Public Capital Project Appraisal: A Real Cause for Concern and for Whom?
| Published date | 01 January 1988 |
| Author | Robin G. Milne |
| Date | 01 January 1988 |
| DOI | 10.1177/095207678800300111 |
| Subject Matter | Articles |
27
Public
Capital
Project
Appraisal:
A
Real
Cause
for
Concern
and
for
Whom?
Robin
G.
Milne,
University
of
Glasgow
This
study
would
not
have
been
possible
without
the
ready
co-operation
of
many
NHS
staff
and
permission
by
a
number
of
health
authorities
to
have
access
to
their
files.
The
study
also
benefitted
from
the
encouragement
given
by
Cedric
Sandford,
and
from
comments
by
the
referee.
The
usual
disclaimers
apply.
The
research
for
this
paper
was
supported
by
the
Carnegie
Trust
for
the
Universities
of
Scotland
and
the
Economic
and
Social
Research
Council
(ESRC)
reference
number
B00232185.
Abstract
This
study
finds
further
evidence
of
discrepancies
between
theory
and
practice
in
the
evaluation
of
capital
schemes
in
the
public
sector.
This
is
a
common
pheno-
menon
in
the
private
sector
too,
despite
its
apparently
greater
incentive
to
use
the
formal
approach
recommended
by
the
Treasury.
Proposals
by
the
Controller
and
Auditor
General -
that
the
public
sector
should
alter
its
practice
to
conform
to
the
Treasury’s
guidelines -
may
be
less
appropriate
than
fresh
thinking
about
what
these
guidelines
should
be,
especially
the
uses
of
discounting
(DCF)
to
represent
the
opportunity
cost
of
capital,
and
of
sensitivity
analysis
and
probability
theory
to
cope
with risk
and
uncertainty.
In other
respects
there
is
evidence
of
much
more
conformity
of
practice
with
theory
than
a
study
by
the
Controller
and
Auditor
General
would
suggest.
1.
Introduction
One
can
hardly
do
better
than
start
by
quoting
from
the
recent
guidance
by
(HM)
Treasury
as
to
the
definition
and
objectives
of
investment
appraisal:
’Investment
appraisal
is
a
systematic
approach
to
expenditure
decisions.
It
entails
deciding
clearly
upon
the
objectives
of
an
expenditure
pro-
posal,
considering
the
various
ways
of
meeting
them
and
working
out
and
presenting
the
costs
and
benefits
of
each
option.
Used
properly,
appraisal
leads
to
better
decisions.
It
encourages
managers
to
question
and
justify
what
they
are
doing.
It
sets
the
tone
for
thinking
rationally
about
the
use
of
resources
(Treasury,
1984,
para.
l.l J.
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