CAIRO (Reuters) – Egypt expects the 1.6-gigawatt solar park it is building in the south of the country to be operating at full capacity in 2019, the investment ministry said in a statement on Sunday.
The $2 billion project, set to be the world’s largest solar installation, has been partly funded by the World Bank, which invested $653 million through the International Finance Corporation.
Some parts of the park are already operating on a small scale, while other areas are still undergoing testing.
Egypt aims to meet 20 per cent of its energy needs from renewable sources by 2022 and up to 40 per cent by 2035. Renewable energy currently covers only about 3 per cent of the country’s needs.
“Egypt’s energy sector reforms have opened a wider door for private sector investments,” World Bank President David Malpass said during his visit to the site alongside Egypt’s Investment Minister Sahar Nasr.
Egypt is on a drive to lure back investors who fled following the 2011 uprising with a slew of economic reforms and incentives the government hopes will draw fresh capital and kickstart growth.
Most of the foreign direct investment Egypt attracts goes toward its energy sector.
Reporting by Ehab Farouk; Writing by Nadine Awadalla; Editing by Yousef Saba and Jan Harvey.
A MEConstructionNewsANALYSIS by Andrew Skudder, CEO. CCS, Guest Author, warning construction firms of the risks of not digitising operations, posted on April 25, 2019, is republished here for its obvious benefits to the MENA’s development.
With the Middle East construction sector under growing pressure as a result of a tightening economy, construction companies should be looking at ways to streamline their business processes, improve cash flow management and tighten risk management. Those that sharpen internal processes and systems today will be best positioned for an upswing in government and private sector investment in the years to come.
The sector faces numerous challenges – challenging economic growth, shrinking margins, skills shortages, rising resource and labour costs – which means it’s under pressure to start innovating.
Investment in tech is behind the curve
The challenges the industry faces are compounded by the fact that many construction groups have not digitised operations such as cost-consulting. This means they lack visibility into – and control over – the many variables, changes, people and equipment involved in any construction project.
Middle Eastern construction companies should be looking for ways to use technology to drive higher productivity, achieve cost-savings and improve project management to weather a tumultuous time for the industry. However, the lean years of late, have seen IT spending in the construction industry stagnate, despite the accelerating pace of innovation around the world.
For example, adoption of wearables, 3D printing, driverless heavy vehicles, drones and building information modelling is rising in the global construction sector. To take full advantage of these advanced technologies, many local construction companies will first need to modernise their core back-office systems.
They should be looking towards tried and tested solutions for estimating, project control, enterprise accounting and operational costing. These solutions will enable them to drive down the costs of maintaining legacy applications, help them to become more agile and give them clearer real-time visibility into business performance.
Breaking down silos
Construction performance and progress cannot be monitored on financial data alone; engineering information is just as critical. Engineering control includes generating and managing allowable and actual quantities of resources, wastages, manhours of labour, production of equipment and time for construction activities.
Without digitisation, an organisation has no clear indication of the status of the contract because it doesn’t have real-time visibility into these factors. Today’s business solutions can break down the silos, enabling estimators and accountants to produce real time-reporting, and yet continue to work in the language that is meaningful to them.
Integrated back-office systems spanning procurement, project control, cost estimation, sub-contractor management and accounting give construction companies one source and view of the truth, enabling them to manage an entire project with real-time visibility into costs and performance.
Using this data can help construction firms make better strategic and operational decisions. Data-driven insights can enable them to better manage cashflow and project risks, so they can better predict and mitigate payment delays, rising costs and other challenges. It can also help companies to drive higher levels of profitability through better project planning.
Building a foundation for the future
Looking to the future, a robust business solution is also a foundation upon which construction companies can layer drones, robots, Internet of Things (IoT) sensors, artificial intelligence (AI) and other advanced digital technologies. Such solutions enable construction companies to manage and analyse big data produced by sensors, devices and workers so they can drive productivity and innovation – AI, for example, can help them rapidly process the data to find key insights.
