Capital Investment Policy

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					CAPITAL
INVESTMENT POLICY


      FOR

      PROJECT PROPOSALS
       August 2005




                     Department of Treasury and Finance
                     Government of Western Australia
CAPITAL INVESTMENT POLICY




                            Table of Contents
                            Executive Summary ........................................................................1

                            Chapter 1: Introduction ................................................................2
                            1.1 Background ..........................................................................2
                            1.2 Scope ....................................................................................4
                            1.3 Reporting Requirements ....................................................4

                            Chapter 2: Corporate Planning ....................................................5
                            2.1 Strategic Asset Planning......................................................5
                            2.2 Define Service Delivery Needs and Broad Timeframes ....6
                            2.3 Stakeholder Consultation....................................................6
                            2.4 Ten-Year Capital Investment Plan to the
                                 Expenditure Review Committee ........................................8

                            Chapter 3: Concept Development and Evaluation ......................9
                            3.1 Concept Development ......................................................10
                            3.2 Project Evaluation ..............................................................11

                            Chapter 4: Definition ..................................................................13
                            4.1 Project Definition Plans ....................................................14
        CONTENTS




                            4.2 Stakeholder Consultation..................................................14
                            4.3 Service Delivery / Business Planning Confirmation..........15
                            4.4 Ministerial Endorsement ..................................................15
                            4.5 Department of Treasury and Finance Endorsement........15

                            Chapter 5: Delivery ......................................................................16
                            5.1 Project Design ....................................................................16
                            5.2 Pre-Contract Reality Check................................................17
                            5.3 Proceed to Tender and Award Contract ..........................17
                            5.4 Specialist Delivery Agencies ..............................................17

                            Chapter 6: Review – Post-Implementation Evaluation ..............18

                            Appendices
                            Appendix 1:         Glossary ..................................................................19
                            Appendix 2:         Roles and/or Responsibilities of Stakeholders ......20
                            Appendix 3:         Example ..................................................................21
                            Appendix 4:         Example Capital Investment Plan ..........................24

                            Table of Figures
                            Figure    1:   Influence of project timing on cost ..............................2
                            Figure    2:   Capital Investment Process ............................................3
                            Figure    3:   Corporate Planning ........................................................5
                            Figure    4:   Concept Development and Evaluation ........................9
                            Figure    5:   Project Definition ........................................................13
                            Figure    6:   Delivery ........................................................................16
                            Figure    7:   Post-Implementation Evaluation ................................18
                                                                                            for PROJECT PROPOSALS




Executive Summary

This document describes the recommended process for agencies to initiate projects for capital
investment. It aims to support and guide agencies through a logical sequence of planning and analysis,
and will assist agencies to demonstrate clearly the needs and benefits of a proposed project.

There are five stages in the capital investment process, which are corporate planning, concept
development and evaluation, project definition, delivery and review.

In the corporate planning stage, an agency systematically analyses the demand for its services,
considers methods for delivery of these services and prepares a medium-term service delivery strategy or
strategic plan, identifying the broad asset implications.

The concept development and evaluation stage is about quantifying and costing the difference a
project will make to the community, and selecting the most effective and efficient option.

The project definition stage is about developing, and, most importantly, documenting, the preferred
option as a written document to bring the project plan (including cost plan and time schedule) to a level
of detail where a final decision can be made.

The project delivery stage is about preparing a design solution, preparing contract documentation,
proceeding to tender, tender acceptance and construction.

A formal post-implementation review should be conducted within 15 – 24 months of completion of all
projects over $5 million.

Adhering to the capital investment process will have the following benefits for agencies:

• There will have been a full needs analysis, and all options will have been considered.

• It will provide a strong basis for executive capital investment decisions.

• Only well-planned and well-justified projects will routinely pass through the process.

• Agencies with only occasional capital investment needs will have an orderly and well-documented
  process to follow.




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    CAPITAL INVESTMENT POLICY




             Chapter 1: Introduction

             1.1 Background
                   This document describes the process to initiate projects for capital investment. It will assist
                   agencies to demonstrate clearly the needs and benefits of a proposed project.

                   It is important to do sound planning before committing to a capital project. The greatest capital
                   and recurrent savings are achieved in the early planning stages of a project.


                                                      High
                  Ability to influence cost




                                              Initiation
                                                                                                  Completion


                   Figure 1: Influence of Project Timing on Cost

                   The capital investment process aims to support and guide agencies through a logical sequence of
                   planning and analysis. Adhering to the process will have the following benefits:

                   • There will have been a full needs analysis, and all options will have been considered.

                   • It will provide a strong basis for executive capital investment decisions.

                   • Only well-planned and well-justified projects will routinely pass through the process.

                   • Agencies with only occasional capital investment needs will have an orderly and well-
                     documented process to follow.

