GOVERNANCE TOOLKIT FOR PROJECT APPRAISAL. CDB s Strategy on Governance and Institutional Development defines governance as:

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1 GOVERNANCE TOOLKIT FOR PROJECT APPRAISAL Why is assessment of governance relevant for project appraisal? The main function of this toolkit is to assist CDB staff to assess aspects of good governance that are crucial for the effectiveness of projects. A clearer understanding of how weak governance can undermine project outcomes will help (i) improve project design, (ii) ensure more effective capacity building, and (iii) lead to better implementation performance by BMCs and their project entities. By focusing on the aspects of weak governance that impinge, directly and indirectly, on the fate of a CDB-financed project, staff can incorporate elements in the project design and associated technical assistance that would enable a better end-result. How does CDB define governance? And what is good governance? CDB s Strategy on Governance and Institutional Development defines governance as: The processes by which power and authority are shared and exercised in society, and influence exerted over policies and decisions concerning human development and well-being. It should be remembered that analysis of governance quality focuses on processes not outcomes (although the interest in processes is motivated by a concern for outcomes). For CDB, good governance is governance which emphasises the equitable, efficient and responsible management of public and corporate resources for the benefit of all stakeholders. It is characterised by structures, systems and processes which: Ø Include all stakeholders and encourage their participation. Ø Are responsive and transparent to all and facilitate the free flow of information. Ø Hold individuals and institutions accountable. Ø Are guided by well-understood rules that are justly enforced. Importantly, promoting good governance is a strategic objective for CDB for the period the corresponding corporate priorities are (i) improving public sector and fiscal management and (ii) strengthening private sector and civil society institutions. Good governance is also one of the three strategic levers of CDB s Poverty Reduction Strategy. What does this Toolkit do? The Toolkit shows how, in the context of a project appraisal, staff can identify areas of weak governance that could prevent the project from meeting its objectives. It provides a framework for such a projectrelated governance assessment and a set of sample questions. It covers aspects of good governance relevant for project performance by focusing on: Policy and regulatory framework of the sector concerned ganization and management of the project entity Documented operating policies of the entity

2 Following this framework for each project appraisal will help highlight governance weaknesses that can then be addressed in the project design and in associated technical assistance. Within the framework, however, staff should feel free to emphasise, de-emphasie or even delete some sections or sub-sections, depending on the situation of the particular BMC sector and/or project entity. CDB staff is also encouraged to add other aspects to the assessments suggested, should the situation merit this. Similarly, the sample questions are illustrative, not exhaustive; staff should adapt or enlarge them or conceive additional questions, depending on the specific situation. The sample questions serve merely as pointers for staff looking to identify areas of weakness that need to be taken into account and provided for in project design and implementation. Working through the Toolkit is intended to aid staff in their thinking about effective project design. The results of this enquiry need not be reflected in a separate section in the Appraisal Report. Hence, the present practice can continue whereby project design implicitly (i.e., silently) addresses the concerns highlighted by the examination of governance weaknesses or gaps. However, the results of the enquiry should be noted in project preparation files and shared with other staff working with the specific entity. Who should use the Toolkit? This Toolkit is for use by staff during appraisal. Before applying this Toolkit in a particular project appraisal, however, staff should read and absorb the CSP for the BMC concerned and, especially, the country governance assessment that accompanies it. The governance assessments of the appraisal team should be periodically reviewed during supervision of project implementation to maintain focus on weaknesses identified and to ensure that remedies incorporated in the project design are maintained appropriately. PSDD staff routinely assesses the eligibility of development finance institutions (DFIs), and private sector entities, for receiving CDB support. The eligibility criteria developed in this regard can usefully be applied, with necessary modifications, to the governance analysis of project entities. In addition, CDB s Policies and Procedures Manual includes guidelines for DFI supervision visits. The items listed in these guidelines could also, where applicable, be reviewed during the governance analysis. 2

3 SECTOR POLICY AND REGULATORY FRAMEWORK During appraisal, staff will, in the normal course, examine the content and appropriateness of sector policies, since these have a direct impact on project success. From a governance perspective, however, what is important is whether at the policy and regulatory level the sector operates in an accountable, transparent, predictable and equitable manner. Policy Framework Sample Questions Is there an overall policy framework for the sector concerned? Has it been made public? Is it non-discriminatory (i.e., neutral) with reference to women, the poor and minorities? Is there a procedure for approving or amending sector policies? Regulatory Framework Are the responsibilities of the central Ministry and its line agencies clearly demarcated? Does the designated project entity have authority over all or most of the project components? Does the project design include the inputs of other agencies that are essential for the success of the project? Is there conflict or tension between the project entity and other agencies? (e.g., infrastructure agencies and environment conservation agencies.) 3

