For a number of years I worked in senior finance roles in the mining sector for BHP Billiton and Newmont Mining. During these roles I had a governance responsibility over capital works programs worth over a billion dollars. In the mining sector we had to be really focused on where we spent our money as it was critical to financial sustainability in the longer term. If we didn’t get this right we may not be in business.
Now I consult to many Government organisations and one of the things that has stood out is how the political processes in Government drives infrastructure planning which is a bit like straw polling. Planning is reactive and most Governments fail to deliver their capital works programs on time.
Infrastructure planning is heavily influenced by political objectives and ‘personal legacy’ motivations of politicians regardless of whether it makes good investment sense. In the worst cases it is a simple vote grab for politicians in marginal electorates.
Governments work on an annual cycle even though good infrastructure planning requires a long term view where most projects can take 3 to 5 years to go from concept to implementation. This means that Governments generally cut corners on front end loading activities for their projects and under invest in the feasibility, early stakeholder engagement and business case phases. They also rush through procurement at the last minute getting their commercial models wrong and costing millions of dollars to the tax payer.
The reality is that most organisations (including Government) have limited capital available so if you waste it on projects that don’t have the optimal benefit, or you are spending 10+% more on projects because you are adopting the wrong commercial model then the opportunity cost and wastage is huge.
The problem is that for the community this goes totally undetected. As long as we see roads, public transport and buildings being constructed we perceive that something is being done. What we don’t have line of sight over is what are the key priorities, which projects have the greatest benefit for the community, and whether the project could have been delivered at a lower cost.
If we want to maximise our capital spend then we need to take a long term view with our capital works plan and have a objective prioritisation process which is free from political influence.
Good planning requires us to schedule in advance (irrespective of political cycles), be clear on what performance we seek from our capital assets, understand where the bottlenecks are in our community infrastructure, and having an objective criteria about how we prioritise projects.
Get this right and Governments can have a really positive impact on the community. Operate on a annual cycle, rush through procurement, and allow Politicians to think that the capital works budget is their own personal play pen then the opportunity cost for the community over the medium to long term is significant.
Rather than think of what projects have been delivered, think about what projects have not been delivered.