Evaluating the performance of investments in public sector

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY --- ĐẶNG HẢI YẾN EVALUATING THE PERFORMANCE OF INVESTMENTS IN PUBLIC SECTOR: A CASE STUDY OF HIFU MASTER OF

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

-

ĐẶNG HẢI YẾN

EVALUATING THE PERFORMANCE OF INVESTMENTS IN PUBLIC SECTOR:

A CASE STUDY OF HIFU

MASTER OF BUSINESS ADMINISTRATION THESIS

HoChiMinh City - 2010

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY

-

ĐẶNG HẢI YẾN

EVALUATING THE PERFORMANCE OF INVESTMENTS IN PUBLIC SECTOR:

A CASE STUDY OF HIFU

Major: Business Administration

Major Code: 60.34.05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Nguyễn Minh Kiều

Ho Chi Minh City - 2010

Acknowledgement

I would like to express my heartfelt gratitude and deepest appreciation to

my research Supervisor, Dr Nguyen Minh Kieu for his precious guidance, share of experience, ceaseless encouragement and highly valuable suggestions throughout the course of my research

I would like to thank to many of my collegues from HIFU, who have helped me during the collection of data as well as support me during doing research: Ms Ngo Kim Lien, Dr Vuong Duc Hoang Quan from Board of Director, Ms Le Thi Tam Tam, Ms Pham Thi Minh Ngoc, Mr Nguyen Thanh Tuan, and my other collegues from Departments of Accounting as well as Entrusted Fund Management, Planning, Human Resource Management and Appraisal

My special gratitude is extended to all instructors and staff at Faculty of Business Administration and Postgraduate Faculty, University of Economics HoChiMinh City (UEH) for their support and the valuable knowledge during

my study in UEH

I would also like to avail this opportunity to express my appreciation to Professor Nguyen Dong Phong, UEH Board of Directors for creating MBA program in English and Dr Tran Ha Minh Quan for his support during the course

Specially, my thanks go to Mr Nguyen Thanh Trung for his valuable and enthusiastic support for this research study and for his comments of English from early draft of my thesis

Last but not least, the deepest and most sincere gratitude goes to my beloved parents, my husband Mr Nguyen Hung Long, my daughter Bao Tran and my son Duc Huy, for their boundless support, abundant love and encouragement throughout my period of study I, therefore, dedicate this work

as a gift to them all

Abstract

Evaluating performance in public investment is still an issue in management There has been greater emphasis placed on performance measurement in public investment HIFU is an organization operating in public sector This qualitative research examines HIFU current performance measurement and suggests an effectiveness performance measurement in public investment for HIFU The new measurement including financial aspect and social aspect is more comprehensive, proper, and complete The measurement is also applied to evaluate HIFU performance of public investment

Recommendations for related entities such as the Government, HCMC People’s Committee, and HIFU are suggested to improve the management of HIFU and funds like HIFU

Keywords: public investment; performance; performance measurement; public

organization; effectiveness; efficiency; and Ho Chi Minh City Investment Fund for Urban Development

Contents

Acknowledgement i

Abstract ii

Contents iii

List of Tables v

List of Figures vi

Abbreviations vii

Chapter 1: Introduction to the study 1

1.1 Rationale of the study : 1

1.2 Problem statement: 4

1.3 Research objectives and questions: 4

1.3.1 Research objectives: 4

1.3.2 Research questions: 5

1.4 Scope and Limitations 5

1.5 Research method : 5

1.6 Implications of research 7

1.7 Structure of the study : 7

Chapter 2: Introduction to HIFU 8

2.1 Introduction 8

2.2 Legal status of HIFU 8

2.3 Organizational structure 9

2.4 Main business activities 11

2.4.1 Lending 11

2.4.2 Investment 12

2.4.3 Trusted Fund management 13

2.4.4 Authorized municipal bond issuance 13

2.4.5 Financial services 13

2.5 Monitoring and evaluation of outcomes/ results 13

Chapter 3: Literature Review 15

3.1 Public investment 15

3.2 The performance of the public organizations/funds 15

3.3 Measuring the performance of the public organizations/funds 18

3.4 Conclusions 22

Chapter 4: Research Methods 25

4.1 Introduction 25

4.2 Research Design 25

4.3 Data collection 27

4.3.1 Document Collection 28

4.3.2 Personal Interviews 29

4.4 Data Analysis 33

4.5 Conclusion 34

Chapter 5: Data Analysis and Findings 36

5.1 Introduction 36

5.2 Links between data analysis and research objectives and questions 36

5.3 The findings of data analysis 38

5.3.1 The current performance measurement of HIFU in public investments 38

5.3.2 Experiences of performance measurement in public investments 40

5.3.3 Expectations of performance measurement in public investments 41

5.3.4 Objectives used to evaluate performance in public investments 42

5.3.5 Financial assessment 43

5.3.6 Social contribution 49

5.4 Conclusions 53

Chapter 6: Conclusions and Recommendations 56

6.1 Introduction 56

6.2 Conclusions related to research questions 56

6.2.1 Conclusions related to the first question 56

6.2.2 Conclusions related to the second question 58

6.3 Recommendations of the research study 59

6.3.1 Recommendations for HIFU 59

6.3.2 Recommendations for the goverment 61

6.3.3 Recommendations for funder – HCMC People’s Committee 62

6.4 Limitations and further research 63

References 64

Appendix 66

Guidance for indepth-interviews 66

List of interviewees 68

Financial statements of 2008 and 2009 69

List of Tables

Table 4 1 Questionnaire for interview 31

Table 5 1 The planned and actual lending and direct investment from 2004 to 2009 39