                   Each chapter in this document lists a series of processes to be followed, methods that can be
                   applied to perform the processes, and key documents to be delivered.
2
                   The process described in this policy assumes that agencies have well-developed corporate/business
                   planning processes to determine the need for capital investment to support their service delivery
                   strategies. (These issues are discussed in detail in Strategic Asset Plans.)
                                                                                                       for PROJECT PROPOSALS




   The process is outlined as follows:

        Process Stages            Purpose                         Approvals Required             Planning
                                                                                                 Timeframe
        Corporate                 To develop service              Approved by                    Out Years
        Planning                  delivery strategies &           Minister                       7 - 10
                                  broad asset
                                  implications
        Concept                   To develop the project          Initial concept                Out Years
        Development               concept and assess              approved by Minister           5-6
        & Evaluation              all options
                                                                  Full evaluation approved
                                                                  by Minister and the
                                                                  Expenditure Review
                                                                  Committee
        Project Definition        To develop a detailed           Approved by                    Out Years
                                  project brief and               Minister1                      1-4
                                  reliable cost and
                                  time estimates                  Endorsed by the
                                                                  Expenditure Review
                                                                  Committee
        Delivery                  To design, document,            Significant cost               After Budget
                                  tender and implement            variations to be               Year
                                                                  approved by Minister
                                                                  & the Expenditure
                                                                  Review Committee
        Review                    To confirm that the             Approved by                    2 Years Post-
                                  project has achieved            Director-General               Implementation
                                  the intended outcomes




PLANNING                EVALUATION               DEFINITION               DELIVERY                REVIEW
Outyears 7-10           Outyears 5-6             Outyears 1-4             Budget Year             2 years post-
                                                                                                  implementation




   Figure 2: Capital Investment Process                                                                                        3




   A project may be progressed through different stages simultaneously. The onus will be on the
   agency to progress a project through each stage, and to seek necessary endorsements at a
   manageable pace. The broad suggested timing for the development of a project is presented in
   Figure 2, although some projects will progress through this process much more quickly than the
   timeframes indicated.



   1
       Project definition plans must be reviewed by the Department of Treasury and Finance and the Department of
       Housing and Works or other specialist advisor for projects over $5 million, or as requested by the Expenditure
       Review Committee.
    CAPITAL INVESTMENT POLICY




             1.2 Scope
                   This policy outlines the process for all general government agencies, public financial corporations
                   and public non-financial corporations seeking procurement and funding approval to invest in
                   Government assets. It replaces the 1995 Project Initiation Process.

                   This new process for capital investment applies, regardless of funding source, to:

                   • new building construction;
                   • all major capital works (including major improvements as discussed in the Maintenance Policy);
                   • major infrastructure projects;
                   • extensions to existing buildings;
                   • major accommodation upgrades;
                   • major space reorganisations;
                   • Information and Communications Technology (ICT) projects;
                   • building acquisition; and
                   • land acquisition.

             1.3 Reporting Requirements
                   An agency is required to produce key documentation at each stage of the capital investment
                   process.

                   In brief, each year, all agencies prepare a 10-year Capital Investment Plan for consideration by the
                   Minister and the Expenditure Review Committee.

                   The Capital Investment Plan is a schedule of approved and proposed capital projects, outlining the
                   current status, proposed commencement and associated project cash-flows. For general
                   government agencies, and public financial corporations and public non-financial corporations that
                   do not prepare Statements of Corporate Intent (SCI) or Strategic Development Plans (SDP), the
                   Capital Investment Plan is an attachment to the Strategic Asset Plan (see Strategic Asset Plans.)

                   Agencies may list unapproved projects on the Capital Investment Plan in out-years five to 10 (i.e.
                   the planning and concept stages), until approved by the Expenditure Review Committee based on
                   a business case.2 Upon approval, these projects will be included on the approved forward estimates.

                   Where an ICT project is being considered, the agency should also consult with the Office of
                   e-Government in the Department of the Premier and Cabinet, and the Government Procurement
4                  Division of the Department of Treasury and Finance.

                   For projects over $5 million, a project definition plan for building projects must be reviewed by the
                   Department of Housing and Works, and for ICT projects by the Office of e-Government, before
                   funding to proceed to the project delivery stage can be confirmed through the budget process.

                   The Department of Treasury and Finance will provide advice to the Expenditure Review Committee,
                   with regard to all proposed projects.

                   Appendix 3 outlines an example of capital investment based on this process.




                   2
                       Business cases are required for all projects over $1 million. A simpler application for concept approval should
                       provide sufficient detail to justify smaller projects.
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Chapter 2: Corporate Planning

In the corporate planning stage, an agency systematically analyses the demand for its services in the
context of its business environment, considers methods for delivery of these services and prepares a
medium-term service delivery strategy or strategic plan that identifies the broad asset implications.
Demographics, community expectations (which may be assessed through consultation), regional
development, funding and Government policy direction will all drive corporate planning reviews.

For the purpose of this document, corporate planning may also refer to business planning or strategic
planning.

2.1 Strategic Asset Planning
      In considering the asset implications from an agency’s corporate plan, the agency formulates a
      Strategic Asset Plan. Each review of an agency’s corporate plan should cause a subsequent review
      of an agency’s Strategic Asset Plan.

