1. Alignment of the Infrastructure Delivery Cycle with the Budget Cycle and the Strategic Planning Cycle Version 7: November 2011 (Aligned with the 2010 IDM Toolkit)
NOTE: IN ORDER TO GET THE FULL BENEFIT OF THESE ALIGNMENT MODEL SLIDES IT IS RECOMMENDED THAT THE ENTIRE PRESENTATION BE PRINTED USING THE “NOTES PAGES” OPTION. THIS WILL PRINT OUT ALL THE SLIDES WITH THE EXPLANATORY NOTES ON EACH PAGE. THE SLIDE SHOW SHOULD THEN BE RUN ON A COMPUTER WHILST READING THE NOTES PAGES. IN THIS WAY THE FULL BENEFIT OF THE ANIMATION AND THE EXPLANATORY NOTES CAN BE REALISED.]
INTRODUCTION AND BACKGROUND TO THE ALIGNMENT MODEL:
The original Alignment Model was developed during 2006 by the then Programme Manager of the Infrastructure Delivery Improvement Programme (IDIP). It has been revised a number of times over the life of the programme. Version 7 has been amended to align it to the terminology and processes used in the 2010 Infrastructure Delivery Management Toolkit (IDM Toolkit).
The Alignment Model was presented to the then Minister of Finance, Trevor Manuel and the nine MECs of Finance at the Budget Council held in June This resulted in the Ministers of Finance and Public Works agreeing to jointly submit the model to Cabinet for approval. On 21st February 2007 the Alignment Model was approved by Cabinet.
Note: Whilst this model was prepared for infrastructure delivery, the principles contained herein are generic in nature and can be applied to most other forms of service delivery.
An initiative emanating out of the
Infrastructure Delivery Improvement Programme (IDIP)
NOTE: In order to get a clear understanding of this presentation the presenters notes contained on each slide should be printed and read whilst viewing this presentation.

2. After this presentation you will have a better understanding of:
some of the problems associated with infrastructure delivery;
the Strategic Planning Cycle;
the MTEF Budget Cycle;
the Infrastructure Delivery Cycle;
the alignment and interdependence of these cycles;
The importance of developing a Procurement Strategy for an Infrastructure Programme;
the importance of project and programme cashflows when budgeting for infrastructure programmes;
the management of annual cashflows;
the importance of programme management by the client department.

3. Problem Statement (1) Time Annual Budget Apr May Jun Jul Aug Sep Oct
Under expenditure of infrastructure budgets and inappropriate expenditure patterns characterized by the 4th quarter expenditure spike.
Time
Annual
Budget
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Under expenditure
Poor expenditure patterns
and

4. Problem Statement (2) Infrastructure Planning Planning Budget
In many cases the functions of Strategic Planning, Budget Planning and Infrastructure Planning are carried out by different sections of the departments involved in infrastructure delivery. These sections often work independently to one another resulting in little or no alignment between the Infrastructure Delivery Cycle and either the Budget Cycle or the Strategic Planning Cycle.
Infrastructure
Planning
Planning
Budget
Strategic
Planning

5. Problem Statement (3)
In many cases there are poor relationships between Client Departments & Implementing Departments resulting in each party blaming the other for poor delivery.
The different titles and hierarchical relationships attributed to the different departments by various pieces of legislation can lead to power struggles rather than a harmonious working relationship based on the common goal of service delivery.
PFMA
GIAMA
Client Department
Custodian
Implementing Agent
User Department

6. Multi-year Project Duration Whole project budget is committed to Yr 1
Problem Statement (4)
In some cases the budget for large multi-year projects was committed to 1 financial year instead apportioning the budget across the duration of the project. This resulted in the budget being rolled over from one year to the other in order for the project to be completed.
Year 4
Year 3
Year 1
Year 2
Multi-year Project Duration
Rollover
Budget
Time
Rollover
Rollover
Whole project budget is committed to Yr 1

7. Problem Statement (5)
A lack of understanding of the necessity of multi-project Programme Management by the Client Department and of the ability to proactively manage annual cashflows.
Planned Multi-year Commitments
New Project Construction
Project planning & procurement

