Point of View on Assessing true value of Infrastructure Investments
Assessing the true value of infrastructure investments is becoming increasingly important in today’s financially challenged business environment.
While governments understand the causal relationship of infrastructure development and economic growth they are struggling with
- Evaluating economic impact of investment and
- Prioritizing. infrastructure projects to maximize economic outcomes
Read KPMG’s latest white paper which discusses this important issue in context of the Infrastructure development & investment approaches been taken by governments in UK, Brazil, South Africa and India. The paper argues for newer innovative approaches for appraisal and prioritization of infrastructure projects.
1.The current appraisal process for infrastructure investments often focuses on traditional “financial” metrics (project revenues and costs, etc.) but not on. economic return. The latter approach evaluates impact of the project on the real economy (growth, jobs), land values and tax revenues as well as on environment and society at large.
2. Government tends to manage infrastructure investments in departmental silos (railways, roads/highways, ports, airports, etc.) or on a project to project basis. This approach ignores the cross-project or cross- department impact which a portfolio or programme based approach addresses in an integrated manner. The latter approach can create economic outcomes more than the sum of (discrete) project parts.
3. As part of the current appraisal approach, business cases are often prepared to justify an end (e.g.a project decided based on. political considerations but justified based on business case) rather than recommend the best option based on economic outcomes.