7.1. Better decision-making
Ngā whakataunga kounga ake
Decision-making needs a relentless focus on creating value for New Zealanders.
We can only build high-quality infrastructure at an affordable cost if we make good decisions on how to plan, invest in, deliver and manage our infrastructure. Infrastructure decision-making is affected by a range of factors, including how infrastructure is owned, governed, regulated and funded.
A well-functioning infrastructure system will result in good decision-making that improves economic, environmental, cultural and social outcomes. A poorly functioning system will lead to bad decisions that lower wellbeing over time.
Infrastructure decision-making needs to consider how infrastructure systems are interconnected. For example, our hospitals need good transport connections and reliable electricity to function. Homes can only be built where there are networks or systems for water. People often make choices about where to live and work based on the locations of schools, which can then affect congestion on our transport networks at peak times. Technology is further blurring the boundaries of sectors such as energy, transport and telecommunications.
New Zealand is spending more on infrastructure than ever before. The 2021 Budget included investment of $57 billion in infrastructure over the next four years, and private sector providers are also making considerable investments.297 After a period of low investment in the 1990s, we now invest a greater share of our national income into public capital (which includes public infrastructure plus other capital elements like vehicles) than most other developed countries.298
However, we don’t always get the best results from our spending. The World Economic Forum ranks New Zealand’s infrastructure performance as 46th out of 140 countries.299 New Zealand is one of the least efficient high-income countries when it comes to turning public-investment into quality infrastructure.300 International evidence shows that good decision-making, supported by robust public investment management and a stable long-term pipeline of investment intentions, is essential for lifting performance. Countries with the best public investment management practices get twice as much ‘bang’ for their investment ‘bucks’ as countries with poor practices.301,302
At present, many public infrastructure projects lack sufficient planning and investigation. Fewer than half of the initiatives reviewed by the Treasury’s Capital Panel for the 2021 Budget had completed business cases.303,304 Government agencies’ investment plans are unreliable and poorly signalled in advance, making it difficult to make decisions in a consistent way. This is made worse by the creation of bespoke or ad-hoc governance and delivery agencies for projects.
Limited planning and investigation tends to lead to failures in delivering projects. When decisions are made before the right information is available, they’re more likely to lead to problems like cost overruns.305,306 In Australia, only one in three major infrastructure projects are announced before their business cases have been completed, but these projects account for 79% of the total value of cost overruns.307 Most countries struggle to control the costs on major public-infrastructure projects and New Zealand has recently experienced major issues in this area.308
Poor decision-making can also lead to poor outcomes from infrastructure, such as solving the wrong problem, which means other needs remain unmet. Internationally, there’s evidence that public investment is often allocated in response to political concerns rather than actual need.309 Large ‘iconic’ projects may be favoured over smaller, higher-value, investments. Where this occurs, it can reduce the value that we get from our infrastructure investments and reduce economic performance.
To achieve the best results, we need robust decision-making processes, supported by strong and effective governance arrangements and reliable, timely information.
“Past investment surges have often taken place in weak institutional environments or been associated with the circumvention of established decision-making processes. [I]n the absence of a comprehensive and cohesive set of PIM [public investment management] institutions, the potential benefits from a ramping up of investment are much diminished. Countries should therefore factor PIM diagnostics, reform, and capacity building into their plans for ramping-up investment levels.”
— International Monetary Fund
During public consultation, submitters told us there was a lack of cohesion and consistency that was driving avoidable overlap, duplication and delay during infrastructure projects. Some common examples of this included policy and practice leadership and the need for central and local government to work together more closely. Submitters agreed that the strategy should address this.
We also heard that there was doubt about whether centralisation or greater central control would be better and there was some concern that it would be worse. However, support was expressed for:
- Common and transparent frameworks to guide infrastructure.
- The benefits of consistency in, rather than centralisation of, decision-making and delivery.
- Decision-making rights being made locally or at point of service.
