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Financial Implications Of Project Management In Public Sector

Many projects of the Mauritian Government though completed are not to the standard that is expected of them, especially after having invested so much money in these projects and some projects can be terminated before they reach completion. Scarce resources are wasted with its negative consequence on utilization and distribution of national wealth. In order to find out why there is such weakness, an investigation was carried out through the examination of the project management process as guide and the consequences it had on the projects. Various factors such as lack of financial discipline of the managers and sponsors of the projects, poor project management and the lack of understanding of the rudiments of project management formed major framework for the flaws. It was recommended that no matter the size of a project, the basic steps of project management must be followed and government must maintain financial discipline. Deliberate efforts must be made to ensure that only persons who have the professional expertise and experience are saddled with its planning, costing and execution. The main challenge of this study is to assess how government deals with project management so as to achieve the project goals and objectives while at the same time honoring the project constraints that is Scope, Time and Budget and achieve value for money. http://en.wikipedia.org/wiki/Project_management

2. Literature Review

2.1 Characteristics of a Project

A Project is an interrelated set of non-repetitive activities that has definite starting and ending points, which result in a unique product. A project must be goal oriented, has definite beginning and end, has particular set of constraints such as scope, time and budget and measurable output and also be able to covert one situation to another. The activities are one at a time and they can be distinctly subdivided to have definite beginnings and ends with definite sequential relationships. Each activity can be defined with respect to every other activity as either preceding or simultaneous or succeeding or independent and each activity time can be determined (Forgaty et al., 1991: cited in Yasin et al., 2008).

2.2 Scope of Project Management

Project Management is part of a unique, self-regulating, accountable, commercial arm of government that delivers demonstrated value for money at competitive rates. World class project management systems, ensures that projects delivered must be comparable with the best the industry can offer, providing quality, budget and schedules management at competitive prices. Project management is concerned with planning, organizing, securing and managing resources so as to ensure the successful completion of specific projects goals and objectives. http://en.wikipedia.org/wiki/Project_management

2.3 Project Development Phases

Any investment project passes through a number of distinct phases, the nature of which usually varies according to the type of project and the time required for each phase. For the purpose of this study steps involved in project management will be analyzed to understand why projects costs are overrun and the scheduled completion time are not respected in the public sector and its financial implication on public finance.

A summary of the processes of the different phases is shown in the diagram below:

Initiation Phase

Planning and Design

Execution and Construction

PHASE

Monitoring and Controlling

Completion

2.3.1 Project Initiation phases

Every public body has the responsibility to identify its sectoral investment needs through research activities, funding opportunities such as public private partnership option or external funding like donations or grant from foreign countries or whether to be purely government financing and overall planning process. The initiation stages will help to determine the scope of the project, what goal the identified project will meet and whether it is the best alternatives to solve the problem. To assess the viability of the project a feasibility study and an environmental impact assessment need to be carried out based on the nature and specificity of the project. The initiation phase needs to address the following important aspect:

Analyzing the needs and requirements of its sector in measurable goals and objectives.

Review and assess all of its current operation.

Undertake a financial analysis of the cost and benefit of project including budget.

Design a project charter including tasks, deliverables and schedules to attain.

2.3.2 Preliminary and Feasibility Study

A preliminary study is required for all projects above Rs 25 million. For projects above Rs 100 million or projects of high priority, Public Bodies are required to conduct a feasibility study.

Key to success of any investment project is a clear, accurate and specific understanding of the facility need/problem to be addressed and a thoughtful analysis of the options to meet the need or solve the problem.

Completion of the preliminary or feasibility study is an important step in acquiring funding for the design and construction of the proposed solution. After preliminary or feasibility study has been finalized and approved by the Public Body it will be referred back to the PPC for inclusion in the project pipeline.

A preliminary study or feasibility study provides a number of benefits:

Long –term planning with complete information on requirements helps Public Bodies make more specific decisions leading to less changes and avoidance of wastage.

An opportunity to uncover alternatives that had not been previously considered.

Internal programme planning and cost or schedule issues not previously known can be explored before large sums of money are invested.

Risk can be identified and minimized through a more rigorous process

An opportunity is afforded to review total project budgets prior to the design phase

Better planning also offers a potential for cost savings.

2.3.3 Environmental Impact assessment

Certain major governmental investment projects need to undergo an Environmental Impact assessment to assess its impact on the environment and society such as how it affect the way of living of its citizen. The assessment will help to uncover deficiencies in the project as the result will show if the project has a positive or negative impact on the environment.

2.4 Project Planning and design

A long range approach to planning investment projects is a necessary requirement of a sound financial management system. With a grounded investment plan, Government will be able to assess future financing requirements, assess the impact of investment project in meeting the goals, and provide a basis for rationally allocating scarce resources.

