An Alternative Approach to Project Selection:

The Infrastructure Prioritization Framework

Darwin Marcelo, Cledan Mandri-Perrott, Schuyler House, Jordan Z. Schwartz
World Bank PPP Group
14 April 2016 1

Key words: prioritization, infrastructure, decision support, multi-criteria analysis,

project selection

Abstract
Governments must decide how to allocate limited resources for infrastructure
development, particularly since large financing gaps have been projected for the
coming decades. Social cost-benefit analysis (SCBA) provides sound project
appraisal and, when systematically applied, a basis for prioritizing projects.
However, in some instances, capacity and resource limitations make extensive
economic analyses across full project sets unfeasible in the immediate term. This
paper responds to a need for expanding the available set of tools for project
selection by proposing an alternative prioritization approach that is consistent
and systematic, yet pragmatic and feasible within the current resource means of
government.
The Infrastructure Prioritization Framework (IPF) is a multi-criteria decision
support tool that considers project outcomes along two dimensions – social-
environmental and financial-economic. When large sets of small- to medium-sized
projects are proposed, resources for implementation are limited, and basic project
appraisal data (but not full SCBA) are available, IPF can be used to inform the
selection of projects by combining selection criteria into social-environmental and
financial-economic indices. These indices are used to plot projects on a Cartesian
plane, and the sector budget is imposed to create a project map for comparison
along each dimension.
IPF is structured to accommodate multiple policy objectives; attend to social and
environmental factors; provide an intuitive platform for displaying results; and
take advantage of available data whilst promoting capacity building and data
collection for more sophisticated appraisal methods and selection frameworks.
Decision criteria, weighting, and sensitivity analysis should be decided and made
transparent in advance of selection, and analysis should be made publicly
available and open to third-party review.

1. Working Paper of the World Bank Public-Private Partnerships Group. Authors may be contacted at
dmarcelo@[Link], cmandriperrott@[Link], and shouse@[Link].
1
Introduction
Infrastructure services, widely deemed critical to economic development, trade
connectivity, social welfare, and public health, are underprovided in many regions
and typically feature strongly in national development plans. Leading up to 2020,
an estimated US$836 billion-1 trillion will be required each year to meet growth
targets worldwide (Ruiz-Nuñez & Wei, 2015; World Bank). Global estimates of
infrastructure investments required to support economic growth and human
development lie in the range of US$65-70 trillion by 2030 (OECD, 2006), while the
estimated pool of available funds is limited to approximately US$45 trillion (B20,
2014).
These needs are particularly intensified for developing regions, as the changing
landscape of investment and international aid has also reduced the availability of
donor funds and shifted the locus of infrastructure decision-making from donors
to governments. Moreover, the past twenty years have witnessed a shift towards
decentralized infrastructure planning and implementation in many countries.
Subnational governments, regional entities, and sector agencies have been
delegated responsibility for planning and project selection, though accountability
for fund allocations may remain with the centralized finance agency (CFA). While
these constituencies may propose numerous infrastructure projects,
governments often have insufficient financial resources to implement the full suite
of proposals. This requires paring down the sets of proposed infrastructure
projects, expanding the pool of resources, or both.
Good practice suggests that economic and strategic project appraisals and
feasibility studies provide a good basis for project prioritization via highest
societal net present value. The reality for many countries, however, is that they
lack the capacity and resources to provide extensive economic analysis across full
project sets or are challenged with having to make decisions based on incomplete
or second-best information. Thus, there is a need for evidence-based
infrastructure decision support that is consistent, pragmatic, and responsive to
the particular needs and current capacities of a government.
This paper begins with an overview of existing approaches to project selection,
highlighting the challenges of prioritization. Next, we propose an alternative
approach to prioritization – the Infrastructure Prioritization Framework (IPF) –
that utilizes existing and accessible data via multi-criteria decision analysis. The
IPF is intended to help governments systematically compare projects, whilst
promoting the building of analytical capacity and data for more extensive
economic analysis. In this way, it is an extension of the set of tools available to
support project selection and is complementary to ongoing efforts to build project
appraisal and selection capability. The IPF, as it is presented herein, is the latest
version of the tool, which continues to evolve through ongoing piloting. We follow
its description with lessons drawn from initial pilots in Vietnam and Panama and
conclude with a discussion of next steps to improving the tool’s applicability and
implementation.

2
Prioritizing Infrastructure
Project selection implies grappling with the relative exigency, efficiency, and
effectiveness of investments. A number of steps are needed to reach decisions that
match policy guidance with project appraisal and subsequent investment. The
World Bank’s Unified Framework on Public Investment Management (PIM),
aligned generally with the Public Expenditure and Financial Accountability (PEFA)
initiative, is a useful overarching framework for guiding governments through the
processes of infrastructure investment and delivery, aimed at increasing the
effectiveness and efficiency of infrastructure investments.
The PIM framework identifies eight key “must-have” features of an effective public
investment management system (see Figure 1). These constitute the “bare-bones
institutional features that would minimize major risks, be achievable in a lower-
capacity context, and yet provide an effective systemic process for managing
public investments” (Rajaram, Tuan, Bileska, & Brumby, 2014, p. 20).
In the PIM framework, project selection should follow first-level screening, sound
project appraisal, and independent review. 2 Where information and technical
capacity is sufficient, governments may appraise projects via social cost-benefit
analysis (SCBA) and extensive feasibility analysis. Thereafter, project selection
may be based on selecting projects with highest net present values (NPV), best fit
with infrastructure policy guidance, or (optimally) both. 3
Figure 1. Key features of a Public Investment Management System

Source: Power of Public Investment Management (Rajaram et al., 2014)

In practice, however, many governments do not have the resources and capacity
needed for generating extensive economic appraisals based on Social Cost-Benefit
Analysis and full-fledged feasibility assessments across all proposed projects. In
these cases, the PIM approach (Rajaram et al., 2014, p. 24) proposes that “the
emphasis should be on basic elements of formal project appraisal, including
whether

2. First-level screening should be done to ensure that projects align with the development strategy and
meet basic requirements for budget inclusion as a project (Rajaram et al., 2014).
3. In Chile, for example, projects are consideration by multiple criteria, including NPV as a key factor.
3
- The need for a project is well justified;
- The project’s objectives are clearly specified;
- Broad alternative options to meet the project’s objectives are identified and
comparatively examined;
- The most promising option is subject to detailed analysis;
- Project costs are fully and accurately estimated; and
- Project benefits are assessed qualitatively as likely to justify the costs.”
When governments must prioritize and select projects under conditions of
restricted information and capacity, there is a risk that they may fall back on
unsystematic, ad hoc selection. In these cases, decision frameworks based on
multi-criteria analysis can be helpful to (a) systematize prioritization based on key
development goals; (b) make best use of available (or reasonably attainable)
information across the set of proposed projects; (c) invite governments to ex ante
state decision criteria to control propagation of wasteful “white elephant” projects;
and (d) identify important missing information to improve project appraisal and
data collection looking forward. Such decision support frameworks can help
alleviate pervasive problems such as poor or reactive planning, regressive
investment, over-commitment, information asymmetries, corruption, and high
degrees of political interference. We have undertaken a review of the common
principles of and rationales for systematic infrastructure prioritization, which are
discussed in Annex 1.
In response to an observed need for an expanded set of tools to support project
prioritization and selection under conditions of imperfect or basic project
appraisal and limited resources, the World Bank developed an innovative and
adaptable Infrastructure Prioritization Framework (IPF). 4 This paper discusses
the framework’s technical aspects and relevance to the broader investment
decision process, along with lessons from the conceptualization of the tool in
Vietnam and first pilot application in Panama. We conclude with next steps for
refining the framework and exploring its applicability to identifying opportunities
for private investment.

A Stepping Stone Approach: Improving Project Prioritization

Recent attention to infrastructure prioritization is grounded on demonstrated
government and multilateral organization demand for evidence,
comprehensiveness, value, and legitimacy in infrastructure decision-making. 5 It is
also a proposed precursor to identifying opportunities for private sector
investment. 6 Common principles of and rationales for systematic infrastructure

4. See (Mandri-Perrott, Marcelo, and Haddon, 2014) for a discussion of conceptualization in Vietnam.
5. In late 2014, the Group of Twenty (G20) Development Working Group (DWG) requested MDBs to take
steps to ensure that project preparation facilities collaborate to support governments in infrastructure
prioritization. The draft ‘MDB’s Common Approach to Prioritizing Infrastructure with their Partner
Countries’ promotes a harmonized approach to project preparation, including use of standardized
environmental and social safeguards policies as well as common approaches including cost-benefit
analysis and assessment of project executability, development effectiveness, and greenhouse emissions
(G20 DWG, MDB’s Common Approach to Prioritizing Infrastructure with their Partner Countries, 2015).
6. The 2014 World Economic Forum (WEF) Investment Blueprint proposes that, “a strategic vision for
infrastructure should be the first step for a government to maximize investor financing in infrastructure.
This vision should describe the government’s medium to long-term infrastructure goals, along with the
underlying economic and social rationale, and enable the prioritization of a pipeline of projects in the
shorter term” (2014, p. 19). An earlier WEF report, ‘Strategic Infrastructure: Steps to Prioritise and
4
prioritization are discussed in Annex 1. The provision of legitimate, evidence-
based prioritization is necessarily constrained, however, by existing capacity and
resource limitations. Many governments make infrastructure decisions with only
basic elements of project appraisal at hand. The challenge, therefore, is to provide
a provisional framing device that makes the best use of reasonably attainable
information in the immediate term until capacity and resources are sufficient to
generate more extensive economic appraisals across full project sets to support
prioritization decisions.
In country consultations with Vietnam, Panama, Indonesia, and Peru, we observed
that local government units and line agencies proposed large sets of projects to
the central government (e.g., the Ministry of Finance) for funding. While proposed
projects passed pre-screening and were, indeed, subject to basic appraisal, these
did not always include full-fledged SCBA or feasibility studies. Faced with excess
projects, limited funds, and no single common denominator for comparison, the
central governments struggled to make sense of the mass of proposals. Thus, there
was expressed demand for immediate decision support within the existing
limitations of the infrastructure planning system, as well as guidance on
improving data for better project appraisal in the future.
For situations like this, we propose the IPF as a stopgap approach to project
prioritization that serves as an interim decision structuring tool until more
sophisticated pre-selection analyses are available (see Figure 2). This ‘stepping
stone’ approach does:
- Inform decision-making on project prioritization;
- Compare projects that have passed strategic pre-screening and have been
subject to basic appraisal;
- Make space for technical deliberation;
- Structure the decision space when capacity and information is limited but
nevertheless sufficient for systematic comparison; and
- Encourage better appraisal by fostering discussion of key decision factors for
which project data should be improved or gathered in the future.
Conversely, the approach does not:
- Deliver a definitive list of projects for selection;
- Replace best practices in project appraisal, particularly Social Cost-Benefit
Analysis; or
- Take current data deficiencies as acceptable for the long term.