Construction companies should embrace digital transformation to drive higher productivity, improve efficiency and gain a competitive advantage. Transforming their core business with a proven solution will help them prepare for the future, with a possibility that infrastructure spending will show signs of life again in the near future. Now is the time to lay the foundation for the next wave of growth.
Around the world, trillions of dollars are spent each year building skyscrapers, highways, pipelines, schools, and countless other structures, and the resources that could be saved using advanced analytics, automations, machine learning, and other technologies that are available now is staggering. As a primary investor and procurer in infrastructure projects and the shepherd of national economies, governments have a clear incentive to help accelerate adoption within the construction industry.
New technologies can advance project outcomes in the construction industry. Governments are well-poised to cultivate greater adoption.
An industry notorious for cost and time overruns, the construction sector can capture significant efficiencies by adopting new technologies. While many executives acknowledge the potential of new technology, they often hesitate to risk multi-billion-dollar projects on applications they consider unproven. To create greater value from public and private spending on large capital projects, governments can help clear the path and bring new technologies to bear.
New technologies—advanced analytics, automation, machine learning, and the Internet of Things, for example—have delivered substantial benefits to industries at the forefront of adoption, particularly telecommunications and finance. And while these disruptive forces will eventually wash over every industry, the construction industry still lags.
Digital tools are already available, with $18 billion invested in construction technology between 2013 and early 2018. McKinsey research, however, finds that leaders struggle to adopt these applications—not because of cost concerns or lack of interest, but rather because of insufficient internal processes and risk aversion.
Pressing need for improvement
Using technologies to boost construction productivity can have a profound impact on public and private spending. In the United States alone, expenditures on construction reached $1.29 trillion in 2018, after rising an average of 7.4 percent annually over the previous five years.1 1.US Census Bureau.
The public sector accounts for a significant share of this total. Stripped of residential and private-use projects, construction expenditure on public infrastructure—for instance health care, education, and transportation—reached $334 billion in 2018 (Exhibit 1). Public spending will finance almost 80 percent of these infrastructure expenditures, by our estimates.
And the rise in construction spending is unlikely to abate soon. Increased urbanization is creating demand for projects that support denser population centers, such as transportation, power, and sewage. And in the United States, deteriorating public infrastructure must be addressed urgently. McKinsey research found that the country requires an additional $500 billion in infrastructure funding between 2017 and 2035 to meet its estimated requirements.
Amid this growing need, public and private projects have struggled to keep costs and construction times within original projections, especially for complex, high-cost projects. Early adopters have already begun to test new technologies to improve project outcomes. For instance, some companies are using wearable GPS devices or smartphone apps to optimize workflows and resources. Others have begun using virtual-reality systems for supervisors and crew to “walk through” processes to prepare sequencing, identify potential problems, and conduct safety trainings more efficiently.
Governments are well positioned to catalyze change
Despite these early efforts, many companies are reluctant to experiment in untested waters. This is understandable since billions of dollars and corporate reputations are at risk with these projects, and there is no room for do-overs. These hurdles, however, present a prime opportunity for governments to take the lead and break the inertia that slows the construction industry from entering a digital era.
Public expenditures account for a significant portion of non-residential, public-use construction projects, and government agencies work closely with private companies of all sizes to deliver these complex infrastructure projects. Such projects span a wide range of infrastructure, from roads to buildings to sewer systems (Exhibit 2). The government’s purchasing power touches every corner of the construction industry, while its regulatory power allows it to set standards that are most easily met using new technologies or even to mandate their use.
Our experience and research suggest five measures available to governments that can be powerful tools in accelerating adoption.
Set bold aspirations
At the outset, governments can articulate bold aspirations for the adoption and use of technology in public sector projects. Beyond increasing awareness, such public aspirations demonstrate the priority given to developing a more efficient construction industry through broader deployment of new technologies.
One approach would be to craft a digital construction strategy that encourages the use of new tools to reduce the time and cost of public works projects. For example, clear targets could be set for the use of pre-fabricated or modular components, enabled by digital collaboration tools such as BIM, that would reduce the instances of rework and change orders.