      The asset planning process highlights the potential need to invest in new assets, maintain existing
      assets currently within the agency’s control, and opportunities to dispose of surplus assets.




   PLANNING            EVALUATION            DEFINITION            DELIVERY             REVIEW
   Outyears 7-10       Outyears 5-6          Outyears 1-4          Budget Year          2 years post-
                                                                                        implementation




 Documented Outputs:
 • Strategic Asset Plan
 • 10-Year Capital Investment Plan



      Figure 3: Corporate Planning



      In terms of the agency’s need to invest in new assets, the strategic asset planning process is used
      to identify broad project concepts, including opportunities to use existing assets and non-asset
      solutions. These broad project concepts will later be subject to rigorous scrutiny through the                5
      concept development and project evaluation stage.
    CAPITAL INVESTMENT POLICY




             2.2 Define Service Delivery Needs and Broad Timeframes
                   At this stage, the total cost of providing the asset and ongoing service delivery costs, including
                   operating and maintenance costs, can only be established in approximate or indicative terms.

                   Projects should be listed in order of priority on the Capital Investment Plan, to aid review by the
                   Department of Treasury and Finance and consideration by Government.

                   Service delivery strategies need to be supported by reliable data on present and future demand for
                   services. This will require an agency to quantify:

                   • nature of the service demands (such as size or location);

                   • asset growth/ additional capacity/ new policy forecasts;

                   • asset replacement forecasts;

                   • asset upgrade program;

                   • statutory service obligations (eg. provision of schools, prisons);

                   • community service obligations; and

                   • levels of service that can be achieved.

                   To help address the above, agencies will need to consider issues such as Government policies,
                   stakeholders (which may involve community consultation), key assumptions, emerging
                   issues/trends, and standards and benchmarks.

             2.3 Stakeholder Consultation
                   Consultation with stakeholders, including end-users, can occur at a number of stages in the capital
                   investment process. It can be strategic, at the corporate planning stage, and involve agreeing on
                   goals, targets and direction, or it can focus on content decisions regarding specific issues.
                   Consultation should be seen as a cumulative and ongoing process rather than a one-off event,
                   supporting the need for good information, communication or education.

                   When engaging in consultation processes, it is essential that the reasons or intentions of the
                   process are both credible and clear to all. It is neither effective nor appropriate to consult if a final
                   decision has already been made, or if the stakeholders consulted cannot influence a final decision,
                   or where there is insufficient time or resources available.

6                  In seeking input through consultation processes, it is important to avoid raising stakeholders’
                   expectations beyond realistic limits. In this context, stakeholders should be invited to specify what
                   isn’t wanted from a project, in addition to what is wanted, to encourage stakeholders to prioritise
                   between the available choices.
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2.3.1 Community Consultation
    Some projects will benefit from consultation with the community at various stages in the capital
    investment process. The following criteria may be useful in deciding which issues would benefit
    from higher levels of community consultation:

    • whether the issue affects the rights and entitlements of members of the community, or a
      significant group in the community;

    • whether the issue is likely to affect people’s quality of life;

    • whether the issue is highly technical;

    • whether the issue affects the natural environment; and/or

    • whether a significant number of people, or particular groups, are likely to have strong views
      on the issue.

    There are many models of consultation that may be used for community consultation processes,
    depending on the issues and objectives involved. These range from public meetings, forums and
    workshops to more extensive processes such as summits, statewide consultations and
    parliamentary committees.

    For further advice on community consultation, the Department of the Premier and Cabinet’s
    Citizens and Civics Unit has developed a number of guides, in consultation with agencies, that
    provide clear policy direction, procedures and reporting requirements to meet agencies’ needs.3




                                                                                                                7




    3
        http://www.citizenscape.wa.gov.au
    CAPITAL INVESTMENT POLICY




             2.4 Ten-Year Capital Investment Plan to the Expenditure Review
                 Committee
                   As outlined in Section 1.3, 10-year Capital Investment Plans are to be submitted, annually, to the
                   Department of Treasury and Finance, as part of the normal budget cycle.

                   The Capital Investment Plan identifies the short and long term capital investment priorities for an
                   agency that are defined in its corporate plan, program statements and service delivery strategies.
                   It covers proposed expenditure on such items as buildings, plant and equipment, engineering,
                   information technology and vehicles.

                   The Capital Investment Plan is the component of an agency’s Strategic Asset Plan that deals
                   specifically with the capital funding requirements. It identifies the broad project concepts, which
                   will need to be tested for organisational relevance, and financial, social and economic justification,
                   as far as seven to 10-years ahead.

                   The Department of Treasury and Finance reviews Capital Investment Plans and advises the
                   Expenditure Review Committee on the implications of the plans. This 10-year view provides the
                   Expenditure Review Committee with a strategic view of an agency’s future plans, which helps to
                   provide a context for decision making over the short- to medium-term.