Deliver Infrastructure Efficiently and Effectively’ (2012), proposes that governments must decide which
solutions create the greatest impact in terms of economic growth, while considering social and
environmental issues.
5
 Figure 2. Visualizing the stepping stone approach to infrastructure prioritization

Selection Informed by Selection Informed by

Infrastructure Advanced Project
Prioritization Appraisal
Ad-Hoc / Uninformed Framework
Project Selection - High technical and
- Limited institutional institutional capacity
- Limited project-level and/or technical available
information available capacity - Detailed project-level
- Inconsistent use of - Partial project-level information available
information information available - Extensive quantified
- Decisions frequently - Project costs known and monetized social,
based on non- - Some information on environmental,
technical or political social, financial and
considerations environmental, other economic effects
- Subjective economic effects known
assessment common - Decisions based on - Decisions based on
minimum relevant extensive
information information

Current Approaches to Prioritization

Prior to describing the mechanics of the Infrastructure Prioritization Framework,
we begin with an overview of approaches for project prioritization. This naturally
requires dealing with appraisal, which, while not the primary focus of this paper,
influences the approach to prioritization and selection. 7
Project comparison based on cost-benefit analysis (CBA) allows project
comparison based on a single metric –that of monetized value. CBA essentially
totals all costs and benefits of a project over its lifetime and discounts future flows
to calculate present values. A key strength is that it allows decision makers to
intuitively compare and rank diverse alternatives based on a single indicator
(Thomopoulos, Grant-Muller, & Tight, 2009). With Social Cost-Benefit Analysis
(SCBA), prioritization can be based on selecting projects that maximize the net
present values for society overall.
Because SCBA assessments require quantification and monetization of positive
and negative effects, extensive information about the projects and their projected
impacts is required (Van Delft & Nijkamp, 1977). Since information in many
contexts is limited and many costs and benefits are difficult to monetize, and since
SCBA itself can be quite costly, this can make the standard a tall order for
application across all proposed projects. This is particularly difficult when
governments possess limited resources for appraising large sets of small- and
medium-sized projects. An extensive discussion of CBA/SCBA can be found in

7. A good discussion of the key elements of sound project appraisal may be found in The Power of Public
Investment Management (Rajaram, et. al, 2014, p. 76).
6
Annex 2, but most germane to this discussion are the resource, capacity, and time
limitations that constrain extensive application of SCBA in many contexts,
imposing a practical limitation on the appraisal mode as a basis for prioritization.
SCBA is used extensively in the US, New Zealand, England, Australia, Singapore,
Chile, Ireland, and many other countries to assess and prioritize alternative
infrastructure projects, particularly those that demand significant investments.
But in the past five years, the UK, Australia, and many US states have also
published notes and guidance on the application of multi-criteria decision analysis
(MCDA), expanding the ‘Value for Money’ discourse to suggest structured ways of
employing MCDA to incorporate key policy criteria. Some countries, such as
Ireland, have imposed thresholds to guide when government should apply SCBA,
multi-criteria analysis, or more simple assessments, depending on the size of the
proposed investment.
Appraisal and prioritization processes outside of OECD are largely undocumented,
but evidence suggests that prioritization is often based on a politics, loose
qualitative assessments, or professional judgment, but without clear principles
underpinning selection (Petrie, 2010). More problematic, in some contexts,
prioritization is not based on formal appraisal at all, with projects approved or
disapproved on a rolling, ad hoc basis. The unstructured path to project approval
in many countries leaves room for corruption, inefficiency, and particularist
infrastructure policy that is unlikely to effectively serve development needs. While
countries strive to improve investment appraisal to the advanced use of SCBA
across large sets of projects, there is a need to support decisions based on more
basic appraisal in the interim. MCDA can be a useful approach to make best use of
available information, particularly data reflecting key criteria defined by sector or
national infrastructure development policy.
Multi-Criteria Decision Analysis
Multi-criteria decision analysis has gained traction as a way of systematically
structuring investment decisions when multiple aspects associated with proposed
investments must be reconciled. Multi-criteria decision approaches formalize the
inclusion of non-monetary and qualitative factors into decision analysis and can
be useful when information or analytical resources are limited. Indeed, MCDAs are
currently included in government and multilateral project appraisal and selection
practice in regions including the Pacific Island Countries and Argentina, as well as
in countries with longstanding and established programs of economic project
assessment, including Chile, Ireland, and the UK. 8 MCDAs have the added benefit
of flexibility, since they can be recalibrated to accommodate improved data as it
becomes available.
An extensive discussion of MCDA as applied to infrastructure decision-making is
included in Annex 3, but we highlight some key points here. Practically, increased
use of MCDA to support infrastructure decisions reflects pressure on governments
to work within time, information, and capacity limitations (DCLG, 2009). Also,

8. See, for example, the work of the Pacific Island Infrastructure Facility ([Link]) on infrastructure
selection via MCDM, UN Food and Agriculture Organization work on irrigation planning in Argentina
([Link] or guidance on multi-
criteria analysis for policy-making ([Link]
analysis-manual-for-making-government-policy).
7
when information is incomplete or multiple policy goals are at stake, Beinat and
Nijkamp suggest that the “compromise principle” is more appropriate than the
optimizing principle. This presumes a variety of decision criteria and states that
solutions must reflect a compromise between multiple priorities, while
discrepancies between outcomes and goals are traded off by use of preference
weights (Beinat & Nijkamp, 1998).
In terms of intuition and transparency, multi-criteria models, which synthetize
criteria with assigned weights, are pragmatic since they are “able to cope with
almost any problem” and are easily understood (Tsamboulas, 2007). Important
considerations for applying MCDA to issues of sustainable development include
the ability to deal with complex situations (criteria, different scales and aspects,
type of data, uncertainties); the possibility to involve more than one decision-
maker; and engagement of stakeholders to increase knowledge and propose
alternative solutions (De Montis et al., 2004).
MCDA allows for two critical policy choices: (1) the selection of criteria by which
alternatives will be assessed, and (2) the weighting of criteria. These issues are
discussed in more detailed in Annex 3, but in summary, the selection of criteria is
essential to capturing the most important costs and expected impacts of a project,
as well as performance with respect to prioritized development goals for the
sector and country as a whole. Criteria weighting is also a policy choice. Weighting
may simply be uniform, wherein all criteria are equally considered, or it may be
subjectively set, with weights assigned via consultation or expert guidance to
reflect the (expressed) relative importance of the decision criteria. Alternatively,
weights may be statistically determined via methods such as Principal Component
Analysis (PCA) to determine the linear combination of criteria that captures most
of the variation of the underlying data.
As with any approach, there are limitations and weaknesses associated with
MCDA. For one, it lacks the utilitarian grounding in welfare economics that comes
with SCBA, wherein project selection is based on maximization of social welfare
(Layard & Glaister, 1994). There is also the threat of subjective manipulation of
weights and criteria to privilege certain projects over others. Whilst these
weaknesses are apparent, we propose three points in response. First, while not
grounded in utilitarian welfare economics, MCDA is neatly aligned with extensive
and well-developed bodies of theory in policy analysis, democratic accountability,
and deliberative governance, wherein policy selection is based on the stated goals
of a polity and its citizens, including criteria of effectiveness, efficiency, feasibility,
adequacy, equity, responsiveness, and appropriateness (Dunn, 2015; Araral et al.,
2002; Weimer & Vining, 2015; Hajer & Waagenar, 2003; Bardach & Patashnik,
2015; Poister, 1978). 9 Second, the issue of manipulation to privilege the selection
of particular projects is not unique to MCDA. Indeed, the threat of methodological
corruption is present in every approach to appraisal and selection. Third, rules
guiding implementation can help deal with the latter issue. In particular, decision

9. Responsiveness is of particular distinction, as it focuses on the extent to which a policy satisfies the needs,
preferences, or values of the subjects of policy with societal standing (Dunn, 2015, 202). Moreover, as
Weimer and Vining point out, “the appropriateness of cost-benefit analysis as a decision rule depends on
whether efficiency is the only relevant value and the extent to which important impacts can be monetized.
When values other than efficiency are relevant, cost-benefit analysis can still be useful as a component of
multigoal policy analysis” (2005).
8
criteria, criteria weighting, and sensitivity analysis should be decided and made
transparent in advance of selection, and the data used and resulting analysis
should be made publicly available and open to third-party review.