Some countries have already taken steps on this direction. In Ireland, for example, the National BIM Council published a national strategy for the construction industry in 2017 that included clear digital targets.2 2.National BIM Council, Ireland, Roadmap to Digital Transition for Ireland’s Construction Industry 2018-2021, December 2017. As part of its vision, the council strives to reduce project delivery times by 20 percent, increase construction exports by 20 percent, and cut capital costs by 20 percent, all by 2021 compared to 2018 levels.
Create meaningful incentives
Governments can also use their purse strings and tendering processes to create meaningful incentives for construction companies. For example, public grants could be offered to help companies adopt technologies that aid in project design and execution. National competitions and prizes that reward technology adoption in construction projects can also provide first movers with additional financial support, as well as publicly recognizing the importance of using technology to accelerate and bring down the costs of construction. Similarly, governments may consider publicly supported incubators that allow low-risk testing for new applications.
Further, public contracting agencies can insist that successful bidders incorporate digital collaboration tools into publicly-owned projects. For example, the Tennessee Department of Transportation recently announced it will require prime contractors and designers to use construction productivity software on all its projects, beginning with March 2019 contract awards.
In another example, the UK Infrastructure and Projects Authority estimated that public and private investment in infrastructure projects will total about $780 billion between 2017 and 2027 and pledged “to use its purchasing power to drive adoption of modern methods of construction.”3 3.UK Infrastructure and Projects Authority, Transforming Infrastructure Performance, December 2017. Among the announced measures, five major government departments will weigh offsite construction capabilities in assessing tenders for projects.
In addition to creating meaningful incentives to spur adoption, governments can help reduce the barriers and risks that are unique to these emerging technologies. For example, procurement or acquisition regulations often place a great deal of emphasis on a contractor’s past performance in future source selections. However, contractors that wish to pilot new technologies will not have as much experience or demonstrated cases as those offering traditional solutions. If this is seen as a major disadvantage, it could hinder the use of government procurement processes to encourage the adoption of new technologies. Re-thinking these guidelines to make allowances for emerging technologies, giving them time to establish a foothold, may be crucial to accelerated adoption.
At the same time, governments can consider assuming some of the contractor risks associated with trialing new technologies. In selected projects or portions of projects, for example, governments can offer to reimburse contractors if the new technologies fail to deliver projected savings. Such guarantees may sound bold, but they can be successful if focused on targeted project components, phases, or solutions with substantial long-term savings potential.
Measures can also be taken to increase transparency around the costs and progress of public projects. This transparency is supported by digital technologies that provide real-time information on the progress of major projects. In turn, increased transparency creates pressure to complete projects on budget and on time, which becomes easier when new technologies are deployed. The United Kingdom’s infrastructure initiative includes benchmarking tools that track cost and schedule during the life of a project. The system not only follows the progress of individual projects underway, but also assesses the impact of completed projects in their overall asset class, as well as movement toward network goals, such as customer satisfaction and performance, and national goals, such as reduced carbon emissions and economic development.
Ultimately, these benchmarks can be provided on online dashboards that allow the public and other stakeholders to monitor progress, increasing the pressure on construction companies to meet deadlines and costs. For now, like in the United Kingdom, the results of these benchmarking exercises are generally available in annual reports.
As with most industries, the construction sector will struggle to find the talent needed to use new technologies effectively. Governments can play a dual role in helping to meet this challenge. First, they can invest in training programs that not only build needed capabilities but also provide new opportunities to workers displaced by these technologies.
Singapore, for instance, includes construction in its $3.3 billion Industry Transformation Programme, announced as part of the country’s 2016 budget plan.4 4.Singapore Ministry of Trade and Industry, “Industry Transformation Maps (ITMs),” Oct. 31, 2016. In this effort, the government wants to train 80,000 workers in new construction technologies, such as design for manufacturing and assembly methods, integrated digital delivery, tools that enhance collaboration, and offsite construction, as well as green building capabilities. Structured internships and additional training for recent university graduates are two measures the country is using to reach this goal.
