Evaluating risk and reward in capital planning and budgeting for public agencies

The capital planning, budgeting, and funding process helps public agencies determine whether the organization’s long-term capital programs, or investments, will add social and economic value to the community, support the strategic goals, and are worth pursuing.

There are many risks that can arise that may affect decisions down the road, delay, or derail projects, or exponentially increase cost. Risk managers evaluate these potential disruptors and take them into account when considering capital budgeting.

There are various ways to measure and identify potential risks, including democratizing the risk register and input from across the organization. McKinsey reported, “Large infrastructure projects suffer from significant undermanagement of risk throughout the lifecycle of a project, as the management of risk isn’t properly accounted for in their planning.”

Risks with public infrastructure development

It is no surprise that complex public infrastructure development programs are high-risk endeavors, historically marked by cost overruns, delays, financing difficulties, failed procurement, and more. These projects often have a large number of stakeholders, delivery teams, and suppliers rolling in and out throughout the lifecycle which could introduce risk.

The value a new asset brings to the community, or the benefits a mega-project will provide once in service tends to give enough justification to greenlight a project. However, when an issue happens it can have a cascading effect and quickly spread and wreak havoc on both schedule and budget. This in-turn can frustrate the public and stakeholders, and often preventable with forward looking risk management.  

Infrastructure financial risks are more the norm than the exception, and organizations react when things go wrong, rather than proactive prevention. The International Monetary Fund stated in their blog Fiscal Risk from Public Infrastructure, “All countries, regardless of income or development level, can strengthen their infrastructure governance framework by gradually incorporating a risk management framework for infrastructure.”

Include intelligent systems to help management teams

Frameworks are designed to promote transparency and sharing information that help make better decisions. Agencies that have implemented a common risk vocabulary, a centralized risk register, ownership and accountability, business processes, governance and transparency are positioned for success. Public infrastructure projects in the digital era should include intelligent systems to help management teams make informed decisions and navigate risk.

Adding smart systems to the framework, like those built for collaboration, budget and funding, cost and change management, reporting and insights, that guide decisions will result in increased efficiency and operational effectiveness. 

Watch the webinar “Protect Projects and Profits With a Collaborative Approach to Risk” for insights that can be applied to public infrastructure programs.

Oracle Construction and Engineering, the global leader in construction management software and project portfolio management solutions, helps you connect your teams, processes, and data across the project and asset lifecycle. Drive efficiency and control in project delivery with proven solutions for project controls, construction scheduling, portfolio management, BIM/CDE, construction payment management, and more.

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