8. Fiscal Years Electoral Cycle 2004 2012 2006 2007 2008 2009 2010 2011
2005
2013
2014
2015
2016
Election
Election
Election
5 Year Election Mandate
5 Year Election Mandate
5 Year Election Mandate
Electoral Cycle
Planning & Budgeting
5 year Strategic & Performance Plan detailing Targets & priorities
5 year Strategic & Performance Plan detailing Targets & priorities
5 year Strategic & Performance Plan detailing Targets & priorities
Five-year Strategic and Performance Plans
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
Annual Performance
Plans and Budgets
(with 3 Year MTEF)
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
AN OVERVIEW OF THE STRATEGIC PLANNING CYCLE
Government has adopted very comprehensive Strategic Planning and Medium Term Expenditure Framework (MTEF) Budgeting Cycles. Strategic plans and budget statements have been introduced to facilitate effective use of the multi-year budget adopted by government in 1997/98. The Strategic Plan is linked to the 5 year electoral cycle and sets out the targets & priorities to be addressed during the following 5 year period. During each year within the period covered by the Strategic Plan a Budget as well as an Annual Performance Plan (APP) is prepared. These should both be linked back to the 5 year Strategic Plan and should show how the targets and priorities set out in the 5 year Strategic Plan are going to be addressed. A budget and an Annual Performance Plan should also be prepared for the 2nd & 3rd years of the MTEF.
The next slide will drill down into one of the MTEF periods.
LEGEND:
APP – Annual Performance Plan

9. MTEF Budget Cycle 3 Year MTEF Period Year 1 Budget Year 2 Budget
Preparation of Annual Performance Plan (APP)
Budget Preparation Process
Quarterly Reporting
Implement Budget
Closure Processes
Budget Day
Preparation of Annual Performance Plan (APP)
Budget Preparation Process
Closure Processes
Quarterly Reporting
Implement Budget
In the past there has been a tendency for annual budgets to be prepared by updating the previous year’s budget with a factor for inflation.
The annual budgets submitted to treasury did not appear to be informed by actual projects to be implemented in the following year.
Preparation of Annual Performance Plan (APP)
Budget Preparation Process
Closure Processes
Quarterly Reporting
Implement Budget
THE MEDIUM TERM EXPENDITURE FRAMEWORK (MTEF) BUDGET CYCLE
Now we will explore one of the blue blocks from the previous slide which represents the 3 year MTEF. The MTEF Budget Cycle is a 3 year horizon. Budget planning is done for this entire 3 year MTEF but only the budget for the 1st year is appropriated and indicative budgets are shown for the remaining 2 outer years. The activities relating the budget cycle include planning processes, implementation processes & closure processes being undertaken in each financial year. As mentioned earlier the budget should show how the targets and priorities set out in the 5 year Strategic Plan are going to be addressed.
By virtue of the fact that the budget cycle spans a period of 3 years it is clear that in any 1 year officials will concurrently be dealing with different activities of 3 budget cycles, viz:
Closure activities for the previous year’s implementation;
Implementation activities for the current year’s implementation; and
Planning activities for next year’s implementation.
In the past there has been a tendency for annual budgets to be prepared by updating the previous year’s budget with a factor for inflation. The annual budgets submitted to treasury did not appear to be informed by actual projects to be implemented in the following year. Later in this presentation we will explore how the budget can be better informed by actual projects.
Preparation of Annual Performance Plan (APP)
Budget Preparation Process
Quarterly Reporting
Implement Budget
These are all the concurrent budget activities that need to be undertaken in any 1 year