- A desire to improve information, trust and confidence in decision processes.
Major infrastructure projects require significant investment and last for a long time. Infrastructure investments begin with an idea, which should then be explored and tested through planning. A preferred investment option is then selected for funding. After this, infrastructure providers procure, deliver and implement to realise the expected benefits. Good decisions must be made at each stage of this process.
We need rigorous decision-making processes so we can get the most out of the infrastructure we build. This requires:
- Robust principles and incentives to drive good decisions.
- Strategic planning to make investment priorities clear.
- Reliable and timely information to guide decision-making.
- Standardised frameworks for procurement and delivery.
Robust principles and incentives to drive good decisions
Good principles and incentives are fundamental to good infrastructure decision-making.
Good decision-making is guided by clear principles on how to invest in and manage infrastructure. These ensure investments are well considered and deliver good value for money. However, decision-making doesn’t happen in a vacuum. How infrastructure providers are structured, owned, governed, funded and regulated can strengthen or weaken incentives for good performance and sound investments.
Core principles inform good decision-making.
International guidance and best practice highlight the importance of sound decision-making principles.310 A consistent, principled approach to infrastructure decision-making ensures that the best projects are selected, funded and delivered. This provides the public with confidence and assurance that the investment of public funds will not only provide value for money, but also improve wellbeing.
Table 3 summarises 10 core principles of infrastructure decision-making that cover decisions at all points in the life of an infrastructure project, from the identification of the problem that needs to be solved to the project being completed and showing benefits. These principles are adapted from relevant overseas examples, in particular OECD best-practice guidance and Infrastructure Australia guidance. They’re designed to complement and bolster the Treasury’s Investment Management Framework. Public agencies and decision-makers should commit to following these principles when they plan and invest in infrastructure.
Table 3: Core principles for infrastructure decision-making
Source: Te Waihanga
Checks and balances are needed to ensure monopoly infrastructure providers make good investment decisions.
Competition between infrastructure providers can be an incentive for them to operate, maintain and invest in their networks in ways that deliver good-quality services to users at fair and reasonable costs.311 However, there are many sectors where competition doesn’t exist and infrastructure providers are monopolies. In some cases, like electricity transmission, water and transport, infrastructure is best managed by a single provider serving each area. In others, like health and education infrastructure, it’s provided directly by the government to ensure that all New Zealanders have access.
Some monopolies, including electricity and gas transmission and distribution, are regulated by the Commerce Commission. It sets information-disclosure requirements, regulates prices and the quality of service and reviews major capital investments. Water sector reform proposes a similar approach for the water sector. The transport, health and education sectors lack external checks and balances and instead rely upon a combination of internal investment approval processes, investment approval by ministers or Cabinet and assurance by the Treasury.
A lack of competition and external regulation can lead to poor decision-making.312 This can take the form of under-investment, over-investment or poor investment choices.313 Infrastructure providers that are sensitive to political push-back about high user charges or rates may choose to under-invest in their networks in ways that can undermine services or resilience in the long-term. On the other hand, infrastructure providers that don’t face political push-back about user charges or rates may choose to over-invest in their networks, delivering ‘gold plated’ upgrades that provide limited benefits to users at a high cost.
The right incentives for good decision-making are required.314 These may include strengthening existing assurance and review processes such as the government’s Gateway Review and Better Business Case requirements, strengthening information-disclosure requirements, and modernising processes and institutions that underpin investment decisions. In doing so, it’s important to build on lessons from sectors that already face external regulation.
Strategic planning to signal clear investment priorities
A long-term view enables infrastructure agencies, as well as construction firms, to better plan for the future.
Signalling investments in advance and maintaining stable investment levels over time can improve the efficiency of infrastructure delivery.315
Good strategic planning looks at factors such as the future demand for infrastructure and long-term trends like New Zealand’s growing and ageing population.316,317 It considers emerging opportunities and challenges, such as a changing environment and rapidly developing technology. Strategic planning also looks across and seeks to integrate with different infrastructure sectors and networks.
