Integration Of Capital Investment Analysis With Public Interest And Value For Money In Mass Rapid Transit Project In Thailand

An infrastructure is always realized by the government as a major component for the economic growth of the every country. It is objectively originated in order to serve public need and poverty. On the other hand, the infrastructures projects, created by the government, play a vital role as an economic development instrument of the nation. Moreover, they functionally serve public demands and also drive the domestic economic. Groote et al. (1999) indicated that economic historians have always assigned a large role to infrastructure in the process of economic growth. Undoubtedly, the government attempt to generate many infrastructure projects and also they hope that it will fulfil the needs of public.

Unfortunately, the poor practices of the infrastructure project can be seen everywhere. One reason which leads the project to be unsound is lack of the Capital Investment Analysis (CIA). For example, the Hopewell project in Thailand, cannot be completed during construction period because the government agency has inadequate source of funds to support all of the construction cost. In some case, the total life cycle cost of a project is very costly by comparing with the socio-economic benefit of its actual function. Therefore, if the project can be succeeds, the effective CIA technique should be conducted at the right place and on the right time. Alkaraan and Northcott (2006) revealed that Strategic’ projects are substantial investments that involve high levels of risk, produce hard-to-quantify (or intangible) outcomes, and have a significant long-term impact on corporate performance.

Technically, the Capital Investment Analysis (CIA) technique is employed by a project developer and a decision-maker in order to evaluate the project performance and also select the beneficial option. The CIA technique has become the crucial instrument for evaluating, selecting, and controlling the project capital investment. However, it has a number of weaknesses, such as the lack of information gathering process and bias decision during decision-making process. Meanwhile, there are several factors which lead a certain project to be the operational and financial failure.

By adopting the CIA technique, the financial and economic performance of the project has been evaluated whether the project should be implemented. However, one of the constraints leading a project to be unsuccessful is the CIA itself. The CIA procedures obtain many redundant data within each stage of the decision making. Boehlje and Ehmke (2005) discovered that the most important task of investment analysis is gathering the appropriate data. In fact, the significant errors are transferred to the next design phase and cause the project coming out with unsound and inaccurate consequences.

Most of the time, we recognize on the fact that the facility’s life cycle cost is very costly by comparing with the user satisfaction or expectation. Therefore, the Value for Money (VFM) concept should be conducted to provide the diverse issue which should be taken into account, such as the analytical tool and the critical parameter.

During the CIA procedures, some significant parameters are missing which cause the unsound outputs. However, the stated problem will be mitigated by conducting the Public Interest (PI) concept into the CIA technique. Public Interest (PI) means the well-being of public users or community in a certain area which the project will be located. Furthermore, it composes of a group of parameters which an individual and a community usually involve with, for example the effectiveness of a project, consumer right, security and safety of public users, and so forth. Unfortunately, the CIA technique does not take into account of all these critical parameters which leads a project to be not sound.

Since CIA technique basically has no mechanism to eliminate non-value added elements as well as an unnecessary expense of the proposed option. Big amount of capital expenditure has been used in order to create an infrastructure project but it cannot fulfill the user satisfactions effectively. In conclusion, the project comes out with uneconomical and unproductive consequence. By applying Value Engineering (VE) technique, the alternative option selected will be more realistic and then the cost of the project can be reduced but the project performance will not be decreased.

Mr. Aut Thaitrong made a research that aimed to : (1) formulate the improved CIA tool by integrating the Public Interest (PI) concept, the Value for Money (VFM) concept, and the Value Engineering technique into the traditional CIA technique; (2) examine on the applicability of the improved CIA tool by conducting the project case studies, included (1) Mass Rapid Transit (MRT) project called Urban Rail Transportation Master Plan in Bangkok and Surrounding Areas (URMAP) with Dark Red Line of Bangkok Mass Transit project and (2) Bangkok-Nakonratchasima High Speed Rail (HSR) project of the State Railway of Thailand (SRT); (3) propose the recommendations from the mentioned case studies in order to strengthen the CIA technique by incorporating the significant critical parameters.

