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Open Quality Standards Initiative introduces 3CBA
A solution to the SDG 10, SDG 12 and SDG 13 non-performance


John Penrose,
International Development Correspondent,
AgroInfoSys

Today the Open Quality Standards Initiative (OQSI)1 held a virtual press conference to announce the introduction of some new due diligence design procedures for SDG projects.

The OQSI is one of the few organizations who focus on the development of due diligence design procedures for SDG projects and who provide practical analytical solutions to complete each procedure. This applied approach is supported by prior proof of concept, operational validation using implemented cloud-based analytical tools for each procedure. This testing cycle is completed by SEEL-Systems Engineering Economics Lab2.

JP

15th June 2020









New procedures

A virtual press conference was convened by The George Boole Foundation Limited3 to provide an update of some critical analytical procedures of importance to Agenda 2030. The procedures are collectively referred to as 3CBA.

OQSI is one of a few organizations who during the last decade has created numerous practical solutions to project design issues. In 2015 they made Agenda 2030 solutions to SDGs a priority focus. The nature of their output, in the form of due diligence design procedures, has become more significant as a result of efforts to identify solutions to the current problem of the poor quality and performance of the Agenda 2030 project portfolios in low income countries. This critical lack of portfolio performance was raised in the United Nations 2019 Sustainable Development Report. This highlighted the fact that there is a negative correlation between SDG 10, SDG 12, SDG 13 (see left) and economic growth. The Report also states that more than 65% of the indicators for SDG 12 and SDG 13 have not yet been specified. In addition, the results of conventional macroeconomic policy frameworks continue to increase income disparities (SDG 10).

An advance copy of the The George Boole Foundation Report covering 2010-2020 to be released 20th June, includes information on OQSI activities and records that OQSI was aware of the likely difficulties facing project teams in designing SDG solutions at the time of inception of Agenda 2030, in 2015. There were obvious gaps in provisions, training and access to appropriate analytical procedures. SEEL, a leading decision analysis unit, identified the challenges facing economic development teams, policy planners and project teams. Their position is that there is no point in producing output that lower income groups cannot afford to purchase and using production methods that pollute and generate greenhouse gases with negative climatic impacts and reduce the carrying capacity of the natural resources base denying future sustainability.

Therefore part of the problem with Agenda 2030 has been its general nature and therefore a failure to establish practical procedures and methods to be applied at project and national policy levels to support the establishment of priorities in terms of actions for the medium to long term survival of humanity. Many voluntary SDG reports issued by low income countries are essentially blank sheets of paper. This is a reflection of the extent of the poor Agenda 2030 portfolio performance. Three priorities occur naturally as:

  • Maintaining real incomes of the population so as to ensure that producers can receive a compensatory income and consumers can afford produce, at least for access the minimum for survival and wellbeing:

    • preferably the real incomes trajectory should be upwards.

  • Reversing climatic impacts of greenhouse gases otherwise desertification, rising sea levels and unstable weather will obliterate many production systems, livelihoods and habitats of communities as they exist today:

    • preferably GHG emissions need to follow a falling trajectory.

  • Maintaining the long term sustainable carrying capacity of the natural resource base used to generate food, fibre and feedstocks:

    • carrying capacity should be at least stable or preferably follow a rising trajectory
    .

Absence of orientation

In reviewing the project cycle guidelines issued by leading donors and international funding organizations over the last decade, the OQSI found that these did not provide coherent methodologies or ways to identify and measure the degrees by which projects contribute to real income levels and distribution, GHG emissions or carrying capacity status. There is, in reality, a significant gap in knowledge on how to design projects to optimize the trade-offs between these vitally important factors.

In all cases, three predominant constraints have a significant influence over the realization of needed change in these three priorities.
  • Economic policies: Macroeconomic policies that are increasing policy-induced debt and nominal income disparities affecting increasing numbers of constituents with no analyses focusing on real incomes

  • Technology: Too slow a rate of adaptation of technology and techniques to reduce pressure on resources or carrying capacity and GHG emissions

  • Population: High population growth rates generating pressure on natural resources and therefore reducing both carrying capacity and per capita incomes
The need for three parallel inversions in trends

The OQSI solution to this complex quandary is a unification of the approach to economic analysis (real incomes), to GHG emissions and carrying capacity for natural resources preservation and sustainability.