The information contained in the project programme will be used by the designers to produce outline proposals. Alternative designs will be considered and assessed. Where applicable the accepted design will be forwarded to relevant authorities for clearances, for example for building projects clearances will be sought from the Fire Services Department, the Wastewater Management Authority, the Ministry of Health and Quality of Life, etc, prior to seeking the approval of the Building Plans Committee. Once approved, the design will be developed by the design team. Plans, detailed specification, model or prototype, etc. will be produced for use in the next phase. In this particular phase cost planning and cost control techniques will be applied to ensure that the budget is not exceeded. The design team shall ensure that all designs, details, specifications, production information are complete and integrated to avoid variations during operation stage. If in this phase, any excess of the budgeted cost is 15% or higher, the matter shall be referred to PPC. However if the amount is below 15% the clearance from MOFEE shall be sought.

The Public body during the planning and design phases will identify activities and create work breakdown structure; create a schedule for each activity and its resource requirement; make estimates of time and cost for each activity; development of budget and analyze the planning risk. It is crucial at this stage to identify and classify the roles and responsibilities of the key factors in the project as failure to plan properly may lead to project collapse.

2.4.1 Project Costing

The value of the project is crucial for the success of the project. The Public body while making an estimated cost for the investment project should consider the whole life cycle of the project. The Public body for the costing requirement of the project must prepare and value the bill of engineering measurement and evaluation. The project cost will take into account the direct cost, indirect cost which consist of recurrent cost such as compensation of employees, maintenance cost and other relevant cost. (Lawal and Onohaebi, 2010)

2.4.2 Project Plan Committee (PPC)

Project proposals design has to be presented by Public Bodies to the Project Plan Committee (PPC) as per the Project Request Form (PRF). A project will be taken into consideration after assessment and recommendation by the PPC and approval of cabinet.

The PPC is set up in the Ministry of Public Infrastructure, Land Transport and Shipping. The Permanent Secretary of the Public Infrastructure Division or his representative shall be the chairperson of the Committee.

The functions of the PPC are as follows:

Assess whether project proposal meet the infrastructure needs of the country.

Examine feasibility and cost benefits of infrastructure project proposals.

Make recommendations on investment projects for inclusion in the project pipeline.

Examine and review specifications.

Advise Public Bodies on the appointment of Project Managers.

Give clearances on projects whose pre-tender cost estimates exceed the approved cost estimates.

Review the progress of investment projects above RS 100 million or any priority.

Each Public Body will develop an investment plan in comprising a list of projects that would support the delivery of the output necessary to achieve the goals and objectives in the strategic plan.

All investment infrastructure project proposals above Rs 25 million will be reviewed by the PPC, in consultation with implementing agencies and other concerned Public Bodies prior to the development of a Pipeline of Projects.

Investment Proposal for projects estimated at above Rs 25million should obtain approval as follows:

1. General project information;

2. Project Brief;

3. Site Information;

4. Costing information;

5. Financing information; and

6. Project time schedule.

An investment Project Proposal estimated at below Rs 25 million does not require the approval of the PPC but shall be submitted to the Ministry of Finance and Economic Empowerment (MOFEE) for approval. If during the pre-bid phase, the project estimated increases beyond Rs 25 million, the project shall be considered in the next investment budgeting cycle, of if there is urgency; it shall require the concurrence of the PPC and the Public Sector Investment Programme Unit for consideration as an amendment to the Investment budget.

Once a project passes the evaluation test, budget support will be extended provided funds are available within the allocated Medium Term Budget ceiling of the Public Body.

2.5 Project Tendering

2.5.1 Pre Bid Phases

Implementation of investment projects take long time periods, involve complex management tasks there can often be time overrun and cost overrun. Therefore, these should be regularly and closely monitored. Prompt and corrective actions should be taken where problems are identified. Prior to the start of the implementation of the project, all administrative issues will have to be confirmed and completed before the start of the bidding process.

2.5.2 Bidding Process Phases

The bidding documents are prepared according to the standard procedures set up by the Procurement Policy Office and the tender document must clearly define the specification and the job requirements and an estimates of materials required that is a statement of the bill of engineering measurements and evaluation, commonly known as the Bill of Quantities. These will be transmitted to the Central Procurement Board for vetting, approval and launching of bids. Private contractors will be invited through public advertisement to send their bids if it is an open bid. Sometimes we also have restricted bidding depending on the projects. Public body can have recourse depending on the complexity of the project to advertise bidding either on notice board locally or through media coverage nationally or internationally. The process must be carried in complete transparency so as to promote efficiency, fairness and integrity. It is worth noting that, beforehand, we have a number of contractors that have registered as contractors with the Ministry of Public Infrastructure, National Development Unit, Land Transport and Shipping (MPI).

2.5.2.1 Assessment of contractor on registration

A private contractor submits his application for registration as contractor with the MPI. The MPI will accept to register the contractor on the basis of the contractor’s capabilities to undertake capital works on behalf of the Government. MPI will assess the capacity of the contractor and a grading will be given to the contractor. The contractor will have to confirm the number of skilled and unskilled labour under permanent employment with the company and the experience of the contractor and the plant and equipment owned and used by the contractor.

