June 8, 2017Doug Hadden
Public investment planning is often inaccurate because of poor estimates. Projects are often delayed, and budgets are often exceeded. There are often unexpected operation costs after the bridge, road, street, hospital or school is built.
Estimates are particularly inaccurate for smart city investments. Memorandums of Understanding are signed with large vendors before priorities are well-understood. Public-Private Partnerships and other funding mechanisms are used where long-term costs are cannot be modelled well because of the lack of experience.
The use of feedback loops throughout the Public Investment Management (PIM)lifecycle can improve estimate accuracy.
Good practices in public investment planning forms the core for these feedback loops:
- Common budget classifications and metadata used across PIM subsystems to identify historical costs
- Use of historical cost information to create cost drivers that act as unit cost estimates so that project and job cost estimates are based on consistent unit costs shared across government entities
- Use of historical project timelines to identify cost requirements across many years
- Program and performance budgeting that aligns similar public public investments across government entities with consistent performance goals
- Scenario planning to identify potential project and cost risks that need to be mitigated and monitored
- Medium term budget plans that includes any multiple year commitments and projected commitments from new projects
PIM feedback loops improve budget estimates for new and ongoing public investments to update cost drivers and improve forecasting for ongoing projects:
- Procurement: tendering results indicate any gap between estimated and actual prices
- Contract Management: contract results show project change orders that affect project cost and timing
- Payments: milestone payments including vendor penalties or performance bonuses confirms actual implementation costs
- Asset Management: useful life, operations and maintenance costs for government assets provides total cost information, including operating budget actuals
PIM feedback loops are another tool to reduce the smart cities governance gap.