Table 5 2 Liquidity ratios of HIFU from 2004 to 2009 43

Table 5 3 Leverage ratios of HIFU from 2004 to 2009 44

Table 5 4 Efficiency ratios of HIFU from 2004 to 2009 46

Table 5 5 Profitability ratios of HIFU from 2004 to 2009 47

Table 5 6 HIFU return on equity and market return from 2004 to 2009 47

Table 5 7 The percentage of actual lending and direct investment from 2004 to 2009 51

List of Figures

Figure 2 1 Organization chart of HIFU 10

Figure 3 1 The performance of public investment 16

Figure 5 1 The framework for evaluating HIFU performance 37

Figure 5 2 Liquidity ratios of HIFU from 2004 to 2009 44

Figure 5 3 Leverage ratios of HIFU from 2004 to 2009 45

Figure 5 4 Efficiency ratios of HIFU from 2004 to 2009 46

Figure 5 5 HIFU ROE , RM, and RB from 2004 to 2009 48

Figure 5 6 The percentage of actual lending and direct investment from 2004 to 2009 51 Figure 5 7 Assessments on qualitative performance of HIFU 53

AFD: France Development Agency

CII: HCMC Infrastructure Investment Joint-stock Company

HIFU: Ho Chi Minh Investment Fund for Urban Development

HCMC: Ho Chi Minh City

HCMC PC: Ho Chi Minh City People’s Committee

LCI: Law on Credit Institutions

MOF: Ministry of Finance

PI: Public Investment

SOEs: State Owned Enterprises

USTDA: United States Technical Development Aid

WB: World Bank

WTO: World Trade Organization

Chapter 1: Introduction to the study

1.1 Rationale of the study :

Public investment is considered as public expenditures that the

government adds to the public physical capital stock They include the building

of infrastructure such as roads, ports, schools, hospitals, etc The issue of whether public investment is effective is still a controversy In both developed and less developed countries, one can speak of a crisis of the public sector The main charge is that it is costly for what it delivers Even though this particular charge is rarely supported by hard evidence it has to be taken seriously because

of its impact on both policy makers and public opinion (Pestieau 2009) Private business and foreign organizations often participate in sectors that require less capital, less risk, higher profit, and short payback period because their objective

is to get profit from their investment Thus, fields such as welfare, infrastructure, education, health, etc which require large capital, more risk, long payback capital are usually invested by the government - through government agents - to avoid the unbalance in the economy’s structure Moreover, investing in public sector helping to increase the people’s standard

of living, stably develop the economic growth and attract foreign investors are the government’s activities The government has staked its political credibility

on delivering significant and noticeable improvements to public services (Crawford et al 2003)

However, there has been considerable debate over the delivery of public services and the performance of the public sector organizations that deliver them According to Micheli (2005), much of this debate has been based on performance information reported in performance league tables and performance targets against which public sector organizations are assessed These targets and league tables, which are regularly debated by politicians and the media, are often criticized There are many opinions arguing that investments in public sector don’t result in efficiency in aspect of finance because the projects in this sector need a large amount of capital and take a

long time of capital turnover, more risk, although there is no official research

of this issue One is used to hearing harsh statements about inefficient public services It is not surprising to see public sector performance questioned What

is surprising is that what is meant by performance, and how it is measured, does not seem to matter much to either the critics or the advocates of the public sector (Pestieau 2009)

On the other hand, due to globalization and liberalization of world markets, competition faced by the organizations has become more and more intensive and the pressure to perform better is unavoidable (Ong & Teh 2009) According to Greiling (2004), in recent years managing and measuring performance has been one of the key drivers in the reform of the public sector Performance measurement may provide data on how effectively and efficiently public services are delivered Evaluation encompasses efficiency (the ability to undertake an activity at the minimum cost possible) and also effectiveness (whether the activity is achieving the objectives which were set for it) (Carin & Good 2004) According to Moeti (2000), the importance of evaluating the performance of public sector goes beyond simply taking “good” evaluation as

an end in itself, but rather as a means to an end The outcome of the evaluation may result in either a change in the goals required of the organization, change

in the organization’s procedures and methods, or change in the organization by the way of growth, reorganization, or reduction In that line, Carin & Good (2004) suggested that evaluation makes an important contribution but not always “the answer” Evaluation provides government officials, development managers, and civil society with better means for learning from past experience, improving service delivery, planning and allocating resources, and demonstrating results as part of accountability

In Vietnam, the government also issued Decision No TTg on October 6, 2006 on the monitoring and evaluation of performance of state-owned enterprises, Ministry of Finance issued Circular No 115/2007/TT-BTC on September 25, 2007 guiding a number of content on monitoring and

224/2006/QD-evaluating the performance of state-owned enterprises, under which

"evaluating the performance of business is using criteria to determine the effectiveness and classify business” Criteria for evaluating is the system of norms and standards used to determine performance and classify businesses comprehensively and objectively Evaluating the performance of the business intended for classification and incentives to encourage on material and mental for business and management and administration of business operations effectively, handle in time for business and business management weaknesses

Ho Chi Minh City Investment Fund Urban Development (HIFU), a financial institution directly under the Ho Chi Minh City (HCMC) People's Committee, together with other local investment funds were expected to act as the entity oriented trade and attract private capital and invest in infrastructure projects urban-oriented recovery costs HIFU is responsible for investing in the public sector such as construction of bridges, roads; building hospitals, schools under the objective programs of the city In the period of integration, the investments in infrastructure, health care, education are the top concerns of the authorities of HCMC, contributing to attracting foreign investment, bettering living conditions, improving environment and upgrading the intellectual standards of the people Many projects that HIFU finished in the past time contributed to fulfilling objective programs of HCMC

However, to date there has been limited research on evaluating the effectiveness of investments in public sector in Vietnam in general and of HIFU in particular Conducting such research will enable public organizations not just to enhance efficiency of investments in public sector, but also to encourage private sector and non-state economic sectors to participate in this sector under suitable forms so as to gradually decrease the list of works with

100 percent of state capital Moreover, more importantly, it raises awareness of the performance measurement in the public sector