Good strategic planning sets clear standards for the quality of service expected from infrastructure, provides a reliable forward view of infrastructure funding plans and signals priority infrastructure projects well in advance. These include solutions that involve reforming parts of the infrastructure system or making better use of existing infrastructure.
Users and providers should have a clear understanding of service quality.
Standards set the service quality and reliability that users can expect from infrastructure. They also influence the cost to provide infrastructure and, therefore, how much funding is needed from users, taxpayers and ratepayers. There’s often a need to manage trade-offs between quality and affordability. For instance, the World Energy Forum describes a ‘trilemma’ between energy security, environmental sustainability and energy equity.318 Countries that perform well in one area tend to lag in others.
Clear service-quality standards are an important part of the strategic planning process. Minimum service standards exist in some sectors such as gas and electricity, where the Commerce Commission requires regulated providers to satisfy minimum standards for reliability of supply.319 However, standards don’t exist for all sectors, or they may exist but aren’t enforced. The cost and funding implications of existing standards are not always well understood. Where service quality standards aren’t available, they should be developed and published to guide strategic planning and project decision-making.
Government agencies should signal funding intentions further in advance and raise standards for asset management planning.
Although infrastructure development is often a long-term process, public infrastructure agencies don’t often share plans for funding beyond the annual government budget cycle. This can undermine infrastructure delivery and asset management by making it difficult for agencies to invest in the right capabilities and credibly signal future investments to the market.320
Councils are required to develop and publish long-term plans that set out their investment intentions over a 10-year period.321 While priorities can change in response to elections, these provide a degree of certainty about future funding and service-quality improvements. The Treasury requires central government agencies that make significant capital investments to develop Long-Term Investment Plans, but generally these plans don’t clearly identify investment intentions.322 Forward planning tends to be more successful in organisations that have more certainty about their long-term capital budgets.323
Government agencies should be required to develop and publish capital investment plans for a minimum period of 10 years. To ensure they’re credible, investment plans should be aligned with agency service-delivery priorities and strategies, fiscally sustainable and linked with budget allocations and other sources of financing.324
To achieve this, there needs to be a lift in asset management planning among many central government infrastructure providers, with the aim of closing large observed variations in the quality of asset management plans.325 The approach to lifting quality should lean on the experiences of local government and regulated infrastructure, where certain standards are clearly specified and disclosure requirements exist. International best practice also indicates the importance of independent assurance (to identify, report on and take action on risks and challenges) to ensure that investment plans are credible and linked with government budget allocations.326 Common standards in asset management would help further, allowing asset information to be used across a range of systems and support a range of data sets, particularly for documentation and mapping.327 This could also improve communication between sectors, reduce maintenance costs and assist with efforts to integrate spatial planning.
An infrastructure priority list is needed to provide certainty about future projects.
Projects that can help us solve long-term challenges, such as those addressing climate change, improving our cities, connecting all regions of New Zealand and providing infrastructure that works for our growing and changing population, may be under development or may be signalled as intentions but not yet funded.
An infrastructure priority list, similar to the list developed by Infrastructure Australia, is important for offering visibility of and assurance about what’s planned.328 When developed well, this can have benefits for infrastructure providers, decision-makers and construction firms seeking to understand future capability needs.
A priority list that includes the following should be developed and published:
- Priority infrastructure projects. These are large projects or packages of smaller projects that have been through a robust business case process. This process identifies important problems to solve, considers all options for addressing them and identifies achievable solutions that deliver good value for money and are consistent with our need to reduce carbon emissions.
- Priority infrastructure investigations. These are projects where an important problem has been identified but planning and investigations haven’t yet been completed.