The Infrastructure Prioritization Framework

The Infrastructure Prioritization Framework (IPF) is a quantitative multi-criteria
prioritization approach that synthetizes project-level financial, economic, social,
and environmental indicators into two indices – social-environmental and
financial-economic – and considers these alongside the public budget constraint
for a particular sector. The IPF differentiates from other multi-criteria decision
tools in four ways. First, it systematically incorporates policy goals, social and
environmental sustainability considerations, and long-term development aims
alongside traditional financial factors. Second, it is predicated on parsimony and
pragmatism. Third, results are displayed graphically on an intuitive, graphical
interface by which decision-makers can compare alternative investment
scenarios. Fourth, it facilitates active deliberation of key decision criteria and
priorities for improving project appraisal looking forward. In this way, the process
itself is as important as its outputs.
Several empirical issues motivated the construction and ongoing development of
IPF. For one, there are significant challenges facing many governments in
infrastructure planning, wherein large numbers of infrastructure projects are
identified in development plans, which are to be implemented with scarce public
resources, limited institutional capacity, and cost and time constraints. Second,
these difficult decisions must be made based on currently available or reasonably
attainable information for the set of projects. Third, given the imperfect nature of
appraisal, it is important that projects be evaluated for “social (including
environmental) and economic value” (Dabla-Norris et al., 2011) in addition to
financial impacts, but many of these social and environmental impacts are difficult
to monetize. Fourth, there is a desire to balance analytical efficiency, derived from
standardization, with policy and political responsiveness, derived from selection
of decision criteria.
To the last point, IPF recognizes that the selection of infrastructure projects
cannot be divorced from the political economy of project selection. Particular
projects may be chiefly valued by governments and other stakeholders due to key
policy goals which are non-economic in nature or due to considerations that
objective indicators cannot measure, such as promoting social cohesion, honoring
culture, or redistributing wealth to the poor. But selection can be responsive to
policy without becoming altogether political. As such, this support framework
explicitly accommodates policy responsiveness in two ways: through criteria
selection and by leaving a degree of freedom in decision-making through multiple
references for judgment (i.e., two indices).
In addition to building space for political deliberation, consultation, and
professional judgment, the following design ideals were incorporated, based on a
survey of international best practice:
- The strategic relevance of a project must be determined at the sector level as
well as within the appropriate tier of government;

9
- Project comparison should be systematic and based on quantitative
measures, to the greatest extent possible, in order to limit subjectivity;
- Standard indicators of social value and financial return should drive project
comparisons; and
- The output should be transparent, allowing for a clear audit trail.
A key strength of IPF is that it may be flexibly applied. The framework can
incorporate elements from other common methods, such as expert judgment and
cost-benefit analysis. Expert judgment and deliberation come into play via the
selection and definition of criteria, as well as in the selection of projects within the
budget constraint. IPF can also take advantage of financial or partial social CBA
components that are more easily quantified, measured, and monetized (e.g., net
present values of market-based costs and revenues). Nevertheless, IPF’s most
important value-add is in relieving some of the burden of determining and
justifying the assumptions required to monetize all benefits and costs.
Technical Features
The IPF is designed to account for the inherent multidimensionality in
infrastructure planning processes. Stakeholders determine specific project
indicators or ‘selection criteria’ via a consultative process. Criteria may differ from
country to country and sector to sector. For example, the financial and economic
index may include indicators such as multiplier effects and net present values,
while the social and environmental index may include the number of beneficiaries,
carbon footprint and jobs created.
The IPF aggregates criteria into two composite indices – social-environmental and
financial-economic – via a weighted additive model. 10 In practice, information
may be quantitatively or qualitatively recorded, depending on the attribute.
Qualitative data is common when assessing social-related phenomena and has an
important informative value in infrastructure projects. To make use of this
information, a method to convert qualitative information into numerical data is
applied.
The two composite indices allow for the comparison of projects against others
within a sector. The key output is a graphical display of projects’ relative
performance within the sector under study along two axes, defined by the
financial-economic and social-environmental composite index scores. Project
scores are mapped onto a Cartesian plane, whereby alternative investment
scenarios for a sector may be considered.
The available budget for the sector is considered as a fixed amount and
superimposed upon each of the axes. As a result, the budget constraint sets
quadrants on the plane (see Figure 7). Future developments of the IPF may test
alternative approaches to capture relationships between the two indices and the
budget constraint (e.g., a sloped single budget line) or to account for private
participation through PPPs and other private financing schemes, which would

10. A composite value or index value is a single numerical figure that combines information from several
underlying variables. The strength of this approach is that a decision–maker can efficiently consider
complex phenomena like economic performance, sustainability, or competitiveness in a single variable
(Freudenberg, 2003; Nardo et al., 2005). A selection of widely cited indices is listed in Annex 4.
10
make the budget constraint variable. These technical features are further
described in the following sections, which describe IPF step-by-step.
Constructing the IPF Indices
The first step of IPF is to identify the set of indicators that will be combined to
construct the social-environmental and financial-economic indices. The selection
of variables – or project comparison indicators – may differ amongst application
contexts based on government policy goals (e.g., particular sectoral, economic,
social, and environmental aims) and stakeholder consultation. For explanatory
purposes, however, we will discuss the IPF index construction as performed in the
first conceptualization of IPF in Vietnam and initial pilot test in Panama. 11
The selection of variables seeks to preserve the principle of parsimony.
Accordingly, this methodology relies on and requires a minimum level of relevant
information to compare expected outcomes of alternative infrastructure
investments. Multiple variables are selected to reflect different aspects of
expected performance in two composite indicators, the Social and Environmental
Index (SEI) and the Financial and Economic Index (FEI), each built on quantitative
and transformed qualitative variables combined via an additive model. 12
To condense dissimilar data types and scales of measurement into indices, three
data transformations are required. One must (a) transform qualitative data and
ordinal quantitative data into usable scalar data, wherein the intervals between
values reflect degrees of difference; (b) standardize criteria measurements to a
common scale; and (c) establish weights for each criterion in the additive model.
The transformation of categorical and ordinal qualitative and quantitative data
into usable numerical data may be done using the Alternating Least Squares
Optimal Scaling (ALSOS) algorithm, a widely accepted transformation approach.
Within a quantified categorical variable, the numbers assigned by the ALSOS
algorithm to each category reflect the distance between categories, revealing the
implicit metric of the variable (Perreault & Young, 1976). 13
Numerical values are thereafter standardized via a typical standardization
formula to transform the measurements to have a mean value of zero and unit
variance. The standard score 𝑧𝑧 of a raw score 𝑥𝑥 is
𝑥𝑥𝑖𝑖𝑖𝑖 −𝜇𝜇𝑗𝑗
(1) 𝑧𝑧𝑖𝑖𝑖𝑖 = 𝜎𝜎𝑗𝑗

where 𝜇𝜇 is the sample mean and 𝜎𝜎 is the standard deviation of the variable j for
project i. Standardization formulas can be easily coded into an Excel platform.
Once qualitative information is transformed and standardized to isolate the
various units of measure, it is combined in an additive model. The standardized

11. The work in Vietnam is described in detail in Mandri-Perrott, Marcelo, and Haddon, 2014. At the request
of Vietnam's Ministry of Planning and Investment (MPI), the World Bank piloted the IPF to prioritize and
select public infrastructure investments. One of the objectives of the IPF in this case was to provide the
Government of Vietnam (GoV) with the means to operationalize the guidelines and requirements of the
Public Investment Law (PIML) in an open and transparent manner. The Pilot Test covered over projects
in three sectors: transport, irrigation and urban.
12. To generate a valid numerical expression for the composite indices, it is required that qualitative
information is transformed into quantitative variables.
13. Statistical software such as SPSS and SAS include routines to easily perform transformations of
qualitative variables into numerical variables.
11
indicators are multiplied by weights to create the index score. Weights may be
selected by decision-makers or determined by statistical methods. Subjective
weighting should be based on deliberation with key stakeholders to reflect the
relative importance of component indicators. The strength of this weighting
approach is in structuring discussions on the relative importance of component
indicators and policy goals. The risk, however, is in exposing the process to
manipulation in pursuit of prevailing interests. As such, regardless of the
weighting system employed, it is important that decision-makers consider and
decide the weighting, in advance of analysis, and record these decisions
transparently.
In the cases of Vietnam and Panama, however, a statistical method, Principal
Component Analysis (PCA) was used to determine the weights of each variable in
the index’s additive function. One of the main characteristics of PCA is the ability
to calculate coefficients based solely on the statistical relationship between
variables. This is useful when there is an explicit preference to objectively assign
weights and likelihood of redundancies in underlying data. In Vietnam, the
Ministry of Planning and Investment expressed a desire to eliminate all
subjectivity from the process, whereas the use PCA in Panama was practical and
experimental, based on the desire to test the approach. Annex 6 includes more
notes on PCA.

Social and Environmental Index (SEI)

Infrastructure projects are meant to improve quality of life. A number of direct
social and environmental benefits are associated with their implementation,
including improved access to public services and job and income opportunities
created during the construction and execution of investments. These benefits
come at a cost, however. Engineering works frequently require clearing forested
areas, polluting and endangering natural environments, and sometimes
construction works involve the resettlement of families or communities. The IPF
directly considers relevant social and environmental benefits and costs via the
social and environmental index (SEI), whose sub-components are dependent on
the evaluating government’s selected criteria.
In Vietnam, the SEI consisted of five indicators: Direct Jobs Created (DJ); Number
of Direct Beneficiaries (NB); People Affected by Repurposing of Land Use (PA);
Cultural and Environmental Risks (CER), and Pollution, in terms of CO2 equivalent
emissions (CO2). The data required to compute each variable were primarily
sourced from existing project feasibility studies. Additional variables on projected
indirect effects were estimated using data routinely gathered by the National
Statistic Office of Vietnam (Marcelo, Mandri-Perrott, & Haddon, 2015). 14 PCA was
used to synthetize social and environmental variables into a composite social-
environmental index. Since many social and environmental data were recorded as
qualitative ordinal variables, they were transformed using the ALSOS 15
methodology.

14. The information collected was used to populate a Microsoft Excel form, which in turn populated a
database with embedded macros, programmed to transform the data using transformation functions and
weights required to calculate the total SEI score for a project.
15. For example, cultural heritage loss and environmental risks were qualitatively classified from "high" to
"low". To apply PCA, the variable was transformed to a quantitative value.
12
Finally, PCA was used to generate an index function from the first principal
component, where the coefficients that maximize the variance of the first principal
component are used as the weights for each standardized variable. The resultant
SEI function was expressed as follows:
(2) 𝑆𝑆𝑆𝑆𝑆𝑆 = 𝛽𝛽11 𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛽𝛽12 𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛽𝛽13 𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛽𝛽14 𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛽𝛽15 𝑍𝑍𝑍𝑍𝑍𝑍2
The linear combination of the standardized variables ZDJ, ZNB, ZPA, ZQCER and
ZCO2 is equivalent to the SEI additive function. The coefficients 𝛽𝛽11 , … , 𝛽𝛽15 can be
interpreted as the relative weights of SEI variables. Had weights been subjectively
determined or set to be equal, these would replace the PCA-determined
coefficients (𝛽𝛽𝑖𝑖𝑖𝑖 values) above.
The resultant SIE calculations are normalized and rescaled to generate scores
between 0 and 100 for each project. The rescaled 𝑧𝑧𝑖𝑖 score is
𝑧𝑧𝑖𝑖 −𝑧𝑧𝑚𝑚𝑚𝑚𝑚𝑚
(3) 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 (𝑧𝑧𝑖𝑖 ) = × 100
𝑧𝑧𝑚𝑚𝑚𝑚𝑚𝑚 −𝑧𝑧𝑚𝑚𝑚𝑚𝑚𝑚

where 𝑧𝑧𝑚𝑚𝑚𝑚𝑚𝑚 is the minimum value for variable Z and 𝑧𝑧𝑚𝑚𝑚𝑚𝑚𝑚 is the maximum.
In Panama, on the other hand, the SEI consisted of only three indicators: the
number of beneficiaries, the direct number of jobs created, and the number of
service recipients living below the poverty line, which were combined via the
same approach.

