Novus3 assists local government with defendable capital investment planning

30 July 2018

There is no universal approach to Capital Investment Planning by Local Governments, not least because the frameworks for local financial management vary greatly from country to country, and even within one country.” – Guidebook for Capital Investment Planning, World Bank (October 2011).

Within the public sector environment, the cycle of infrastructure planning and prioritisation has many challenges. The merit of infrastructure projects (capital projects) competing for priority and subsequent capital investment is usually determined through tried and tested financial methods, such as the calculation of a benefit-cost ratio, the internal rate of return (IRR) or other related financial methods.

The short-comings of this clinical and somewhat aged approach create a number of challenges. Politicians and executive leadership often take issue with the disjoint between politics, strategy and the way that infrastructure investments sometimes fail to align with their objectives, strategies and commitments. Furthermore, spatial priorities, economic impacts, social impacts, environmental impacts, perspectives on affordability, perspectives on the project preparation process, and a host of other important considerations are mostly ignored.

The complexity of the process is compounded by the diversity of sources from which the infrastructure needs originate. This diversity of important considerations in the project preparation journey, renders the required process to evaluate and appraise projects across a spectrum of seeming unrelated needs extremely challenging. Some projects have an impact where it gets implemented whilst others may have a wider impact, unrelated or only partially related to the actual location of the infrastructure investment (or social investment). Without an appropriate solution to this issue, reporting on how the capital relates spatially, remains largely inaccurate.

Depending on the context, the CP3 (Comprehensive Programme Prioritisation & Implementation Platform) process can deliberately be tweaked towards favouring topical pain points such as stimulating the economy, job-creation, social issues, financial prudence or a weighed combination of such metrics. The CP3 Capture module facilitates the process of capital project needs solicitation and ushering such projects through the project preparation process. The process continues with a flexible prioritisation process (CP3 Prioritise module) that draws on a range of metrics such as spatial alignment, qualitative or quantitative considerations. The prioritisation process culminates in a defendable and accountable process, that reflects the needs, objectives and priorities of the organisation/government department/municipality. A tried and tested budgeting process follows prioritisation. The CP3 Budgeting module has been used over the past four years to develop and finalise draft budgets for some of South Africa’s largest cities. This dynamic budgeting tool combines a configurable, rule-based process and a multitude of conditional funding sources.

All inputs and outputs culminating from this process are set up to align seamlessly with the local standard accounting charter rules. Lastly, the tracking of project implementation is accommodated with the CP3 Tracking module to ensure that the accountability and project governance loops are closed. Reporting and dash-boarding allows for executive and technical leadership to access instant insights into possible areas of concern that may require intervention.

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Capital investment prioritisation

Novus3’s innovative and celebrated approach to prioritsation, stems from significant multi-disciplinary experience that was gained in-situ at local government level, firmly rooted in an understanding of the built environment. Through the use of the CP3 system, our clients have the ability to appraise large and complex capital demand requirements within minutes, resulting in defendable, evidence based budgets. The results are often challenged and stress tested by politicians during political debates – the process therefore repeatedly have been proven to be beyond reproach and consistently reliable.

IDP Process Plan and change management

Novus3 provides advisory services to our clients, supporting them in setting up the correct structures and mechanisms internally which becomes the basis for sustainable and collaborative planning and implementation. The IDP process plan has a number of inter-related complexities that plays out on a cyclic basis year-on-year. Pre-empting and reacting to upcoming requirements in the IDP process pro-actively, renders the process into a constructive and demonstratable outcomes-based process.

Public sector budget and fiscal impact simulation

The financial management of public sector funding at local government level, even on a small scale, often rivals the complexity encountered at huge, listed, multi-national companies in the private sector.. Local governments have to operate and make smart financial decisions within a complex and exceedingly stressful environment. Compliance with legislation, policy frameworks and accepted accounting practices have to be maintained. Simulating these complexities allows our financial executives to ask “What if?” questions and reliably peer into the future with a long-term understanding of the implications of decisions that are taken in the present.

Spatial Development Frameworks

Novus3’s specialised knowledge and access to bespoke and purpose-made spatial and other analytic tools, provided the company with the opportunity to develop unparalleled experience in the development of Capital Expenditure Frameworks (CEFs) by bringing a practical angle to the formulation of implementation plans. A realistic roadmap is provided on how to realise the objectives developed in the Spatial Development Frameworks of the municipalities where we were involved. In return for the development and submission of these CEFs, these municipalities were awarded with significant additional funding from central government.

Built Environment Performance Plans

As part of the National Treasury City Support Program, Novus3 was regarded as specialist advisors on the built environment value chain – a process embedded in Built Environment Performance Plans (BEPPs). BEPPs were intended to form the bedrock of municipal capital planning and management for larger cities (metros). Novus3’s specialist knowledge played a big role from an advisory and capacity building perspective during the development of a number of BEPPs that were developed for a number of metros.

Infrastructure Capital Investment Plans

Infrastructure investment has to find a balance between addressing historical backlogs and inequalities, maintaining satisfactory prevailing functionality and level of service and strategically investing in unlocking future opportunities and growth whilst acknowledging a plethora regulatory constraints, policies and rules. In the process, certain strategic outcomes are sought which may manifest spatially strategically or environmentally. Our infrastructure capital investment plans provide the strategic guideline and provide the recommendations to find this balance.

Capital Expenditure Frameworks

Novus3 has developed multiple capital expenditure frameworks (CEFs) for multiple municipal clients and are regarded as the sector leaders in this area. These CEFs are financial roadmaps providing clear direction on financial constraints, the most important capital and investment priorities, an understanding of the unique local fundamentals and a sustainable response to these multiplicity of challenges.

Project preparation processes

The efficient planning and execution of projects from the moment of idea conception until the last brick has been laid has been the subject of study from as early as the reign of the Roman Empire. The governance process within the public sector has to play an important role in the journey of project preparation. The under-expenditure of allocated funding regrettably is often the only element in the built-environment that consistently re-occurs. All too often, funding is allocated to projects that simply are not ready to proceed to the next step. Novus3’s CP3 system is used to aid clients in the progressive steps involved in the project preparation journey.