andpayment mechanisms.

Recommended deal writtenup.

Financial Case Discusses likely affordabilityof the proposed project

Detailed analysis ofaffordability and anyfunding gaps.

Affordability and fundingissues resolved.

Management Case Outlines how the project willbe set up and managed

Develops in more detail howthe project will be deliveredwith an outline of theproposed projectmanagement plan.

Detailed plans for delivery anarrangements for realization obenefits, the management ofrisk and ex post evaluation arerecorded

29

UK: Outline Business Case


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Ireland

Part D Standard Analytical Techniques- of thePublic Spending Code gives guidance on appraisalmethods and techniques, including financialanalysis and economic cost-benefit analysis -http://publicspendingcode.per.gov.ie/d-standard-analytical-techniques/

Sector specific guidance developed for keyinfrastructure, e.g., National Road Authoritys2011 Project Appraisal Guidelines -http://www.nra.ie/policy-publications/project-appraisal-guideli/ - and supporting parametervalues

Methodological Guidance

30


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1. Introduction and background2. Overview of appraisal and [ ex post]

evaluation

3. Justifying action [including reasons forgovernment intervention]

4. Setting objectives: objectives,

outcomes and outputs5. Appraising the options

a. Creating options

b. Valuing the costs and benefits of options

c. Adjustment to values of costs and benefits

d. Discounting [including specification of

discount rate

31

UK Green Book: Appraisal and Evaluationin Central Government


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Ireland

Strong proportionality in the use of assessmenttools [see next slide]:

The complexity of the appraisal or evaluation of aproject or programme and the methods used willdepend on the size and nature of the project orprogramme and should be proportionate to itsscale. The resources to be spent on appraisal orevaluation should be commensurate with the likelyrange of cost, the nature of the project orprogramme and with the degree of complexity ofthe issues involved.

United Kingdom

Proportionality in the Application of Assessment Tools

32


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Ireland: Proportionality in Use of Assessment Tools

Project Value (Minimum) Type of Assessment

< !0.5 million Simple assessment for minorprojects, such as those involvingminor refurbishment works, fit-outs, etc.

> !0.5 million < !5.0 million Single appraisal (combiningelements of Preliminary Appraisaland Detailed Appraisal)

> !5.0 million < !20.0 million Multi-criteria analysis of options

> !20.0 million Cost-benefit analysis or cost-effectiveness analysis (dependingon the extent to which benefits canbe readily monetised)

33


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Basic Appraisal Criteria

! Is it clear why the government needs to act?

! Does the proposal meet with thegovernments published policies and priorities,and with sector strategies?

! Is it clear what actual needs (rather thandesires) the project is designed to meet, and

how the projects outputs can be expected todo this?

! Have the objectives and expected results ofthe proposed project been expressed clearly ina manner that is measureable and time-bound?

! Are the claimed benefits realistic?


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Appraisal Summary Table Dateproduced:

Contact:

Name of scheme: Name

Description of scheme: Organisation

Role Promoter/Official

Impacts Summary of key impacts Assessment

Quantitative Qualitative

Monetary

Distributional

(NPV) 7-pt scale/vulnerabl

e grp

Economy

Business users & transport providers Value of journey timechanges()

Net journey time changes ()

0 to2min

2 to5min

> 5min

Reliability impact on Business users

Regeneration

Wider Impacts

Environment

al

Noise

Air Quality

Greenhouse gases Change in non-traded carbonover 60y (CO2e)

Change in traded carbon over60y (CO2e)

Landscape

Townscape

Historic Environment

Biodiversity

Water Environment

Social Commuting and Other users Value of journey timechanges()

Net journey time changes ()

0 to 2 to

35

UK: Appraisal Summary Table for Transport Projects


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Optimism Bias

Optimism bias is a systematic tendency forproject costs to be under-estimated and forproject benefits to be over-estimated.

Research found significant cost over-runs andtraffic shortfalls in a large (200+) sample of

major transportation projects, irrespective ofcountry, continent or transport mode, and withno tendency to diminish.

9/10 projects had cost over-runs: average(real) cost over-run was 45% for rail, 34% for

bridges and tunnels and 20% for roads.


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UK: Adjustment Factors for OptimismBias

Project Type Historical Average % Increase at OutlineBusiness Case

Capital Expenditure Works Duration

Standard buildings 24% 4%

Non-standardbuildings

51% 39%

Standard civilengineering works

44% 20%

Non-standard civilengineering works

66% 25%


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Ireland

If the value of the capital project exceeds !20mthen the CBA (or CEA) is submitted to the CentralExpenditure Evaluation Unit (CEEU) for theirviews prior to approval in principle by theauthority responsible for approving the project.