Financial and Economic Index (FEI)

The same procedure was used to construct the FEI, only with different component
variables. Financial profitability and economic value are probably the most
common investment decision considerations. That said, public investment
decisions must also consider externalities and may include indirect economic
effects, such as multiplier and network effects on other industries and economic
sectors. The Financial and Economic Index (FEI) seeks to condense the minimum
amount of relevant information required to appropriately represent the financial
and economic effects derived from infrastructure investments.
In the case of Vietnam, the FEI consisted of five indicators selected by the
government in consultation with sector specialists: Financial Internal Rate of
Return (IRR), Multiplier Effects (ME) determined by an Input-Output model, a
categorical score indicating the project’s locus in designated Priority Economic
Zones (PEZ), a qualitative measure of Implementation Risk (IR), and a qualitative
measure of Complementarity/Competition effects (CC) intended to reflect the
degree of alignment of each project with existing infrastructure.
As with the SEI, data required to compute each variable for the FEI were drawn
from feasibility studies (FSs). Additional data on indirect effects generated could
be calculated using input-output table data collected by the National Statistic
Office.
A FEI was calculated using PCA, as follows:
(4) 𝐹𝐹𝐹𝐹𝐹𝐹 = 𝛿𝛿11 𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛿𝛿12 𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛿𝛿13 𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛿𝛿14 𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍 + 𝛿𝛿15 𝑍𝑍𝑍𝑍𝑍𝑍𝑍𝑍
where the suffix Z again denotes standardization, the suffix Q indicates
quantification of a qualitative variable, and the coefficients δ11,…,δ15 are PCA-

13
determined weights. As with the SIE, the resultant FIE calculations were
normalized and rescaled.
In Panama, on the other hand, the FEI required only standardization but not
additive combination, since only one base indicator was used. Data limitations
were such that only one indicator was available: the benefit cost ratio emerging
from financial cost-benefit analysis (and partial social CBA in transport).
Comparing Projects by SEI and FEI
Construction of the SEI and the FEI composite indicators allows the ranking of
projects within a sector, according to projected relative performance along each
dimension. But a good infrastructure investment, in terms of financial and
economic performance, may simultaneously be a poor choice from a social and
environmental perspective, and vice versa. Thus, policymakers should not make
definitive investment decisions based on only one dimension. In fact, neither
should decisions be made on both, without the inclusion of a critical additional
information piece – the public budget constraint.
Projects are first plotted on a two-dimensional Cartesian plane, with axes defined
by the SEI and FEI scores. In Figures 7 and 8, each point represents a proposed
infrastructure project, within one sector only. The location of a project in the plane
is determined by coordinates (x,y) defined by the (FEI, SEI) pair.
Comparison by each dimension does not presuppose that the FEI and SEI
dimensions are equally important. Rather, it does quite the opposite: it concedes
that the relative importance of SEI versus FEI is unknown and makes no attempt
to combine the two into a single index. While financial and economic measures
may remain the most important to a government, the SEI gives decision-makers
both a point of reference for understanding development impacts and also
facilitates the identification of potential problems that may arise in the social and
environmental dimension. This can help governments identify cases that require
further mitigation attention to make the project viable.
The Budget Constraint
Once projects are plotted, the budget constraint is considered and superimposed
separately for both dimensions, perpendicular to each axis. The budget limit may
be based on a known fixed amount or on an estimation based on the historical
proportion of funding requested actually allocated. It is important that a
government’s fiscal and budgetary framework establish envelopes for public
investment in order to support a sustainable investment program (Rajaram et al.,
2014, p. 21). In Vietnam and Panama, historical budget allocations were used to
estimate budget envelopes for the following strategic five-year investment period.
To locate the point of intersection where the budget constraint crosses each axis,
projects are first ranked according to the SEI and FEI scores. Then, the budget limit
is placed at the point where the last prioritized project along each axis can be
funded. For example, in Panama, the total cost of proposed water and sanitation
infrastructure projects was US$622,091,173. Based on recommended figures
from the Ministry of Economics and Finance, in turn based on the Draft Annual
Budget, the budget limit for water and sanitation projects was estimated to be
around 55% of the total cost of proposed projects. Considering the costs of the
top-ranking SEI projects 15, 3, 23, and so on, the budget would be exhausted after
14
Project 29, at which the cumulative expenditure would be $318,906,839 (See
Figure 5). Since Project 12 costs $60,000,000, there would be insufficient funding
to include it.
Figure 5. SEI-prioritized water and sanitation projects within the budget limit
60

budget limit
50

40

30

20

10

0
Project 15

Project 23
Project 10

Project 24
Project 16
Project 27
Project 17

Project 29
Project 12

Project 22
Project 28
Project 35
Project 19
Project 13
Project 31
Project 20
Project 18
Project 21
Project 34
Project 26
Project 25

Project 11

Project 32
Project 30
Project 33
Project 14
Project 3

Project 1

Project 4

Project 7

Project 9
Project 8

Project 5
Project 6
The same was done for the FEI (Figure 6). For water and sanitation, the last project
that could be funded was also Project 29, with a cumulative expenditure of
$304,002,232. The cumulative totals are different because the ranking of projects
according to each index are different.
Figure 6. FEI-ordered water and sanitation projects within the budget limit
100
90
80
budget limit

70
60
50
40
30
20
10
0
Project 10
Project 35

Project 16

Project 13
Project 15
Project 12

Project 31
Project 34
Project 23
Project 29
Project 28
Project 24
Project 33
Project 27
Project 19
Project 14
Project 11
Project 18
Project 32
Project 17

Project 25
Project 22
Project 20

Project 26
Project 30
Project 21
Project 3

Project 6
Project 1

Project 5

Project 4
Project 7

Project 9

Project 8

Visualizing the SEI, FEI and Budget Limit Simultaneously

SEI and FEI scores are plotted in a Cartesian plane. The budget constraint is
imposed onto the plane following the logic described above. Since this is done
along each axis, rather than delineating a singular threshold, the budget constraint
results in quadrants (see Figures 7 and 8). While a function could be determined
to express the relationship of SEI to FEI, decision makers are unlikely to know or
come to easy agreement on the relative importance of the two dimensions,
particularly since their meaning is abstracted. 16
Projects that fall inside the budget constraint along each axis represent the
‘Investment Possibilities’ set within each dimension. For example, from a FEI point
of view (X axis), the location of the budget constraint line indicates the threshold

16. Future developments to establish the relationship between SEI and FEI could be used to trace a function
for the budged constraint. At this stage it is assumed as a fixed number.
15
where public resources would be fully exhausted. In the example of Vietnam
transport, resources would be sufficient to finance only those projects with a FEI
above 70. From a SEI perspective, on the other hand, resources would be enough
to finance only those projects with a score above 46.
Figure 7. Prioritization Matrix, Vietnam Transport Projects
A Higher priority
100
B Higher social/environmental
90 priority
80 B A C Higher financial/economic
priority
70 D Lower priority
60
SEI

50
40
30
D C
20
10
0
0 10 20 30 40 50 60 70 80 90 100
FEI

The prioritization matrix for Panama water and sanitation projects shows that
projects with an FEI score above 6 and an SEI score above 22 would be considered
as higher priority due to good performance along both axes.

Figure 8. Prioritization Matrix, Panama Water and Sanitation Projects

50

45 P15

40
B A P3
P23
P10
P1
P24
35

30

P27
25 P17 P29 P4 P16
SEI

P12
P22 P28
20 P7
P19 P35
15 P21 P18
P13
P26P25 P31 P5
P11 P34
10 P32
P20
P6
C
P30
P33 P14
5
D
0
0 10 20 30 40 50 60 70 80 90 100
FEI

Interpreting the Quadrants

Quadrant A contains high–priority infrastructure projects that simultaneously
score high on the SEI and FEI (green points, Figures 7 and 8). These projects are
16
recommended for implementation. On the other hand, projects falling into
quadrant D (red points) may be classified as lower–priority, since they score
relatively low on both the SEI and FEI (red dots, Figures 7 and 8).
Projects in quadrants B and C have two common features. First, they score
relatively high on either the SEI or FEI, but not both. Second, all of projects in
either quadrant B or C, or a combined array of select projects within each, could
be implemented with public funds. If the SEI is definitively privileged over the FEI,
all projects in quadrant B could be selected for funding. Conversely, if the FEI is
unequivocally more important to a government, all of the projects in quadrant C
could be implemented. Alternatively, some portion of quadrant B and quadrant C
projects could be funded, where both the FEI and SEI are deemed important.
Quadrant B and C projects may be given a medium priority level.
Identification of these medium-priority projects leaves space for expert review,
flexibility, and informed political debate. Since only a set of projects must be
selected from amongst these, the negotiated process of ordering projects within
Quadrants B and C allows IPF to capture important information from the
professional and political bases of knowledge. In other words, the framework
informs decisions regarding projects in the medium-priority set, but leaves room
for structured professional and political judgment.
Financial and economic considerations will likely remain of key importance to
project selection; however, it is recommended that decision makers discuss and
document the principles of project selection in advance of results. The ex-ante
discussion of and agreement on guiding principles is helpful to prevent decision-
makers from simply cherry-picking from amongst remaining projects.
One way to guide selection from amongst Quadrants B and C would be to establish
minimum acceptable threshold scores for individual variables within each
composite indicator. Since SEI and FEI scores themselves do not represent a
meaningful quantify or performance score (i.e., they hold meaning only as scores
of performance relative to other proposed projects), it would be arbitrary to
assign basic thresholds for the indices overall. But component indicators may be
used to set basic requirements. For example, projects may be required to meet a
minimum cost-benefit ratio, extend services to areas with a minimum poverty
profile, or not exceed a set carbon emissions limit.

Lessons from Vietnam and Panama Pilots

The early construction of the IPF in Vietnam and pilot application of the in Panama
were met with interest from stakeholders in both countries (Mandri-Perrott,
Marcelo, & Haddon, 2014; Marcelo et al., 2015). The experiences brought to light
a number of issues for further refinement to the framework, however, which are
discussed in this section. Both governments were amenable to employ a multi-
criteria prioritization approach, given their respective strategic planning cycles,
infrastructure needs, fiscal plans, and legislative and governmental support for
employing a prioritization methodology. While the two experiences are an
important start, more work is needed to explore implications of regional
disparities in the context of application and data availability, and in developing
specific links to project financing and PPP identification.