2.5.3 Evaluation of Bids and Award of contract

Evaluation of bids constitute a critical aspect of project management for the future success of a project. Transparency, integrity and accountability is the bidding rule for all the actors involve in this process as decision to award a contract must be based on the notion of value for money as it involve public fund. To show proof of transparency bids opening must be done in the presence of all the bidders and only responsive bids are retained for evaluation. The least cost tender is not necessarily the best tender, the evaluation tender committee must analyze all the criteria requirement specified in the document. special attention must be paid to the financial solvency of the contractors as this may create problems in later stage of the project phase. During this process the risk of corruption is tangible and the Public Body must ensure that various control is available to limit this risk to materialize.

The Public Body shall award the contract to the most responsive bidder upon the recommendation of the Central Procurement Board and in accordance with the provisions of the Public Procurement Act 2006 and shall:

Ensure that all documents such as performance bonds, insurance policy, and other guaranteed document specified in the contract are obtained within the time prescribed in the documents.

Complete the contract documents for execution and signature agreement.

The contract document signed by both parties will contain:

The contract value

The start and completion date of the project

The condition performance for payment schedule

Rate of penalties for lack of performance for both parties.

2.6 Project Execution

2.6.1 Managing and leading Projects

For the execution of the project the Public Body will set up a project management team from amongst its in-house professionals or from professionals recruited on contract such as engineers, consultants and supervisors. The Public Body will, in consultation with other Public Bodies concerned with such type of Investment projects, designate an officer with relevant technical competency as the Project Manager in charge. Alternatively a Public Body may appoint private Consultants to implement the project and again in consultation with other Public Bodies as explained above designate a Project Manager in charge. However, a resident Project Manager may be appointed on contract basis with signing authority for the project and responsibility for the management of all the processes from inception to completion, all as per the terms of reference provided by the PPC. The Project Manager shall be appointed prior to the appointment of the other Consultants. The project team with the contract must work in collaboration to ensure that the work implemented as per the scheduled management plan. All project require professionals with different technical skills to work together in a coordinated way only for undertaking a specific project.. The project teams will cut across functional boundaries giving rise to a matrix structure and this may give rise to certain human constraint as certain team member may feel confused when conflicting demand are given by the project manager and this conflicting issue may take time to resolve and thus resulting in cost and time overrun.

2.6.1.1 Project Programme

The Project Manager shall produce a detailed project programme to be used as a guide during the pre-bid and post contract stages. The programme shall be based on comprehensive discussion and significant consultation between the Supervising Officer of the Public Body and the project management team. The programme shall address areas such as design aspects affecting value, for a building project for example. These will include building location on site, building size, shape, height groupings, specifications and buildability, circulation areas, access, services and all other needs of the project that will form the basis for the design. The programme shall also include the implementation schedule with target dates for closer monitoring.

2.7 Project monitoring and Control

The Project Manager and his team shall monitor and supervise the construction to ensure that the works are carried out in compliance with the contract documents. Monitoring and control is linked with project execution. Project manager will monitor the execution progress of the project and identify if there are any delays and problems, and on time and corrective measures must be taken, if necessary. Project performance must be measured and analyzed regularly so as to detect any major variance in the project management plan. Project controls start with the planning process and at every process from the implementation stages. Project controls enable Public Body to keep a project within timeframe and within budget without too much variation. As a matter of principle, project steering committees shall be set up chaired by supervising officers to follow up the timely completion of projects.

The Public Body shall closely monitor the budget and a report on the project status shall be submitted to the MOFEE at regular intervals.

The project's scope of work may vary during the implementation and the role of the project manager is to ensure that the variations don’t deviate from the project target goals and objectives.

2.8 Completion

On the completion of the project, commissioning and thorough handing over inspections, in conjunction with the client and consultants, will be carried out. The Practical Completion Certificate shall be issued only after all the deliverables as per the contract are completed and the project is operational. If any defects are found, the Project Manager will notify the Contractor who will have to make necessary alterations. The Project Manager shall ensure that all defects are rectified before issuing any final certificate. If the Contractor fails to meet the terms of his contract agreement, legal action may be taken for breach of contract or the Public body may charge penalty for lack of performance. A post completion audit of project is crucial as Public body cannot certify that a project is successful until all the benefits promised at the evaluation stage are visible in the final product.

2.9 Deviation from the Project Target Goals

While construction industry practices are reasonably well developed, construction projects still witness widespread failures of many contractors due to varied reasons such as financial problems, poor management, over-commitment, variations which deviate from the project target goals and objectives and or conflicts and disputes associated with construction activities. Pre-qualification of contractors is a common practice across projects, yet the investigation on the ability of the selected contractors in successful delivery of projects is not widespread.

In the public sector operational context, politics and political decisions tends to shape the organizational culture. As such, the political context of organizations tends to significantly interact with its strategic and operational decisions. This, in turn, tends to create operational constraints which are not typically found in private sector operational settings. (Gomez et al., 2008)

In the Public Sector many analysis and evaluation programmes are carried out before implementing a project as can be noted in the planning process above, it remains as a doubt whether the appointed contractor is fully aware of what is expected of him. Does he know the goals and objectives of the government in awarding such projects? Is he aware of the real users’ needs and requirements?

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