10. Principles: Linkage between strategic & infrastructure planning.
Long Term Infrastructure Plan.
Life Cycle Costing.
Fiscal Years
2004
2012
2006
2007
2008
2009
2010
2011
2005
2013
2014
2015
2016
Election
Election
5 Year Election Mandate
5 Year Election Mandate
Electoral Cycle
Planning & Budgeting
5 year Strategic & Performance Plan detailing Targets & priorities
5 year Strategic & Performance Plan detailing Targets & priorities
Five-year Strategic and Performance Plans
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
MTEF (3 years)
Year 1
Budget
APP
For
Year 2
Year 3
Annual Performance
Plans and Budgets
(with 3 Year MTEF)
THE LINKAGE OF THE INFRASTRUCTURE PLAN OR USER ASSET MANAGEMENT PLAN TO THE STRATEGIC PLANNING CYCLE
Going back to the Strategic Planning process we have indicated that the preparation of budgets needs to be aligned with the Strategic Plan in order for the targets & priorities set out in the Strategic Plan to be addressed. In like manner, the planning of infrastructure needs to be linked to the Strategic Plan which sets out the needs to be addressed through the delivery of infrastructure by the department. Infrastructure Planning is discussed in great detail in the Infrastructure Delivery Management Toolkit (IDM Toolkit) which has been prepared jointly between the Construction Industry Development Board (CIDB) and National Treasury. The IDM Toolkit proposes that a rolling ten to fifteen year Infrastructure Plan or User Asset Management Plan (U-AMP) be prepared and that each year this plan should be re-prioritised on the basis of the:
Targets and priorities set out in the Strategic Plan & Annual Performance Plan,
The anticipated MTEF Budget, and
The progress of the current projects being implemented.
Please note that the U-AMP should contain all types of projects, both new capital projects as well as maintenance and/or refurbishment projects and should show full life-cycle costs for these projects.
At this stage the alignment between infrastructure planning and budget planning has not yet been discussed but will be addressed in a later slide.
At this stage the alignment between infrastructure planning and budget planning has not yet been discussed.
Long term (10 – 15 yr) Infrastructure Plan or User Asset Management Plan (U-AMP) with life cycle costing (to address the targets and priorities in the Strategic Plan)
(See the IDM Toolkit for details)
LEGEND:
APP – Annual Performance Plan

11. Rolled Over Unspent Budget
The Previous Infrastructure Delivery Cycle
3 Year MTEF Period
Handover of project list from Client Department to Implementing Agent typically happened in September.
Previous Infrastructure Delivery Cycle
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
Budget Preparation Process
Closure Processes
Implement Budget
Budget
Time
Cumulative Cashflow
100%
Rollover
THE PREVIOUS INFRASTRUCTURE DELIVERY CYCLE
The Infrastructure Delivery Cycle, as it was before the improvements discussed later in this presentation, covered the same timeframes as the Budget Cycle (i.e. 3 years). The Infrastructure Delivery Cycle also requires the various phases of planning, construction and closure however, due to the nature and complexity of infrastructure planning as well as the number of role-players involved in the delivery of infrastructure, the planning, design and tendering (procurement) phases of delivery are normally in excess of 1 year which means that there is less than 1 year remaining for construction of the projects.
If one compares this to the Budget Cycle and the fact that the implementation of the budget (i.e. expenditure) is reliant on the construction of projects it can be seen that any delays in the start of project construction will result in a delay in the start of expenditure for the money allocated to these projects.
The late start in project construction invariably leads to the projects not being completed resulting in unspent budgets being rolled-over into the next year. This is very often exacerbated by the lack of clarity between client departments and their implementing agents of what precisely needs to be delivered, where, by whom, when, and at what cost.
The short timeframes allowed for planning were found to be a contributing factor leading to under expenditure and resultant rollovers of infrastructure budgets. This was due to insufficient time being allotted for design and tendering (procurement) to take place from the time that the approved projects list was given to the implementing agent and before construction starts. The result is that the 1st half of the year in which construction is required to be undertaken is spent tendering, making it virtually impossible to spend any money during this period. It was also discovered that this is also one of the root causes of the 4th quarter expenditure spike.
The entire infrastructure delivery cycle needed to be examined in the context of the budget cycle and improved to allow for all the necessary processes in infrastructure delivery to take place.
With the Previous Infrastructure Delivery Cycle, expenditure during the 1st half of the year is virtually impossible since most projects are still in the tender phase. The result is the 4th quarter expenditure spike and overall under-expenditure.