1.2 Problem statement:

According to the route of entering WTO, from the end of the year 2007, Vietnam opened the financial market Foreign banks and financial institutions are allowed to operate completely in Vietnam The competition of investment market is increasingly strict On the other hand, owing to global economic crisis, Vietnam doesn’t avoid the influence from that crisis As a consequence, the government is having policies to tighten public investments, especially inefficient projects, pursuant to Decision No 390 of the Prime Minister Assessing the performance of public investments is necessarily indispensable

in the period and HIFU is the case at point, especially when HIFU to be a HCMC’s financial corporation and of the whole country In addition, HIFU is a pilot model of the public organization operating under the objective programs

of the local The results from the evaluating performance of HIFU can be used

to refer to other investment funds in the country Finally, evaluating the performance of HIFU results in finding out the scientific base to enhance effectiveness of investments in the public sector

In summary, the problem that public sector organizations in Vietnam in general and HIFU in particular face appears to be that how effectiveness ofinvestments in public sector

Therefore, the problem to be addressed in this research is to evaluate

the performance of HIFU investments in public sector, and then, to recommend for its improvement in the future

1.3 Research objectives and questions:

1.3.1 Research objectives:

A research objective is the researcher’s version of a business problem Objectives explain the purpose of the research in measureable terms and define standards of what the research should accomplish (Zikmund 1997) In solving the research problem this study has the following objectives :

- To identify the appropriate method to evaluate the performance of

HIFU investments in public sector

- To evaluate the effectiveness of HIFU investments in public sector

- To contribute to knowledge of the effectiveness of investments in

public sector

1.3.2 Research questions:

Research questions involve the research translation of “problem” into the need for inquiry (Zikmund 1997) The research problem defined above leads to the following research questions:

- Which is the appropriate method to evaluate the performance of

HIFU investments in public sector?

- How effective are HIFU’s investments in public sector?

1.4 Scope and Limitations

Investment in public sector and effectiveness are very large fields The study looks for the scientific knowledge to improve effectiveness of investments in public sector, particularly the case of HIFU Thus, the study is limited to the case of HIFU and regulations are imposed by Vietnam law

Choosing a type of research depends upon the research questions that the researcher wants to answer This research study is designed to investigate HIFU investments, evaluate the performance of HIFU investments and identify the extent of the effectiveness of HIFU investments Thus, “exploratory” was viewed as an appropriate research type In summary, the exploratory research has been chosen for this research An exploratory research technique that intensively investigates one or a few situations similar to the researcher’s problem situation is case study method, and in this research, it is used to obtain information to the research problem

Selecting research design is the next step after choosing type of research There are four types of research design from which to select: survey, experiments, observation and secondary data (Zikmund 1997) Selection of research design is based on the advantages and disadvantages of each kind of research designs and circumstances in which the research problem is defined

In this research, survey, and secondary data methods are used in combination

Survey was chosen as a research technique in this study to investigate and describe the performance of HIFU public investments and identify the appropriate performance measurement of HIFU public investments Questionnaires were designed and directly asked to interviewees to collect data related to HIFU public investments and identify the appropriate performance measurement of HIFU public investments The argument for choosing survey was twofold Firstly, surveys provide quick, efficient and accurate means of assessing information about the population Secondly, surveys are more appropriate in cases where there is lack of secondary data

The secondary data method was used to investigate the performance of investments in public sector The variables such as liquidity ratios, financial leverage ratios, efficiency ratios, and profitability ratios are derived from financial statements These financial statements are available from accounting department of HIFU and from other financial organizations directly

1.6 Implications of research

Evaluating the performance of public organizations is the answer for the debate between the advocates and critics of investments in public sector On the other hand, the findings are not just to help enhancing effectiveness of HIFU investments in public sector, but also to encourage HIFU increasing activities in this sector Consequently, the findings urge the private sector and non-state economic sectors to participate in the public sector Finally, it raises HIFU awareness of the performance measurement in the public sector

1.7 Structure of the study :

This research is structured into 6 chapters Chapter 1 introduces the research including research background, research problem, research objectives, and research questions Chapter 2 introduces to HIFU Chapter 3 provides a literature review of measures to evaluate the performance of investments in public sector Chapter 4 discusses methodology utilized in the research Chapter 5 analyses the data collected and presents the findings of the research Chapter 6 points out conclusions and recommendations of the research.

Chapter 2: Introduction to HIFU

2.1 Introduction

Ho Chi Minh City Investment Fund for Urban Development (HIFU) was established in 1996 as a pilot program intended to mobilize capital for urban development investment outside of the state budget pursuant to a decision of the Prime Minister of the Socialist Republic of Vietnam (SRV) dated 10 September 1996 with a charter capital of VND 500 billion, to be provided by

Ho Chi Minh City (HCMC) While there are other similar funds operating in Vietnam, HIFU is the only one established pursuant to a Decision of the Prime Minister; all of the other twenty three similar funds were established pursuant

to actions of the People’s Committees of the cities or provinces where such funds are located

As an entity 100% owned by HCMC, HIFU is a state financial institution operating under regulations passed by the Chairman of the HCMC People’s Committee following the approval of the Minister of Finance (MOF) HIFU disburses and repays funds entrusted to it by HCMC; lends to urban infrastructure projects, and makes direct investments, taking stakes of up to 20% or more in joint stock companies involved in socio-economic infrastructure City Infrastructure Company (CII) is one such company founded

in 2001, which operates transportation and other projects under such arrangements as Build-Transfer (BT) and Build-Operate-Transfer (BOT) From

2003 up to now, HCMC has issued municipal bonds with the proceeds being used by HIFU for various infrastructure projects Through its borrowing from financial institutions, HIFU is providing additional capacity to finance infrastructure HIFU purpose is to mobilize capital to invest in the development

of infrastructure projects and other urban developments in HCMC as requested

by the HCMC People’s Committee

2.2 Legal status of HIFU

HIFU is neither a bank nor a non-bank financial institution as defined in

a state-owned entity directly under the management of the HCMC People’s Committee, it has a legal status that is unusual but not unique, as up to date, there are 24 such funds operating in Vietnam While HIFU operates under the authority of the HCMC People’s Committee and not under the direct control of MOF, certain aspects of its operation and those of other provincial development funds are governed by MOF Specifically their financial management is governed by MOF Circular 43 and accounting policies by MOF Circular 78

HIFU establishment under a decision of the Prime Minister does not provide clarity about its legal status, and does not provide clarity about the regulatory framework within which it should operate HIFU is not governed by the law on banks and financial institutions or the law on private enterprises or the law on state owned enterprises (SOEs) This lack of legal clarity makes HIFU difficult to evaluate its performance in public investment In order for HIFU to be able to better perform tasks assigned by the HCMC People’s Committee through the process of evaluation as well as the findings from the evaluation, HIFU will need to operate as presently structured while waiting for

a new legal framework to be approved that would apply to all HIFU-like funds

2.3 Organizational structure

As local institution, the Fund is directly under the authority of the People’s Committee of HCMC The Fund’s organizational structure includes the Board of Management, Controller Section, General Director, Deputy General Directors, and several technical departments (See Figure 2.1)

In order to ensure the managerial autonomy, HIFU is legally made distinct from municipal technical departments by placing it under an independent board

of management According to the Charter, the Fund’s Board of Management has seven to nine members from heads of government departments Currently, the Board has six members who are representatives from HCMC Institute for Economic Research, Department of Finance, Department of Planning and

Investment, and Branch Office of the State Bank of Vietnam Other board members are General Director and the Chief of the Controller Section

Figure 2 1 Organization chart of HIFU

The Board is responsible for approving budgets and corporate plans, capital mobilization strategies, investments, major procurements and sales of assets, monitoring performance and advising management, and approving major changes in the Fund’s policies vis-à-vis personnel, marketing, internal The Controller Section is to oversee and inspect the operating activities of the General Director, Chief Accountant, technical departments with regards to compliance with the law, the Fund’s charter and regulations, financial norms, resolutions and decisions made by the Board of Management It has to make annual reports to the Board of Management on the activities of monitoring and controlling At the same time, it has to report to the Board of Management all unusual activities, possibilities of operating losses or abuse of power committed by the management The Fund’s General Director is responsible for the management of day-to-day operations, making financial plans and budgets

Deputy General Director

Deputy General Director

Appr-aisal

Dept

Office Planning &

Promotion Dept

ment Dept

Invest-HR Dept

nting Dept

Accou-Credit Dept

and for making quarterly, six-month and annual reports, and formulating the long-term corporate plan

2.4 Main business activities

2.4.1 Lending

Utilizing HIFU capital or syndicated loans with other financial institutions, HIFU has committed to lending to targeted programs and key projects of developing socio – economy infrastructure and Ho Chi Minh City’s economy, which are considered generating sound revenue for loan repayment and capital pay-back In projects financed by syndicated loans, HIFU has often been the loan manager

From 1997 to 2009, HIFU has provided loans to about 175 projects of various field categories In addition to using HIFU capital, HIFU has raised funds through syndicating loans with other financial institutions to finance infrastructure projects in Ho Chi Minh City, especially focusing on following main groups of projects:

• Transportation: These are capital-intensive projects Focusing on

projects of constructing and rehabilitating key traffic routes to solve traffic jam

in the City (Dien Bien Phu St., Hung Vuong St., Phu My Bridge, Provincial Roads 15 & 25 and other projects of road and bridge construction), and public means of transportation (buses)

Total lending amount to this project category which HIFU provides is VND 2,538 billion Lending to transport projects accounts for 34.52% of total HIFU lending for the period 1997 to date

• Water: Total lending amount to this project category which HIFU

provides is VND 341 billion Lending to water projects accounts for 4.64% of total HIFU lending for the period 1997 to date

• Residential areas, Industrial parks: These are projects under the

planning and new constructing program of Ho Chi Minh City such as

economic-social infrastructures, residential buildings and key markets which HIFU provides is VND 2,811 billion Lending to these projects accounts for 38.23% of total HIFU lending for the period 1997 to date

• Health: These are projects under the program of health socializing to

build and equip hospitals, infirmaries with modern facilities Total lending amount to this project category which HIFU provides is VND 710 billion Lending to these projects accounts for 9.66% of total HIFU lending for the period 1997 to date

• Education: these are projects under the program of education

socializing to upgrade facilities of schools in Ho Chi Minh City Total lending amount to this project category which HIFU provides is VND 334 billion Lending to these projects accounts for 4.54% of total HIFU lending for the period 1997 to date

By the end 2009:

Total disbursement: VND 7,364.049 billion

Debt collection:VND 3,478.196 billion

Total outstanding loan: VND 3,970.781 billion

2.4.2 Investment

HIFU direct investment activities, which were primarily in form of contributing capital in some privatized state-owned enterprises and investing in plants at industrial parks (for the period from 1997 to 2000), have been step by step developed through more plentiful ways such as contributing and founding new companies, investing in securities in privatized enterprises and being projects’ investor (co-investor) under policies of HCMC People’s Committee HIFU is joining force with HCMC People’s Committee to operate some projects that directly serve the City’s main point programs such as: the program

of transferring production firms that polluted environment (ex Tan Phu Trung Industrial Park project); water treatment supply project (Thu Duc and Kenh

Dong Water Treatment plants); urban infrastructure development program (contributing capital in CII joint-stock company); trade-service development program for the City (contributing capital in HCMC Securities Company)

2.4.3 Trusted Fund management

From its foundation time to date, HIFU has been authorized to manage a trusted fund of VND 1,335.689 billion from such different sources as state budget, proceeds from state house sales, privatization The most efficient and largest project is clearance and rehabilitation of Nhieu Loc – Thi Nghe Channel, building residential areas for low income people, investment of the construction

of rural roads, clean water supply project for the people of the city, and HCMC electric network renew project

2.4.4 Authorized municipal bond issuance

From 2003 to now, authorized by the City’s government, HIFU successfully issued municipal regular bond to raise fund for local budget on the purpose of financing key projects of HCMC

2.4.5 Financial services

Providing financial services such as issuing corporate bonds for corporate customers, capital structuring, investment consulting, and project preparation consulting

2.5 Monitoring and evaluation of outcomes/ results

A present monitoring system has been established in HIFU to monitor and evaluate the projects activities and operations leading to the project objectives The monitoring system has three components:

1 HIFU internal system will provide the baseline data and report on results as follows: HIFU Department of Appraisal will collect information about the progress made in implementing the project preparation and appraisal HIFU Department of Investment as well as HIFU Department of Trusted Funds, and HIFU Department of Planning and Promotion will collect

information about the process of implementing the project in terms of their respective management objectives HIFU Department of Credit will collect information about the loans, disbursement, loan collection, outstanding loan

2 Quaterly and six-monthly unaudited financial statements will be made by HIFU Department of Accounting and sent to HCMC People’s Committee; yearly audit report of the financial statements – prepared by an independent auditor to conduct international standard financial audits – will be provided to the relative entities

3 All project information will be compiled by HIFU management and discussed with the HCMC People’s Committee in a meeting to be held yearly The meeting will provide an opportunity to discuss project progress and any outstanding issues, including the need to refine or adjust any project components

Chapter 3: Literature Review

3.1 Public investment

Anderson et al (2006) defined public investment as public expenditures

that add to the public physical capital stock They include the building of roads, ports, schools, hospitals, etc This corresponds to the definition of public investment in national accounts data, namely, capital expenditure Seven main investment-and-policy clusters are identified in the areas of rural development; urban development; health systems; education; gender equality; environment; and science, technology and innovation (Anderson et al., 2006)

The purposes of public investment include its resource allocation function, income reallocation function, and stabilization of economic activity, and consideration for future generations, and the value of public investment assessed as its ratio to GDP includes values intended to achieve these goals It

is essential to always remember that public investment is done not only to create infrastructure, but to achieve other goals such as social security and the stimulation of business, and that the percentages of total public investment intended to achieve each of these goals is closely related to policies and conditions of each country Therefore, there is nobody to deny that the nature

of public investments is multi-objectives

Investment activities in public sector are usually implemented by owned enterprises or public organizations called the agent under the objectives assigned by the Government called the principal These organizations do not base profits as a means of evaluating and controlling their performance Performance is thus defined by the extent to which the agent(s) fulfil(s) the objectives assigned by the principal (Pestieau, 2009)

State-3.2 The performance of the public organizations/funds

Organization’s success, specially, public sector organizations (PSOs), depends on the extent to which organization performance is evaluated and the approach used Approaching the performance in public sector is a new issue

and has not reached highly the consensus of researchers as well the management yet Some people approach the performance of public investment

in aspect of efficiency, some others approach the performance of public investment in aspect of effectiveness or the both Since the 1970s, the public sector has been continuously pushed to improve the efficiency and effectiveness of its performance Thus, efficiency and effectiveness are two different aspects of performance (Figure 3.1)

Figure 3 1 The performance of public investment

It is important to understand the difference between efficiency and effectiveness Efficiency is understood as a ratio of output to input (Greiling, 2004) In line with this, according to Crawford et al (2003), measuring an organization’s efficiency is about the relationship between the outputs it produces and the inputs it uses In that sense a public service is efficient if a defined output is reached by minimizing the input factors or given a defined amount of input factors an output maximum is reached In his part, the process

of trying to measure an organization’s efficiency can therefore be broken down into three steps First, its inputs and outputs need to be defined and measured Secondly, it is necessary to define what is feasible – in other words, what outputs could be achieved for any given set of inputs Finally, the organization’s actual inputs and outputs are compared with the set of feasible inputs and outputs In contrast to efficiency measures, effectiveness measures are directed at determining how well a service is provided or how successful a

Effectiveness

Efficiency

Performance

department or program is in meeting previously established objectives (Smith, 1998) He argued that these measures are concerned with the quality of service provided

Obviously, two common points among the published research about evaluating performance of public investments are that the complexity and the difficulties of evaluating resulted from the nature of multi-objectives of public investments Indeed, if it is understood in this context inputs as costs and outputs as benefits of government programs, according to Moeti (2000), three distinguishable and complicating features of evaluation can be identified First,

is the problem of determining the appropriate variables to use to represent such performance measures as benefits and costs (or gains and losses) Determining and arraying these variables can prove to be a time consuming and difficult task Second, another complicating factor is that many of the variables considered as gains and losses are not easily quantifiable and thus measurable

In line with a government’s obligations and commitments to its citizens, program benefits and costs must be evaluated beyond profit maximization results and take account of non-monetary variables such as pollution, health and safety, or even wastes of people’s time Changes in any of these accounts should be included in the calculation Third, the pricing of resources or benefits

is more complicated for public than for private enterprises

Similarly, Pestieau (2009) suggested that if the principal were a private firm the objective assigned to the manager would be simple: maximum profit However with public authorities one has multiple objectives The principal, that

is the state taken as representing society as a whole, has multiple objectives because of the many dimensions of social welfare As a result the missions assigned to the agents are also multifold, so that the performance-assessing issue becomes more complex than that of private firms where the profit level is the performance measurement (Pestieau, 2009)

