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Financial modelling in Public Administration

June 30, 2015

Ever tightening budgets and continuous requirements of increased effectivity puts pressure on government and municipalities. The need for cost-comparisons of alternative paths and better capital budgeting has never been bigger. As the decisions ultimately are political, the tradition of financial modelling of activities has not been so strong in public administration. Today’s decision makers however know that even a statutory investment needs to be modelled in order to see the cost- and cash flow impact and that an objective comparison of alternative paths require life-cycle models to be created.

Porvoo city hall

As the operational environment of government and municipalities differ from private businesses, a little elaboration about how to utilize Invest for Excel^® is in place.

The main categories are:

• Real-estate related questions
• Comparing internally produced services to outsourced services
• Technology investments
• Utilities for energy, ports, water, sewage and waste management
• Budgeting
• Organizational decisions, like centralizing or decentralizing of services
• Subsidiaries

Typical real-estate related decisions where Invest for excel is used:

• Decisions about whether to build new property, renovate old property or to rent the space needed
• Should we go for a Public-private partnership (PPP) or not?
• Pricing of internal and external rent
• Feasibility of new construction projects
• Life-cycle costing of real estate
• Valuation of buildings

An ever so timely question is which services to produce yourself and which services to buy from the outside.

• Social services are also offered by private companies so there is a choice
• Health Care services are a mix of private and public
• Education department may also have the option of private school services
• Decisions regarding who should carry out public works
• Suppliers of environmental services
• Private and public child care etc.

Some examples:

• Comparison of technologies and suppliers in a tender process
• IT-investments
• Investments for energy savings
• Investments in equipment, vehicles and facilities

More than 150 utilities in energy-, water and sewage-, waste management, port- and transport services use invest for Excel mainly for capital budgeting, valuation and for budgets and forecasts.