Transcript Management by Project

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
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

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

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
140.0
120.0
100.0
80.0
60.0
40.0
EU
Ireland
20.0
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0.0
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”
Post-Project
Review
Appraisal
Implementation
Planning/Approval
Appraisal and planning
stages may overlap in
practice (and also
involve mid-term
evaluation)
Evaluation Cycle involving…

Cycle built around EU requirements

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

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 developed
for Project Evaluation

Rationale
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Continued relevance
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Are benefits commensurate with costs?
Could it be delivered more economically?
Impact
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Are we meeting our objectives?
Efficiency
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What are the implications of external developments?
Effectiveness
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Is there a market failure?
What difference, if any, has it made?
Overall question: Do we get value for money?
Central Evaluation Unit set-up

Main problem

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Independent Evaluation Unit under Finance Ministry,
set-up in 1996, to:
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No common understanding of purpose or focus of evaluation
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
Learning from EU-driven
Management/Implementation Process
E.U. Commission
CSF Managing Authority/
Dept of Finance
Reports
Information
on Progress
Operational Programme
Managing Authorities
Guidelines
Regulations
Reporting on
Expenditure
Implementing Bodies
(Grant Approving Bodies)
Final Recipients
Policy
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

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Proportionate to the value of the projects
Guidelines 2005 specify following thresholds:
 < €m 0.5: do “Simple Assessment”
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>€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

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Analyse risks and probability of occurrence
Use “experience” with comparable projects
Include some estimates for risks
Reduce ‘optimism bias’ with adjustments
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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
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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*
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Formal Contracts Review
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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 Ireland
E.U.
Commission
ERDF and Cohesion
Control Fund Unit
Control Checks
Paying Authority
Dept. of Finance
O.P. Managing Authority
System Audit Checks
Intermediate Bodies
Annual Reports of
Checks
Programme
Closure Declarations
Grant Approving Bodies
Final Recipients
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
Budget Over-runs: world-wide
experience of transport projects
40
35
25
Review of 258 transportation
projects worldwide
20
15
10
5
-6
0
-6
0 1
-4 -41
0
-2
-2 1
0
-0
0
-2
21 0
-4
41 0
-6
61 0
81 80
10 100
1
12 12
1 0
14 140
1
16 160
1
18 180
1
20 200
1
22 220
1
24 24
1 0
26 260
1
28 280
1
-3
00
0
-8
Frequency (%)
30
Cost escalation from decision to proceed (%)
from Flyvjberg et al, American Planning Association
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
6. Capacity Building

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
Specific Steps taken
Ireland has been developing an extensive experience
during past 20 years, through:
1.
2.
3.
Learning from EU processes
Developing its own systems, e.g. Central
Evaluation Unit and Evaluations, e.g. ESRI
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?