                   The Department of Treasury and Finance will monitor the progress of projects as they continue
                   through the capital investment process, and will advise the Expenditure Review Committee of any
                   significant issues that arise.

                   The Capital Investment Plan should be supported by the agency’s Forward Procurement Plan,
                   which details the procurement activities that the agency intends to undertake. The Government
                   Procurement Division of the Department of Treasury and Finance can provide advice on forward
                   procurement planning.




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Chapter 3: Concept Development and Evaluation

The concept development and evaluation stage is about quantifying and costing the difference a project
will make to the community, and selecting the most effective and efficient option.

Ideally, concept development and evaluation should occur about five to six years ahead of the anticipated
need for the project, for it to be considered for inclusion on the approved forward estimates.



   PLANNING             EVALUATION            DEFINITION           DELIVERY             REVIEW
   Outyears 7-10        Outyears 5-6          Outyears 1-4         Budget Year          2 years post-
                                                                                        implementation




                   Documented Outputs:
                   • Application for Concept Approval
                   • Business Case (for projects costing >$1 million)


       Figure 4: Concept Development and Evaluation



       This chapter outlines the key features of concept development and project evaluation. More
       detailed guidance is available from the Project Evaluation Guidelines.

       In addition, the Department of Treasury and Finance and the Department of Housing and Works
       can advise on relevant project evaluation consultants to assist agencies to undertake the detailed
       analysis at this stage. Agencies are encouraged to consult early with the Department of Treasury
       and Finance and the Department of Housing and Works at this point of the process.




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     CAPITAL INVESTMENT POLICY




              3.1 Concept Development
                    Concept development enables the agency to identify a variety of approaches to meet its strategic
                    and service delivery needs. A range of possible project options should be considered, including
                    non-asset solutions. It may be helpful to use Value Management studies to identify possible
                    options (see Value Management Guidelines).

                    This is a critical stage, in terms of the ability to influence the final cost over the life of the project.

                    To satisfy the requirements of this stage, an agency should develop its concept detail to a level that
                    enables comparison with its strategic direction.

                    This concept detail should be developed in consultation with the Department of Treasury and
                    Finance, to identify issues that include, but are not restricted to:

                    • concept objectives;

                    • strategic impact on program and service delivery objectives;

                    • financial, economic, and social evaluation selection criteria to be used to select the preferred
                      option;

                    • accommodation needs; and

                    • functional needs.

                    Where an ICT project is being considered, the concept detail should include consideration of
                    cross-agency and whole-of-Government issues of inter-operability and strategic alignment (i.e. in
                    addition to aligning the project to the agency’s objectives). For further advice, please contact the
                    Office of e-Government in the Department of the Premier and Cabinet and the Government
                    Procurement Division of the Department of Treasury and Finance.

              3.1.1 Ministerial Review of Project Concept
                    Ideally, the developed project concept and possible project options should be presented to the
                    Minister for approval. Some ICT projects may also require approval from the e-Government
                    Sub-Committee of the Strategic Management Council. The advice should justify the need for
                    investment over non-asset solutions, or through using existing assets.

                    The Minister should be advised of the project/concept parameters and selection criteria used to
                    identify the preferred option. Any political or community sensitivities associated with the proposal
                    should also be included in the advice.
10
                    Project concepts that have been approved by the Minister must be included on the agency’s
                    Capital Investment Plan.
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3.2 Project Evaluation
3.2.1 Evaluation of all Reasonable Options
     Project evaluation should occur about five to six years ahead of the anticipated need for the
     project.

     For most projects, there is more than one solution to a given problem, and in most cases, a range
     of variations within a solution. All reasonable options must be evaluated.

     The types and levels of risk attached to each project option also need to be identified. Different
     options proposed to satisfy a particular service requirement can have significantly different levels
     of risk.

     In order to select the preferred option, an agency will first be required to evaluate each option in
     terms of:

     • Strategic Evaluation – to quantify the impact of the concept on the agency, in terms of the
       efficiency and/or effectiveness of achieving Government desired outcomes including, in the
       case of ICT projects, alignment with e-Government objectives such as standards which
       facilitate inter-operability;

     • Financial Evaluation – to estimate the net worth of the project and the budgetary
       implications to the agency;

     • Economic Evaluation – to quantify the costs and benefits to the community and the private
       sector from the project; and

     • Social Impact Analysis – to assess the impact of the project on unquantifiable social factors.

     As part of the evaluation process, when the agency considers its infrastructure and ancillary service
     needs, service demand projections, and the condition and supply of existing infrastructure, it may
     identify the potential for the procurement of public infrastructure and ancillary services through a
     joint arrangement between the public and private sectors. These solutions are termed Public
     Private Partnerships (PPP).

     The capital investment process for PPP is similar to the process described in this document for
     other forms of capital investment, but includes a number of additional requirements and stages
     requiring Cabinet approval. Where PPP are being considered, agencies must adhere to the
     policies and procedures outlined in Partnerships for Growth (2002) in consultation with the
     Department of Treasury and Finance.
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     CAPITAL INVESTMENT POLICY




              3.2.2 Select the Preferred Option
                    Well described and quantifiable prioritisation and decision-making criteria are required to select
                    the preferred option. The best option should be selected on the basis of considerations of the
                    benefits, functional value, cost and capacity to deliver based on the analysis of the data.