12. Improvements to the Infrastructure Delivery Cycle
3 Year MTEF Period
In the past each Infrastructure Delivery Cycle has been characterized by under-expenditure and rolled over unspent budgets.
Previous Infrastructure Delivery Cycle
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
The focus was on the urgent as opposed to the important.
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
If you consider the concurrent activities in any one year.
THE PREVIOUS INFRASTRUCTURE DELIVERY CYCLE (continued)
In the past each Infrastructure Delivery Cycle has been characterized by under-expenditure and rolled over unspent budgets. If we look at 3 of these cycles concurrently it can be seen that at the time when the client department should be focusing on the important aspect of updating its Infrastructure Plan it was actually focusing on the urgent aspect of establishing why under-expenditure had taken place in the previous year and motivating to treasury for rollovers to be approved.
IMPROVEMENTS TO THE INFRASTRUCTURE DELIVERY CYCLE
In the 2010 Infrastructure Delivery Management Toolkit (IDM Toolkit), what used to be called the Infrastructure Plan has now been changed to the User Asset Management Plan (U-AMP) and Custodian Asset Management Plan (C-AMP) to ensure alignment with the Government Wide Immovable Asset Management Act (GIAMA). The 2010 IDM Toolkit also introduces the important aspect of developing a Procurement Strategy and builds on the principle of preparing programme management plans which was introduced in the 1st Toolkit. These plans are described on the next slide.
Improved Infrastructure Delivery Cycle
Principles:
Introduction of Procurement Strategy
Introduction of Programme Management.
U-AMP update
C-AMP update
Proc Strategy
Programme Mngmnt Plans

13. Client Department (CD)
Infrastructure Programme Management & Implementation Plans (IPMP & IPIP)
Principles:
Clear delineation of roles & responsibilities.
Service delivery agreements translated into individual performance agreements.
Single-point accountability.
FUNCTIONS OF the
Client Dept (CD):
Planning
Procurement
Programme Management
Monitoring & Reporting
Client Department (CD)
U-AMP & C-AMP Update
Procurement Strategy
SDA with IA 1
SDA with IA 2
IPMP Update
IPMP issued to IAs
Implementing Agent
IA 1
INFRASTRUCTURE PROGRAMME MANAGEMENT & IMPLEMENTATION PLANS (IPMP & IPIP)
The client department should first enter into a Service Delivery Agreement (SDA) with its implementing agents based on an agreement of the functions to be performed by each party. The IDM Toolkit contains a pro-forma template for an SDA.
Infrastructure Planning is clearly a function of the client department. Immediately after the Infrastructure Plan or User Asset Management Plan (U-AMP) has been updated the client department should also prepare (or update) a Procurement Strategy followed by an Infrastructure Programme Management Plan (IPMP) which is prepared on the basis of these 2 plans. The IPMP covers the 9 knowledge areas set down in the Project Management Institute (PMI) Standard for Programme Management and stipulates exactly WHAT the client department intends to achieve in the next 3 years with a very detailed plan of what projects should be planned & procured during the next year. The IPMP must also state WHERE the projects are to be located. Using the information set out in the IPMP the implementing agent carries out project planning in order to respond to the IPMP with its own Infrastructure Programme Implementation Plan (IPIP) which validates the implementing agents understanding of WHAT needs to be done and explicitly indicates HOW this will be achieved, WHEN & BY WHOM. The IPIP is submitted to the client department who review and approve it before giving the implementing agent approval to proceed with the work contained in the IPIP.
Implementing Agent
IA 2
IPIP
for IA 1
IPIP
for IA 2
IPIPs respond to IPMP
Planning
Planning
FUNCTIONS of Implementing Agents (IAs):
Programme Management
Project Initiation
Procurement
4. Project construction
5. Project Completion
6. Monitoring & Reporting

14. Improvements to the Infrastructure Delivery Cycle
3 Year MTEF Period
Previous Infrastructure Delivery Cycle
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
Infr. Plan update
Project Design
Project Tender
Project Construction
Rolled Over Unspent Budget
Improved Infrastructure Delivery Cycle (Design by Employer example)
U-AMP update
C-AMP update
Proc Strategy
IPMP
Project Planning
IPIP
PSP P/ment
Project Design
Contractor P/ment
Project Works
Planned Multi-year Project Works
Project Close-Out
IMPROVEMENTS TO THE INFRASTRUCTURE DELIVERY CYCLE (cont)
Once the client department has approved the IPIP submitted by the implementing agent the implementing agent is able to continue with project planning, followed by the project procurement process. These phases could take up most of the following year resulting in very detailed project plans with associated realistic costing, timeframes and cashflows for each project. From these project plans and cashflows it can be established exactly how long each project should take and, if a project is to span a financial year, what portion of the project will be completed within each financial year. Therefore project construction for projects planned in Year 0 of the MTEF would typically start in year 2 of the MTEF as opposed to Year 1. However, the detailed planning now undertaken would assist in establishing exactly what multi-year commitments are required to be made to complete the projects that would span several financial years. Multi-year projects that span financial years must be funded from the year in which they are to be implemented and should not be funded from rolled over funds.
Principle:
Building in appropriate timeframes for due process to be completed.
Please note: The Improved Infrastructure Delivery Cycle shown above shows the process steps in the order that are applicable to the Design by Employer contracting strategy. The order of these process steps will be different if a different contracting strategy is selected. See the IDM Toolkit for contracting strategies. The timeframes shown are only indicative and will vary considerably for different programmes.
LEGEND: IPMP – Infrastructure Programme Management Plan
IPIP – Infrastructure Programme Implementation Plan

