Value for Money is No Substitute for Overall Value for Money

The term “business case” for infrastructure projects is being used for two very different types of analysis:

  • A public private partnership (PPP or P3) business case involves a review of whether a P3 approach will deliver value for taxpayers or Value for Money (VfM). That is whether there is a sound procurement strategy and transaction structure and whether the project is financially viable under the proposed structure.
  • An infrastructure project business case focuses on the project rationale in terms of economic, social, environmental, and other benefits in quantitative terms. The project business case demonstrates that an investment is in the public interest by calculating net public benefits. The focus is on using a sustainable return on investment (SROI) process to estimate the full sustainability impact value of a project. It calculates overall value for money.
Value for Money.jpg From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/Value_for_Money
Poster for Value for Money – a 1955 British comedy film. The poster art copyright is believed to belong to the distributor of the film, the publisher of the film or the graphic artist. Source: Derived from a digital capture (photo/scan) of the Film Poster (creator of this digital version is irrelevant as the copyright in all equivalent images is still held by the same party). Copyright held by the film company or the artist. Claimed as fair use regardless. From Wikipedia, the free encyclopedia.

Infrastructure project proponents’ goals are usually to improve the area or region’s economic competitiveness, generate and maintain jobs, and enhance the quality of life. The VfM business cases ensures an efficient process, but not an efficient or optimal outcome and does not necessarily meet the overall goals. That is, VfM may support an efficient delivery but it does not directly support infrastructure projects that help the region meet its goals.

A distinction should therefore be make when talking about infrastructure business cases between public private partnership or alternative financing and procurement VfM and overall value for money.

At Impact Infrastructure we are interested in overall value for money. VfM in the P3 sense answers an interesting but rather limited question. VfM is a narrow concept that compares alternative procurement with traditional public sector build, own and operate. Overall value for money looks not just at the procurement but at the value of the project to the sponsors, the public, the environment, investors, etc.

Some seem to suggest that VfM can be used to determine overall value but a bad project under traditional government financing will only be a bit better under alternate procurement. And VfM is not going to make a project sustainable. Rather than answering the VfM question of “Is this the best procurement method for the project?”, the overall value for money analysis answers the questions “is this the right project?”, “is it done right”, and “what’s in it for me?”

Once overall value is determined then value for money can be determined. In fact VfM or P3 business cases assume a “full business case” has been done to establish the need.

We think that overall value for money, SIV, can be used to choose the right projects, provide the information to make them acceptable to stakeholders, and help ensure that they are designed and built in an optimal fashion.

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