# **5 Capital Investment Planning Methodologies**

While there are numerous possible ways for local government to structure capital investment decision‐ making, opinions in research and practice have supported cost‐benefit analysis and, more recently, turned to multi‐criteria analysis.

## _Cost‐benefit analysis_

Cost‐benefit analysis has been recommended for evaluating public expenditures in the United States since at least the 1930s, and is widely understood to be instrumental in preparing infrastructure projects for financial investment from international donors and private investors. However, local governments have not adopted the practice with the frequency one might expect. As late as 1987, a survey of US municipal finance officers found that only 40% of cities used cost‐benefit analysis as the primary method of project evaluation, and 33% did not use any quantitative evaluation technique (Kee et al., 1987, 17‐ 18). In Europe as well as the US, economists and spatial planners explained the situation by noting that the evaluation of infrastructure projects requires the consideration of multiple conflicting objectives which, despite the introduction of shadow pricing to cost‐benefit methods, did not appear to be addressed or reconciled to the satisfaction of local decision‐makers (Nijkamp et al., 1990, vii).

## _Multi‐criteria analysis_

From the 1980s onward, analysis with multiple criteria grew in popularity (see Roy, 1972, and Cochrane and Zeleny, 1973). The “goals‐achievement matrix” was developed as a methodology that sought to “allocate benefits (i.e. movement toward achieving a goal) to groups within society by looking at the different mixes of goal satisfaction and full achievement within each strategy” (Shefer et al., 1990, 149). Similarly, an evaluative framework based on the French ‘multi criteria decision aid’ became popular (e.g., the ELECTRE‐techniques, see Roy 1996; Wang 2009, 265). Summarizing the reasons for the rise of multi‐criteria evaluation techniques in public planning and administration, economists Nijkamp and Rietveld, and spatial planner Voogd (1990, 2) list:

- The possibility of including intangible and incommensurable effects in the conventional cost‐benefit methodology;

- The conflicting nature of modern planning problems, so that – instead of a single decision‐maker – various (multi‐level) formal and informal decision agencies influence or determine a final choice;

- The shift from conventional “one‐shot” decision‐making to institutional and procedural decision‐ making, where many political aspects play a major role; and

- The desire in modern public decision analysis not to end up with a single and “forced” solution dictated by a researcher but with a spectrum of feasible solutions from which a choice can be made.

## _Multi‐criteria analysis as a public, participatory budgeting process_

Methodologies using multi‐criteria analysis range in complexity from assessments that can be performed by any person with basic algebra skills to complex modeling. The choice of approach involves trading‐off technological complexity for transparency, and therefore the ability of the public to hold decision‐makers accountable in the use of public funds. One could argue that the selection of a methodology that appears as a “black box” would defeat the purpose of collective decision‐making in a Page | 9