Smart City: Business Models & PPP

General

per Comunicació CTECNO / 3 febrer, 2015 / Sense comentaris

“Having the private sector, by building and strengthening new forms of public-private relationship, should allow us to generate more economic opportunities”

Today we will discuss business models and the concept of public-private partnerships (PPP) aimed at overcoming the limitations currently faced by public administration, listing the challenges that remain unresolved and pointing to possible solutions.

This is especially evident in the development of any “Smart City” program, where the importance of measuring economic, social, and environmental impact is critical to improving the service givven to citizens and the efficiency of the administration in its role as city manager. But also because the nature of these “smart city” initiatives  makes them strongly linked to major investments. Having the private sector, by building and strengthening new forms of public-private relationship, should allow us to generate more economic opportunities, create jobs and welfare, attract more investments into the city, and provide innovative solutions for better city management and the deployment of services and infrastructures to improve the life quality of citizens, as well as the efficiency of the administration in its role as city manager.

Background

Currently, we have a rather unfavorable environment for innovation when it comes to finding new actions that involve a minimal public investment.

  • Frozen or very tight budgets
  • “Improvable” or “innovable” public procurement systems
  • Social pressure for transparency and efficiency in spending, prioritizing social care for the underprivileged.
  • Continuous suspition of generalized bad “praxis” (with which we personally do not really agree)

Does this mean that this environment should make us fail? On the contrary, it should encourage us to make the most efficient and sustainable public administration ever. As with any challenge, great opportunities arise.

Challenges

What challenges are presented to us?

  • Improved public funding
  • Efficiency in spending
  • Transparency
  • Social innovation, contractual and in management

Solutions: business models and PPP

  • Business models and ROI calculation

Given the foregoing contingencies, any project wholly or partly  funded by public budget should be associated to the business model. Does this mean you should have a “business plan as usual”, with economic returns every three years? Yes and no. What we mean by this is that any deployment of a public project must have a serious ROI plan behind it (return on investment; Return Of Invesment), either in economic terms or measured by the outcome or social impact.

Methods to use? There are several:

  • Canvas Model: for projects where economic returns may not be the key, since there is an obvious social return necessary. It is especially useful for evaluating public policies given the ease to analyze impacts in different environments, resulting activities or trade-offs and value propositions.
  • “Business Plan” traditional: to analyze monetary investments and economic return, or possibly even benefit. Surprised? Obviously, there may be public performances pursuing an economic benefit; and the latter, serve to complement other items, or to improve existing services. A good example would achieve efficiency in a public service and allocate these resources budget surplus in social games.

Innovative financing models, PPP

Several reasons justify the existence of public-private partnerships or PPP, often associated with the generation of new business models where public and private actors have a stake. We are going to mention some of these reasons:

  • The importance of formulating results-oriented policies. The very process of defining expected results derived from PPP causes further specification of the target, thus promoting the use of specific indicators to measure the objectives of the activity. This provides a greater ability to control the quality of the product or service as offered or produced.
  • The so-called “value for Money”, or the quality / value for money, which entails maximizing return on investment, efficiency, and productivity. The concept of opportunity cost (what I have to give up if I assign resources to a project and not another) is an aspect to take into account, and this, in turn, is directly related to a greater effort for transparency and accountability.
  • Greater financial needs of the public sector, linked to the welfare state, social needs and budgetary constraints.
  • Sharing the investment risk (and therefore profit). Risk transfer in certain investments from public to private sector, especially in scenarios exposed to innovations or market fluctuations and changes should allow gains in efficiency, productivity, and the improving of services and their quality, while entailing greater activity and opportunities.

Conclusions

The economic environment and financial situation built in recent years prompts us to seek new ways that allow us to continue to ensure the welfare state and the provision of public services, guaranteeing quality and accessibility for citizens.

The development of new business models and new forms of relationship between public and private agents are optimal solutions. They guarantee quality services to citizens, and promote efficiency in the placement of public resources (public management), while creating opportunities for the private sector, supporting economic activity.

This is especially important to tackle projects that require large investments or involve a high risk, as it happens with some of the initiatives linked to “Smart Cities” programs.

Jaume Batlle y Maria Galindo for the Singular.cat

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