                    The options can also be ranked by a process that weights functional objectives and rates each
                    option's performance. This is an extension of the value management process conducted in the
                    corporate planning stage.

                    The process and results are to be documented and described in sufficient detail to enable the
                    criteria to be externally verified. The balance between qualitative and quantitative factors needs to
                    be clearly explained to demonstrate the validity of the selection.

              3.2.3 Review and Endorsement
                    At any time, an agency may seek its Minister's endorsement for the preferred option and forward
                    sufficient evaluation documentation to the Department of Treasury and Finance for review. The
                    level of information that should be provided is dependent on the size and complexity of the
                    project.

                    The Department of Treasury and Finance requires only summary information for projects under
                    $1 million, in the form of an Application for Concept Approval. A full business case is required
                    for projects with an estimated total cost of more than $1 million. Guidance on preparing business
                    cases is available from the Business Case Guidelines.

                    The Department of Housing and Works can assist with the business cases for building projects.

                    Where an ICT project is being considered, the agency should also consult with the Department of
                    the Premier and Cabinet’s Office of e-Government and the Government Procurement Division of
                    the Department of Treasury and Finance. Detailed guidance on requirements for ICT projects is
                    available from the Office of e-Government and from Government Procurement.

                    The Department of Treasury and Finance will scrutinise all project proposals at this point,
                    particularly those projects where the costs and/or scope as at the end of the evaluation stage
                    varies significantly from that initially indicated in the out-years on the Capital Investment Plan. The
                    Department may seek specialist advice on proposals, in some instances.

                    The Department of Treasury and Finance will accordingly advise the Expenditure Review
                    Committee on the relative merit and priority of the project. The Expenditure Review Committee
                    may endorse the proposal for further definition, defer the proposal or reject the proposal.
12
                    Endorsement by the Expenditure Review Committee is required, to allow the agency to proceed
                    to full definition of the project.
                                                                                               for PROJECT PROPOSALS




Chapter 4: Definition

The definition stage is about developing projects that have been approved by the Expenditure Review
Committee at the concept and evaluation stage. The preferred project option is further developed, and,
most importantly, documented, to bring the project plan (including cost plan and time schedule) to a
level of detail where a final decision can be made.

This written definition forms the key documentation necessary prior to tender, to communicate the
project requirements to the design professionals and organisations that will be involved in delivering
the project.



     PLANNING             EVALUATION             DEFINITION            DELIVERY              REVIEW
     Outyears 7-10        Outyears 5-6           Outyears 1-4          Budget Year           2 years post-
                                                                                             implementation




                                           Documented Outputs:
                                           • Project Definition Plan


      Figure 5: Project Definition



      The functions and objectives of the project and their connection to the proposed service delivery,
      and business planning for the project, should be re-confirmed. This reality check is essential at this
      point because of possible changes in circumstances since the concept approval stage. The written
      definition should be confirmed in consultation with the end users, to ensure the project, when
      completed, meets the needs of all stakeholders.

      The project definition must be sustainable within the funding limits that were approved by the
      Expenditure Review Committee.

      The agency must notify the Department of Treasury and Finance if there is a significant risk that
      the project definition will breach the approved funding limits.




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     CAPITAL INVESTMENT POLICY




              4.1 Project Definition Plans
                    Good investment decisions and project outcomes rely on good project definition.

                    A detailed written definition of the project is required prior to proceeding with a detailed design,
                    to ensure that all stakeholders support the project outcomes.

                    The purpose of the project definition plan is to identify in detail the precise functions and physical
                    areas that will be included in the project. It is equally important in confirming what will not be
                    included in the project, to avoid stakeholder disputes and debates during the delivery stage.

                    The project definition plan develops into more detail the concepts that were approved within
                    the business case, and is presented in appropriate language for external service providers
                    (e.g. architects or quantity surveyors) to use.

                    In simple terms, the project definition plan embodies all of the project requirements or service
                    delivery objectives that a new asset will resolve. The project definition plan defines the problem
                    and the asset design is the solution.

                    For example, the key features of a project definition plan for buildings are the project objectives,
                    functional requirements schedule, critical time plan and implications, the accommodation
                    schedule, site certification, a risk assessment, and an updated cost plan. Further guidance is
                    available from the Project Definition Plan Guidelines.

              4.2 Stakeholder Consultation
                    Many Government projects fail to achieve the intended objectives because the scope of a project
                    is no longer aligned with the capital budget allocated. This is often the result of a lack of
                    consultation with stakeholders, particularly end-users, prior to the project being funded.

                    As outlined in Section 2.3, consultation can occur at a number of stages in the capital investment
                    process. It can be strategic, at the corporate planning stage, and involve agreeing on goals,
                    targets and direction, or it can focus on content decisions regarding specific issues. Consultation
                    should be seen as a cumulative and ongoing process rather than a one-off event, supporting the
                    need for good information, communication or education.

