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Finance officers' responsibilities for capital projects in most mid-size jurisdictions have traditionally focused on their base of strength: budgeting, fiscal management, debt management, and accounting. These skills are critical to ensure that budgets are formulated, funding sources secured, and that the project is properly monitored through the financial and budgetary reports. However, these basic tasks by themselves do not provide the opportunity for the finance officer to contribute in determining the appropriateness, scope, and priority of capital projects. The chief administrative officer or city manager and department managers generating the capital project request primarily assume these roles.
The finance officer's role in capital project planning has great potential to expand into a leadership role. In assuming a greater responsibility for project leadership, the finance officer can help position the local government to consistently make decisions aligned with overall goals and objectives. Centralized oversight can decrease the competition for funds between departments and help ensure that long-term plans are followed to achieve the best outcomes for the jurisdiction and its citizens. The finance officer can also expand the capital improvement program formulation so it is not just a project-funding exercise, but rather a strategic plan that aligns projects to overall jurisdictional goals and strategies and works to complete projects that encompass the right scope at the right time.
HOW FINANCE OFFICERS CONTRIBUTE
Typically, department managers develop a brief description of a project, along with preliminary cost figures. This limited information is given to the finance officer, forming the basis for budgeting, funding, prioritization, and incorporation into the capital improvement program. Within this restricted role, the finance officer is relegated to serving as merely a bookkeeper for capital projects, simply compiling the requests of the many department managers and performing an affordability and political exercise to determine which projects get funded, depending on funding constraints or applicable debt capacity limits.
In some government jurisdictions, project requests are limited by available funds and are reduced in scope to fit a budget constraint, often without proper analysis into whether or not the reduced project can still effectively provide the desired service-level outcome. Occasionally, it may be possible to defer projects to later years, when they might better serve citizens and staff. If finance officers are to be involved with these decisions, they need a much greater understanding of proposed capital projects than they typically have.
Exhibit 1 illustrates the typical level of involvement for department managers, the chief administrative officer, and the finance officer for a mid-sized jurisdiction during common phases of capital projects. Relative to the department manager and chief administrative officer, the finance officer has little involvement early in the process, when criteria are developed for evaluating projects, needs assessments are conducted, alternatives are generated and considered, and cost estimates are prepared. While the finance officer may be aware that the capital project process has begun, his or her limited participation at this stage can result in later challenges. When the finance officer finally gets involved, a knowledge gap exists that presents problems with project prioritization, funding source allocation, budget formulation, and project oversight or cost control. In some situations, governments may not have a process that encourages careful analysis early in the project to define service levels, develop criteria for potential projects, properly conduct a needs assessment, and evaluate all viable alternatives, and information that would normally be supplied to the finance officer does not exist.
WHAT FINANCE OFFICERS NEED TO KNOW ABOUT THE PROJECTS THEY EVALUATE
While preparing the operating budget, the finance officer will often accumulate a tremendous amount of supporting documentation to back up departmental requests, but capital project requests often do not include the same due diligence. Finance officers will only get enough information to classify the project under an oversight department, produce a brief description and schedule for the project, estimate an approximate cost, and begin to identify funding sources. The following are questions used to supply the finance officer with necessary information:
* When will the project begin and end?
* How much does the project cost?
* What is the projected cash flow during the project life?
* Is it possible to delay the project?
* Do opportunities exist to cut costs?
To provide answers to these questions, the finance officer must rely on individuals who are deeply involved with the project. Those individuals, however, may not have an organization-wide perspective. Department managers and others responsible for a narrow segment of the jurisdiction's total services compete with other department managers for funding and will attempt to provide answers that will convince the finance officer and other decision makers that the project is worth funding. Specific projects can be highly technical, based on complicated assumptions, or require advanced knowledge to be completely understood. These requests may justify the project in language that is outside the realm of the finance officer's knowledge, which can be intimidating and make it harder to balance the needs of each department with the needs of the jurisdiction as a whole. For example, it could be difficult to balance requests from the following department representatives, all of whom will present highly technical information that the finance officer may be unfamiliar with.
* Engineers. Engineers, often representing public works or utility departments, work on technical projects. Highly technical project requests could be difficult for the finance officer to understand and could make it almost impossible for her to provide substantive input into how scope changes could better achieve overall goals.
* Public safety leaders. Police, fire, or emergency medical services chiefs often argue the importance of security and the potential for loss of lives or damage to property The importance of public safety facilities and the public attention these projects generate make adjusting the capital requests of public safety leaders a delicate and often time-consuming exercise.
* School boards and superintendents. Education leaders often appeal to parents and advocate for projects that appear to best represent student interests. School projects also tend to generate considerable public attention.
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* Information technology (IT) directors. Technology staff provides the support services that are essential to many high-profile government services, but they often deal with complex terminology and costs that can be difficult to comprehend. IT projects should not involve only technology considerations. Technology often enables changes to business processes and must be understood by all. Even though these projects may be complicated, finance officers should make sure that technical issues are properly communicated.
* Other department managers. Individuals within each department are the experts on specific services and have often developed skills to best leverage support for acquiring funding to meet their needs.
EVOLVING FROM TRADITIONAL ROLES TO STRATEGIC ROLES
As government management practices evolve to focus more on measuring outcomes and aligning resources to meet strategic goals, the finance officer's approach to capital project planning, evaluation, and budgeting must also change. To better position the jurisdiction to accomplish its goals and objectives, the finance officer should take a more strategic role throughout the entire capital planning process, beginning with the development of service-level goals helping to determine current deficiencies as part of a needs assessment. Defining realistic service outcomes and setting up a system to accurately measure impact is where the finance officer can excel. With an expanded strategic role, the finance officer can be involved with helping to answer the following questions:
* What service-level objective is correlated to the capital project, and if none exists, how can one be best developed?
* What is the impact on service-level objectives of deferring a capital project?
* How will changes to the project scope affect changes to service levels?
* Have alternatives been considered that would mitigate the need for the capital project by using less costly strategies to achieve desired service levels?
* Is there an opportunity to combine capital project requests in order to take advantage of economies of scale or other efficiency gains?
* Were the factors used to determine and support the costs of the project reasonable and justified?
* Is this project in alignment with the strategic priorities of the entire jurisdiction?
CORRELATING SERVICE-LEVEL GOALS TO CAPITAL NEEDS
Service-level goals or objectives are the fundamental means by which a local government can illustrate to its citizens what level of service can be provided with available resources. Therefore, goals must be clear enough to show a direct relationship to the need for capital infrastructure. Having objectives that support operating activities can focus the attention on the importance of capital needs and projects to service delivery. After defining objectives, the jurisdiction should develop a set of performance measures to track the progress and communicate results to citizens, elected officials, employees, and other stakeholders.
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