15. DP1: Portfolio Management
Delivery Processes
Prov Infr Strat
DP1: Portfolio Management
DP1-1 Infrastructure Planning
DP1-2 Programme Management
Develop/review U-AMP (including prioritised MTEF works list)
Develop/review C-AMP (incl portfolio level Work Plans)
Develop /review Constr Proc Strat
Develop /review IPMP
Authorise Implementation
Monitor & Control
Close Out
U-AMP
G1(a)
C-AMP
G1(b)
Manage Implementation G2
PC1
PF1.4
PF1.3
PF2.1
PF2.2
PF2.3
PF3
PF4
PF5
PF1.1
PF1.2
DP2: Project Management
DP2-1 Implementation Planning
DP2-2 Design
DP2-3 Works
DP2-4 Close Out
Prepare Packages
Define Packages
Develop/Review IPIPs (Prgr & Proj level)
Design devlpmt
Detailed design
Compile MFC Info
Construct / Deliver works
Handover works
Contracts Close Out
Adminstv Close Out
PEP1 G3
PEP2 G4
IPIP
PEP3 G5
PEP4
G6(a)
G6(b)
PEP5 G7
PEP6 G8
PEP7
PC2
THE IMPROVED INFRASTRUCTURE DELIVERY CYCLE AND THE DELIVERY PROCESSES MODEL
This slide and the next slide show how the processes shown in the Alignment Model are the same processes shown in the Delivery Process Model contained in the IDM Toolkit.
PC3
PC4a
PC5
PC4b T1 T2
PF1.4
PF1.3
PF2.1
PF2.2
PF2.3
PF3
PF4
PF5
DP3: Operations & Maintenance
DP3-1 Recognise & accept assets
DP3-2 Mobilisation for Facilities Mgt
DP3-3 Operations
DP3-4 Maintenance
DP3-5 Demobilisation of Facilities Mgt G8
PF1.4
PF1.3
PF2.1
PF2.2
PF2.3
PF3
PF4
PF5

16. Delivery Processes DP2-3 Works Close Out DP2-1 Implementation Planning
Review
U-AMP
Develop/review U-AMP (including prioritised MTEF works list)
Review
C-AMP
Constr Proc Strat
Review IPMP
Impl Planning
Develop/review C-AMP (incl portfolio level Work Plans)
IPIP
Design
DP2-3 Works
Develop /review Constr Proc Strat
Develop /review IPMP
Close
Out
U-AMP
C-AMP
DP2-1 Implementation Planning
DP2-2 Design
DP2-3 Works
DP2-4 Close Out
Develop/Review IPIPs (Prgr & Proj level)
IPIP

17. Planned Multi-year Project Works
Delivery Processes
Review
U-AMP
Review
C-AMP
Constr Proc Strat
Review IPMP
Impl Planning
IPIP
Design
DP2-3 Works
Close
Out
Project Design
PSP P/ment
Project Works
Planned Multi-year Project Works
U-AMP update
IPMP
C-AMP update
Proc Strategy
Project Planning
Project Close-Out
IPIP
Contractor P/ment
Improved Infrastructure Delivery Cycle (Design by Employer example)

