managing public investment
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Managing Public Investment. Overview of Ireland’s Experience of Public Investment Management –with particular emphasis on Transport Projects. Tom Ferris Public Investment Workshop Istanbul, Turkey February 29, 2008. Content of Presentation. Background to Irish Economy - PowerPoint PPT PresentationTRANSCRIPT
Managing Public Investment
Overview of Ireland’s Experience of Public Investment Management –with particular emphasis on Transport Projects
Tom FerrisPublic Investment Workshop
Istanbul, Turkey
February 29, 2008
Content of Presentation
1. Background to Irish Economy
2. Planning and Appraisal of Investment
Projects (ex-ante)
3. Budgeting for Public Investment
4. Monitoring and Implementation
5. Influence of Politics on Project Decisions
6. On-going Capacity Building
1. Background to Irish Economy
Population 4.3 million (2007) Independence 1922 EU member since 1973 Real GDP growth 5.7 % (2006) Unemployment 4.5 % (2007) Exports * 80 % of GDP (2006) Imports* 69 % of GDP (2006) * Exports and imports of goods and
services
Ireland’s Economic Transformation: GDP per capita, EU15=100 PPP exchange rates
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EU Ireland
Ireland’s Rapid Growth*–not a ”Silver Bullet”
Policy-driven:- embrace openness = most important factor- industrial policy…attract Foreign Direct Inv.- education policy…1967/1996 (2nd/3rd free fees)- fiscal policy…eventually- incomes policy
“Enabling” factors: – US economy – high technology boom– elastic labour supply
Role of the EU: – governance – funding------
* See Reference 2: Honohan/Walsh
EU Membership very important for Ireland
Market access:- greater trading opportunities- trade diversification- reduced dependence on UK economy
Completion of Single Market
EMU and Euro
EU structural reform agenda
Access to EU funding
2. Planning and Appraisal of Investment Projects
Investment focus of 1980s/early1990s was on human capital, skills and education
Little infrastructure investment in 1980s and early 1990s (and rapid economic growth in 2000s), put serious pressure on infrastructure
Need to build-up technical, financial and managerial capacity to cope with “growth”
EU funds provided capital. Under EU regulations, a better planning and evaluation culture and capacity was introduced in Ireland
Some project “problems” – erroneous initial estimates; construction cost inflation; design changes and project management weaknesses*
* See ESRI Reports (Reference 1 and Reference 4)
Overview of Planning Cycle
Capital Appraisal Guidelines provide for a 4-stage “project cycle”
Appraisal and planning stages may overlap in practice (and also involve mid-term evaluation)
Appraisal
Implementation
Post-Project Review
Planning/Approval
Evaluation Cycle involving…
Cycle built around EU requirements Ex-ante evaluation Interim evaluation Mid-term evaluation Ex-post evaluation
---Economic & Social Research Institute (ESRI) used to do Ex-ante Evaluations and Mid-term Evaluations for each 5-year National Development Plan (linked-to EU cycles)
---Most Operational Programmes had an ongoing evaluator presence (either an independent internal evaluation unit or an external evaluator)
Basic Questions developedfor Project Evaluation
Rationale Is there a market failure?
Continued relevance What are the implications of external developments?
Effectiveness Are we meeting our objectives?
Efficiency Are benefits commensurate with costs? Could it be delivered more economically?
Impact What difference, if any, has it made?
Overall question: Do we get value for money?
Central Evaluation Unit set-up Main problem
No common understanding of purpose or focus of evaluation
Independent Evaluation Unit under Finance Ministry, set-up in 1996, to: Assist Ministries with performance indicators Responsible for interim evaluation of plans Advisory role on wider evaluation issues Advisory/standard-setting role re Cost Benefit Analysis
Promoting best practice in evaluation and appraisal, e.g.; Working Rules on Cost-Benefit Analysis, June 1999
E.U. Commission
CSF Managing Authority/Dept of Finance
Operational ProgrammeManaging Authorities
Implementing Bodies (Grant Approving Bodies)
Final Recipients
Learning from EU-driven Management/Implementation Process
Guidelines
Regulations
Policy
Reports
Information on Progress
Reporting on Expenditure
Capital Appraisal Guidelines
Designed to be rigorous in their approach to management and evaluation of capital programmes and projects
Reflect best practice
Introduce greater proportionality into project assessment.