The CEEU gives its views to the agency

sponsoring the project and may publish theirreview of the CBA (or CEA) on their website.

United Kingdom

Business cases for projects above delegated limitsmust be reviewed and approved by the economic

and finance ministry at key decision points.

Examples of Independent Review

38


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UK: Gateway Review Process

Peer review of a project carried out byindependent experts who are external to theproject and the implementing agency

Initiated as part of 2007 procurement strategy,Transforming Government Procurement

5 stage review: Business Justification (SOBC)

Delivery Strategy (OBC)

Investment Decision (FBC)

Readiness for Service

39


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Independent Assessment: S. KoreasPreliminary Feasibility Study (PFS)

Short and brief evaluation of a project to produce information for budgetary

decision

Owned by the Ministry of Planning and Budget (MPB) and managed byPIMAC

While (detailed) feasibility study analyzes technical aspects of a project indetail, PFS emphasizes broader analysis of a project from a national socio-economic viewpoint.

Meaning of PRELIMINARY is two-folded:

Provisional, or short and brief; and

PFS costs about 80~100 million Won, and takes about 6 months; DetailedFS costs about 300 million to 2 billion Won.

Preceding a (detailed) feasibility study

The National Finance Act of 2006 provides the legal basis of PFS.

40


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41

Coverage of PFS

All new large-scale projects with total costs amounting to 50 billion Won

(about USD 50 million) or more are subject to PFS.

Local government and PPP (Public-Private Partnership) projects are alsosubject to PFS if central government subsidy exceeds 30 bill Won.

Initially focused on economic infrastructure, PFS has expanded to socialinfrastructure and non-infrastructure (e.g. R&D, welfare) programs.

Projects with little benefit of PFS are exempted

Typical building projects: government offices and correctionalinstitutions

Legally required facilities: sewage and waste treatment facility

Rehabilitating projects and restoration from natural disaster

Military facilities and projects related with national security


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Flowchart of PFS Analyses

Project proposal

Review of statement of purpose Collect socio-economic, geographic, and

technical data Brainstorming (Other Alternatives) Issues to be addressed

Background study

Consistency with higher-level plan

and policy directions Project risk (financing and

environmental impacts) Project-specific evaluation item

Policy analysis

Demand analysis Cost estimation

Benefit estimation Cost-benefit analysis Sensitivity analysis Financial analysis

Economic analysis

Overall feasibility Recommendations

Analytic Hierarchy Process

Regional backwardness indexanalysis

Regional economic impactanalysis (IRIO Model)

Balanced regional developmentanalysis


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Review of Appraisal Decision

Ireland Approval to Proceed to Tender by Sanctioning

Authority after verification that project asdesigned is consistent with Approval inPrinciple

Check on continued validity of appraisaldecision based on tender prices

United Kingdom

Full Business Case prepared after tenderdecision and before contract signature


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Screening vs Selection

Screening is a quality control process -identification & appraisal - that precedesbudgeting

Selection is done through a funding decisionmade through the budget/MTBF process

(depending on preparedness of project): Involves transparent prioritisation (usually within

sectors/sub-sectors)

Screening results taken into account, but fundingapproval should also be a portfolio decision drivenby practical and political factors


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47

Integrating Project Screening and ProjectSelection


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Advantages of MTBF for PIM

Predictability of MTBF gives a framework fordeveloping a project pipeline andprogramming implementation

Projects that pass preliminary screening can beprogrammed for outer years of MTBF

Preparation can be programmed Prepared projects with positive appraisal can

be programmed for implementation in budgetyear or later depending on fiscal space

48


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Annual Roll-Over of MTBF

Previously identified project concepts movecloser to implementation

Preparation of screened concepts isprogrammed to precede opening up of fiscalspace for implementation

Projects ready for implementation (i.e., priorityprojects with positive appraisals and necessaryplanning approvals and documentation)proposed for funding in forthcoming budgetyear

Other new concepts enter the outer year of the 49


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Advantages of PIM for MTBF

Good PIM can strengthen the MTBF MTBF ceilings cannot be set independently of

commitments to ongoing projects or of theproject pipeline

Sector ministries need to prepare baseline

capital expenditure programmes as an input toceiling setting

Importance of good financial monitoring andaccurate forecasting of project completionrates

50


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Project Selection Criteria

Alignment of the project with Governmentsexpressed national spending priorities and withsector investment plans.

Priority Government attaches to improvingservices to the target beneficiaries of the

project. Consistency of the proposed spending with the

balance of spending between different sub-sectors within its sector.