18. Alignment of the Infrastructure Delivery Cycle
& the Budget Cycle
Budget Preparation Process
Closure Processes
Implement Budget
MTEF Budget Cycle
The improved Infrastructure Delivery Cycle now facilitates the alignment of the Infrastructure Delivery Cycle with the Budget Cycle.
The budget preparation process can now be strengthened by actual projects identified during Infrastructure Planning.
Previously Infrastructure Planning was undertaken too late to facilitate effective alignment of the Infrastructure Delivery Cycle with the Budget Cycle.
Project Design
Project Tender
Project construction
Rolled Over Unspent Budget
Previous Infrastructure Delivery Cycle
Infrastructure Planning
THE ALIGNMENT AND INTERDEPENDENCE BETWEEN THE BUDGET CYCLE AND THE INFRASTRUCTURE DELIVERY CYCLE
As discussed earlier it is clear that there is still a strong element of incremental budgeting and many departmental budgets are prepared on the basis of historical budget information based on previous MTEF Budget Cycles. As a result, the budgets for infrastructure are often not properly informed by actual projects ready to be implemented in the next year. The linkages and interdependence between the Budget Cycle and the Infrastructure Delivery Cycle can be appreciated by considering both cycles at the same time and considering the year in which implementation of the budget is meant to take place. In the Infrastructure Delivery Cycle it is the construction phase that will spend most of the budget allocated for this year.
In the timeframes that were used in the previous Infrastructure Delivery Cycle the processes of planning for infrastructure and planning the budget were done in the same year which meant that it was virtually impossible for the budget to be informed by actual projects that had been identified.
The timeframes used in the Improved Infrastructure Delivery Cycle mean that it is a longer cycle than the Budget Cycle (4 years versus 3 years) due to the increased lead time required for infrastructure planning, programme management planning, as well as project planning and procurement. Therefore it is clear that the infrastructure planning process leads the budget planning process by at least one year.
This lead time adds immense value to the budget planning process because infrastructure planning and even the more detailed programme and project planning can now also become inputs into the budget planning process and therefore the budget planning process is strengthened with the inclusion of actual projects. This clearly indicates a dependence of the Budget Cycle on the Infrastructure Delivery Cycle.
Improved Infrastructure Delivery Cycle
Project Design
PSP P/ment
Project Works
Planned Multi-year Project Works
U-AMP update
IPMP
C-AMP update
Proc Strategy
Project Planning
IPIP
Contractor P/ment

19. Previous Project Budgeting
Multi-year Project Budgeting
3 Year MTEF Period
Previous Project Budgeting
Infr. Plan update
Project Design
Project Tender
Project construction
Implementation of Roll-Over
Implementation of Roll-Over
Retention Period
Whole project budget is committed to Yr 1
100%
Budget
Time
Rollover
Rollover
Cumulative Cashflow
Principles:
Multi-year project budgeting.
Best Practice Project Budgeting
Retention Period
Project Design
Project Procurement
Project Works
Project Planning
U-AMP update
IPMP
C-AMP update
Proc Strategy
IPIP
BEST PRACTICE PROJECT BUDGETING
As discussed earlier it would appear that, in many cases, the budget for large multi-year projects is committed to the year in which the project is scheduled to start even though it is clear that the budget will not be spent during that year. This results in the funds not being spent in the relevant year and therefore these funds are rolled over in order to complete the project construction in the next year. Clearly this is not good practice as far as budgeting is concerned.
It is clear that if proper planning has been done this should result in very detailed project plans with associated realistic cost estimates, timeframes and cashflows for each project. From these project plans and cashflows it can be established exactly how long each project should take and, if a project is to span a financial year, what portion of the project will be completed within each financial year and therefore exactly what portion of the overall project budget should be committed from each year.
Commit from Yr 2
Commit from Yr 3
Com-mit from Yr 4
Budget
Commit from Yr 1
Monthly Projected Cashflow
100%
Budget
Cumulative Cashflow

20. Example of a Programme Budget to commit & spend the entire Annual Budget
Project 1
Project 2
Project 3
Project 4
Project 5
Project 6
R 30,000
R 20,000
R 25,000
R 15,000
R 10,000
R 10,000
R 11,000
R 9,000
R 5,000
R 10,000
R 5,000
R 7,000
R 8,000
R 10,000
R 12,000
R 3,000
R 0
R 5,000
R 11,000
R 4,000
EXAMPLE OF A PROGRAMME BUDGET TO COMMIT & SPEND THE ENTIRE ANNUAL BUDGET
This example shows the annual budget for a department as R50m for Year 1, increasing to R60m in Year 2 and R70m in Year 3.
Down the left hand column is the prioritised project list showing the Total Project Budget for each of these projects.
What we found at the beginning of the IDIP Programme was that officials in some provinces would allocate the annual budget to as many projects in the list so that the sum of the total project budgets equalled the annual budget. In this example the annual budget is R50m and therefore this can be allocated to the 1st 2 projects in the list, which in this example the sum of these 2 projects amount to R50m. Makes sense doesn’t it? R30m + R20m = R50m. Job done!!
In actual fact when you calculate the cashflows for these projects it becomes evident that the combined spending on these 2 LARGE MULTI YEAR PROJECTS will only amount to R15m in Year 1 and the remainder will only be spent in Years 2 & 3. This was a major reason for under-spending of annual budgets. If you calculate the cashflows for all these projects in this example it soon becomes evident that, in order to spend the full annual budget of R50m in Year1 you have to commit to starting all 6 projects in Year 1 with a total combined project budget of R120m.
The consequences of this for Years 2 & 3 is that a substantial portion of these years budgets are already committed to completing these 6 projects which are started in Year 1.
R 120,000
R 15,000
R 50,000
R 40,000
R 30,000
R 20,000
R 40,000
Principles:
Multi-year project budgeting.