The priority list should cover projects from all infrastructure sectors. It shouldn’t focus solely on major projects, as many of the problems we’re facing require small-scale, distributed improvements. For instance, a water pipe renewal programme or intersection safety improvement programme may qualify for the priority list even though it consists of many small projects.
The priority list will grow as infrastructure providers submit projects for assessment and as more and more priority investigations are identified. As an independent advisor on infrastructure, Te Waihanga will monitor and advocate for the progress of projects and investigations on the list.
Reliable and timely information to guide decision-making
Information that’s both reliable and provided at the right time is essential to good decision-making.
If the right information is not available, it can be difficult to make the right decision. Often, there’s pressure to make decisions and announcements before sufficient information is available. Decision-makers and public infrastructure providers should commit to improving the standard of information that’s available and making decisions when the right information is available.
Public communication should give the community confidence.
Governments usually aim to keep communities informed of proposed new infrastructure projects, often from the very start. There’s often high public interest in community impacts, benefits, costs and delivery timetables. Communication is effective when it provides confidence that decision-making is sound, public funds are being well managed and project benefits will be delivered.
Public announcements that are made early in the planning and development of a project can signal intentions, but government must be careful to avoid premature announcements about scope, costs and timeframes.329 Providing these details could disappoint communities if changes are made later in the project and it places unhelpful pressure on project delivery teams. It can also limit the ability of a project to adapt successfully and, as a result, reduce the benefits of the government’s investment.330
Objective, reliable information is needed to understand how our infrastructure is performing.
There’s a shortage of comprehensive, comparable and consistent data on the performance of New Zealand’s infrastructure.331 Good data is available for some sectors, such as electricity distribution, but it can be difficult to make comparisons across sectors or make international comparisons. To address this issue, public infrastructure providers should build a comprehensive performance-measurement framework that enables meaningful comparisons and benchmarking between operators and agencies. This should include collecting, analysing and publishing data on performance at multiple levels:
- Projects: To understand how individual assets perform in delivery and operation, including the construction costs and benefits delivered.
- Networks: To understand the relative performance of infrastructure networks over time.
- Systems: To understand the performance and integration of networks, particularly in complex urban environments.
The value and importance of regular objective review and reporting on project outcomes are highlighted in Case Study 12 on the publication of an annual report on the United Kingdom’s Major Projects Portfolio.
There’s a particular need for better information on infrastructure delivery costs, including benchmarking to enable more efficient investments.335 There’s little systematic information on how and why infrastructure costs have changed in recent decades, how our costs compare with those in leading countries and how cost performance differs in different infrastructure sectors. Regular analysis and benchmarking of cost performance is needed.
The solutions to the issues we face have often been shown to work here and overseas. These case studies are an example to learn from.
Robust assessments of options, including non-built options, are essential.
When choosing whether and how to invest, it’s important to consider the full range of alternatives rather than prematurely focusing on a single infrastructure-based solution. Identifying and prioritising non-built solutions to infrastructure challenges will increase the value of infrastructure for the community and the environment and reduce the risk of committing to a solution that’s not technically feasible to deliver.
Infrastructure planning should consider options that don’t involve building new infrastructure, including effective planning, demand management and improvements to existing infrastructure (see Figure 30).
- Variable pricing to spread demand between peak and off-peak periods, for instance through congestion pricing, lower off-peak electricity prices, or off-peak discounts for public transport fares.
- The use of digital solutions like telehealth to deliver services.
- Energy and water efficiency standards that manage demand on these networks.
- Planning initiatives like transit-oriented development that reduce the need to travel.
Where non-built options are viable, they allow infrastructure challenges to be addressed in a cost-effective, low-carbon way. They’re especially important to consider in light of the need to mitigate carbon emissions.