And second, governments can lead by example by building their own internal digital capabilities. Developing these skills—for instance by creating an advanced analytics group—would allow public agencies to use new technologies more effectively in overseeing projects and optimizing maintenance operations and to understand more clearly how new technologies can be deployed broadly in the industry.
Editor’s note: Two of the biggest dam projects in
the world – one in Turkey, the other in Ethiopia – are nearing completion. Both
are likely to profoundly affect the lives of millions in the Middle East and
bring further tensions to already severely water-stressed regions.
In his second report, environment journalist Kieran Cooke reports on the
progress of the Grand Ethiopian Renaissance Dam and its likely
consequences for Egypt.
There have been hold ups and reports of large cost overruns but building
work on the lavishly titled Grand Ethiopian Renaissance Dam or GERD, under
construction on the Blue Nile in the north of the country since 2011, is
In Cairo, almost 2,500 kilometres to the north, every step in the GERD
process – the 6,500 MW hydroelectric dam is one of the world’s largest
and the biggest in Africa – is being anxiously watched.
Egypt is facing a water crisis. A rapid increase in demand due to
population growth, severe mismanagement of resources and a lack of investment
in water infrastructure have led to Egypt being one of the most ‘water
stressed’ countries in the world.
At the present rate of consumption, says the UN, the country could run out of water by 2025. The GERD will exacerbate these
severe water shortages.
The Blue Nile, which rises in Ethiopia, joins the White Nile in Sudan
and then flows into Egypt. The river is Egypt’s lifeline with more than 90
percent of its 100 million people dependent on it for drinking water and for
‘It is a matter of life and death… this is our country and water must be
secured for our citizens, from Aswan to Alexandria’
– Egyptian President
Abdel Fattah el-Sisi
For years Egypt has viewed the Nile as its own; at one stage its
politicians talked of bombing the GERD in order to preserve what they viewed as
their historical right to the river’s waters.
“No one can touch Egypt’s share of Nile water,” said Egyptian President
Abdel Fattah el-Sisi in November last year.
“It is a matter of life and death… this is our country and water must be
secured for our citizens, from Aswan to Alexandria.”
Yet for all the strong words, Cairo knows the GERD will, at some point
in the near future, become a reality. The project, say close observers of the
project, marks a profound shift of power in the Nile Basin.
The GERD, for Ethiopia, is central to the country’s development and a
symbol of national renewal. The aim is not only to provide much needed power
within Ethiopia but also to raise vital export revenues by selling electricity
to neighbouring countries.
“Traditionally Egypt – as the power in the region – refused to
countenance any upstream dams on the Nile,” said Tobias Von Lossow, a
specialist on dams at the Netherlands Institute of International Relations, who has
spent years studying the GERD and the complex water politics of the region.
“Then along came Ethiopia and, against all the odds and the doubts of
many outsiders, including the Egyptians, the GERD has been built.
“Sudan, the other downstream nation, sees benefits from the GERD and is
backing Ethiopia. Egypt has been forced to recognise a new reality – it has to
negotiate with Addis Ababa as an equal.”
The most immediate concern for Cairo is when the giant reservoir at the
GERD site will start being filled, and for how long that process will last.
If the reservoir is filled over a relatively short period – in under
five years – it’s calculated that water flows on the Nile through Egypt
could drop by as much as 20 percent.
Reduced flows on the Nile would also lead to electricity shortages, with
a sharp drop in power generated at the Aswan hydroelectric dam.
Cairo wants a very gradual filling process which will cause less
disruption to water flows, taking place over a period of between 10 and 20
Ethiopia on the other hand wants to capitalise on its massive investment
and fill the reservoir at the GERD over a much shorter period, enabling it to
start generating electricity and begin selling it to other countries.
“The big question is what if the climate changes and there’s a drought
during the filling process at the GERD, with water levels in the Nile suddenly
dropping substantially,” said Von Lossow. “That could lead to conflict.
