Capital budgeting processes for public sector development projects in South Africa

Abstract

Each Organization should have a capital budgeting process in place regardless of whether it is a private entity or a public sector entity. The primary force on the public sector entities is the delivery of public goods and one way of achieving this is through the implementation of massive development projects. With the current South African public sector infrastructure projects in execution, there has been massive cost and time overruns experienced. One of the possible causes of these cost overruns may be due to lack of or inadequate cost and benefit projections and management of the overall investment from identification stage to post implementation stage. A qualitative research was done where interviews were held with key stakeholders involved with capital investment authorizations and management in the South African State Owned Entities (SOE) to find out what capital budgeting processes are followed by the SOEs. Despite the use of capital budgeting processes within the public sector entities, there are differences in the application for each stage of the process i.e., identification, selection, authorization, implementation & control and post audit stages. The problems range from political interference, lack of detailed planning of the project due to urgency of projects, implementation of project before the readiness assessments are done and poor monitoring by the public offices during implementation and post completion of capital investment projects. The lack of Supplier Management processes in the State Owned Entities was also highlighted as a gap where poor performing contractors find themselves back into the system while good performing contractors are not utilized more often and used to develop small and new contractors. This paper investigates the capital budgeting processes that are utilized by the State Owned Entities for the public sector development projects in South Africa.