                    To avoid budgetary and scope mis-match, agencies are advised to consult with stakeholders –
                    initially in terms of service delivery outcomes, and secondarily to agree to a project scope that will
                    address the desired service delivery outcome. Care should be taken not to raise stakeholders’
                    expectations beyond reasonable limits.
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4.3 Service Delivery / Business Planning Confirmation
    Probably the most important activity in the project definition stage is the confirmation that the
    proposed asset will achieve the intended business or service delivery objectives.

    Value management studies are an appropriate method for testing whether the Project Brief
    will achieve the intended project objectives (see the Value Management Guidelines for more
    information). It is appropriate that senior management take an active role in confirming that
    the project definition plan meets the original objectives that were established, and is consistent
    with current strategic directions.

4.4 Ministerial Endorsement
    At the end of the definition stage, the project should be submitted to the agency’s Director-
    General (or Chief Executive Officer and Board, as appropriate) and the Minister, to seek final
    approval to construct, i.e. to proceed to the project delivery stage.

4.5 Department of Treasury and Finance Endorsement
    For projects over $5 million, the project definition plan for building projects must be reviewed
    by the Department of Housing and Works, and for ICT projects by the Office of e-Government,
    before funding to proceed to the project delivery stage can be confirmed through the
    budget process.

    The agency must notify the Department of Treasury and Finance when this review has occurred.
    Delays in the review process and advising the Department of Treasury and Finance of the outcome
    may result in delays in the provision of funding for the project.




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     CAPITAL INVESTMENT POLICY




              Chapter 5: Delivery

              The project delivery stage is about preparing a design solution, preparing contract documentation,
              proceeding to tender, tender acceptance and construction. This work is to proceed in accordance with
              the project definition plan prepared in the definition stage.




                 PLANNING            EVALUATION            DEFINITION            DELIVERY             REVIEW
                 Outyears 7-10       Outyears 5-6          Outyears 1-4          Budget Year          2 years post-
                                                                                                      implementation




                                                                          Documented Outputs:
                                                                          • Schematic design report
                                                                          • Design development report
                                                                          • Contract documentation
                                                                          • Contract award
                    Figure 6: Delivery
                                                                          • Asset operation documentation



              5.1 Project Design
                    Professional design teams need creative time to analyse, conceptualise and optimise a design
                    proposal consistent with the project definition plan, as well as environmental and applicable
                    regulatory conditions.

                    Upon completion of a schematic design proposal, sufficient time (possibly several weeks) should
                    be allowed for refinement and approval of the design solution.

                    Agencies need to apply significant diligence at this point, to ensure the design meets all needs.
                    This stage is referred to as the ‘design freeze’. Changing the design after this time will usually
                    incur additional project costs, and should be avoided. From this point, the project design team
                    will incorporate structural, servicing, environmental and regulatory requirements before finalising
                    documentation, ready for the calling of tenders.


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5.2 Pre-Contract Reality Check
    When the tender documentation has been finalised, the agency will have available a pre-tender
    estimate and associated cash flows.

    Agencies are reminded that the pre-tender estimate should be contained within the approved
    project funding limits. If the total project budget at the pre-tender stage exceeds the original
    budget allocation, then the project must be referred to the Department of Treasury and Finance
    before being put to tender, outlining the reasons for the variation. The matter may be referred to
    the Expenditure Review Committee.

    The underlying principle is that the Expenditure Review Committee has approved a project concept
    at a defined cost and it reserves the right to reject, defer or refine the project if the pre-tender
    estimate exceeds the approved funding limit.

5.3 Proceed to Tender and Award Contract
    Once contract documentation has been finalised and the cost is confirmed to be within the budget
    parameters, tenders may be called.

    If the recommended tender price exceeds the pre-tender estimate, then the matter must be
    referred to the Department of Treasury and Finance, outlining the reasons for this variation. The
    matter may be referred to the Expenditure Review Committee.

5.4 Specialist Delivery Agencies
    Most general government agencies do not have statutory authority to enter into public works
    contracts.

    The Minister for Works has the authority to enter into public works contracts for all general
    government agencies. The Department of Housing and Works administers this authority.

    There are formal delegations from the Minister for Works to some other Ministers to contract for
    public works. This applies primarily to the following agencies:

    • Department of Housing and Works – All residential and non-residential building works for
      the whole of Government.

    • Main Roads Department - All civil engineering works associated with roads.

    • Public Transport Authority - All civil engineering and building works associated with public
      transport infrastructure.
                                                                                                                   17
    • Department for Planning and Infrastructure - All civil engineering and building works
      associated with public maritime infrastructure.

    Public financial corporations and public non-financial corporations have the authority to enter into
    such contracts directly, without approval from the Minister for Works.
     CAPITAL INVESTMENT POLICY




              Chapter 6: Review – Post-Implementation Evaluation

              Within 15 - 24 months of completion, a formal post-implementation review should be conducted
              on all projects over $5 million. Smaller, repetitive projects may also periodically be considered for a
              post-implementation review.