His research shown that the critical problems of Capital Investment Analysis (CIA) technique were stated included the significant parameters are normally missing. A number of concepts, such as Public Interest and Value for Money, have been investigated and their significant parameters were identified. After that Capital Investment Analysis (CIA) framework has been formulated as a parameter checklist. The CIA framework (or called critical parameter checklist) basically provides the procedures of CIA technique and, at the same time, a group of significant parameters. Thus, a project developer can use it as a guideline to ensure that each step of CIA and critical parameter will be taken into account.

From the CIA framework, the procedures of CIA are basically divided into nine steps, included (1) Project Objectives, Outputs and Outcomes Identification, (2) Option Analysis, (3) Demand Analysis, (4) Technology Selection, (5) Price Analysis, (6) Socio-Economic Analysis, (7) Financial Analysis, (8) Project Risk Management, and (9) Project Evaluation and Recommendation.

On the other hand, the new significant parameters inside the CIA framework should be highlighted and briefly explained. The major parameter from both Public Interest and Value for Money is equal to twenty parameters in total. From now on, nine and three parameters from Public Interest and Value for Money respectively discussed.

Public Interest (PI) Critical Parameters

- Effectiveness
Effectiveness can be separated into effectiveness of service delivery and effectiveness of analysis result. Effectiveness of output and service delivery basically concentrates on the specification and requirement of the quality of service for the unique project, for instance the rapidity of the mass transit, such as metro, should satisfy public user. Simultaneously, it also focuses on the standard level of service which all public projects should be complied with the standard, for example a seat for kid, lady and monk should be provided in each public transport.

- Accountability and Transparency
Accountability and Transparency should be always stated on a public project because it has to deal with a great amount of investment capital in the project. The policy can be applied in order to ensure that the money which basically comes from the taxes will be used as stated in the project objective. Accountability policy allows public to access to information of a project. On the other hand, transparency policy provides the guideline for a project developer and a decision maker in order to make a decision based on the real information and neutral judgment. This can be used against the bias thinking and political decision.

a. Affected Individuals and Communities
b. Public Access
c. Consumer Rights
d. Security and Awareness
e. Openness
f. Equity of User

Value for Money (VFM) critical parameters
g. Design Amenity
h. Sustainability in Case Private Involvement
i. Quantifiable Impact on Core Service in Case Private Participation

The conclusion from the case study revealed that the critical parameters should be stated at the early stage, such as accountability and transparency, in order to prevent the bias judgment. In Option Analysis stage, Value Engineering (VE) technique can be applied in order to identify an optimum alternate option. Some tool should be conducted in order to verify the availability and validity of information because most information can be derived from the previous studies.

Many analytical tools in CIA, such as Demand Analysis, Price Analysis, Socio-Economic and Financial Analysis, basically use that kind of information during analysis. Thus, error information can be transferred to the next analysis led to be unsound result. The last finding is that Project Risk Management should be addressed in each real practice because a project developer can evaluate and prevent an unexpected incident before it happens. All significant parameters in each analysis tools can be discussed individually in order to summarize the results of the case study analysis.

Capital Investment Analysis (CIA) technique as a Parameter Checklist

1. Project Objectives, Outputs and Outcomes Identification
j. Capacity, rate and level of utilization
k. Affordability of service user
l. Quality of service (level & frequency)
m. Accountability
n. Transparency

2. Option Analysis
o. Private sector involvement

3. Demand Analysis
p. Availability and validity of information

4. Technology Selection
q. Technology cost
r. Accountability and transparency

5. Price Analysis
s. Affordability of public user

6. Socio-Economic and Financial Analysis
t. Availability and Validity of information

7. Project Risk Management

Recommendation for Capital Investment Analysis (CIA) Improvement

Capital Investment Analysis (CIA) framework can be used as one of the CIA tool which provides a framework of significant parameters. A project developer can employ it as a guideline in order to make sure that, in each stage of CIA study, the important parameter will not be neglected. In conclusion, it can be enhanced by keep collecting the critical parameter from further concept and technique but the parameter should benefit to individual and community.

His thesis abstract is copied and posted.

Abstract

A number of concepts, such as Public Interest and Value for Money, have been investigated and their significant parameters were identified. After that Capital Investment Analysis (CIA) framework has been formulated as a parameter checklist. The CIA framework (or called critical parameter checklist) mutually provides the procedures of CIA technique and a group of significant parameters. Thus, a project developer can use it as a guideline to ensure that each step of CIA will be thoroughly concerned and the critical parameters will be taken into account.