New Capital Appraisal Guidelines
Guidelines 2005: do Ex-Ante Appraisal of all Capital Projects Proportionate to the value of the projects
Guidelines 2005 specify following thresholds: < €m 0.5: do “Simple Assessment” >€m 0.5 < €m 5: do “Single Appraisal” > €m 5 < €m 30: do Multi-Criteria Analysis > €30 million: do Cost-Benefit Analysis
Above take account of revisions announced in Department of Finance letter of Jan. 2006
Sponsoring Agency responsible for Appraisal (using “in-house” or “bought-in” expertise)
Pre-requisite to get approval from the Sanctioning Authority
* See Reference 5: Department of Finance’s Circulars of February 2006 and of January 2006
Key Issues in Appraisal
Guidelines 2005 identify following steps
Definition of project needs and objectives
Options analysis
Constraints
Quantification of costs
Analysis of options
Appraisal techniques (Cost Benefit Analysis, Cost Effectiveness and Multi-criteria Analysis)
Uncertainty, risk and sensitivity analysis
Clear-cut responsibilities
Clear distinction has to be made between those “authorising” investment projects and those “delivering”
2005 Capital Appraisal Guidelines require this distinction to be made,within project appraisal, planning, implementation and project management
Sponsoring Agency – primary responsibility for project appraisal and management (Page 10)
Sanctioning Authority – approves sponsoring agency proposals at various stages (Page 11)
Separation of functional responsibility
Sanctioning Authorities’ responsibilities…...
Approving in principle the capital projects to be funded with public assistance
Reviewing conditions under which a project may proceed through stages of development to ultimately becoming fully operational
Paying the public assistance to the Sponsoring Agency and ensuring the project’s delivery as approved
Sponsoring Agencies’ responsibilities…..
State Bodies, who plan and manage projects, have the responsibility of quantifying financial costs, and specifying funding sources
Cost quantification is required to cover ongoing capital and life cycle costs relating to the operation/maintenance of projects, and receipts generated by use of capital assets, as well as the costs involved in their creation
Costs of projects are required to be expected outturn cost, including construction costs, property acquisition, risk and contingency (and include the cost of possible future price increases and variations in project outputs)
Sponsoring Agencies’ do what Transport Projects?
National Road Projects are done under the supervision of the National Roads Authority (NRA). The Department of Transport channels funds for national roads through the NRA which allocates them to the relevant local authorities
Light Rail Projects in Dublin are undertaken by the
Railway Procurement Agency (RPA). The RPA is responsible for the procurement of light rail (LUAS) and metro
National Rail Projects are undertaken by Irish Rail, the
operator of the Irish rail network and the sole provider of passenger rail services in Ireland
Risk and Uncertainty
We live in an uncertain world
Risks should be clearer through project cycle Analyse risks and probability of occurrence Use “experience” with comparable projects Include some estimates for risks
Reduce ‘optimism bias’ with adjustments Adjust ‘cost’ assumptions ‘up’ Adjust ‘benefit’ assumptions ‘down’ Tackle uncertainties with use of sensitivity analysis
3. Strategic Planning and Budgeting
In the past, Ireland “planned” investment on an annual budgetary basis
Annual planning meant a “stop-go” approach to public investment
During the past twenty years, planning for investment has moved onto a medium-term footing
Move away from “Annual” Investment Planning
Specifically, Irish Government has moved from annual budgets to rolling investment programmes or financial envelopes
Rolling 5-year multi-annual envelopes are now in place for all investment areas
For TRANSPORT, the Irish Government decided in November 2005 to go further and to provide for a ten-year multi-annual envelope - called Transport 21 - to tackle transport infrastructure deficit*
* see Reference 13: Ferris
Medium-term Budgeting means.. Medium-term envelopes put overall limits on the amount of
investment that can take place annually.
Carry-over facility allows under-investment to be carried forward, under certain limits set-by the Department of Finance
Line Departments having to meet certain conditions, e.g. each required to make a contingency provision within overall envelope to meet any unforeseen demands/additional costs
In providing for projects, Departments must plan not just for contract price, but provision for likely price increases, variations in specifications and other factors which might arise during project construction
Rolling 5 year multi –annual capital envelopes : conditions
Vote Section (Dept. Finance) determines nature of responsibility delegated to Department
General conditions of Department of Finance sanction
Additional local/sectoral conditions, if any
Requirements of capital appraisal guidelines – responsibilities of sponsoring agency and sanctioning authority
PPP requirements
Appropriate balance between increased delegation and effective and efficient management of public capital
Conditions involve…....