17
Vietnam Experience
In Vietnam, two factors made prioritization a natural pursuit for the Ministry of
Planning and Investment. First, the 2014 Public Investment Law referred
specifically to implementing a classification and selection system for proposed
infrastructure, to incorporate assessments of financial efficiency and effectiveness
alongside social and environmental sustainability. Second, the pilot test aligned
with the Government’s strategic planning cycle. The exercise covered 30
randomly selected projects in three sectors: transport, irrigation, and urban. An
important pre-condition was that projects should have already undergone a
preliminary feasibility study (FS) (Mandri-Perrott, Marcelo, & Haddon, 2015).
Following an initial exploratory and consultation period, the IPF was employed
for ex ante project evaluation in three sectors: transport, irrigation, and urban, in
a two-stage approach. Since the Ministry of Planning and Investment (MPI) did
not have sufficient funding to support a full set of feasibility studies for the
approximately 3000 proposed projects, an initial qualitative project validation
and classification filter was applied to identify a subset of projects for which
feasibility studies could be funded 17. Following the first filter, about 268 projects
were selected for feasibility study grants. Of these, thirty projects were randomly
selected to run the pilot: ten each from transport, irrigation, and urban sectors.
The calculation of the SEI and FEI and the plotting of the projects against the
budget constraint followed the steps described above.
The primary lessons drawn from experiences in Vietnam are summarized here.
First, there are important pre-analytical steps required to ensure sufficiently
comparable data. One of the challenges of the pilot was that some data, even from
within Feasibility Studies, was either opaquely determined (e.g., IRR) or had
limited comparability across projects (Mandri-Perrott, Marcelo, and Haddon,
2015). Feasibility studies should follow clear rules, guidelines, and standards to
ensure quality and comparability of data.
Second, special attention must be given to the metrics used to measure variables
if PCA is used to assign weights. Since PCA synthetizes information based on the
correlations between variables, it is important to make sure that the weights
reflect the expected relationship between the variables and the composite
indicator. In some cases, this can be done with alternative specifications of a
component variable. For example, the concept of poverty may be expressed by the
population of poor residents or the poverty ratio. Because these decisions are
technical and require a relatively high degree of statistical and methodological
knowledge, it is important that methodological decisions on variable specification
–particularly if a statistical method such as PCA is proposed– are made by
professionals with sufficient knowledge to do so.

17. The first filter reduced the set of projects under consideration by assessing whether they met tests of (a)
legal and procedural validity; (b) strategic validity (alignment with development goals); and (c) financial
validity (capital value within available resources). Projects that passed all three tests were thereafter
classified geographically to identify those projects located in either (a) priority development areas due
to poverty levels or key economic development initiatives or (b) environmentally protected regions.
Naturally, the former were assigned higher classification scores, whereas the latter were penalized. The
MPI or sector agency will allocate funding for FSs to projects in the highest importance groups and then
proceed through the remaining groups until the FSs funding is exhausted.
18
Third, pre-filters or additional variables may be required when there are inherent
biases in the set of projects proposed, or where the Government aims to break
regressive patterns. For example, in Vietnam, it was observed that projects in
poorer regions tended to score lower on some variable inputs to the FEI or SEI.
This observation justified use of an initial filter to reflect a goal to target areas with
higher poverty rates (Mandri-Perrott, Marcelo, & Haddon, 2015).
Fourth, in order to improve robustness of results and foster concurrent
application with other supportive analytical tools (including CBA and expert
assessment), users must have sufficient capacities to understand the mechanics
and implications of key decisions regarding its use. These include the selection of
criteria, definition of indicators, and relationships to other decision support
methods. As such, capacity building remains essential. While relieving some
analytical demands, IPF nevertheless requires sufficient technical knowledge to
appropriately specify and calibrate the additive models, variables, and weights.
Moreover, capacity-building efforts to improve project appraisal and selection
should also involve training on CBA, which is essential for larger projects, in
particular.
Further, to extoll the benefits of responsiveness inherent to the tool, the proposed
methodology should not be a one–off exercise. Rather, it should be utilized as a
progressive approach, intended to ‘live and grow’ with the country's
infrastructure needs and policy objectives. As such, the prioritization program
should involve continuous refinement of the decision-support tool, based on
informed deliberation regarding criteria selection and any pre-decisions of a
policy nature (Mandri-Perrott, Marcelo, & Haddon, 2015).
Fifth, governments must be aware of potential sequencing conflicts related to the
timing of project selection processes in different ministries and line agencies. One
strategy to mitigate this is for central government to oversee and provide
guidance for systematizing project selection and coordinating sectorial
prioritization activities.
Last, planning offices and decision makers must be familiarized with the multi-
criteria approach to build credibility of the decision support tool itself, requiring
consultation and clear explanation of the technical inputs and model structure.
While some fluency with established quantification methods like CBA is observed,
there is a certain degree of risk aversion associated with applying new methods.
Building acceptance of the decision support tool itself is critical to legitimizing the
analysis (Mandri-Perrott, Marcelo, & Haddon, 2015).
Panama: Transport and Water and Sanitation
In Panama, the conflation of the current economic outlook and three institutional
supports spurred the IPF pilot. GDP growth and economic buoyancy in 2014
motivated an ambitious public investment program, accompanied by a high
number of infrastructure project proposals to the Ministry of Economics and
Finance. Nevertheless, the proposed set of projects exceeded the available funding
space and allowable deficit ceiling, demanding selection of some projects and
postponement of others. The application of a prioritization methodology was
endorsed in the Government Strategic Plan 2015-2019 and a draft amendment to
the 2008 Social Fiscal Responsibility Law, which stated that a system of

19
prioritization strategies was needed for infrastructure development in the future.
Similarly, the public investment law contained implementation notes to employ a
prioritization strategy tied to the five-year investment plan 2015. The 2015 World
Bank Country Partnership Framework (CPF) also called for application of a
prioritization tool. These factors confirmed demand for prioritization of
investments in infrastructure planning.
The IPF was applied to a selection of 35 proposed projects in water supply and
sanitation and 19 in transport. These projects were identified in consultation with
the Ministry of Economics and Finance. The pilot offered a key opportunity to
replicate and refine the existing framework, in that it entailed decision analysis
based on limited financial-economic data, particularly for a portion of the water
projects. In this way, it replicated a common input problem for infrastructure
decision-making, namely restrictions on data.
Planners from several agencies, in consultation with the Ministry of Economy and
Finance and a team from the World Bank, agreed on a set of component SEI and
FEI variables. The SEI variables initially selected included the number of
beneficiaries (BEN), direct jobs created during implementation (EMP), the
population of poor serviced by the project (POOR), social and environmental risks
(SER), and the carbon footprint (CO2). The final analysis used only the first three,
due to data problems and lack of specificity in the risk variable. 18
The FEI was originally expected to include the internal rate of return (IRR) and/or
economic rate of return (ERR) of projects, depending on data availability.
However, given that many of these investments were proposed for projects with
no direct monetary benefits and largely indirect economic effects (i.e. mainly
projects with a large public good component 19), the calculation of economic IRR
would have produced unrealistic or incalculable results. The alternative would
have been to account for all indirect positive effects and estimate benefits. This
would have required data on monetized benefits for such effects, which was
unavailable. For these reasons, benefit-cost ratios (BCRs) were used. The BCRs
also allowed for the analysts to control for project size and avoid penalizing
projects with higher costs but potentially higher benefits20.
The results from the transport project SEI and FEI rankings are presented in
Figure 9.

18. See Marcelo, Mandri-Perrott, & House, 2015 for a description of these challenges.
19. An example of this sort of project would be investments in wastewater treatment facilities, where tariffs
are often insufficient to cover the full costs of the assets and its sustained operation and maintenance.
20. More details on the calculation of composite indices and results of the pilot in Panama are available in
Marcelo, Mandri-Perrott, & House, 2015.
20
 Figure 9. SEI and FEI, Transport Projects, Panama Pilot 2015

Social and Environmental Indicator (SEI) Financial and Economic Indicator (FEI )
100 100

80 80

60 60

40 40

20 20

0 0

Project 4
Project 17
Project 5
Project 6
Project 18
Project 1
Project 7
Project 8
Project 2
Project 19
Project 13
Project 9
Project 16
Project 11
Project 3
Project 12
Project 14
Project 10
Project 15
Project 3
Project 6
Project 2
Project 8
Project 9
Project 7
Project 5
Project 17
Project 19
Project 10
Project 13
Project 11
Project 18
Project 16
Project 4
Project 14
Project 1
Project 15
Project 12
Figure 10 shows the results of plotting each project’s SEI and FEI scores.
Figure 10. SEI and FEI plot for selected transport projects, Panama 2015
100
P12
90
80 P15
70 P1
P14

60
P4
50 P16
SEI

P18 P11
40 P13
30 P19
P10
20 P17
P7 P9
P8
10 P5
P2
P6 P3
0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
FEI

The pilot offered a number of key lessons and highlighted areas of future
development. The first and most significant lesson was that composite indices
were far more sensitive to indicator values than weights. This suggests that PCA
can be a useful way to weight variables if time and objectivity are important
factors in selection. A sensitivity analysis was performed to compare PCA indices
against composite indices using subjectively established weights. Two subjective
weighting schemes (equal weighting and hypothetical policy-determined) were
tested to calculate alternative SEI composite indices. Figure 11 shows that the
categorization of projects changed only minimally when using policy-determined
or equal weights (Marcelo, Mandri-Perrott, & House, 2015). In practice, the use of
subjective weighting can give rise to a number of problems ranging from purely
technical (i.e., rank reversal in AHP) to political (i.e., lack of transparency and
discretion in selection of infrastructure-projects). On the other hand, subjective
weighting is more intuitive and directly responsive to policy preferences.