Indications that the project will deliver better


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Capital Budgeting in Ireland

Performance-oriented budgeting andmanagement are intended to provideappropriate incentives and accountability sothat projects are selected in line with nationaland sector policy priorities.

Similarly, accountability arrangements fordelivering public sector outputs discouragebudgeting of new projects at the expense ofongoing projects.

Prioritisation criteria established in medium- to

long-term strategic planning documents,


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Gate-keeping and Project Selection in Chile

Legal provisions prevent unscreened projectsfrom entering the budget

Projects must have come through the NationalInvestment System and

Have a positive assessment from the Ministry ofPlanning

Congress cannot add projects to the budget

Spending agencies have portfolios of positivelyappraised projects greater than their fundingallocations

53


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Capital Budgeting in Botswana and South Africa

Ministries budget within capital ceilings Structured negotiation process for finalising

ceilings

Distinction between budget for ongoingprojects - capital baseline - and new projects

Finance ministries challenge line ministryprioritisation decisions

In Botswana projects must be in NDP;Parliament approves total estimated cost ofproject not annual allocation - and annual

ceiling for ministry capital spending, allowing

54


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Project Implementation

& Monitoring


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Implementation & Monitoring

Tendering and contracting Agreed resources used to carry out project

activities and deliver outputs

Financial reporting

Periodic checks to assess progress and enable

adjustments Capital programme monitoring and updating

Systematic and regular information flows fromproject implementers to management anddecision makers

Simon Groom 56

N.B. Without good projectimplementation plans monitoring


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Ireland: Project Management Structure

Sanctioning Authority: on basis of monitoringreports must satisfy itself that project is beingdelivered within specified costs, to specifiedstandards and on time

Sponsoring Agency: overall responsibility forproper management of project; makes legalcommitment with contractor

Steering Group: oversees the execution of theproject; usually chaired by Sponsoring Agency

Project Coordinator: person responsible forensuring project is executed on time, to the

Simon Groom 57


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UK: Assurance Process

Independent view of how a project isprogressing.

Involves checking that: The project remains viable in terms of costs and benefits

(business assurance)

Users requirements are being met (user assurance)

The project is delivering a suitable solution (technicalassurance).


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Project Monitoring, Re-assessment andAdjustment in S. Korea

Total Project Cost Management System(TPCM)

Used to monitor closely the total cost of majormulti-year projects and to prevent significantcost escalation

Strict principles limiting the justifications forcost increases and the authority to agree tosuch increases.

Re-assessment of Demand Forecast (RDF)

Demand forecasts for major projects are re-


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Evaluation & Audit


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Evaluation & Audit

Completes the project cycle Project results assessed compared to what was

planned as with monitoring, if projectplanning is weak evaluation becomes difficult

Ex post studies to assess economy, efficiency,

effectiveness and sustainability compared to exanteassessments

Lesson learning for design and implementationof similar projects

Procedures need to be in place to apply lessons

Internal evaluations su lemented b selective

62


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Ireland: Post-Project Reviews

All projects >!20 million; at least 5% sampleof the rest

Carried out by project Sponsoring Agency

Those conducting reviews and evaluationsshould not be the same people as conducted

the appraisal or managed the implementation To determine whether:

The basis on which a project was undertakenproved correct;

The expected benefits and outcomes materialised;

63


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UK National Audit Office

Independent body reporting to Parliament

Reports used by Public Accounts Committeewhich holds hearings and then reports toParliament

NAO has no judicial or administrativeauthority

Central government spending only

Legally empowered to carry out performanceaudits; does this on a (small) sample basis witha focus on problem or innovative projects

64


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NAO Performance Audit of FiReControl Project

Project to replace 46 local control centres with9 regional centres and improve the efficiencyand resilience of fire and rescue services

Project stopped before completion at a cost of469 million: nothing to show but 8 desertedbuildings with limited alternative uses

Findings Lack of consultation at project concept and design

stage stakeholders didnt want the project!

Project launched too quickly without adequatepreparation - unrealistic forecast costs andsavings, nave over-optimism on the deliverability

65


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FiReControl Project: Recommendations

Follow proper business case approvalprocedures and ensure that an appropriate levelof challenge is applied to the approval process

Follow proper project and programmemanagement procedures and ensure staff hasright skills

All its future contracts contain terms andconditions which clearly define responsibilitiesand outputs

Clearly identify roles and responsibilities and

66


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NAO Guidance

Delivering successful IT-enabled businesschange: Case studies of 9 successful projects,including: Modernisation of welfare payments system,

London congestion charging

e-procurement system

Guide to initiating successful projects,including 5 examples of good project planning,including: 2012 Olympic Games

Building programme academies - for new type of

school

67


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