4 Sample Questions If so, does the project report to the right authority level for effective resolution of potential conflicts? Does the sector have a regulatory body (ies)? Is this body independent? Is it adequately staffed and funded? Are the decisions by the regulatory body enforced? Planning Does the sector have a medium term (say, five years) plan? If so, is the plan related to budget affordability? Does it take into account the capacities of sector agencies? Is the plan updated annually on the basis of performance and funding levels? Have performance indicators been specified for key result areas in the sector? Is information on sector performance provided regularly to decision-makers? Is provision of sector information wellstructured? Does it amount to a Management Information System (MIS)? 4

5 Sample Questions Is this information supplied to the Finance Ministry? The Planning Ministry? Is the information supplied electronically? Does the sector possess capacity to generate relevant information? PROJECT ENTITY The quality of the project entity or agency is, obviously, central to the outcome of the project. The search for its governance weaknesses, if any, must cover organisational structure, reporting systems, operating processes, human and other resources, and delivery performance. Vision and Mission Sample Questions Does the agency have a clear and wellarticulated vision for the sector and its own role within it? Does it have a mission statement that is linked to its vision? Does the agency have a well-defined, medium-term strategic plan? ganisational Structure Is there a chain of accountability linking the lowest level of the agency to the top? (i.e., each level having a discrete set of responsibilities that is delegated to it by the level immediately above.) 5

6 Sample Questions Are responsibilities within the agency linked to policy objectives? Are they linked to programs funded by the budget? Is there an organisation chart showing clearly defined functional areas and reporting relationships? How many working levels are there from the top to the bottom of the organisation? How many for reporting purposes? Does the agency head have full operational, financial and personnel authority within the organisation? Does each level of responsibility have requisite decision-making powers delegated to it? Is there a process for coordination (to ensure consistency of decisions)? Does the agency manage its own procurement operations? is procurement handled by a central agency? Does the agency have capacity to manage its own procurement? 6

7 Sample Questions Are there written policies/procedures for procurement? Leadership Is the agency head and senior management capable and professional? Do they possess the requisite skills and experience? Does the present agency head have commitment to the project? Is the management team reasonably stable (i.e., not subject to frequent change)? Does the agency have a Board of Directors? Is the Board active? Are Board meetings well attended (i.e., meeting quorum requirements)? If so, does it include independent (parttime) members? Is Board membership reasonably stable? Do Board members possess the requisite skills and experience? Is the accountability of the Board clearly defined? Does Management have autonomy from the Board? 7

8 Reporting Systems Sample Questions Are monthly financial statements (including expenditure/budget) presented to managers? Is there a Management Information System (MIS)? Is it available in electronic format? Is there an internal audit committee? Are there any other Board committees? Does it have requisite authority? Capacity? Is there an external audit process? Does the agency report to more than one regulator? Administrative/Operational Processes Are key processes documented (e.g., in flow chart format)? Are they benchmarked? Are they reviewed on a regular basis? Are the results of such reviews shared with relevant persons? Are minutes of meetings recorded? Is there a business continuity plan? Has it been tested? 8

9 Sample Questions Does the agency have risk management capacity? Human Resources Is there an HR development plan? Do the professionals recruited usually meet entry requirements? Are promotions based on merit? Is the agency an equal opportunity employer? Is there a procedure for dismissing consistently poor performers? Is there a professional development plan? Is there a management development plan? Are employment conditions competitive with the market place? Infrastructure Does the agency maintain an assets register? Is there a preventive maintenance plan? Is it funded adequately? Are there effective and transparent guidelines for procurement of capital goods, civil works and other services? 9

10 Financial Resources Sample Questions Are programs prioritised for budget purposes? Does the budget specify expected performance levels? Service Standards (for service delivery organisations) Are there standards set for access and quality of service? Are these standards made public? Are they usually met? Feedback from the Public Does the entity consult all stakeholders on the impact of planned projects and activities (i.e., not just the project being appraised)? Does the agency have a structured public information and education program? Does it have a track record of involving stakeholders in decision-making? Does the public have an opportunity to provide feedback on service quality? Is there a process for dealing with complaints from the public about service delivery and quality? 10