“The other issue is that though the GERD is solely for generating
electricity, it will regulate water flows on the Blue Nile, enabling more
opportunities for the development of agriculture and irrigation across the
border in Sudan. That would mean less water flowing into
For the moment, delays and finance problems at the GERD have given Egypt
some much needed time to tackle its chronic water woes.
Under the original construction timetable, power was due to be generated
from the GERD scheme last year, but various factors have been causing delays.
Unwilling to have restrictions placed on it by international lending
institutions and banks, Ethiopia has largely self-financed the GERD, estimated
to be costing $5bn.
China, already a big investor in the country, became a major player in
the GERD, with a $1bn loan for power transmission lines.
A new government, headed by prime minister Abiy Ahmed, came to
power in April this year.
Abiy, seen as less nationalistic and more pragmatic than his
predecessor, has gone out of his way to address Egypt’s fears about the GERD,
meeting Sisi in June this year.
In the course of the Cairo meeting, Egypt’s president asked Abiy to swear to God
“before the Egyptian people” that he would not hurt Egypt’s share of the Nile.
Abiy did so.
“So much depends on the personal chemistry between leaders,” said
Barnaby Dye, a specialist on dams at the University of Manchester in the UK.
“The use of the Nile waters is loosely governed by various historical
treaties and agreements though these are often disputed. In the final analysis
what often matters is how those in power get on.”
Abiy has launched an investigation into large-scale cost overruns at the
GERD. A company run by the Ethiopian military responsible for supplying
turbines and other electrical equipment has been replaced, accused of wasting millions of dollars.
Salini Impregilo, the Italian company and main contractor at
the site, is said to be owed considerable amounts of money for its work though
it has said little about rumours of long project delays.
Another setback for the project was the death in July of
Simegnew Bekele, the project’s chief engineer and a figure much revered in
Bekele was found dead from a bullet wound in his car. Police
subsequently said he had shot himself.
Egypt has begun to take some action
aimed at heading off a full-blown water emergency.
Under a 20-year water management scheme, plans are for more than $50bn
to be spent on desalination plants, including what will be the world’s
biggest such facility.
New, less wasteful, irrigation schemes are also being put in place. With
an estimated 40 percent of water resources lost due to leakages, more money is
being invested in upgrading old piping and in new pumping stations.
Critics say all this is too late, with officials still reluctant to
recognize the scale of the country’s water crisis. They say Sisi’s government
is obsessed with expensive and questionable prestige projects, such as the
construction of a second Suez Canal.
Problems at the Oroville dam in California in 2017 saw 10,000 people evacuated – Image copyright Getty Images
A new study says that many large-scale hydropower projects in Europe and the US have been disastrous for the environment.
Dozens of these dams are being removed every year, with many considered dangerous and uneconomic.
But the authors fear that the unsustainable nature of these projects has not been recognised in the developing world.
Thousands of new dams are now being planned for rivers in Africa and Asia.
Hydropower is the source of 71% of renewable energy throughout the world and has played a major role in the development of many countries.
But researchers say the building of dams in Europe and the US reached a peak in the 1960s and has been in decline since then, with more now being dismantled than installed. Hydropower only supplies approximately 6% of US electricity.
Dams are now being removed at a rate of more than one a week on both sides of the Atlantic.
The problem, say the authors of this new paper, is that governments were blindsided by the prospect of cheap electricity without taking into account the full environmental and social costs of these installations.
More than 90% of dams built since the 1930s were more expensive than anticipated. They have damaged river ecology, displaced millions of people and have contributed to climate change by releasing greenhouse gases from the decomposition of flooded lands and forests.
The Elwha river dam in Washington State was removed in 2011 Image copyright Getty Images
“They make a rosy picture of the benefits, which are not fulfilled and the costs are ignored and passed on to society much later,” lead author Prof Emilio Moran, from Michigan State University, told BBC News.
His report cites the example of two dams on the Madeira river in Brazil, which were finished only five years ago, and are predicted to produce only a fraction of the power expected because of climate change.