                 PLANNING             EVALUATION           DEFINITION           DELIVERY             REVIEW
                 Outyears 7-10        Outyears 5-6         Outyears 1-4         Budget Year          2 years post-
                                                                                                     implementation




                                                                                              Documented Outputs:

                    Figure 7: Post-Implementation Evaluation                                  • Post-implementation
                                                                                                evaluation


                    The purpose of this review is to:

                    • determine the extent to which the project is achieving program objectives and its functions;

                    • summarise and learn from major cost variations;

                    • compare the planned versus actual operational costs; and

                    • identify value opportunities (design, maintenance, operation).

                    In the case of ICT projects, the review process may also identify further service delivery
                    opportunities and internal efficiencies from leveraging the established infrastructure.

                    A post-implementation review helps to prevent ‘scope creep’ in future projects. All stakeholders
                    need to be aware that this presents an opportunity to improve service delivery.




18
                                                                                              for PROJECT PROPOSALS




Appendix 1: Glossary

Capital Investment Plan - Identifies the short and long term capital investment priorities for an agency,
which are driven by goals defined in its corporate plan and service delivery strategies. The plan covers
approved and proposed expenditure on buildings, plant and equipment, information technology, etc.
Projects included in the plan may be at different stages of the capital investment process.

Corporate, Strategic or Business Plan - A written record describing the reason for an organisation's
existence, program objectives, issues and how it intends to achieve and measure progress towards
addressing these issues and objectives. For large agencies, this often translates into business unit plans
or divisional/regional plans.

Cost Plan/Time Plan - Cost and timeframe targets for each element of a project, used for controlling all
design and development activities against these targets.

Functional Analysis - Information generated from value management of a concept or project, which
details, at different levels, the functions required of a facility or its component parts.

Needs Analysis - The result of detailed research into underlying market demand (or acceptance) for the
particular goods or service.

Non Asset Solutions - Methods of addressing increases in demand, other than by adding asset capacity
(i.e. pricing mechanism, selective targeting of services, etc).

Project - Any proposal that requires the weighing up of costs and benefits in order to meet some desired
objective. The term is not restricted to a capital works or recurrent project.

Project Concept - Asset strategy responding to a service delivery strategy developed to address
consumer demand.

Project Initiation - The initial stage of a capital project, from the idea to the approval to procure and
involving strategic planning, project concept, option identification, evaluation and definition of a
preferred procurement strategy.

Project Option Evaluation - Testing of different service delivery or procurement strategies by
quantitative methods (i.e. financial and economic analysis) and qualitative methods (i.e. level of consumer
satisfaction).

Risk Management - A structured way of identifying and analysing potential risk, and devising and
implementing responses appropriate to their impact.

Schematic Design - A descriptive and illustrative definition of a preferred option, including a time
schedule, cost plan and schematic drawings.
                                                                                                                      19
Strategic Facilities Management Plan - A plan detailing how future service delivery demands could be
managed in terms of standards, existing assets, upgrades, assets sales, etc.

Value Management - A structured, systematic and analytical process, which seeks to achieve value for
money by providing all the necessary functions at the lowest total cost, consistent with required levels of
quality and performance.
     CAPITAL INVESTMENT POLICY




              Appendix 2: Roles and/or Responsibilities
                          of Stakeholders
              The following outlines the role and/or responsibility of stakeholders involved in this process.

              • Expenditure Review Committee - Is a sub-committee of Cabinet, responsible for providing financial
                and economic advice to Government, including formulation of the annual Budget.

              • Department of Housing and Works - Has a responsibility for creating new building assets required
                by Government for agencies, and will perform all commercial interface roles in architecture and
                building engineering, where appropriate.

                 The Department of Housing and Works is also able to provide Building Condition Assessments (BCA),
                 portfolio maintenance analysis services, and other maintenance-related expertise on a
                 fee-for-service basis.

              • Department for Planning and Infrastructure - The Land Asset Management Services Branch is
                responsible for achieving whatever form of land tenure is acceptable (eg. freehold, reserve) to an
                agency's specific requirements, including the acquisition of land for those agencies that do not have
                the legislative authority to acquire and deal in land. Native Title clearances are also part of this
                process, where applicable.

              • Department of the Premier and Cabinet - The Office of e-Government is responsible for advising
                Government on how to transform the operations of government, using technology as a tool to
                improve internal efficiency, service delivery to citizens and community participation.

              • Department of Treasury and Finance - The Agency Resources Business Unit is responsible for
                advising the Expenditure Review Committee and Government on agency funding requirements. It
                also co-ordinates the involvement of the private sector in the provision of Government infrastructure.

                 The Government Procurement Division provides procurement advice and services to government
                 agencies, to implement government procurement policy.




