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Value for Money in Infrastructure Projects

A comparison between budget techniques used in Ireland and elsewhere

FEATURED PAPER

Eugene McGrath

Ireland

 



Abstract

The focus of this research was to examine the current budgeting techniques used in infrastructure projects in Ireland, and to compare these to those used elsewhere. Its aim was to analyse how such methods are utilised, and how this contributes to a project being considered ‘Value for Money’. The research was also deemed necessary, to investigate if the same methodologies and techniques were used in Ireland as were globally.

A sample of industry professionals were surveyed to gauge their response on questions on both budgeting techniques used and also value for money on projects. This sample covered areas such as Ireland, UK, Australia and the Middle East to ensure an appropriate comparison.

The main findings of the research are that there are relatively few tried and tested budgeting techniques and that such techniques that are used only demonstrate a project is ‘better’ Value for Money than competing projects, rather than suggesting it is value for money on its own merits. The findings of this research confirm the most commonly used budgeting techniques are Cost Benefit Analysis and Net Present Value methods.

The main conclusions and recommendations of this research therefore, are that Value for Money needs to be clearly measurable on a project thorough out the entire life cycle of a project and the project success factors clearly aligned to this concept. There are processes in place to achieve this at project selection stage, but such requirements need to be made part of the project completion process.

Key Words: Budgeting Techniques; Value for Money; Infrastructure

Introduction

This study sought to examine which budgeting techniques are used in infrastructure projects, both in Ireland and globally, to theorise what are the most advantageous of such techniques to use. For example, what part can and does reference class forecasting play in the selection of projects to undertake? Or is Net Present Value the most utilized method in cost analysis, and comparison of competing projects?

Previous research in this subject internationally has been conducted by authors, such as Espinoza (2014), Fridgeirsson (2009) and Flyvberg (2008). This research examined what were international best practice in budgeting for infrastructure projects, and Ireland in particular was the focus of research by Gühnemann and others (2012). Some of this research conducted also examined the cost and benefits of project selection, whereas this study will only address the cost impact of a project.

The study will also investigate the particular budget techniques which inform the criteria established to decide if particular projects are accepted as being ‘value for money’ in the initial stages of project development. Also, if certain budgeting techniques are favoured over others, and if so why?

The methodology used to conduct the research was to undertake a questionnaire based study, as this was deemed the most beneficial way to illicit responses from those working in the relevant industries. As there was minimal research into the topic in Ireland, the questionnaires were sent to respondents globally, to compare with the responses in Ireland.

What are the techniques available for Practitioners?

Previous research identified some of the available techniques used in the industry for budgeting of projects. Iluah (2014) lists out three such methods in existence:

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About the Author


Eugene McGrath

Ireland

 

 


Eugene McGrath
is a Chartered Quantity Surveyor with over twelve years’ experience in the Irish and UK construction industries, working on various projects in the residential, civil engineering and oil and gas industries. Having completed his BSc in Quantity Surveying from the College of Estate Management, Reading, he followed up on this with an MSc in Project Management from the University of Salford. As well as being chartered by the RICS and SCSI, he is also a member of the AACEI (Association for the Advancement of Cost Engineering International), certified as a CCP.

Eugene can be contacted at eugene.m.mcgrath@gmail.com