Key governance considerations for public sector capital projects 

In this article, Crowe partner Shane McQuillan, who leads our consulting team, shares his personal insight from over 30 years’ of experience working on public sector projects of the importance of a balanced and considered approach that an external advisor can bring to managing public sector capital projects.

Early in my consulting career, I was involved in a project for one of the (then) Health and Social Services Boards in Northern Ireland, to develop an economic appraisal and business case for the purchasing of a new radiology IT system for a medium-sized hospital. The project involved many meetings, lots of analysis of data, much interaction with hospital managers and clinicians, and the production of a weighty report. The system was duly approved, but what was striking about the project was that the consultancy fee (which was quite modest) actually exceeded the cost of the radiology system – and that didn’t take into account the time or cost of the hospital staff or Government officials overseeing the appraisal.

What that exercise brought home to me was that whilst capital appraisals are necessary, they should be proportionate to the scale of the investment, and properly planned and executed.

Of course, all too often we have seen the flip side of my radiology example – very large public projects which have had a light touch in terms of oversight, or weak business cases which haven’t adequately justified the public investment being sought. I’ve had direct experience of one or two past clients who have attempted to commission an “independent” business case by stating what the final recommendation should say and hoping that the consultancy team will “massage the figures” and work back from the required conclusion (we’ve refused to take on such projects). And then there is the question of political influence – local politicians, and even Cabinet ministers, lobbying for investment to be made in their constituency, despite all the available evidence suggesting that other locations would be preferable.

So the question of managing public investment is complex, and can require considerable skill in dealing with stakeholder interests. There is no set of magic solutions, as every project is different, and there is considerable guidance available in terms of published documentation and expert support from consultants. 

Here is my perspective on some of the key ingredients required to develop and manage a successful capital project:

1. Governance

Getting the right governance structure in place is critical, and it must have a good balance of interested stakeholders involved who can commit the necessary time to the project. Those involved in project governance should be prepared to interrogate proposals for capital spend, and to challenge assumptions. A strong independent chair, with relevant experience of major projects, is essential, particularly in dealing with contentious matters, and to provide reassurance to the public and the political system that the project is in safe hands.

2. Project Management

The bigger and more complex the project, the greater the number of moving parts that need to be managed in sync – so an effective, professional project management function is essential. Depending on project size, this can range from a part-time project manager to a fully staffed Project Management Office operating full-time for the duration of the project. Use of appropriate project management methodologies and software systems is also recommended.

3. Business Case

Developing an objective and robust business case isn’t about justifying a desired outcome – it is an essential part of probing the project proposal and asking the hard questions: is the project necessary? Is there quantifiable demand to justify it? Is the level of expenditure warranted? Are the resources there to run the facility once it is built? Undertaking a thorough business case will focus the attention of all stakeholders on reaching an informed and balanced conclusion, and will also examine whether the project is set up effectively in terms of project governance, management, ongoing appraisal and other factors. 

In particular, it’s really important to establish clear relationships between the objectives of the project, the activities and resources required to deliver it, and the benefits and impacts the project will bring to citizens when it is completed. 

(The Public Spending Code published by the Department of Public Expenditure and Reform is a good starting point – the Lifecycle and Decision Gates from the Code are replicated below.)

4. Expert Involvement

Most public sector capital projects involve complex technical considerations, ranging from engineering and infrastructural issues to IT, service delivery and wider economic or environmental matters. Bringing in outside experts is an important element to ensure that learning from past experience can be factored in to capital projects at all stages, from project design and appraisal to execution and evaluation.

5. Be realistic, and continue to refine the data

All too often, major capital projects hit the headlines due to significant overruns in cost and timelines. The Children’s Hospital is the most recent example, but in recent years the cost of the Dublin Port Tunnel overran by 160%, and the Luas by 289% (according to figures from the National Fiscal Council). It is therefore essential that the planning and appraisal of capital projects should be realistic about the level of uncertainty around how much programmes and projects might cost, and how long they might take. And as many of these projects will typically take several years to complete, some of the variables will change mid-project – construction, staffing or energy costs, even aspects of the design as the project proceeds. These will need to be kept under constant scrutiny and forecasts and reports updated on a regular basis.

6. Transparency

Past experience tells us that many public infrastructure projects go over budget, run late, or don’t go according to plan – often for very understandable reasons outside the control of the project sponsor. Where this happens, the problems often arise not because the cost has increased or the project has been delayed, but because there has been a lack of transparency. Maintaining a regular drumbeat of communication about such projects is vital, given the scale of public investment involved, and will provide clarity to policymakers, the public and the media that these projects are in safe hands – emphasising the need for strong project leadership and robust governance.

Crowe’s consulting department has extensive experience helping and advising clients in Ireland across diverse sectors, from multinational organisations and major public bodies to local businesses and not-for-profit entities.