21
 Figure 11. Comparison of Transport SEI and FEI scores, PCA and equal weighting

PCA weighted SEI Equal weighted SEI

100 100
P12 P12
90 90 P15
P15
80 80 P14
P1 P1
P14
70 70
P18 P16
P4 P11
60 60
P16

SEI
SEI

50 50 P4
P18 P11 P13
40 P13 40
P10 P19 P10
30 P19 30
P17 P17
20 20 P9
P7 P8 P7 P8
P9 P5
10 P5 10
P2 P2
P6 P3 P6 P3
0 0
0 10 20 30 40 50 60 70 80 90 100 0 10 20 30 40 50 60 70 80 90 100
FEI FEI

The second lesson is that special consideration should be given to the selection
and definition of metrics to deal with regressive biases. This applies to any
comparative approach. As in Vietnam, Panama showed a potential for an inherent
bias towards infrastructure projects in wealthier or urban regions, simply due to
their generally better ‘performance’ on component indicators. If development
plans were aimed at improving rural areas, however, this could create adverse
results. This problem can be overcome by careful indicator specification or the
inclusion of additional indicators.
The third lesson relates to the appropriate use of financial and economic
indicators in conditions of low information. We recognize the value of
incorporating CBA elements on the financial and economic side of the IPF. To
integrate these elements to the framework when information is extremely limited,
additional criteria is required. For example, if only project cost is known,
additional variables must be considered to build the FEI. This practical constraint
highlights the importance of improving information systems at the project level to
effectively implement any kind of prioritization tool.
The fourth lesson is that the IPF can take into account both efficiency and efficacy
considerations. This is shaped by the construction of variables. For example, one
could use the absolute number of beneficiaries as an input to the SEI to consider
policy effectiveness when service expansion is a priority. On the other hand,
‘beneficiaries per dollar spent’ may be more appropriate if the goal is fiscal
efficiency. In the case of Panama, where development of water services in rural
areas was an important policy goal, the decision was made not to control
indicators by project size in order to protect against the possibility of privileging
urban projects with greater economies of scale (Marcelo, Mandri-Perrott, & House,
2015).
The final lesson is that IPF can be used as an opportunity to strengthen data
weaknesses. The process of discussing relevant indicators by which to select
projects is a catalyst for improving information levels to move towards more
complex economic analysis. In Panama, the discussions prompted by the IPF have
resulted in improved data project data collection. The IPF, as a process, can be a
valuable starting point for improving appraisal by inciting aspirational
discussions about the kinds of data that would be most helpful to deciding
amongst projects within a sector.
22
Implementing IPF
The sequence of implementing IPF, as described in the technical description and
pilot applications above, is summarized in Figure 12. With respect to this sequence,
the pilot in Panama also gave rise to an important discussion of requirements for
implementing IPF and factors of particular interest in further piloting to improve
its applicability. These issues are discussed in the following section. Some are
process-oriented and relate to overall infrastructure planning; some are
organizational and deal with issues of resources, authority, and capacity; and
some are technical, relating to the informational inputs required.
Figure 12. Sequence of the IPF

I
Criteria • Deliberation and consultation with decision
Identification makers and experts

• SEI and FEI based on existing appraisal data

II
• PCA when objectivity in criteria weighting is preferred
SEI and FEI
• CBA elements incorporated when available / calculable
calculation
• Sensitivity analysis

• (SEI, FEI) coordinates

III
• Quadrants defined by budget
Visual interface
constraint

• Based on informed political

IV and technical debate
Selection • Quadrant A projects high
priority to invest

Process
With respect to infrastructure planning, it is important that IPF follow on from
critical pre-prioritization and selection steps. These are described well in the
World Bank’s Public Investment Management framework and include the
provision of clear sectoral policy guidance based on policy analysis, pre-screening,
and at least basic project appraisal and review (Rajaram et al., 2014, p. 22-26).
Policy guidance is also important for pre-screening projects for inclusion in
prioritization exercises; important guiding documents include published sector
strategies and mid-term development plans.
Moreover, there are important decisions to be made about when IPF is more or
less applicable as a prioritization approach than are other approaches, e.g.,
comparison by NPV following from SCBA. For one, IPF may be used to structure
decisions when full economic analysis for all projects in the proposed set is
unfeasible or too costly for government. There is an important question of how
much government should spend on appraisal and prioritization, relative to
investment. The issue of setting thresholds for appraisal requirements should be
further explored to create country-specific guidance for appraisal requirements.
Once the decision to employ IPF is made, there are some important factors that
should be made explicit and transparently reported in advance of implementing

23
the approach. The settings that must be decided in advance include: selection of
criteria and specific definitions, the weighting methodology to be used for
constructing indices, the types of sensitivity analysis to be employed, and guiding
principles for selecting projects from amongst Quadrants B and C. After IPF is
performed and projects are prosed for selection, decision-makers should also
publish the results of the IPF mapping and sensitivity and report deviations from
project selection guidelines with supporting justification.
Organization
While projects may be proposed from different line agencies or subnational
government units, prioritization should be managed at the same level of fund
allocation or by an administrative unit with authority over investment decisions
to ensure that analysis is effectively utilized. Alternatively, governments can
establish legislative or other administrative backing to protect the credibility of
project selection and ensure that selection is actually based on appraisal and the
agreed method of prioritization.
It is also important that prioritization be aligned with the budget cycle. The IPF
can be used to prioritize capital investment plans for annual or multi-year budgets.
It is important, however, that the budget period and envelope be explicitly
determined and aligned, and that proposed projects be checked to ensure that
investments would feasibly occur during the specified budget period.
Lastly, IPF is designed for application within only one sector. More specifically, it
may be advisable to further subdivide analysis at the subsector level, particularly
when certain kinds of projects (in the case of water and sanitation, for example)
are significantly different in terms of performance according to certain project
indicators.
While IPF is intended for comparison of projects within a sector, it can be a useful
device for discussing sectoral reallocation. The project plots can be used to
examine implications of foregoing investments that perform at the margin for
another sector’s budget envelope. For example, foregoing a large transport project
at with funding in Quadrant B or C could free up sufficient budget space to fund
multiple additional sanitation projects.
Minimum Data Requirements and Improving Data Quality
While IPF is designed to make best use of available information and other
elements of project appraisal, there is a minimum amount of data required to
make the approach usable. These include estimation of project costs as well as
measurements of expected benefits and key social and environmental project
impacts. Project costs and some benefits can be reported as a single monetized
measure, preferably through the calculation of net present values via financial
cost-benefit analysis or partial SCBA. Variables that measure expected benefits
and key social and environmental impacts, on the other hand, may be reported in
different units or even qualitatively.
Since IPF is intended to promote the use of improved data and support efforts to
improve infrastructure decision-making overall, it is important that IPF not
detract from ongoing efforts to build overall capacity to appraise, select, and
prepare good projects. Because the approach is complementary and not
competitive with SCBA, for example, capacity building for good public investment
24
management should include training on the expanded set of tools for project
appraisal and selection.

Conclusions and Next Steps for Developing the IPF

This paper presents the IPF as a flexible multi-criteria tool for infrastructure
prioritization. The framework’s key strengths are its incorporation of key policy
goals, the systematic framing of infrastructure decisions, and the use of available
elements of project appraisal. The graphical display of results in a single plane is
one of the main features of this tool. This way of presenting project information is
helpful to informing discussions about relative expected performance of projects
according to financial-economic and social-environmental factors and to
considering the potential effects of reallocating funds between sector budgets.
The experiences in Vietnam and Panama show the potential of the IPF to support
infrastructure decisions, particularly in environments characterized by limited
institutional and technical capacity and data restrictions. It is important, however,
to reaffirm that the approach is not intended to replace best practices in project
selection, such as SCBA, or obviate efforts to improve appraisal in the pre-
selection stages of public investment management. Rather, the IPF can be used as
a catalyst to identify needed information in order to progress toward more
sophisticated appraisal methods and selection frameworks.
Looking Forward
With respect to the IPF’s general applicability, we have identified a set of critical
issues for future deliberation to further improve the IPF. These include the
following:
- Sectorial Rebalancing: How can decision-makers best use the IPF to explore
possibilities of rebalancing sectorial budgets? Where good PPP candidates
are identified within the high or medium-priority project sets, the budget
constraint may be extended in that particular sector. Alternatively, funds for
projects in quadrants B and C may be reallocated to other sectors with higher
shortfalls, or high-SEI scored projects with insufficient funding.
- Participation and consultation: Which stakeholders should be included in the
application of IPF? What are the appropriate institutional arrangements and
checks to ensure accountability and transparency?
- Implementation: What institutional arrangements are required to support
implementation of IPF and facilitate improved data collection? Given the
flexibility in criteria selection, what checks are required to ensure the tool is
applied professionally, with sufficient technical oversight?
- Sequencing / application to other project appraisal and selection approaches:
How can IPF be used sequentially or concurrently with other tools? What
measures are needed to ensure that IPF is used to promote more rigorous
economic project appraisal?
Additionally, the IPF may be extended in the future to establish linkages to other
facets of infrastructure development. Proposed extensions include the following:
- Private Participation: How can the IPF be used to assist with identification of
public-private partnerships or other private financing opportunities? How

25
 will IPF results change with variable budget constraints resulting from
private participation?
- Integrated Planning: How can complementary projects be treated in
simulation?
- Multi-year Budgeting: How can IPF best deal with multi-year budget
processes and differences in sectorial budgeting schedules and processes?
Lastly, there is a need to deal with prioritization, not only as a question of what to
do, but also a question of when to invest. The IPF may be used to rule some projects
out altogether, but may also be extended to assess of the relative immediacy of
proposed projects and timing of investments over long impact horizons. In their
assessment of the infrastructure needs in South Asia, Andres et al. suggest that
prioritization criteria “must be able to answers questions about short-term needs
versus longer-term development needs, especially in developing countries…
Given substantial lock-ins associated with infrastructure investments, should a
country continue attempting to fill current gaps or direct investments to
infrastructures that are likely large bottlenecks in the medium term?” (Andres,
Biller, & Dappe, 2014).
Whilst the IPF, as a flexible framework, is sufficiently malleable to address these
extended needs, the answers to these remaining questions will only be realized
through continued piloting. Refining this framework is a worthwhile pursuit to
ensure its appropriate application and usefulness to supporting infrastructure
decision-making with an eye to improve both the efficient investment of public
funds and the goals of sustainable development.

