Strengthening Project Selection for Capital Budgeting
This paper presents the status of development and challenges in the use of integrated project design and appraisal methods for public sector investment project selection and budgeting. It is motivated by the importance of good project preparation to enhance the possibility of good project execution and performance. It provides a road map for both public agencies that still need to achieve good enough or even best practice in project design and appraisal and for the improvement of best practice by the leading agencies. The current status of integrated appraisal methods is covered with a focus on the development of a suite of methods to evaluate non-market services, a major challenge to most government project appraisal units. Some ongoing challenges to integrated appraisal are noted. While in principle appraisal using full costs benefit analysis (CBA) is possible for all types of project based on the evaluation methods now available, given the constraints of financial and technical capacity to conduct full CBA by many agencies, fallback methods including multi-criteria assessment (MCA) and cost-effectiveness analysis (CEA) are discussed to assess where their application is and is not appropriate depending on the nature and size of the project, the size of the externalities and the existing experience and capacity of the government agency to conduct appraisal. As a special case, the complex set of adjustments needed to appraise alternative public private partnership arrangements and to compare them with traditional public investment arrangements is discussed. The paper concludes with noting the need for ongoing institutional investment to develop and maintain integrated appraisal methods and institutional capacity to strengthen project appraisal and selection capacity to achieve enhanced project performance.