3CBA

The fundamental measure in each case is the effectiveness of a project to generate a benefit in terms real incomes, in terms of GHG emissions and in terms of carrying capacity. The OQSI has therefore developed comparable bases for comparison in a trio of cost benefit analyses as follows:

  • CBA1: Cost Benefit Analysis;

  • CBA2: Carbon Benefit Analysis:

  • CBA3: Capacity Benefit Analysis

These three analyses all have the same acronym CBA giving rise to the specific reference this trio becoming 3CBA with each analysis being distinguished by its full name or number. The OQSI project Due Diligence Design Procedures (3DP) was recently re-structured to fit into a critical path (enclosed in green boxes in diagram on right). This imposes a more disciplined focus on real incomes, GHG emissions and carrying capacity by requiring that the performance and sustainability criteria are all satisfied for a project to qualify for funding. In the diagram, the CBA1 is the Cost Benefit Analysis calculation of the Economic Rates of Return (ERR), linked to real incomes of producers and consumers. This calculation is a trade-off of social (consumer), technical, economic and financial sustainability criteria (in the box with red border) CBA2 and CBA3 Carbon Benefit Analysis and Capacity Benefit Analysis are two components of a Rate of return to the Environment (RRE) arrived at by trading-off environment (climatic impact), ecosystem (natural flora and fauna - biodiversity) and carrying capacity of the natural resources base of a project (in the box with the aquamarine border). To clarify the relationship between these rates of return and the SDGs giving rise to this analysis, the table below shows the relationship.

Relationships map of critical SDGs and analytical solutions for project design
Focus
Type
Code
Name
SDG
Objective
Real incomesERRCBA 1Cost Benefit AnalysisSDG 10Reduce Inequalities
EnvironmentRRECBA 2Carbon Benefit AnalysisSDG 13Climate Action
EnvironmentRRECBA 3Capacity Benefit AnalysisSDG 12Sustainable Consumption and Production
Key:

ERR is the Economic Rate of Return, calculated using CBA1;
RRE is the Rate of Return to the Environment, measured by CBA2 and CBA3.

What are the benefits?

Hector McNeill, Director of The George Boole Foundation provided an explanation as to why the Cost Benefit Analysis has been change from the conventional format.



Hector McNeill explained how the new Cost Benefit Analysis 1, is a more effective analysis for the design and selection of projects tackling Sustainable Development Goal 10 - Reduced Inequalities, especially in low income countries.
"There had been some confusion in project design and appraisal circles as to the relevance of Cost Benefit Analysis (CBA) and Cost Effectiveness Analysis (CEA). Between 1960 and 2010 the number of approved projects at the World Bank subjected to CBA fell from around 80% to around 20%. Part of the justification was that it is difficult to quantify unit prices for output for some project activities either in the form of goods or services. For this reason, it was suggested by the World Bank Evaluation Group that, Cost Effectiveness Analysis is more appropriate. However, OQSI could find no evidence that to counter the drop in CBA evaluations there had been a corresponding rise in CEA evaluations. It looks as if something like 80% of projects were being approved with no substantive economic evaluations having been carried out before funding had been approved. We believe that this gap in due diligence procedures is a contributing cause of the 35% failure rate of projects accounting for a loss of around $75 billion each year. In short, not enough investment is being made to project design."

""Between 1975 and 2020 the significance of national currency purchasing power and real income levels and distribution has become a driving factor in the Real Incomes Approach to Economics. This links up the gains in productivity, cost differentials and unit price differentials to identify the resulting real incomes of producer and consumers. In terms of most low income countries the conventional CBA which records cash flow returns to investors and conventional CEA which records investment outlays of investors have no particular relevance to the Agenda 2030 Sustainable Development Goal (SDG 10) concerning reduced inequalities. The impact of a project can only be determined through an analysis that can quantify the potential real income impacts of a project design on producers and consumers."

"As a result of our development of the Real Incomes Approach to Economics4, we have been able to reconfigure the conventional CBA into the more relevant CBA1 where the benefits are measured in terms of producer and consumer real incomes."


