You wouldn’t expect a private investor to commit funds to a project without a high degree of confidence that it was ‘investment ready’, based on information provided and their own due diligence.
It is no different for officers seeking funds for major projects from Council. Projects typically evolve over time, responding to changes in personnel, priorities, demand and the regulatory and funding environment. Councillors need confidence that the final proposal as presented has been comprehensively assessed in a way that meets the requirements of the Local Government Act (s76-82), and that all key questions have been considered and answered.
The emergence of new options can be particularly difficult to respond to, especially if detailed feasibility, engineering, cost-benefit or other studies have already been carried out. This results in a mix of options – some of which have been thoroughly analysed and consulted on, and some which are only supported by a ‘back of the envelope’ level of analysis.
Continuing with the original proposal and ignoring new options risks disempowering stakeholders and the community, resulting in public debate shifting to the opinion pages of the local paper. It also reinforces a bias to stick with the option that has the highest sunk costs to avoid a perceived waste of public money, regardless of whether a more efficient long-term solution is available.
The typical approach is to carry out a retrospective analysis at the time that funding needs to be committed. In central government this is often through a Better Business Case process for all significant projects with whole of life costs over $15 million which, in the context of a $77 billion national budget, is a comparatively low threshold.
In the local government context, there is often limited time, money and political appetite to revisit decisions that have been made incrementally over a number of years, even if the financial commitment is much higher relative to overall council revenues. However, it is essential that prior to signing off on a final proposal, councils can feel confident that all the key questions have been answered.
Morrison Low has developed a framework for identifying if a project is investment ready, drawing on both the Better Business Case methodology and the private sector’s approach to due diligence.
We have ten key questions we look at when reviewing projects to identify if they are investment ready: