The development of an integrated decision model for public investment projects in thailand.
Pintip Vajarothai is a PhD student in the CM&E department . Her supervisor is prof.dr.ir. J.I.M. Halman from the faculty of Engineering (ET) and her co-supervisor is S.H.S. Al-Jibouri also from the faculty of Engineering (ET).
In many developing or low-income countries, governments initiate numerous investment projects to improve the conditions and the quality of life of their respective populations. However, despite all these efforts, no considerable improvements in local conditions or in the quality of life of the communities are achieved. Research shows, that in many cases, such failures are caused by the way public investment projects are evaluated and selected.
In this PhD thesis, Thailand is chosen as a representative case to study the evaluation and selection of public investment projects. Experiences in Thailand show that despite the numerous investments that are made in public projects, local communities often do not benefit from these investments. The comparison between investment projects in Thailand, is merely based on a one-sided economic measurement, ignoring other important aspects such as the societal and environmental impact of an investment project. Research also indicates that Thailand scores very low, even among middle and low-income countries, in terms of the transparency of the selection procedure of public investment projects. The main research question that has been formulated therefore for this PhD thesis is:
How to develop an integrated model that can be used to improve the evaluation and selection process for public investment projects?
To answer this main research question, the following four sub-questions were formulated:
1) What approaches and techniques are available in the field of project evaluation and decision-making in the public sector?
2) What is the current state of the public investment project selection process in Thailand?
3) How to incorporate the relevant concepts and techniques from different disciplines into one integrated model to improve project evaluation and selection processes?
4) How to validate and test the correctness, efficiency and adaptability of the developed model?
To answer these sub-research questions, the research project was divided into four steps.
First, a literature review was conducted about project evaluation and decision-making approaches and techniques that can possibly be applied for evaluating and selecting public investment projects. With respect to economic methods, especially the discounted cash flow techniques (DCF), i.e. the NPV, IRR and B/C ratio techniques, seem popular when policy makers want to pursue their investment objectives. A considerable amount of work shows a trend of economic evaluations that seem to be shifting towards the NPV technique. However, in cases where benefits cannot be measured in a monetary unit, the CEA (cost-effectiveness analysis) is seen as a more appropriate economic technique to capture the overall benefits.
Besides economic methods, also non-economic approaches were reviewed. Non-economic methods are needed to measure the impact of an investment on society, environment and public participation. Although the attempt to include social, environmental and stakeholders and public participation aspects into project assessments has made significant progress over the last few decades, the expectations on how these aspects will influence the decision-making process are still causing a lot of debate. The review also shows that although the decision making processes in literature are well structured, organising the process of evaluation and selection can have its challenges in practice. Most public investment decisions are complex and the selection of investment projects often also involves conflicting values and criteria. Due to this inherent complexity, it will be difficult for a human’s mind to deduce a rational way of analysis when the selection of individual projects is no longer based on a single criterion but depends on multiple criteria/attributes. The theoretical review and evidences in practice indicate the need, therefore, to use multiple criteria decision making/analysis methods (MCDM/MCDA). These methods have shown their usefulness in helping decision makers to improve the quality of their decision and to make the evaluation and selection process more explicit.
The literature review also reveals a lack of consensus about which methods and methodologies are best appropriated to be used for any decision situation. The selection of an appropriate evaluation and decision-making method is not an easy task. Moreover, there exists a lack of interaction and integration between methods from different disciplines. Different issues have different importance to experts in different areas. The literature review and the diagnosed problems in practice raised the question how to include, measure and integrate the required aspects and criteria by the use of appropriate economic and non-economic evaluation methods to improve the process of evaluation and selection of public investment projects in Thailand.
Second, a thorough analysis was conducted to investigate the main shortcomings and possible improvements in the current state of evaluating and selecting public investment projects in Thailand. One of the main findings is the absence of standard guidelines or a general applied methodology to evaluate the benefits of public investment projects. The findings also show that the comparison between alternative projects is one-sided based on economic measurements and overlooks important other investment impacts that investment projects may have on e.g. society and the environment. Moreover, in most cases, the impact assessment of a project is carried out without a meaningful public participation. The identified findings in the process of evaluation and selection of public investment projects in Thailand have led to a process to search for possible solutions to improve the process of evaluation and selection of public investment projects in Thailand. This search process resulted into the identification of eleven criteria in five aspects of public investment evaluation, selected by 52 evaluators and experts. Among those eleven criteria and five aspects, seven criteria and four aspects (i.e. economic, social, environmental and long term support) appeared to be suitable to be used in the evaluation and selection phase of public investment projects.
Third, the results of the literature review and the diagnosed shortcomings in evaluation and selection of public investment projects in Thailand and the input given by the 52 evaluators and experts formed the basis for the development of an Integrated Decision Model (IDM) for evaluation and selection of public investment projects. The IDM integrates various evaluation and decision-making techniques into one decision model which is suitable for addressing economic, social, environmental and long-term project support attributes. The entire methodology was tested on its adaptability and usefulness in two real project cases in Thailand. Based on the application of the IDM in these two real cases, the conclusion seems justified that the proposed methodology is not only appropriate to be applied in the process of evaluation and selection of public investment projects in Thailand, but also, that it provides a better understanding of the evaluation results of the projects.
Fourth, the developed IDM was assessed in terms of its ease of use, suitability and adaptability. IDM were presented to a total number of 40 experts from relevant organizations in Thailand. Also a questionnaire was sent by e-mail to these experts to request for feedback. 75% of the experts provided their feedback. The assessments by the experts indicate that the proposed methodology is easy to follow and apply. The experts further have unanimously indicated that the IDM covers all the important factors and variables required for evaluating and selecting public investment projects in Thailand. They also agreed that applying the proposed IDM represents a substantial improvement on the current procedure because it provides more insight on how the alternatives impact on social and environmental aspects. Hence IDM provides better information for a more informed decision for the most effective solution. A final step in the research process has been the conduction of a sensitivity analysis. The sensitivity analysis was conducted on the weights included in the IDM to test the robustness of a selected project choice. The testing indicates that the attributes’ scores and weights effect the decision result. Small changes on some attribute’ weights can change the final scores and the original ranking of alternatives. This provides a decision maker and evaluator a better insight about the robustness of the choices that are made.