In that line, Greenberg and Nunamaker (1987) discussed about the

information processing difficulties which can result there from He said that without a doubt, the use of multiple performance measures in evaluating and controlling nonprofit activities is commonplace These multiple measures can

be viewed as short-run objectives in themselves, or as surrogates for more defined, non-measurable goals In either case, the use of such measures is encouraged due to the inability to adequately quantify the outputs of nonprofit programs Moreover, in the absence of competitive output markets, 'net income' does not provide a meaningful measure of organizational efficiency and effectiveness A single, objective summary performance measure analogous to 'net income' simply is not available in most nonprofit environments

ill-3.3 Measuring the performance of the public organizations/funds

Performance measurement has been the focus of much attention in recent years as a means to managing and controlling organisations.Much of the early work concentrated on the private sector However, more recently this has been extended to Public Sector Organizations (PSOs) More governments appear to be showing an interest in this issue by using targets and league tables

to show improvements in the services being delivered on the tax payer’s behalf (Wilcox & Bulgaj 2004) Measuring performance is increasingly important in not-for-profit and PSOs from those as large as the US federal government to the smallest volunteer group (Macpherson 2001) Performance measurement provides government or local government or funders with a way of determining whether public funds that are being invested to agents or nonprofit sub-grantees are being used effectively It also offers a vehicle for improved information exchange between funders and public organizations as they communicate about program performance

Behn (2003) identifies eight managerial purposes for performance measurement that public managers can use performance measures to evaluate, control, budget, motivate, promote, celebrate, learn, and improve In summary, performance measurement, as a form of evaluation, can assist in organizational growth and be an important decision-making tool for management It is viewed

as a means of demonstrating accountability in government-nonprofit contract relationships Performance measurement is also a way to guide decision-making in organizations because the measures that are used are based on the mission, goals, and objectives of the organization (Zimmermann & Stevens 2006)

In the discussion of evaluation and performance measurement, there is the distinction between formative and summative evaluations and the different implications each term has for a program The two concepts differ in their intended uses; for example formative evaluations are intended to improve a program in progress whereas summative evaluations ask questions like should funds be reallocated to other programs Summative evaluations are often done

at the end of a fiscal year to determine whether a program should continue to receive funding Formative evaluations of a program may be done more frequently, such as monthly or quarterly, and allow for improvements to be made during the process of implementation The managerial purposes of learning and improving are emphasized with the use of formative evaluations (Behn 2003) The distinction between formative and summative evaluations reflects that there are many purposes for evaluating programs

Historically evaluation was conducted by evaluators outside of the organization whose program was being evaluated However, in recent years participatory evaluation was used more frequently which meant that program stakeholders began participating in the evaluation process The concept of participatory evaluation also ties in with the purpose of improving a program

by involving stakeholders who are responsible for the program’s implementation Participatory evaluation allows program stakeholders to evaluate their own programs and recognize areas of improvement that exist

In literature of evaluating the performance of an organization’s activities, there are two methods, including basing only on its records and comparing to similar organizations of the same category On the other hand,

statistical and non-statistical, or absolute and relative Concretely, Goriaev (2002) indicated two types of performance measures: absolute (based only on the performance record of a given fund) and relative (constructed with respect

to some endogenous or exogenous benchmark) Absolute performance measures may be raw, such as fund total return, or risk-adjusted Relative performance measures can be cardinal (e.g., fund return adjusted by the category benchmark) or ordinal (e.g., fund performance rank within a given category)

In private sector either financial measure or non financial measure is usually used because financial measure meets enough the demand of evaluation

in aspect of the objective of maximizing profit and with internal oriented objectives non financial measure is needed, respectively For examples, Ong and Teh (2009) suggest that in manufacturing there are two types of measures: financial measures and non-financial measures Financial measures express the performance and achievement in monetary terms, included in the chart of accounts, and provide a high level of aggregation of information More importantly, financial measures are well-recognized and follow the rules of General Accepted Accounting Principles (GAAP) In contrast, non-financial measures include customer satisfaction, quality, market share and human resources, and tend to be subordinated to financial figures The financial measures are still popular among most of the companies, because they have been used for decades and the managers treat them as the foundation for performance measurement

Zimmermann & Stevens (2006) draw upon specific measurement categories developed by Ammons’ study (1996) The specific measurement categories for assessing performance include: efficiency, workload, effectiveness, and productivity (Zimmermann & Stevens 2006) Efficiency measures or inputs are used to describe the resources required to provide a service Workload measures or outputs quantify how much work is performed

or services delivered Effectiveness or outcome measures reflect the quality of

the service Effectiveness is defined as the extent to which the observed outcomes are consistent with the intended objectives Lastly, productivity measures combine efficiency and effectiveness measures into one indicator

Although a wide range of measures of performance and many different approaches have been suggested in investment performance theory, in general there is a large consensus around the idea that the indicators on which performance is based are the financial ratios achieved through annual accounting and management auditing reports, and non-financial indicators representing satisfaction, quality, market share and human resources gained by surveys According to Moeti (2000) when formulating an opinion on the performance of an organization (public or private) precaution must be taken such that one’s view should not be limited to quantitative considerations of revenues and expenditures whilst overlooking the objectives of the organization and the outcomes of the organizations activities both quantitative and qualitative In addition, finding and applying the right evaluation standards for investment is important However, previous research has consistently identified some key limitations of traditional performance measurement systems, which tend to rely almost exclusively on financial measures, and fail

to provide data on quality, responsiveness and flexibility; have a lack of strategic focus; concentrate on the individual or the function, not on the process; and have a control bias (Kanji & Sá 2007)

Talking about this issue, Moeti (2000) mentioned the principal-agent relation that is represented by Performance Agreements in his study for the case of South Africa He suggested that the methods of evaluating the performance of government programs and projects have long been a subject that has challenged researchers in the social sciences The approach taken by scholars of management and administration tend to focus on the internal encumbrances to effective performance, such as communication, compensation and motivation Examples of theories and methods from this field include the goals approach and participant satisfaction surveys In contrast, the standard

method employed by economists in evaluating public and private programs and projects is the benefit cost analysis (BCA) method, the central criterion of which is simply that the benefits of a program must outweigh its costs In his part, three objectives suggested in evaluating the performance in South Africa public sector are the followings:

