Capital Improvement Programming: Interpretation

The interpretation of the results is built into the spreadsheet: deciding how to allocate projects to each of the years is the key to the process. The spreadsheet ranks each project based on its performance on a set of weighted criteria specified by the user. The user allocates the projects among the available years, based on the urgency of the project (indicated by the rank score) and constrained by the availability of resources (indicated by the debt capacity for each year).

There are two issues which must be kept in mind while using the capital improvements planning model. First, the model provides the user with no more than an estimate of the appropriate ranking of projects. As has already been discussed, there are conceptual difficulties inherent in using a weighted ranking method. Depending on the number of criteria and the spread in the rankings, it is possible that the true distribution of projects could be very different from the apparent order. The user must examine the obtained rankings to assure that they conform to common sense. This can be done by estimating beforehand the relative position of several projects; these "milestone" projects can be used to gauge the fit of the formal model.

The second key issue is faced in deciding when to close one year's worksheet and move on to the next one. The model does not formally deal with the issue of retaining some debt capacity to allow flexibility to meet future contingencies. How you intend to use the capital improvement plan will affect the position you should take on this issue. If the five-year plan is a "rolling" plan (one that is recalculated each year, adding in a new year each time), then flexibility is built into that process; if the capacity for debt should increase or decrease in succeeding years, it would be reflected in the plan developed in that year. On the other hand, if one intends to build a five-year plan once every four or five years, then flexibility would have to be designed into the model. At the least, once one fund is exhausted the remaining capacity in the other funds should be left over and the process moved on to the next year.

There is another, more speculative, use for the capital improvement model. It should be possible to construct worksheets for actual capital expenditures over the past several years and, working backwards, arrive at the scoring and the criteria weights which are implied. The model is not designed to calculate "backwards." But with the spreadsheet's ability to play "what if" games, the user can try a set of weights and scores and then adjust them to approximate the obtained ranking more and more closely. This sort of exercise could provide useful feedback to a city's policy-makers of the "logic-in-action" which they appear to use.

609