General conditions of Department of Finance sanction to spend under the envelopes – requirements on Departments/Agencies:
Contractual arrangements for grants of public funding to private companies and individuals or community groups to safeguard the State’s interest in the asset
Provision for programme and project contingencies to meet any unforeseen demands or additional costs
Comply with D/Finance capital appraisal guidelines, and carry out spot checks of projects for compliance and report findings to D/Finance
Comply with PPP guidelines, public procurement and tax clearance requirements
Report to their Management Boards regularly on evaluation of capital projects and progress on capital programmes and projects
Report to D/Finance annually
Medium-term Transport Investment Programmes (with EU Funding)*
Peripherality Operational Programme, 1989/93;
Transport Operational Programme, 1994/99
Economic and Social Infrastructure Operational Programme, 2000/06
TRANSPORT 21 (2006-2015) within National Development Plan, 2007-2013
(with minimum EU funds – see Reference 7: Transport 21)
* These Transport Programmes have been part of overall National Development Plans covering the same periods
Transport 21 : 10 Year €34.4 bn. Investment Programme
National Strategy:
To develop a high quality national roads and public transport network and improve regional public transport
Greater Dublin Area Strategy:
To transform the transport system in the Greater Dublin Area
* Reference 7: Transport 21 (1 November 2005)
Minister for Finance on Transport Investment*
“The launch of this ten year capital investment framework … represents a massive and necessary commitment of resources…involves investment of over €34 billion in current prices in ….2006 to 2015. All projects…will be appraised and implemented in line with my Department’s Capital Appraisal Guidelines and the additional Value for Money initiatives…There will be intensive system of monitoring put in place and …much enhanced project management skills in the agencies provide…reassurance that Value for Money will be provided”
* see Reference 6: Minister for Finance
4. Monitoring and Implementation
Ireland has developed an effective evaluation system to ensure that projects are monitored on their implementation
National Development Plan (NDP) for 2007/2013 states “Robust monitoring and reporting arrangements…in relation to performance on implementation…This will include reporting on NDP outputs and impacts and will incorporate the preparation of an Annual Report on NDP progress which will be submitted to the Oireachtas [Parliament]. A Monitoring Committee, including regional and social partner representation, will be established to monitor Plan implementation”….see Reference 10: NDP
Procurement at Appraisal Stage of Projects
At appraisal stage a decision on form of procurement – traditional or PPP
Project manager for all projects above €30 million with individual responsibility for: Managing project Monitoring progress against contract Reporting progress to Project Board
Government’s Value for money/effectiveness framework
Reforms to public procurement including roll out of PPPs
Value for money measures in relation to capital appraisal, public procurement, ICT projects and consultancies announced by the Government on 11 October 2005 and the Minister for Finance on 20th October, 2005
Planned improvements to the operation of the expenditure review initiative
Government reform of the Estimates and Budgetary process announced in Budget 2006
Conditions for successful project implementation
Clear understanding of rules and regulations
Systems in place to communicate rules
Systems in place to ensure compliance with rules and regulations
Need to pay particular attention to eligibility rules in certification of expenditure
Good working relationship with European Commission Desk Officers
Central Coordination at “heart of process”
Management by Project
Appointment of an individual within the organisation as Project Manager for each capital project
Vigorous Competition for Public Sector Contracts
Fixed Price Construction Contracts*
Formal Contracts Review Monitor to ensure project objectives, performance criteria and
milestones are achieved Regular Progress Reports to Project Board Projects > €30m, separate quarterly progress reports for each
project to Management Board and Minister
* see Reference 9: Department of Finance Circular (27 October 2006)
Drive for Compliance…
Need to ensure compliance with all the “rules and regulations”
A new Central Expenditure Evaluation Unit (CEEU), at Finance Ministry, recently given important oversight role
CEEU’s overall objective is to inculcate best practice in the appraisal and the management of projects and programmes by those delivering investment
CEEU’s Unit to carry out spot checks at project level to verify compliance with the various rules
EU-driven Financial Controls in IrelandE.U.
Commission
Paying AuthorityDept. of Finance
O.P. Managing Authority
Intermediate Bodies
Grant Approving Bodies
Final Recipients
ERDF and CohesionControl Fund Unit
Control Checks
System Audit Checks
Annual Reports ofChecks
ProgrammeClosure Declarations
Certificates of Expenditure
Doing the “Back-check” Post Project Review to be completed by
Sponsoring Agency All Projects > €30m Representative sample of at least 5% of all
projects
Annual Report on capital envelope programmes to Department of Finance
Performance table – project outcomes vs. budgets – for all projects over €30m* Included in Annual Report on Capital, and Annual Report on Statement of Strategy
* See Reference 11: Ferris
Monitoring Transport Projects Department of Transport reviews projects’ progress on a monthly basis
with its Sponsoring Agencies and results are used to update financial allocations on a regular basis.