In the developing world, an estimated 3,700 dams, large and small, are now in various stages of development.
The authors say their big worry is that many of the bigger projects will do irreparable damage to the major rivers on which they are likely to be built.
On the Congo river, the Grand Inga project is expected to produce more than a third of the total electricity currently being generated in Africa.
However, the new study points out that the main goal for the $80bn installation will be to provide electricity to industry.
“Over 90% of the energy from this project is going to go to South Africa for mining and the people in the Congo will not get that power,” said Prof Moran.
“The people that I study in Brazil, the power line goes over their heads and goes 4,000km from the area and none of the energy is being given to them locally.”
The Hoover dam at Lake Mead in the US has seen water levels decline in recent years Image copyright Getty Images
“The nice goal of rural electrification has become completely subverted by large-scale interests who are pushing this technology, and governments are open to being convinced by them that this is the way to go.”
The report points our that the large installations on these great rivers will destroy food sources, with 60 million people who live off the fisheries along the Mekong likely to be impacted with potential loss of livelihoods greater than $2bn. The authors also believe that dams will destroy thousands of species in these biodiversity hotspots.
In Brazil, which gets 67% of its electricity from hydropower, the response to reduced water capacity because of climate change is to build more dams.
With the election of Jair Bolsonaro in Brazil, a temporary halt to building new hydro projects is likely to be overturned. Plans for 60 new dams are already in place.
The authors say that with huge pressure on countries to press ahead with renewable energy developments, a mix of energy sources including hydro is the most sustainable approach.
“Large hydropower doesn’t have a future, that is our blunt conclusion,” said Prof Moran.
“To keep hydropower as part of the mix in the 21st Century we should combine multiple sources of renewable energy,” said Prof Moran.
“There should be more investment in solar, wind and biomass, and hydro when appropriate – as long as we hold them to rigorous standards where the costs and benefits are truly transparent.”
The study has been published in the journal Proceedings of the National Academy of Sciences.
Governments in developing economies often lack the capacity to conduct thorough reviews of proposed capital projects. A streamlined approach can identify those ready for funding.
By Rima Assi, Nicklas Garemo, and Arno Heinrich studying an issue of vital importance for all developing countries, came up with the following essay.
They addressed the most likely to be affected which are the oil-exporting countries of the MENA region as impacted by the volatility of their earning capacities. In the recent past, and before 2014, when free-flowing budgets allowed development without such restrictive measures, governments that get about 90 per cent of their revenue from oil exports did not bother about such issues. However plunging oil prices could mean budget cuts for major exporters like the GCC countries, but these are not expected to be large enough to stop growth, hence the need still of what is proposed by Mckinsey’s people here.
In developed economies, policies and practices for balancing diverging interests in public infrastructure spending are well established. South Korea, for example, established the Public and Private Infrastructure Investment Management Center in 1999 to conduct feasibility studies on large public investments and expanded its mandate to include appraising and managing public–private infrastructure partnerships in 2005. Since then, the center has reduced project overruns by 82 percentage points. Similar units include the United Kingdom’s Infrastructure and Projects Authority, Germany’s Bundesrechnungshof, and Australia’s Infrastructure Australia.
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But in developing markets, many governments have yet to build a capacity for conducting extended project reviews and feasibility studies, because talent is scarce or internal priorities conflict. As a result, these governments often end up funding ill-prepared, poorly designed capital projects, whose scope often diverges from real demand. Overlaps between projects are not uncommon—and actual project costs often exceed forecasts. In fact, nearly 40 percent of the money devoted to global investments around the world is spent ineffectively as a result of bottlenecks, a failure to innovate, or market failures. In developing economies, these ineffective expenditures amount to over $1 trillion a year.
It may be too much to ask that every proposal get a full-scale, in-depth evaluation that takes months to complete. Even in developed markets, that’s not always possible. But it is possible for finance ministries to conduct more streamlined financial assessments of the preparedness and design of projects in only days or weeks. Indeed, we have seen developing countries in the Middle East and Africa embark on such programs by adapting centralized control units and the required level of governance to their own circumstances.