"CBA2 and CBA3 are also a comparison with the same cost-base as CBA1 but with the benefits, in these cases, being measured as enhanced (reduced) GHG emissions and enhanced or sustained carrying capacity. One important detail that emerged from the simulations generated by these calculations is that in all cases project plans are not static because all three measures evolve. In other words these value change duringthe implementation of a project and beyond just as external conditions also change. This has significant implications for how monitoring and evaluation need to be adapted to this reality."

"There is a second level trade-off between sustainable social wellbeing and sustainable technologies applied in production and in the logistics serving consumers. As can be seen these are both elements in the ERR section of the OSQI Critical Path."

The justification for the addition of performance criteria

Internal reviews of OECD DAC project performance criteria by the OQSI and SEEL resulted in a different evaluation criteria list as shown below:

Comparison of OECD DAC evaluation citeria and OQSI evaluation criteria
Comparison of performance criteria
OECD
OQSI
Notes
  1. Relevance
  2. Efficiency
  3. Effectiveness
  4. Impact
  5. Cohesion
  6. Sustainability



  1. Relevance
  2. Efficiency
  3. Effectiveness
  4. Impact
  5. Resilience
  6. Coherence
  7. Sustainability


Observations:

OQSI replaced "cohesion" with "coherence" to secure coherence between standards and procedures within projects and across project portfolios.

CBA1, CBA2 an CBA3 all generate coherent (comparable) time-based trajectories.

The term resilience applies to the project, society and the planet.
CBA1, CBA2 and CBA3 trade-offs identify optimized designs for long term resilience.

OECD DAC consider their criteria to be normative. There is, however, no basic guidance on how they are to be applied. The declared position is that this depends on the discretion of the evaluator.

The OQSI, however, as issued specific guidance because the focus of evaluation changes according to the to the phase of a project. For example, the quality of the evidence base of project designs is a different evaluation to implementation phase performance. The evaluation of specific decisions and their outcomes during implementation and associated operational changes are a different type of evaluation. Operational adjustments are a particularly interesting feature. Unlike conventional project cycle guidelines the OQSI doesn't consider any project to be set out as a structured plan with fixed Gantt profile, or Log Frame.

Experience with projects in the past, but in particular, in the development of the 3CBA analyses, it is evident that all projects need to be guided by decisions that maintain an evolution of constant change during implementation. This is a normal situation associated with the process of learning to improve real incomes, reduce GHG emissions and preserve or augment carrying capacity. These all take time to perfect and sometimes implemntation periods are too short to attain maximum effect. For this reason, OQSI recommends that project proposals be based on a Logical Project Option (LPO)5. This replaces the Log Frame and is the "starting point" of a project with the assumption that benchmarks for performance need to follow a trajectory of change during implementation to embed feasible improvements in operations as well as in response to inevitable changes in conditions.

These recommendations are the result of a decade of reviews of analysis of thousands of projects and associates with in excess of 40 years associate field experience.

The 3CBA is the OQSI's practical solution will help practitioners concerned with project design gain access to the necessary procedures and analytical tools to shape better designs based on credible evidence. This can also contribute to policy decision making to improve the quality and performance of community projects and project portfolios of nations, donors and international development funding organizations.


1 OQSI-Open Quality Standards Initiative is the project standards division of The George Boole Foundation Limited.

2 SEEL-Systems Engineering Economic Lab was established in 1983 to track all technological developments in global networks and applications. It is a leading centre for decision analysis applied to agricultural and natural resources strategies. It conducts proof of concept and prototype building and testing and implementation of commercial cloud-based applications as spin-offs. Today, SEEL is a division of The George Boole Foundation Limited.

3 The George Boole Foundation Limited is a non-profit organization dedicated to the development of beneficial applications based on digital logic.

4 SEEL is the lead development centre in the Real Incomes Approach to Economics though the Seel-Telesis programme. This approach to macroeconomic was initiated in the wake of the global slumpflation crisis in 1975 by Hector McNeill.

5 LPO-Logical Project Option is a variation on the TOM-Tactical Options Map proposed by McNeill & Belko in their 2011 paper, "Towards more effective Project Management", DAI, GBF, ISBN: 978-0-907833-02-4.



Posted: 20200615
We welcome questions and feedback:

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The relevant emails are provided below:
  Author:   John Penrose:     penrose@agroinfosys.org         Source:   Hector McNeill:     hector.mcneill@boolean.org.uk

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