21. Planned Multi-year Project Works Planned Multi-year Project Works
Infrastructure Delivery Cycle
3 Year MTEF Period
Improved Infrastructure Delivery Cycle
Project Design
Project Procurement
Project Works
Planned Multi-year Project Works
U-AMP update
IPMP
IPIP
C-AMP update
Proc Strategy
Project Planning
Project Design
Project Procurement
Project Works
Planned Multi-year Project Works
U-AMP update
IPMP
IPIP
C-AMP update
Proc Strategy
Project Planning
Project Design
Project Procurement
Project Works
U-AMP update
IPMP
IPIP
C-AMP update
Proc Strategy
Project Planning
Project Procurement
U-AMP update
IPMP
IPIP
C-AMP update
Proc Strategy
Project Planning
CONCURRENT INFRASTRUCTURE DELIVERY ACTIVITIES
By virtue of the fact that the Infrastructure Delivery Cycle spans a period of 4 years it is clear that in any 1 year an official will concurrently be dealing with different activities of 4 budget cycles, viz:
Completing the construction of planned multi-year projects whose construction started the previous year;
Starting the construction of new projects which were designed & procured in the previous year;
Starting the planning of new projects which have been identified in the Infrastructure Programme Management Plan (IPMP);
Updating the Infrastructure Plan and preparing the Infrastructure Programme Management Plan (IPMP) & Infrastructure Programme Implementation Plan (IPIP)
The question arises; “Do departments have the required capacity to effectively manage all these concurrent infrastructure delivery activities?”
These are all the concurrent infrastructure delivery activities that need to be undertaken in any 1 year
LEGEND: IPMP – Infrastructure Programme Management Plan
IPIP – Infrastructure Programme Implementation Plan 21

22. Infrastructure Delivery Cycle
These are all the concurrent activities that need to be undertaken in any 1 year by a department.
MTEF Budget Cycle
Preparation of Annual Performance Plan (APP)
Budget Preparation Process
Closure Processes
Quarterly Reporting
Implement Budget
Infrastructure Delivery Cycle
CONCURRENT BUDGET CYCLE AND INFRASTRUCTURE DELIVERY CYCLE ACTIVITIES
This slide shows the concurrent Budget Cycle and Infrastructure Delivery Cycle activities that need to occur in any 1 year.
Project Design
Project Procurement
Project Works
Planned Multi-year Project Works
U-AMP update
IPMP
IPIP
C-AMP update
Proc Strategy
Project Planning
LEGEND: IPMP – Infrastructure Programme Management Plan
IPIP – Infrastructure Programme Implementation Plan 22

23. Managing Cashflows Across Years
Some projects or clusters of projects in the current year can be delayed causing potential under expenditure
Implemen-tation
Planned Multi-year Commitments
Procurement
Project Works
Planned Multi-year Commitments
Project Planning & Procurement
Project Design & Project Works
MANAGING CASHFLOWS ACROSS YEARS TO ENSURE 100% EXPENDITURE
It is clear from the previous slide that the sum of all the activities planned for a particular year must equal the budget allocation for the year in question. Individual projects or clusters of projects realistically have different durations as well as different start & end dates. Projects are also prone to being delayed or new priorities may be identified resulting in projects which were to be undertaken in later years having to be brought forward and started in the current year. Any unplanned movement in project start or end dates has an impact on the expenditure patterns versus the planned cashflows for the current year.
In this example 3 projects are delayed for reasons beyond the control of the programme manager (eg. site conditions, labour unrest, weather conditions, etc). These delays would typically lead to potential under-expenditure in the year in question. In order to avoid this scenario the programme manager should explore ways to expedite expenditure on other projects to offset this potential under-expenditure.
IPIP
There are already some projects that have been planned and are ready for procurement
Infr. Plan update
IPMP
IPIP
NB: The total value of the work in this year equals the Annual Budget for this year