• The implementation of Performance Agreements signed between the Principal and the Agent

• Evaluating performance through accounting and management auditing activities

• The qualitative performance appraisal

The Performance Agreements refer to the heavy consultation which is involved in effecting these agreements and there exists a fair amount of flexibility in defining performance measures The scope of the agreements, however, is heavily weighted toward internally focused measures Similarly, the qualitative performance appraisal that is externally focused refers to qualitative assessments of the social objectives and outcomes Finally, based on the discipline of public accounting, the efficient, competent, and honest use of public funds is evaluated through financial ratios

3.4 Conclusions

Measuring outcomes involves going a step further from measuring outputs to looking at the larger picture and determining how the program or activity made a difference It is more meaningful to program stakeholders to determine what the results were of the program and how they compared to expected results Meanwhile HIFU current performance measurement system is based on Decree 224, the performance evaluation standard system of enterprises promulgated by the Prime Minister and guided to implement by Vietnam Ministry of Finance such as revenue and others; benefit and benefit rate on State capital; overdue debts and due debt payment capacity; implementing policies on tax, State budget, credit, insurance, environmental

protection, labor, wages, financial regime, accounting, auditing, financial statements and others; and implementing public products and services HIFU has also been trying to incorporate outcome measurement to measure overall program effectiveness However, it has been unable to link efficiency measures with effectiveness measures to obtain measures of productivity owing to the nature of multi-objectives and the complexity of public investments On the other hand, according to Behn (2003), the leaders of a public agency should not

go looking for their one magic performance measure Instead, they should begin by deciding on the managerial purposes to which performance measurement may contribute Only then can they select a collection of performance measures with the characteristics necessary to help them (directly and indirectly) achieve these purposes Therefore, the author learned from the literature on performance and the advice of Behn (2003) and obtained the approach of effectiveness to HIFU performance in the study because the focus

on outcome measurement has particular relevance to public investments of HIFU

The literature also suggests that multiple sets of measures for multiple users may be necessary and a variety of different types of performance measures are identified (Kravchuck & Schack 1996) Therefore, adopting Moeti (2000)’s suggestions of objectives in evaluating the performance of public investments and the definition of performance mentioned by Pestieau (2009), in the present study the performance of public investments of HIFU is evaluated with two aspects:

• Financial aspect: Evaluating performance through accounting and management auditing activities to see how the efficient, competent, and honest use of public funds from HIFU financial ratios, annual independent auditing reports, evaluation reports of international and domestic financial organizations

• Social aspect: Assessing the implementation of targets assigned by the HCMC People’s Committee internally as well as the qualitative performance referring to social objectives and outcomes externally The targets assigned by the HCMC People’s Committee include the amount of money to lend, the amount of money to invest in public projects such as HCMC electric network renew project, clean water supply project for the people of the city, investment of the construction of Phu My bridge, Thu Thiem new urban area, etc The social objectives are resulted from objective programs suggested by the HCMC People’s Committee such as program reducing prostitution, addict, and crime The qualitative performance appraisal of HIFU is made by itself, HCMC People’s Committee, HCMC Economics Institute, HCMC Budget Economics Department, HCMC Finance Department, and other external organizations

Chapter 4: Research Methods

Section 4.1 generally introduces the chapter including the main contents, objectives and structure of the chapter Section 4.2 discusses and explains how the research design can be appropriately utilized in this study to answer the research questions Section 4.3 mentions methods of data collection Section 4.4 presents data analysis, which will be conducted in chapter 5 of the study Finally, section 4.5 summarizes the conclusions drawn from the chapter

4.2 Research Design

This section, firstly, examines the types of research in terms of classification, purpose and technique and then, explains how the research design is selected as most appropriate for the study

Chapter 1 states the main research questions including:



 Which is the appropriate method to evaluate the performance of

HIFU investments in public sector?



 How effective are HIFU investments in public sector?

In seeking answer to these questions, it is critical to have information as follows



 The current performance measurement of HIFU in public

investments

 The qualitative performance appraisal of HIFU

Ambiguous problems of assessing performance and performance measurement in public sectors of HIFU have been explored and clarified It means that an exploratory research is appropriate Simultaneously, the characteristics of performance and performance measurement in public sectors

of HIFU have also been investigated and described with a descriptive research However, exploratory research is in mainstream An exploratory research technique that intensively investigates one or a few situations similar to the researcher’s problem situation is case study method, and in this research, it is used to obtain information to the research problem

Zikmund (1997) classified research methods into four basic types: surveys, experiments, observation, and secondary data studies In this research survey and secondary data methods were utilized Survey was chosen as a research method in this study to investigate and clarify performance and performance measurement in public investment of HIFU The argument for choosing survey was based on two major reasons Firstly, survey provides a quick, efficient and accurate means of assessing information about the population Secondly, survey is more appropriate where there is a lack of secondary data In this case, secondary data of performance and performance measurement in public investment of HIFU is insufficient; thus, conducting a survey to gain information about performance and performance measurement

in public investment of HIFU was necessary Surveys may be further classified

by the communication medium used into mail, telephone survey and personal interview (Zikmund 1997) Selection of appropriate methods to communicate with respondents was very important in the surveys This selection may be based on the possibility of communicating with respondents, the advantages and disadvantages of the most typical surveys, and the budget allocated for the research However, item non-response, possibility for respondent misunderstanding, and respondent cooperation or participation are probably the most important factors for success of a survey Therefore, this study used personal interview as a method to obtain information about performance and performance measurement in public investment of HIFU from the respondents – professionals and directors