Infrastructure providers often face uncertainty about the future demand for infrastructure and the likelihood and impact of natural hazards, including sea-level rise. Where appropriate, infrastructure planning should build in flexibility to adapt to uncertainty. Examples include protecting infrastructure corridors in advance of development and designing infrastructure that can be cost-effectively relocated or strengthened in response to increasing coastal hazards. Planning tools like dynamic adaptive policy pathways and real options analysis can be used to guide these decisions.336
Figure 30: Decision-making hierarchy
Source: Te Waihanga
Project selection should be guided by a rigorous cost-benefit analysis.
For most projects there are alternative options for investment that vary in cost and outcomes. The key is to identify those options that deliver the best ‘bang for buck’. To do this, public infrastructure providers should commit to preparing and publishing a cost-benefit analysis (CBAs) for all major investments.
A good CBA comprehensively considers all relevant costs and benefits, including non-financial economic, social, cultural and environmental impacts and long-term impacts. The Treasury’s Guide to Social Cost Benefit Analysis outlines principles for assessing and weighing up these impacts.337 Some infrastructure sectors have additional CBA guidance, such as the Waka Kotahi monetised benefits and costs manual338 and the Transpower capital expenditure input methodology published by the Commerce Commission.339
The quality of a CBA is only as good as the quality of the information that’s analysed. In some cases it may be necessary to consider separately impacts that are difficult to model or fully value, such as environmental impacts and equity impacts.340 Key parameters should be published and regularly updated to ensure public confidence in the analysis.341 To ensure that CBA supports investment for the long-term, the social discount rate, which determines how much weight is placed on the future benefits of a project compared to the current benefits, should be reviewed.342
Post-completion reviews of infrastructure projects offer a valuable learning opportunities.
Once a project is completed it can be reviewed to compare its intended inputs, outputs and outcomes with those actually delivered. The data can then be used to guide decision-making on subsequent projects, ensuring they better reflect real-world experience. However, post-completion reviews are rarely done and when they’re conducted, lessons aren’t always taken onboard.343 The inconsistent use of reviews to measure how well projects deliver against what was planned, makes it challenging to identify successes and failures.
Post-completion reviews are considered best practice, especially for major infrastructure projects.344 They should be prioritised, funded and published after completion. Independent audits of reviews will ensure they’re impartial, rigorous and transparent.
Standardised frameworks for procurement and delivery.
By improving the government’s abilities as a client, we can ensure we have an infrastructure system that can deliver the projects we need, now and in the future. New Zealand needs standardised frameworks for procurement and delivery, supported by the right skills in the public sector, to ensure that infrastructure projects are delivered to a high standard.
Procurement processes and standards vary across agencies.
Each public sector agency is responsible for the procurement of its infrastructure. This approach has resulted in different processes and standards for infrastructure planning, procurement, construction, operation and maintenance across sectors and agencies. Every government agency with a role in infrastructure has its own procurement policy, templates and methods, each with its own nuances. This can create needless costs and causes confusion for industry.345
There’s a need to align the standards and processes used across projects, sectors and agencies to strengthen the government’s ability to act as a sophisticated client of infrastructure. This can:
- Enable the sharing of skills and insights across the country.
- Create opportunities for projects to be planned and delivered together, where beneficial.
- Broaden the number of possible suppliers, consultants, contractors and other experts by reducing barriers to entry.
Provide consistency and clarity to suppliers on the wider public outcomes sought through the procurement process.
Each of the projects in the infrastructure pipeline provides an opportunity to deliver a set of wider public outcomes, such as opportunities for Māori, waste minimisation, emissions reductions, the adoption of digital technology, and improved professional development that would not otherwise be delivered.346 However, inconsistent expectations of suppliers can create confusion for industry and limit the number of possible suppliers for projects. Providing consistency and clarity on the wider public outcomes sought through procurement can both broaden the number of possible suppliers and ensure that wider public outcomes are achieved.
In the long-term, getting the best outcomes may also require changes in how agencies are structured, governed, funded and regulated. Significant structural changes shouldn’t be undertaken lightly. They require careful consideration of the preferred outcomes, as well as the short-term costs of disruption.