24. Managing Cashflows Across Years
NOTE:
For this to occur it is critical that the
Client Department
has a proper Programme Management System
in place as well as an Early Warning System to inform the Programme Manager.
Implemen-tation
Planned Multi-year Commitments
Procurement
Project Works
Planned Multi-year Commitments
Project Planning & Procurement
Project Design & Project Works
MANAGING CASHFLOWS ACROSS YEARS TO ENSURE 100% EXPENDITURE (cont)
In this example some project planning of projects that were originally planned to be constructed in the following year have already been completed and therefore procurement of these projects could be brought forward to enable these projects to start earlier, thereby offsetting the potential under-expenditure caused by the delayed projects.
NOTE: For this to occur it is critical that the Client Department has a proper Programme Management System in place as well as an Early Warning System to inform the Programme Manager.
IPIP
These projects need to be procured earlier so that Project Design and Project Works can start in Year 1. This will offset the potential under expenditure caused by the delayed projects
Infr. Plan update
IPMP
IPIP

25. Summary of Principles contained in the Alignment Model (1 of 2)
Linkage between strategic and infrastructure planning
Long term (10 year) Infrastructure Plan
Life cycle costing
Bridging silo-based planning and budgeting
Application of zero based budgeting
Budget planning informed by project plans
Multi-year project budgeting
Clear delineation of roles & responsibilities
Signed Service Delivery Agreements (SDA) or Implementation Protocol
Translated into individual’s performance agreements

26. Summary of Principles contained in the Alignment Model (2 of 2)
Introduction of programme management within client departments
Appropriation of budget to programmes and not to projects
Management of cashflows by reallocation of budget within programmes
Achievement of single point accountability
Programme Management & Programme Implementation Plans covering MTEF period
Planning for procurement
Building in appropriate timeframes for procurement procedures
Best practice guidelines for all of these principles are contained in the IDM Toolkit (

27. Identified Benefits Better linkage with Strategic Planning is achieved
Better alignment of the budget with the targets set out in the Strategic Plan
Project planning is properly done resulting in achievable & realistic cashflows
Multi-Year commitments are planned and budgeted for thereby reducing rollovers
Improved clarity of roles & responsibilities between client departments and implementing agents.

28. Planned Multi-year Project Works
Possible Challenges
Programme Manager with required skills is required
Planning for built environment
Quality Control
Contract Procurement
Commitment by political heads to only implement what is on the Infrastructure Plan.
Understanding that if a project is entered as a new priority onto an Infrastructure Plan it must follow due process before construction can begin.
U-AMP update
C-AMP update
Proc Strategy
IPMP
IPIP
Project Planning
Project Procurement
Project Design
Project Works
Planned Multi-year Project Works
Project Close-Out

29. STATEMENT ON THE CABINET MEETING OF 21st February 2007.
Cabinet approved a framework to align infrastructure delivery cycles with the MTEF budget cycle in order to improve planning, implementation and better cash-flow management that would deal with the fourth quarter expenditure spike.
The infrastructure delivery cycle will be amended to include an Infrastructure Programme Management Plan (IPMP) and an Infrastructure Programme Implementation Plan (IPIP) which will be mandatory for all departments.
This framework will require the appointment of appropriately skilled built-environment professionals across all relevant departments, provinces and local government.

30. Positive Results
The rollout of this model as well as the IDM Toolkit via the Infrastructure Delivery Improvement Programme (IDIP) has contributed to considerable improvements in both the overall annual expenditure as well as in the overall annual cashflow pattern in those provincial departments responsible for infrastructure delivery. The introduction of best practice programme management principles has led to an improved understanding by all stakeholders of their roles and responsibilities resulting in improved relationships and a focus on the common goal of service delivery.

31. Thank You
Guidelines and templates for all of the processes and plans referred to in this presentation can be found in the IDM Toolkit which can be downloaded from the CIDB website:
Peter Brook on behalf of the IDIP PMU