In addition to using personal interview to obtain primary data relative to performance and performance measurement in public investment of HIFU, the secondary data method was also used to examine them The financial ratios such as liquidity ratios, financial leverage ratios, efficiency ratios, and profitability ratios were derived from financial statements These financial statements were available from HIFU Department of Accounting and sometimes from other HIFU departments Moreover, secondary data could be gathered from the reports of other organizations in cooperation with HIFU or workshops discussing HIFU performance in public investments

4.3 Data collection

This section discusses how relevant data was collected for answering the research questions in section 4.2 Data can be described as qualitative or quantitative Qualitative data is concerned with qualities and non-numerical characteristics, while quantitative data is all data that is collected in numerical form Qualitative research reveals people’s values, interpretative schemes, mind maps, belief systems, and rules of living so that the respondents’ reality can be understood (Cavana et al 2001) A qualitative approach provides a more complete view of the impressions of those involved and the problem from their perspective The purpose of this study is to identify an appropriate performance

measurement system for HIFU and evaluate the performance of HIFU public investments Therefore the qualitative approach is most appropriate

The performance measurement and outcome measurement literature provides a number of suggestions on how to design and implement effective performance measurement systems Methods have been used within the implementation literature to show different types and components of performance measurement systems For carrying out this research, based on specific aspects mentioned in the chapter 3, different methods have been considered The main methods used in this research are comparative, analytical, exploratory, description and explanation methods

In terms of data sources, there are two main sources of data: primary data and secondary data In this thesis, both primary and secondary data have been collected Methods utilized in data collection are document collection, and in-depth interviews The interviews were primary sources of data whereas the documents collected for analysis were a secondary source of data for example financial statements These financial statements are available from accounting department of HIFU and from other financial organizations directly The financial ratios of HIFU such as liquidity ratios, financial leverage ratios, efficiency ratios and profitability ratios are resulted from the secondary data for analysis

4.3.1 Document Collection

For case studies, the most important use of documents is to corroborate and augment evidence from the other sources (Yin 2003) Document collection was conducted by retrieving HIFU performance data, measurement system data, and information related to this study Documents were collected from the HIFU, HCMC People’s Committee, Departments of HCMC, other relative organizations and during interviews Performance, current performance evaluation tools and reporting mechanisms used by HIFU in cooperation with external and internal entities such as World Bank, United States Technical

Development Aid (USTDA), France Development Agency (AFD), and HCMC Infrastructure Investment Joint-stock Company (CII) were examined Training manuals, presentations given at regional conferences, and government notices, reports, and bulletins from HCMC People’s Committee were also examined This information provided a deeper understanding of how performance measurement is being utilized by HCMC People’s Committee and identified HIFU performance Finally, financial statements and auditing reports would be examinated to verify how efficient, competent and honest use of public funds.

4.3.2 Personal Interviews

Yin (2003) argued that one of the most important sources of case study information is the interview A questionnaire was designed and based on what information to be acquired reflecting interviewer actual line of inquiry The questionnaire consists of many open-ended questions so as to exploit more explanation and description relative to HIFU performance, HIFU current measurement system, and improvement suggestions Interview questions were generated from the performance measurement literature As an example, the literature reflects that outcome measurement is suitable to evaluating performance of public investments therefore the researcher asked interviewees

to elaborate on their perception on the outcome measurement Similarly, the literature reflects that participatory evaluation allows program participants to evaluate their own programs and recognize areas of improvement that exist, therefore the researcher asked HIFU professionals to elaborate on their evaluating HIFU performance of public investments and asked entities financed by HIFU to elaborate on their performance of programs and projects that they had experienced, inducing the suggestions of improvements

On the other hand, the performance measurement literature which discusses participatory evaluation supported the need to include them in the process Therefore a list of interview participants was established, including four different categories as follows: HIFU as the agent, HCMC People’s

entities In this research, in-depth interviews were carried out with 14 professionals who work in management at above-mentioned entities including

8 professionals in HIFU, 1 professional in HCMC People’s Committee, 3 professionals in HCMC Department of Finance, and 1 professional in HCMC Department of Planning and Investment Interviewee of entity financed by HIFU was executive director and member of management board from organization that currently receive funds from HIFU since its activities would

be most directly affected by HIFU performance The entity financed by HIFU was also assured that its confidentiality would be maintained

Although HIFU has the conformation to the regulation of Vietnam Ministry of Finance for the performance evaluation standard system of enterprises, it must provide the required information to HCMC People’s Committee Therefore, the purpose of interviewing five representatives from HCMC People’s Committee, HCMC Department of Finance, and HCMC Department of Planning and Investment was to gain a local government perspective on their evaluations of HIFU performance, and their expectations

It was determined that an in-person interview with the General Director

of HIFU, would be beneficial The objective of this interview was to learn how HIFU is measuring its performance in public investments Questions were asked regarding HIFU experience with existing measurement since that has been the data which has been necessary for HIFU to improve the measurement

It was hoped that through this interview, the researcher would discover ways in which the HIFU can streamline its performance measurement system in the future Similarly, two interviews were conducted with Head of Controller Section and Deputy General Director respectively Five remaining professionals were interviewed belonging to Department of Accounting, Department of Investment, Department of Planning, Department of Credit, and Department of Appraisal They were asked regarding their evaluation of HIFU performance in public investments as well as their perception on the existing performance measurement

Table 4 1 Questionnaire for interview

Research

Question

Information needs

2 Experiences of

performance measurement in public investment

3 Expectations of

performance measurement in public investment

1.3 How is the coverage of current performance measurement of HIFU in public investment?

1.4 How is the accuracy of current performance measurement of HIFU in public investment?

2.1 Describe performance measurement systems in public investment that you have utilized

2.2 What do you particularly like about them?

3.1 What are your expectations of performance measurement in public investment?

3.2 What specific advice would you give

to HIFU in implementing a new performance measurement system?

4.1 What should the contents be used to evaluate performance in public investment?