When the 2008 global recession hit, consensus was mixed regarding the right policies to address it. Beyond financial sector interventions, some countries chose austerity, fearful that deficit spending would only worsen conditions. Others, like the United States and China, opted to stimulate their economies with government spending.
That spending, however, was often largely focused on “shovel ready” projects that put money to work quickly in the economy but weren’t necessarily the most likely to bring long-term economic, environmental and social benefits.
Nearly a decade later, the question of fiscal stimulus, particularly through significant public sector investment in infrastructure, is back at the forefront of policy discussions.
For example, in the United States, the Trump administration signaled an intent to invest as much as US$1 trillion in infrastructure spending (although to what extent Congress will support him is still unclear). Similarly, the Canadian government recently announced plans to launch US$32 billion in additional infrastructure projects over the next 12 years. And Japan plans to double its original infrastructure budget over the next few years to US$61 billion.
But unlike at the height of the financial crisis when urgent measures with immediate impact were required, pro-stimulus economists today are looking at well-structured infrastructure investment programs as a means to spur immediate and long-term economic growth around the world.
We've identified five key steps governments can take to ensure their infrastructure investment programs achieve the desired economic, social and environmental benefits. PwC can help pinpoint infrastructure priorities, select projects, develop an action plan, establish a project management office, and measure performance. Our advisors collaborate across services and industries, including asset management, engineering and construction, power and utilities, and public sector consulting.
"90% of all infrastructure investment worldwide is funded by the public sector"
In launching an infrastructure investment program, begin with a broad view of what economic and social benefits you expect, but translate that into a planning framework: What are your overarching policy goals – to improve economic competitiveness, increase near and long-term employment, improve economic and social access for communities, protect the environment, even demonstrate the effectiveness of government?
Then ask: Which sectors and which kinds of projects will achieve these benefits? What are the potential inter-relationships between different projects? And what are the high-level costs of different projects?
Many government departments have wish lists of projects they would like to accomplish, but the announcement of a new infrastructure investment program can cause a flood of “high-priority” projects to come in. Compounding this, governments often feel compelled to act quickly, announcing the commencement of new investment projects as a signal to the market and to the citizenry that they are moving on this economic and social priority.
Balancing the need for speed, the wish list of government departments and the economic reality of budgetary constraints can be overwhelming. Having a planning framework to guide policy-making helps put the whole investment program on a transparent and solid footing for everything that is to follow.
In this stage, the identified priorities are built into a decision framework to analyze the feasibility of specific projects. Measuring individual projects and their benefits across the portfolio on an apples-to-apples basis allows you to select a portfolio of projects that optimizes those benefits while considering any resource constraints and inter-dependencies that may exist.
Portfolio optimization tools now exist which can crunch through hundreds, even thousands of projects, their benefits, constraints and inter-dependences to generate an optimal listing of projects. The optimized portfolio helps determine the ideal sequencing to maximize the specified benefits, and importantly, fit a specified budgetary envelope over multiple years.
These tools also allow for scenario analyses and for ongoing portfolio management, enabling policymakers to evaluate the impact of project delays or schedule overruns for a specific project and the entire investment program continuously over the life of the program.
To traditional policymakers, this process may seem more academic than practical. But over the past decade significant changes have swept the infrastructure industry, displacing traditional delivery models and methods, introducing new sources of finance and heralding the application of new technologies as well as introducing a new class of builders. Governments would miss a significant benefit of a large-scale investment program if they did not leverage these innovations to improve project selection and delivery methodologies.
During the plan stage, the specific planning around individual projects takes place and decisions are finalized with respect to private finance participation, bidding processes and monitoring.
It is often at this stage that challenges arise as the pressure to move projects quickly and in innovative ways can overwhelm civil servants accustomed to traditional means of project development and planning.
Setting out clear guidance, such as processes and procedures for finalizing project designs, obtaining approvals and bringing projects to market, is essential. This also includes establishing the measures to assess project success and developing the monitoring guidelines to help ensure projects are meeting their cost, schedule and performance expectations.
Policymakers must also be realistic. Most projects that will deliver the highest economic, social and other benefits cannot be launched overnight. This does not always fit with political or economic timetables, but if the identify-and-select stages were done on a portfolio basis, a number of faster, high impact projects can be launched while the larger and more complex projects are being properly planned and prepared.
Even if all of the right decisions are made in selecting and planning an infrastructure project, there is no guarantee for success. For that reason, superb execution of a project should not be neglected, especially because this is the part of a capital expenditure that the public sector – more capable at administration than oversight – is least skilled at.
To address this shortcoming and go a long way towards ensuring success, public agencies should establish a robust project management office (PMO), staffed with environmental, financial and technical specialists to continually assess whether the project is meeting scheduling, budget and design expectations – and to resolve issues as they arise. The PMO should develop reporting methods that are sufficient but not onerous. If the goal is to create a process that circumvents the weaknesses inherent in bureaucracy, it is critical to not embed these deficiencies in the management program.
For best results, construction efforts should hew to a clearly defined scope, leaving some room for design fixes since projects are rarely delivered as planned. Limiting the number and extent of changes can help improve the chances of a project being delivered on budget and on time. Adopting processes to systematically address changes and monitor their impact can also be effective.
To achieve the benefits initially established for the program and for any project, it is essential to identify measures of the expected benefits and monitor the projects and programs against those measures, including financial, technical, economic, environmental and social metrics.
Here again, technology has created an environment where benefits not only can be specified at the outset, but their realization can be tracked effectively throughout the project lifecycle.
At the identify-and-select stages, the expected benefits are specified and quantified. During the plan stage, the mechanisms to track the performance of the projects are defined and built into the project delivery requirements.
And during the execute stage, real-time project management tools now exist which capture everything from labor deployment on site through RFID tagging to cost and schedule variance to drone based progress reporting. These map back to performance monitoring dashboards, which allow project managers, government officials, investors and even the public to track the delivery of these projects and their benefits realization.
Simply put, a public-private partnership (PPP) is an agreement between a public agency and a consortium of private-sector companies in which the firms may design, build, finance, operate and maintain an infrastructure project, or take on only a portion of those activities.
In periods when governments are partial to austerity, PPPs have in some parts of the world become more conventional. But viewing PPPs solely through the lens of financing mechanisms is shortsighted. For one thing, infrastructure projects financed by PPPs tend to be finished more quickly.
Equally important, a PPP can cost a government as much as 20% less than a traditional design-bid-build model, and extensive risk sharing between the public and private sector in these agreements limit potential taxpayer losses when costs are higher or revenue is lower than expected.
And there is the potential for greater innovation in the project – everything from saving energy to using the most advanced tools and materials – because the presence of the private sector brings experience with the latest construction, operational technologies and ideas that many local governments lack.
Still, for all its apparent value, PPPs are not the right choice for every project. For that reason, in this stage, before bidding begins, policymakers should conduct a Value for Money (VfM) analysis. This assessment basically compares the costs of the project financed by the public sector versus by the private sector.
With this assessment, informed decisions can be made about whether to bid a project out as a PPP and what anticipated bids the private consortia will likely offer up.
"Policymakers are under pressure to allocate and manage investments to achieve economic, social, and environmental returns"