The initial assessment of project preparedness
As a first step, a government must ensure that all projects have been thought through at a sufficient level of detail. This may sound obvious, but projects that fail to describe their rationale properly, don’t evaluate alternative solutions, or lack detailed budget plans are hardly uncommon. What’s more, implementing ministries often lack strong capabilities in project planning, and rely instead on the private-sector organizations that design and implement such projects to review their own work. The resulting incentive structures, far from optimizing costs, tend to inflate the scope and specifications of these projects.
When the finance ministry in one African country reviewed proposals to build new roads, for example, it found a number of them significantly exceeded benchmark costs—often coming from design firms that consistently produced designs with higher costs. When a more thorough evaluation isn’t feasible, a streamlined one- or two-day review can help. Typically, an oversight body would pose a series of straightforward questions assessing how clearly a problem is defined, along with a capacity and demand analysis and a consideration of alternative solutions. This kind of evaluation would examine a proposal’s financial aspects, like planned budgets and cash-flow requirements. It would also probe the operational elements: a realistic implementation plan, compliance with regulatory requirements, and interdependencies and overlaps with other projects. Knowing that it lacks this capability, the government of the country in the example is now setting up an in-house unit to oversee contracts with design companies and challenge their products.
The impact can be considerable. One government in another developing economy took this approach with more than 250 projects in its portfolio and found that only a quarter of them were adequately prepared. Most frequently, project owners failed to quantify the capacity–demand analysis and alternative ways of meeting future demand. As a result, they were granted only enough of their requested budget to conduct studies to increase their preparedness.
A deeper review of project design
Once the initial assessment—often of hundreds of projects—narrows down the pool, finance ministries can conduct a more thorough review of each project’s overall design. That, too, can be streamlined. The finance ministry of the country in the example developed a way to conduct reviews that lasted just two weeks. In that time, it identified opportunities to reduce costs by an average of 20 to 40 percent, without reducing outputs. During the reviews, which will now be a standard part of the annual budgeting process, the cost-review unit of the finance ministry met with owners of projects and tested their design through a series of questions aligned with the initial assessment exercise above. These included the following:
·Public priorities. Does the scope of a project focus on services and features that people really want? Is there evidence that the project is truly needed and meets the country’s socioeconomic objectives?
·Capacity and demand. Does capacity match future demand? Are the expectations for demand realistic? Can alternative solutions reduce demand?
·Costs. Do unit costs reflect benchmark levels? Can costs be cut by adjusting a project’s time frame (to reduce the need for tight deadlines) or by calibrating the schedule to the availability of capital?
·Productivity. Could existing assets improve operations?
·Funding. Are the funding requirements realistic? Are there any opportunities for private-sector funding? Will the assets generate revenues that could fund the project? Can implementation be deferred or slowed down to stretch out the need for funding?
These project reviews can be significant: a two-week review of a public convention complex, for example, identified $1.7 billion in potential savings (Exhibit 1). Elsewhere, one ministry of health’s $300 million request for additional beds for intensive-care units (ICUs) was nearly halved after reviewers considered benchmark utilization data. They found that the proposal’s assumptions about the average length of stay per ICU bed were twice as high as the benchmark, mainly because facilities lacked intermediate beds and had nowhere to send discharged patients. As result, the ministry of health was advised to procure lower-cost intermediate beds and fewer ICU ones.
A two-week capital-expenditure review of a public convention complex identified $1.7 billion in savings.
Or consider a proposal by another country’s housing ministry to develop affordable housing. In-depth reviews found that the proposed design included features—such as skylights, longer driveways, and larger bedrooms—that increased costs but would not necessarily be valued by residents. The optimized design featured more bathrooms, but (unlike the original proposal) with showers instead of tubs; more but smaller bedrooms; and shorter driveways with less internal parking. These homes were better aligned with the expectations of likely residents, but cost 15 percent less—so the ministry could build more homes on its $4 billion total budget.