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Why Councils need Business Cases

As a sector, local government in New Zealand owns over $120 billion in assets. Every year, Councils spend $4 billion on new and renewed capital, and over $8 billion delivering services. This is forecast to hit $12 billion in the next 10 years.

The stakes are high. In places like Auckland, Tauranga and Queenstown, this expenditure needs to be targeted in ways that can accommodate burgeoning growth and stress on infrastructure.

In many other places in New Zealand, this spending needs to deliver assets and services that will serve populations that are static or shrinking, and ageing. All of this in an environment of constant change – changing populations, changing expectations, and changing directives from central government.

The point? Making good quality spending decisions is crucial. Decisions that reflect the priorities and objectives of individual communities and deliver optimum value for money.

The gap? A robust, consistent framework in which to analyse, present and evaluate these decisions.

Councils already have a strong strategic planning framework. The Long Term Plan (LTP) process enables a portfolio-level approach to decide Councils’ desired levels of service, budget and work programmes.

The 30 year Infrastructure Strategy aims to provide long-term asset management capability. Other key documents such as Activity Management Plans, Asset Management Plans, population research and community strategies all form a rich tapestry of policy and planning data. The key is for Councils to harness this foundation and put discipline and structure around investment decisions.

Why Business Cases?

A business case provides “a robust justification that fully informs decision-making to invest in change”[1] – supporting the investment process and informing outcome-based decision-making.

The Better Business Cases (BBC) methodology is mandatory for all capital expenditure proposals that require Cabinet approval, and is infiltrating other government departments and crown agencies, including DHBS, the TEC and several Councils.

BBC is a disciplined and structured approach to spending decisions, focusing on evidence-based analysis. It integrates neatly with other key management processes including policy, planning, risk management, procurement and service delivery review. Importantly for Councils, the process is scalable to the significance of the proposal – adding value, not cost and time.

Councils and the Five BBC Cases

The BBC model is a structured conversation, that answers five core questions:

1. Does this proposal fit with our strategic direction? The strategic case requires Councils to make the ‘case for change’ – setting objectives and linking these to community outcomes, strategic objectives, desired levels of service, strategies and plans for the future. It requires consideration of the wider strategic context, such as legislative change and regional trends.

2. Would an intervention deliver public value? (or ‘how do we strike the right balance of costs and benefits?’) The economic case is all about optimising value for money. Understanding whether we need to act, what the benefits of change might be and how these weigh up against the risks and costs of change.

3. Is this viable? The commercial case takes a good look at who and what is involved from a procurement perspective, ensuring there is a clear strategy. This is particularly important for those proposals that involve outsourcing or joint ventures.

4. Can we afford it? Councils are required to meet the needs of their communities in a cost-effective manner – a key part of local government’s purpose, and the basis of the s17A review programme. Understanding how a proposal will be funded is vital, across the entire life of the project or asset.

5. Is this doable? The management case assesses whether the project can be successfully governed and delivered. Is this achievable within our current constraints? What do we need to have in place to manage change, mitigate risk and evaluate success?

LTP 2018

As Councils across New Zealand kick off for LTP 2018 – 28, this is the ideal time to consider the framework for assessing potential investments. A business case approach challenges Councils, targets spending and provides confidence for Council and the community in the way that money is spent.

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