26
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29
Annex 1. Demands of Infrastructure Project Prioritization
Attention to alternative approaches to systematic prioritization responds to
demands for evidence, comprehensiveness, value, efficiency and legitimacy. An
important underpinning for prioritization is the consideration of evidence. The
rise of evidence-based policy analysis (EPBA) can be traced to the UK government
of the 1990s, which rigorously pursued approaches to policy analysis in cross-
departmental teams working on complex issues. EBPA is believed to be important
to answer questions like: What options will ‘deliver the goods’? How can programs
provide greater ‘value for money’? and ‘How can program managers achieve
‘outcomes’? (Nutley, Davies, and Smith, 2000).
Expanding beyond purely technical research and analysis (i.e., ‘science’), a line of
thought recently gaining traction suggests that two other types of evidence are
relevant to modern policy making: practice (professional program management
experience) and political judgment (Head, 2010). Scientific knowledge is garnered
from systematic analysis of causal relationships that explain conditions and trends.
Practical implementation knowledge, on the other hand, is derived from the
“practical wisdom” of professionals in their communities of practice, whereas
political knowledge relates to making contextual judgments about “the possible
and the desirable” (Head, 2010, p. 80). An increased appreciation of the multiple
bases of knowledge is the next iteration of EBPA.
An appreciation of the ‘multiple lenses’ of evidence suggests that prioritization
must also be sufficiently comprehensive. Comprehensiveness implies making
decisions based on (a) consideration of a sufficiently extensive set of projects, and
(b) a sufficiently wide set of criteria. While criteria need not be exhaustive, they
should nevertheless account for key goals of infrastructure policy. Direct
attendance to the multiple goals embedded in an infrastructure strategy (e.g.,
fiscal prudence, equity, sector-specific gains, etc.) supports the use of multiple
criteria. Furthermore, comprehensiveness is a response to common criticisms
that infrastructure investment decision-making is ad hoc, politically driven, or
characterized by ‘cherry-picking’, ‘easy wins’, or ‘creaming’ rather than analysis.
Decisions about infrastructure investment are also inherently integrated with
considerations of effectiveness and value. The selection and structuring of a
prioritization methodology are intertwined with decisions about how to define
policy effectiveness, which may include goals of economic growth, sectorial goals,
environmental sustainability, or human development. The logic of value, on the
other hand, speaks to creating public value at the least cost.
Lastly, prioritization is undertaken to afford public legitimacy to decisions,
particularly in actively democratic contexts where public assent matters most.
Legitimacy is typically founded on both inputs and outputs. Input legitimacy refers
to the processes whereby decisions are made and is a matter of design. To be
legitimate with respect to input, the process of infrastructure selection should be
transparent, fair, and systematic. Output legitimacy, on the other hand, is
determined by outcomes, and is a matter of an institution earning its relevance
based on performance.
While not the primary focus of this paper, a final parameter of interest is
opportunity. In the case of infrastructure prioritization, this refers to the opening

30
of new opportunities for funding. As options for infrastructure finance expand
beyond public resources and traditional bank lending, more attention is focused
on conditions that increase the likelihood of institutional investment and private
sector participation. The assemblage of well-planned project pipelines, which are
prioritized in a legitimate and transparent fashion can help reduce political risks
and improve project bankability.
The prioritization approach a government adopts must inevitably balance three
oft-competing needs: accuracy, feasibility, and suitability. Accuracy demands that
methods be sufficiently precise to afford meaningful comparison, but does not
require extreme exactitude. Rather, it suggests that thresholds of correctness are
required to ensure that the logic of evidence is attained.
The second condition encompasses administrative practicality and political
feasibility. Practicality deals with the institutional capacity, the cost and time
limitations, and the information availability. An important facet of this is the
principle of parsimony, the use of a minimum amount of relevant information.
Political feasibility, on the other hand, accepts that prioritization cannot be so
devoid of latitude that it is rendered unresponsive to political factors. There is a
balance to be struck between technical objectivity and democratic accountability.
Lastly, the principle of suitability demands that criteria selected be appropriate to
judge relative desirability, as determined by stakeholders and their
representatives. The suitability of decision criteria is dependent on policy goals
and norms of governance.

31
Annex 2. Cost-Benefit Analysis and Value for Money
Cost-benefit analysis (CBA), is a useful method of project comparison where
capacity and data are sufficient for its implementation across proposed projects.
The practical development of CBA started in the 1930s in the United States, largely
for public investment planning at the federal level, and has remained a staple of
policy analysis since (Zerbe & Bellas, 2006). This is largely because CBA, whilst
complex with respect to inputs, is a straightforward concept, allowing comparison
of projects based on a single metric – that of monetized value.
CBA essentially totals all costs and benefits of a project over its lifetime and
discounts future flows to calculate present values. The (discounted) present
values of costs and benefits are compared, either by use of net present value
(ranking projects by highest NPV) or the benefit-to-cost ratio (BCR) (used to
reflect efficient use of inputs for outputs). CBA can be applied in traditional
financial terms to assess alternative projects for an organization or firm, but may
also be extended for public expenditure analysis by considering the full suite of
(monetary and non-monetary) costs and benefits to society. In Social Cost-Benefit
Analysis (SCBA), prioritization is based on selecting projects that maximize the
net present values for society overall. Reduction to a common unit of
measurement allows easy comparison of projects (Andres et al., 2014).
These assessments require the quantification and monetization of positive and
negative effects (costs and benefits); therefore, extensive information about
projects and their projected impacts is required (Van Delft & Nijkamp, 1977).
Since information in many contexts is limited, however, and since many costs and
benefits are difficult to monetize 21, this can make SCBA a tall order, particularly
when governments with limited resources are presented with large sets of small
and medium size projects for comparison. Practically speaking, relevant data for
SCBA may be unavailable, too expensive, or too difficult to collect or calculate on
a regular basis, given a government’s financial and technical resources for project
preparation.
While a number of technical issues related to CBA mechanics are common focal
points of academic debate, 22 these can be largely dealt with via established
economic methods to yield relatively robust analyses. More important to the
systematic use of CBA for infrastructure prioritization are the resource, capacity,
and time limitations that constrain its extensive application in many contexts.
An additional set of considerations has prompted adjustments to SCBA or the
complementing of SCBA with other approaches. For one, CBA-based assessments

21. For example, valuing lives saved, added convenience, or averted pollution requires making assumptions.
A common criticism of SCBA is that social and environmental costs are often underestimated, relegating
key social and environmental issues to positions of lesser importance, particularly if their monetized
impacts are relatively low compared to other economic considerations.
22. First, addressing intangible factors and strategic concerns is difficult with CBA. Common procedures to
establish monetized values for some non-marketed factors (e.g., stated preference or hedonic pricing
approaches) are not necessarily applied to all non-priced impacts (e.g., social cohesion). These problems
expose a potential for optimism bias or cost underestimation (Cantarelli, Flyvbjerg, Molin, & Van Wee,
2010; Thomopoulos et al., 2009), and represent information gaps that can be detrimental to analysis. A
second issue relates to the selection of a discount rate. Many analyses assume a standard rate to be
applied to a country and sector, which undoubtedly alleviates the burden of determination. However, it
is also known that slight alterations in rates of return can have a significant effect on calculated benefit–
cost ratios and net present values (Thomopoulos et al., 2009; Van Delft & Nijkamp, 1977).
32
of societal value do not typically consider distributional effects or issues of equity
and social justice, which is a key concern when investments are intended to close
development gaps. In other words, the goal is maximizing societal value, but
without regard to the particular ‘winners’ and ‘losers’ of alternative projects.
Complementary social analysis or the use of multi-criteria methods to extend CBA
have been used to deal with these aspects.
Other attempts are made to extract the particular costs and benefits that are
linked to key priority goals from the overall CBA in order to focus more specifically
on partial impacts of key policy interest. For example, Berechman and Paaswell
(2005) utilize a modified SCBA to assess transport projects, separating out the
estimations of transportation benefits and costs from overall economic
development benefits and costs. The approach was employed to deal with the
observation that overall economic costs and benefits were far higher than
transportation-specific costs and benefits (e.g., time saved). This rendered the
latter completely insignificant to the overall assessment, despite the importance
of transport goals to policy makers.
‘Value for Money’ (VfM) refers to a broad range of approaches used for project
appraisal, many of which wholly or partially employ CBA. VfM analyses may be
qualitative or quantitative, but generally compare projected project outcomes
with the resources employed to attain them. In this way, VfM is useful as an
assessment of the relative efficiency of alternative means of reaching the same
ends. That said, VfM analyses are widely disparate with respect to the inputs used
and level of quantification. Some are inclusive of full CBA or cost-effectiveness
analysis 23 as key inputs, whereas others may qualitatively discuss the differences
between alternatives of the same cost or differences in base costs for alternative
solutions to the same policy problem.

23. Cost effectiveness analysis relates to evaluating alternative means of attaining the same goals, but is less
applicable to differentiating between the relative attractiveness of different types of projects.
33
Annex 3. Multi-criteria analysis for infrastructure selection
Multi-criteria approaches to infrastructure development and planning respond to
concerns about over-specialization, the need to reconcile multiple infrastructure-
related policy goals, and practical limitations on information. The past ten years
have witnessed an opening to multi-criteria analyses to rectify these concerns,
make direct use of political knowledge and judgment, and bring non-financial
concerns to the forefront of decision-making.
On the practical side, increased use of MCDA reflects attempts to work around
time, information, and capacity restrictions (DCLG, 2009). If information is fully
available and the policy goal at hand is maximization of societal benefit, then
optimizing models are most useful. 24 But if information is incomplete or multiple
policy goals are at stake, Beinat and Nijkamp suggest that use of a variety of
decision criteria reflects compromise between multiple priorities, while
discrepancies between outcomes and goals are traded off by use of preference
weights (Beinat & Nijkamp, 1998). MCDA has been particularly salient for the
transport sector (Tsamboulas, 2007), since projects often have a host of different
objectives and come with complex issues arising from the project.
In terms of intuition and transparency, additive MCDA models that sum criteria
with assigned weights are favorable since they are “able to cope with almost any
problem” (Tsamboulas, 2007) and are easy to understand. While some additive
MCDAs are contingent on wholly quantitative and statistical inputs, others, such
as the Analytic Hierarchy Process (AHP), focus explicitly on expert value judgment
to assign values to variables and criteria weights.
De Montis et al., extensively compare alternative decision methods for application
to sustainable development, contrasting the approaches across their operational
components, applicability in the user context, and applicability for the problem
structure (2004). They find that important considerations include the ability for
the approach to deal with complex situations (criteria, different scales and aspects,
type of data, uncertainties); the possibility to involve more than one decision-
maker (stakeholder participation, communication, and transparency); and
engagement of stakeholders in order to increase knowledge and change opinions
on problem structuring and alternative solutions (De Montis et al., 2004).
Two critical issues in the application of MCDM, specifically for additive models,
are the selection of criteria by which alternatives will be assessed and the
weighting of criteria. The simplest mode of weighting is equality, wherein all
criteria are equally considered. For example, the Cities Development Initiative for
Asia equally weights (.20) project purpose, public response, environmental
impact, socio-economic impact, and feasibility of implementation in its toolkit for
assessing public projects (CDIA, 2010). An alternative method is negotiated expert
guidance, wherein a panel of decision-makers decides weights based on
experience and their basket of interests. A formalized, facilitated method of
expert-based criteria weighting is the Analytic Hierarchy Process (AHP),
developed by Saaty (2004). The key input for AHP is decision-maker responses to

