Australian Council of Economists 2017—Foundations for Wellbeing
Good afternoon everyone. I would like to first thank Robert Smith for the kind invitation to attend the panel today.
Infrastructure Australia has been doing a lot of work lately on assisting state and territory governments with the foundations for better business case development—and that will be a key focus of my contribution today.
But before I begin, I would like to briefly explain Infrastructure Australia's mandate and explore our approach to wellbeing.
Infrastructure Australia is the nation's independent infrastructure advisor. We're the ones behind the scenes looking at the evidence, doing the research and determining which projects are in our national interest.
The last 6 months has been a particularly intensive period for the organisation. We've delivered, among other things:
- A new Assessment Framework for analysing the projects and initiatives that are sent to us by proponents; and
- A refreshed Infrastructure Priority List.
We have also been very active on the policy reform front—launching a paper on value capture in December and separate papers on Public Transport Franchising and Corridor Protection in the middle of this year.
For IA, improving wellbeing is not about the steel and concrete of infrastructure, it's about the outcomes, the liveability of our cities—getting people to and from work more reliably, improving quality of life through considered urban planning, and connecting remote communities to reliable energy supplies, and clean water and wastewater services.
To our minds, infrastructure should always be about enabling outcomes. Are we making the right investment, at the right time, in the right place to achieve the desired outcomes?
This is the same question we put to proponents when they begin the process of developing business cases for projects seeking commonwealth funding over $100million.
Business Case Assessment Process
A key focus of our more recent work has been providing advice to state and territory governments, including the private sector—the consultants and the economists behind the scenes doing the technical work—on how to develop high quality business cases that address well-defined problems.
As some of you may know, Infrastructure Australia has a structured, staged assessment process for approaching problem identification, project development and business case evaluations.
The Assessment Framework provides guidance on how a project business case submission should be prepared for Infrastructure Australia's evaluation.
The framework was revised recently to ensure—among other things—that it remains aligned with relevant Guidelines and other state and territory frameworks and to strengthen the economic, social and environmental evaluation measures.
Improving the Quality of Business Cases
Infrastructure Australia is in a unique position, because we get to see a broad range of early work and developed business cases from right across the country.
The establishment of state based infrastructure bodies like ours continues. It is undeniable that we are in a better place with project planning and selection than we were a decade ago.
State and territory governments in particular have made significant strides in developing more strategic evidence-based business cases.
But we still need to see an improvement in the quality of business cases developed for major infrastructure projects in Australia.
Some of the broad categories where we see room for improvement include:
- Strategic alignment;
- Establishing an evidence base; and
Demonstrating Strategic Alignment
Getting the strategic alignment right ensures that the appropriate problems and solutions are identified and considered for Commonwealth funding.
This is really about how well the submissions define and scope the problems and solutions; how they explicitly align with federal and state policies and strategies; and the short-list options they present.
The three most common strategic alignment issues we have with submissions are with problem identification, measurement and options generation.
Proponents do not always identify and define the economic consequences of the problem or miss the potential of the opportunity.
This precludes assessors understanding the scale, extent and type of problem/s impacting stakeholders.
Submissions also do not always measure the cost of the problem or value of the opportunity, and how this changes over time.
The final Business Cases also typically include only the Base Case and the preferred option, with limited to no information on the other options.
The option assessments are important because it allows us to readily assess whether all realistic and potential options/solutions have been thoroughly identified, explored and evaluated—including optimising existing assets, exploring innovative and non-infrastructure solutions, where there are real strategic alternatives available.
Establishing an Evidence Base
The second key area of improvement is in establishing an evidence base.
The analytical rigour and accuracy of project submissions is important to ensure the efficient allocation of what are scarce economic resources.
While proponents often calculate the economic benefits of projects in accordance with guidelines and standard formula, more work needs to be done on base case specification, demand modelling, project inputs and assumptions, and the accuracy of cost estimates.
Transparency and Evidence-based Analysis
The third and final area I want to touch on today is how proponents can achieve greater transparency in business cases.
The difficulty we often find when assessing business cases is that details for things like CBA calculations, cash flow spreadsheets and excel models are not always provided.
Similarly, proponent's sensitivity tests can often be too general and not linked to identified risks—or indeed risk registers are not submitted.
To address this issue we encourage proponents to provide us with supporting documentation such as options assessment reports, detailed methodologies, and spreadsheets to allow for a more comprehensive analysis of the outcomes.
Improvements in these areas all go to ensuring that the public can better understand the project and have greater confidence in the results.
The reason this is all relevant to wellbeing is because improving business case development allows our governments to get closer to their desired outcomes—that is, delivering for the commuter waiting for their train, the family paying their electricity bill and the business looking to access new markets.
I would encourage everyone in the audience who works on business cases to contact Infrastructure Australia and get involved in our Building Better Business Case program.
This program is really focused on driving better outcomes for infrastructure users.
We are running a rolling series of workshops and information sessions on the key areas I've briefly touched on today, including what's changed with the new Assessment Framework. So please contact us to get involved.