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                                                                                          for PROJECT PROPOSALS




Appendix 3: Example

   The following describes how a major project might develop and proceed through the capital
   investment process. The example being used is a new prison for adults. The example is offered
   to show the kind of thinking behind the process and the need for robust and longer-term
   planning.

   Corporate Planning
   As a result of the Department of Justice’s (the Department) review of its corporate plans and
   service delivery strategies, the asset implications would be identified. This would establish future
   prisoner numbers and types and, therefore, bed requirements predicted in various parts of
   the State. Preliminary analysis of this outlook may initially indicate that a regional prison within
   five years may be more appropriate than a metropolitan prison.

   The above would usually be based on a number of assumptions about future trends in
   regionalisation, such as prison sentencing practices, population growth and court backlogs, in
   addition to standards of prisoner accommodation and classification. Complementing this would
   be a fairly detailed appreciation of the changing nature of the prisoner population.

   The Department would examine non-asset solutions, such as changing legislation/sentencing
   policy or home detention options, as its first response to the situation.

   The implications of the above would need to be understood including:

   • availability of future/long term sites in accordance with town or metropolitan plans;

   • review of performance of existing prisons/portfolio; and

   • review of conditions of existing prisons.

   In addition to the above, and as part of on-going budget processes, the Department would need
   to prepare:

   • its 10-year capital investment plan, addressing all proposed new capital investment; and

   • the decision-making criteria used to prioritise all these planned investments/proposals.

   The importance of the above cannot be underestimated, because without the total picture, an
   individual project lacks context. This impedes the Expenditure Review Committee’s consideration
   of the project compared with other programs, new projects, existing facilities, priorities and other
   agencies' needs.

                                                                                                                  21
     CAPITAL INVESTMENT POLICY




                    Concept Development and Evaluation
                    As a result of the corporate planning efforts above, the issue of future bed shortages and the idea
                    that a new prison would be needed in the future provides the opportunity to describe an asset
                    concept, and test it.

                    The focus of this stage is on detailed research to establish needs/benefits, and then detailing all
                    the functions to be performed (in order to get the design brief accurate and to arrive at a
                    preliminary or indicative total cost estimate).

                    A value management study would usually be conducted at this point, to identify the concept
                    objectives, facts, assumptions and key issues, and to quantify, prioritise and document the
                    essential functions to be performed by the prison. Procurement solutions such as Public Private
                    Partnerships may be considered at this stage.

                    At this juncture, the Department would contact its analyst at the Department of Treasury and
                    Finance, to ensure that the approach to be taken to evaluate the concept and project in the next
                    stage is appropriate to the agency, the concept and the quality of agency planning.

                    When this is completed, the Department would seek its Minister's endorsement of the concept,
                    for approval to proceed to evaluate the proposal in detail.

                    It is critical to identify and assess all reasonable options. For the prison proposal, this involves:

                    • identifying selection criteria to select the most preferred option;

                    • identifying a cost effectiveness evaluation;

                    • identifying benchmark comparisons of costs and standards;

                    • development of the project plan; and

                    • consideration of private sector involvement.

                    The project plan for the preferred option would examine capital and recurrent financing
                    implications, and procurement and delivery options.

                    If the prison project is shown to make a positive difference to the Department’s objectives, and
                    the Minister considers that the cost implications are reasonable, the Department would submit the
                    proposal and supporting business case to the Department of Treasury and Finance for
                    consideration. This can occur at any time.
22                  On the basis of the advice provided by the Department and the Department of Treasury and
                    Finance to the Expenditure Review Committee on the project, and its relative priority and
                    affordability, the project may be approved for inclusion in the Capital Works Program in the
                    forward estimates.
                                                                                             for PROJECT PROPOSALS




Definition
In this example, and because of the size of the prison project, funding aspects of demand analysis and
the project definition plan, cost estimates and construction schedule required at this stage, would not be
expected from existing resources. Therefore, the Department would seek funding through the budget
process. This means that these planned expenses should have been anticipated and planned as part of
its 10-year Capital Investment Plan in the planning stage.

Delivery
The prison project is now ready for design and contract documentation and construction.

After the tender documentation is completed, where the pre-tender estimate, or later, the tender price,
varies from the approved funding limit, then Expenditure Review Committee approval is required.




                                                                                                                     23
                          24
Appendix 4: Example Capital Investment Plan
                                              CAPITAL INVESTMENT POLICY
for PROJECT PROPOSALS
Contacts
Further information is available from the following sources:

Issue                                      Contact
General Queries                            Assistant Director
                                           Asset Planning and Management
                                           Department of Treasury and Finance
                                           (08) 9222 9380

Budget Formulation and Monitoring          Agency Resources
                                           Department of Treasury and Finance
                                           Reception - (08) 9222 9336

Building Procurement                       Evaluation and Risk Management Branch
                                           Department of Housing and Works
                                           (08) 9440 2256

Asset Disposal                             Land Asset Management Services
                                           Department for Planning and Infrastructure
                                           (08) 9216 8911




         Department of Treasury and Finance
         Government of Western Australia


                                                                                        ISBN 0 7307 4537 6

				
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