Funds are transferred between sectors where it can facilitate an acceleration of projects or where progress is slower than anticipated
Transport 21 Monitoring Group assisted by professional companies engaged to carry out audits of compliance with Guidelines and audits of progress in project implementation
Projects selected for audit by the Monitoring Group, and auditors submit a detailed report of all audits carried out, setting out their findings and making recommendations, where needed
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Cost escalation from decision to proceed (%)from Flyvjberg et al, American Planning Association
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Review of 258 transportation projects worldwide
Budget Over-runs: world-wide experience of transport projects
5. Influence of Politics on Project Decisions
Ireland is a parliamentary democracy, with each coalition government lasting about five-years
Each new coalition government sets its Five Year Programme at start of period of government
Such Five Year Programmes include overall commitments for planned investments
Such commitments are in the public arena for “checking”
Naturally, there may be potential to front-load or back-load projects within Plans (but now all Capital Projects have to go through the new Ex-Ante Appraisal process)
Extracts from “ An Agreed Programme for Government”, FIANNA FAIL, GREEN PARTY and
PROGRESSIVE DEMOCRATS”, June 2007
Overall, … to implement a programme under Transport 21 of investment and service development which will:
· Cut travelling times
· Improve safety· Deliver real commuting choice· Reduce congestion· Protect the environment
…….committed to the implementation of Transport 21 on time and on budget.
..Public Transport, recognising the importance of long-term planning in public transport investment, the Government will, in 2011, commence preparation of a successor to the 2006-2015 Transport 21 programme
….Dublin Transport Authority…Integrated Public Transport System…Roads…Road Safety…
-- see Reference 13: Ferris
Control on Expenditure
Government has collective responsibility for formulating overall budgetary policy
Government agrees annual aggregate levels of expenditure for the different Ministries, within this overall framework
Expenditure is required to be submitted for Parliamentary approval
Government also approves capital investment envelopes, while Ministers have delegated sanction from the Minister for Finance (but subject to certain checks)
Spot Checks imperative
Departments to ensure annual spot checks on a representative sample of all capital projects
Report annually to Department of Finance on spot checks carried out and on findings
Guidelines in place that have to be adhered to*
* see Reference 12: Department of Finance Compliance Circular, 15 May 2007
Checking-up on Spot Checks
CEEU to review Departments spot checks reports and report back on conclusions/findings
CEEU may carry out its own spot checks
To verify the quality and systems in place in Departments and Agencies for spot checking, or
On an ad hoc basis in respect of specific programmes/projects
Project Progress Reports and Contract Reviews may also be subject to spot-checking by the CEEU
CEEU = Central Expenditure Evaluation Unit @ Department of Finance
Departments provide Annual Report to Department Finance Delegated responsibility means increased
accountability for line Departments and their agencies
By end January each year Outline priorities for capital programme
consistent with capital envelope Provide statement showing consistency with
National Development Plan, National Spatial Strategy, Government programmes
For PPP projects an estimate of the unitary payments with breakdown between components
Total level of contractual commitment by year Progress report on projects and programmes
In 1990, little prior tradition of formal evaluation of public expenditure programmes in the Irish public administrative system*
Ireland learned quickly to develop an extensive experience with the evaluation of EU structural fund programmes during three successive programming rounds (1989/93; 1994/99; 2000/2006)
Ireland is consolidating evaluation experience with current National Development Plan (2007/2013)
* see Reference 3: Hegarty
6. Capacity Building
Specific Steps taken
Ireland has been developing an extensive experience during past 20 years, through:
1. Learning from EU processes2. Developing its own systems, e.g. Central
Evaluation Unit and Evaluations, e.g. ESRI3. Putting in place Guidelines
--Working Rules on Cost-Benefit Analysis, June 1999,
-- Capital Appraisal Guidelines, February 2005
While the foregoing are necessary, they are not sufficient …there has to be effective and efficient delivery “on-the-ground”
Importance of Training
Specialised training is being provided in the public sector
Ensures that officials are properly trained in areas such as procurement, project management, project appraisal and policy analysis
Professional courses and training are provided on three fronts: Civil Service Training & Development Centre’s Courses Masters in Policy Analysis Higher Diploma in Policy Analysis
7- Some Key Lessons
A well-organised and adequately resourced evaluation system, underpinned by appropriate structures and a clear sense of purpose or focus, is the key to maximising the benefits of investment
Evaluations carried out at right time by experienced and detached evaluators, with a focus on appropriate questions and support of key stakeholders, can make a difference
Important to develop networks for officials to share experience and best practice, including on-going EU liaison
Keep up the Momentum !
In 2006, ESRI called for the quality of project appraisal to be enhanced, by having Cost-Benefit Analysis (CBA) of projects conducted rigorously and independently of project promoters, and having central commissioning of CBAs and the exercise of quality control on studies delegated to Departments and agencies*
In 2008, Ferris called for the early establishment of fully operational Dublin Transport Authority to allow for much greater co-ordination in the planning of transport investment in Dublin, and the delivery of a supporting detailed traffic management plan for the GDA*
* See Reference 8 (ESRI) and Reference 14 (Ferris)
Thomas Jefferson (1743/1826)*
* “The price of freedom is eternal vigilance”
the delivery of successful
projects depends on focussed
planning, efficient implementation
and effective monitoring
Questions?Questions?