24. For the principle of optimization to be the basis of a decision, however, it must be assumed that all
measures of performance related to the objectives of a proposal can be expressed in a common scale of
measurement, as in CBA (Rogers & Duffy, 2012).
34
a series of pairwise comparisons of alternative options. Responses are used to
derive criteria weights and performance scores. AHP is used extensively in South
Korea for infrastructure planning to supplement SCBA analysis. 25
Through an extensive review of journal articles focused on MDCA and
infrastructure decision-making between 1980 and 2012, Kabir, Sadiq, and
Tesfamariam find that the application of multi-criteria approaches to
infrastructure selection and evaluation are on the rise. The number of MCDA
infrastructure management studies has risen from single digits in the 80s to
hundreds towards the end of the 2000s (Kabir, Sadiq, & Tesfamariam, 2014).
Whilst these do not necessarily measure MCDA in use for selection (and are far
fewer than studies based on CBA), the pattern indicates a sharp upswing in
interest in MCDA for infrastructure. Of these 300 studies, however, only a subset
of approximately 40 expressly applied MCDA to choose amongst alternative
strategies for infrastructure maintenance and development (e.g., site selection,
project architectures alternatives, technology selection), but with more limited
scopes than sector-wide project privatization. Only 14 attended broadly to
ranking projects (as opposed to selecting amongst mutually exclusive
alternatives), and only ten ranked projects across a sector. This suggests that the
space for developing sectorial infrastructure prioritization strategies remains
wide open.
Figure 1. Number of studies published related to MCDM in infrastructure management, 1980-
2012 (Kabir et al., 2014)

100
Others
80 Underground infrastructure
Buildings
60 Bridges
Transportation
40
Water supply and wastewater
20 Water resource management
Total
0
1980-1982

1983-1985

1986-1988

1989-1991

1992-1994

1995-1997

1998-2000

2001-2003

2004-2006

2007-2009

2010-2012

Source: Authors’ figure, drawn from (Kabir et al., 2014) data

25. AHP has also had some weaknesses. For example, there is a methodological problem of “rank reversal”,
which occurs when an additional new option becomes available that results in the reversal of the initial
alternatives’ ranking. There have been attempts to overcome this, however, with various improvements
whilst retaining the underlying strengths of the approach (e.g. Wang & Elhag, 2006). The approach is
supported by well-known adaptations with corresponding software applications, including REMBRANDT,
MACBETH, Expert Choice, and or HIPRE.
35
Annex 4. Examples of globally recognized indices
Area / Sector Composite Indicator
Economy Composite of Leading Indicators (OECD)
OECD International Regulation Database
(OECD)
Economic Sentiment Indicator (EC)
Internal Market Index (EC)
Business Climate Indicator (EC)
Environment Environmental Sustainability Index (World Economic Forum)
Wellbeing Index (Prescott–Allen)
Sustainable Development Index (UN)
Synthetic Environmental Indices (Isla M)
Eco–Indicator 99 (Pre Consultants)
Concern about Environmental Problems (Parker)
Index of Environmental Friendliness (Puolamaa)
Environmental Policy Performance Index (Adriaanse)
Globalization Global Competitiveness Report (World Economic Forum)
Transnationality Index (UNCTAD)
Globalization Index (AT Kearny)
Globalization Index (World Markets Research Centre)

Society Human Development Index (UN)

Corruption Perceptions Index (Transparency International)
Overall Health Attainment (WHO)
National Healthcare Systems Performance (King’s Fund)
Relative Intensity of Regional Problems
Innovation and Summary Innovation Index (EC)
Technology Networked Readiness Index (CiD)
National Innovation Capacity Index (Porter and
Stern)
Investment in Knowledge–Based Economy (EC)
Performance in Knowledge–Based Economy (EC)
Technology Achievement Index (UN)
General Indicator of Science and Technology
(NISTEP)
Success of Software Process Improvement (Emam)

36
Annex 5. Select Approaches to Prioritization
United The UK National Investment Plan, managed by the Treasury’s
Kingdom infrastructure unit, specifies an Infrastructure Top 40 list of projects
marked for priority government support and investment. These
projects are grouped by sector, but not listed in order of importance.
Projects are chosen by the following criteria:
- Strategic importance (SI): significant contribution towards
an objective;
- Capital value (CV): significant capital value;
- Regional priority (RP): high strategic importance or capital
value in a region;
- Demonstrator (D): innovative or novel and could improve
future delivery;
- Unlocking investment (UI): enables significant private
sector investment (HM Treasury, 2014).
Australia Infrastructure Australia, a federal statutory board established under
the Department Infrastructure and Transport, is tasked with
planning and coordination cross-state road and public transport
projects. In order to prioritize proposed projects, the agency applies
a two-state process of project “profiling” and “appraisal.” Profiling, as
a first filter, qualitatively assesses the compatibility of proposed
initiatives to strategic infrastructure priorities (i.e., key issues and
problems) along a scale of “highly beneficial” to “highly detrimental”
with respect to stated policy goals. Thereafter, CBA is employed as
the primary tool for project appraisal, including estimates of Wider
Economic Benefits (WEBs), such as those related to agglomeration.
Advice on calculating WEB is based on the UK government’s
Transport Analysis Guidance (2014). Following CBA, the process
requires that assessors qualitatively discuss benefits and costs that
generally cannot be monetized (e.g., visual / landscape, social
cohesion, heritage or cultural impacts) and thereafter classify each
non-monetized item along a spectrum from “highly beneficial” to
“highly detrimental.” These two inputs are used to inform selection,
which is based on expert review and consensus of a panel of eleven
members.

Australia, New New South Wales has developed a Major Projects Assurance
South Wales Framework inclusive of an additive multi-criteria model. The
framework assesses proposed projects at several stages of project
planning and prioritizes projects according to assessed performance
along two dimensions. Performance with respect to strategic
objectives is measured by alignment with NSW’s investment themes,
value for money, the project’s ability to afford citizens “a better life”
(by reducing cost of living and improving livability), and economic
efficiency. Performance with respect to the ‘Infrastructure NSW
Project Assurance’ objective is based on sufficiency of the analysis,
cost-benefit analysis, professional assessments of the suitability of
project management, and risk assessment. CBA is augmented by
professional review and qualitative inputs.

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 Qualitative assessments are numerically scored on a scale from 3
(strongly positive) to -3 (strongly negative) and added using a system
of weights decided by a panel of professionals within Infrastructure
NSW. Similar to the proposed IPF, projects are plotted onto a two-
dimensional plane, with axes defined by the Strategic Objective and
Project Assurance Objective scores. Projects are classified as short-,
medium-, and long-term, depending on their collective scores.
Infrastructure NSW conceptual project mapping

Source: Government of New South Wales (2014)

South Korea South Korea employs cost-benefit analysis, supplemented by multi-
criteria decision methods to prioritize a large number of projects
across sectors. Using the AHP structured expert pairwise technique,
experts decide the weights of decision criteria, including SCBA. AHP
has also been used to rank projects sub-sectorally (primarily in
transport) in the US, Indonesia, China, Turkey, India, and Palestine,
but is not (to our knowledge) used as a national prioritization
framework outside of Korea.

Indonesia During 2014-2015, Indonesia’s Committee for Acceleration of

Priority Infrastructure Delivery (KPPIP) employed a three-level
infrastructure prioritization approach, including multi-criteria
analysis. Following a screening for basic project requirements, an
additive multi-criteria model was to identify 22 priority
infrastructure projects from amongst thousands of proposed
projects. The indicators for project scoring and ranking (with
associated additive weights) included project purpose (25%);
feasibility of implementation (30%); socio-economic impact (30%);
and environmental impact (15%). The scoring and ranking outcomes
were used as a basis of “committee discussion” that resulted in the
shortlisting of 22 projects.

Cities The Cities Development Initiative published a 2010 City

Development Infrastructure Investment and Prioritisation Toolkit that utilizes a
Initiative multi-criteria decision model to consider project purpose; public
(international response; environmental impact; socio-economic impact; and
partnership) feasibility of implementation. The prioritization approach was
designed to prioritize funding agency support for projects proposed
by local municipalities.

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Annex 6. Principal Component Analysis

Principal Component Analysis (PCA) is an information reduction procedure that

seeks redundancies within a set of variables (Joliffe, 2002). These redundancies
can be expressed as linear combinations or ‘principal components’ of the variables
comprising the set. Each principal component is a weighted average of the original
indicators or component variables. The coefficients, or weights, associated with
variables in each principal component are those that maximize the variance of
each.
The first principal component corresponds to the linear combination of variables
that retains the maximum information of the original data set. The notation for the
first principal component 𝑦𝑦 is:
(1) 𝑦𝑦𝑖𝑖 = 𝑤𝑤1 𝑥𝑥1𝑖𝑖 + 𝑤𝑤2𝑖𝑖 𝑥𝑥2𝑖𝑖 + ⋯ + 𝑤𝑤𝑛𝑛 𝑥𝑥𝑛𝑛𝑛𝑛
Where 𝑖𝑖 denotes each observation and 𝑤𝑤𝑛𝑛 denotes the weight for the
𝑛𝑛𝑡𝑡ℎ variable 𝑥𝑥.
In the context of the IPF, the first principal components of the social-
environmental and financial-economic variable sets become the composite
indices. The coefficients 𝑤𝑤𝑛𝑛 of each ‘first principal component’ are taken as the
weights associated with each variable 𝑥𝑥.
Statistical software such us SPSS and SAS include routines to perform PCA.

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