Project, asset and risk management would benefit from common frameworks.
There are specific areas where common frameworks would have benefits. A common project management framework would standardise oversight and quality assurance processes, set clearer expectations, enable benchmarking or comparison between entities and projects and make sure lessons are automatically fed back into new infrastructure projects.347
Section 7.1 - Better decision making
38. Strengthen government as a sophisticated client of infrastructure
Take the following steps to develop the client capabilities of the government to better deliver infrastructure:
- Develop service quality standards and standard design methodologies for each major infrastructure asset class with key delivery agencies.
- Require long-term planning informed by service standards to better predict future infrastructure needs.
- Strengthen government capabilities in end-to-end delivery, including governance, commissioning, procurement, negotiation, oversight and whole-of-life management systems for major infrastructure.
Treasury, Central Government Delivery Agencies
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39. Increase the clarity of long-term investment intentions for public infrastructure agencies
Central government requirements for long-term investment planning and asset management planning for all public infrastructure providers should be aligned with standards for local government and regulated infrastructure.
Long-term investment planning should be transparent, aligned with agency service-delivery priorities and strategies, and linked with budget allocations and other sources of financing.
Treasury, DIA, Local Government
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40. Strengthen independent advice for infrastructure prioritisation
Establish an independent infrastructure priority list to build consensus on key projects and initiatives that address significant long-term problems. The development of the priority list should include the following steps:
- Publish guidance on criteria for project inclusion and priority investigations, consistent with best practice decision-making principles.
- Solicit applications for priority projects and initiatives from infrastructure providers.
- Assess projects and initiatives and update the priority list regularly.
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41. Improve infrastructure performance reporting and insight
Assemble and analyse infrastructure performance across:
- Projects: how individual assets perform in delivery and operation.
- Networks: how infrastructure performs as a network.
- Systems: how networks perform as an integrated system.
Treasury, Te Waihanga
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42. Optimise infrastructure investment by considering non-built solutions first
Consider and prioritise non-built options when choosing how to address infrastructure challenges, including:
- Using pricing to manage demand.
- Making better use of existing infrastructure by adapting or reusing it.
- Using regulation and education to manage infrastructure demands.
- Considering lower-cost options before progressing to higher-cost options.
Treasury, Central Government Delivery Agencies, Local Government
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43. Strengthen project evaluation through cost-benefit analysis
Deliver consistent and transparent project evaluation by requiring:
- Local and central government agencies to undertake and publicly release rigorous social cost-benefit analyses of all public infrastructure investment proposals where the whole-of-life costs of the proposals exceed $150 million.
- Commitments to projects to only be made after the completion of this analysis, rather than prior to undertaking the analysis.
- Analysis to recognise inter-generational choices appropriately and include wider environmental and social impacts.
Treasury, MBIE, Te Waihanga
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44. Ensure an appropriate consideration of future generations in project evaluation
Undertake an inquiry into the appropriateness and consistent application of New Zealand’s social discount rate policy, which determines how much weight is placed on future outcomes relative to present-day outcomes when analysing public infrastructure investments.
Treasury, Te Waihanga
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45. Improve the infrastructure project knowledge base
To improve future project evaluation methods and processes, delivery agencies should:
- Conduct and fund independent post-implementation reviews of major infrastructure projects at completion.
- Publish ex-post reviews in full and measure performance, benefits and costs against business case estimates.
Central Government Delivery Agencies
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46. Improve infrastructure cost analysis
Undertake investigations into the cost performance of New Zealand’s infrastructure sector that:
- Cover multiple infrastructure sectors to enable the identification of common issues and points of difference.
- Identify recent cost trends and drivers of cost trends within infrastructure sectors.
- Benchmark New Zealand’s cost performance against better-performing OECD countries and identify drivers of differences.
- Are repeated at least every five years to inform ongoing Infrastructure Strategy development.
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