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Report of the Task Force on Improving Project Quality : I. The Setting
B. Quality of the Bank's Portfolio of Projects7. Since its inception in 1966, the Bank has financed development investments in its DMCs amounting to $43 billion for 1,180 projects. These investments have been made in a variety of sectors such as agriculture and agro-industry 1 energy, industry, transport and communications, social infrastructure, finance and the private sector. Of these Bank-financed projects, 726 have been completed. PEG, which is mandated to evaluate a sample of the Bank's completed projects so as to assess the effectiveness and impact of Bank investments and to provide feedback to the organization on lessons learned for enhancing efficiency and effectiveness, has so far post-evaluated 427 projects representing some $19 billion in total investment costs, of which about $8 billion was financed by the Bank. The overall results of PEG evaluations indicate that 60 per cent of the Bank's post-evaluated projects have been rated as generally successful, another 30 per cent as partly successful and the remaining 10 per cent as unsuccessful. 8. The absence of random sampling in the selection of projects for post-evaluation precludes any statistically valid inferences concerning portfolio quality. Nonrandom sampling has been oriented to selecting projects that offer the best lesson-learning opportunities. This has invariably resulted in a selection bias toward complex and problematic projects. In addition, external factors affect project performance. Nonetheless, annual performance data do appear -to show a declining trend in project performance as demonstrated by the cumulative results reported in the "Fifteenth Annual Review of Post-Evaluation Reports (1992)." 9. Currently, the Bank has 454 projects under implementation. Until recently, they were classified under three headings — A, satisfactory; B, unsatisfactory; and C, inactive. Overall, the quality has appeared to be reasonably healthy, with only about 6 per cent classified as B. However, these results must be qualified by some less reassuring feedback. An internal review conducted by CPSO in August 1993 suggested that a number of projects experiencing substantial delays in implementation were still classified as A (i.e., satisfactory). The reasons for this included (i) optimism on the part of Projects staff with respect to implementation prospects, (ii) ambiguity in the description of B projects in the classification guidelines, and (iii) flexibility in interpreting these guidelines. The review concluded that 81 per cent were proceeding with no major current problems, but 19 per cent were facing problems in varying degrees. 10. As a result, a new system was introduced in August 1993 covering all projects in the public sector. These projects are classified and monitored regularly, particularly from three points of view: (i) implementation progress, (ii) project costs, and (iii) compliance with covenants. These three aspects are examined with reference to parameters established at project appraisal (or as revised subsequently) The monitoring and review missions of the Bank thus classify the performance of each project into one of three categories — A, B or C — based on the project's ongoing performance in the above three areas. (Category D is reserved for inactive loans.) A project with an AAA classification, for example, indicates that it is satisfactory on all three counts. Classification of ongoing Bank-financed projects on the basis of the above indicates that 79 per cent are proceeding wit no major current problems; but 21 per cent are facing problems in varying degrees. The system takes no account of progress towards other substantive project objectives as envisaged during appraisal, such as developmental impact. 11. The quality of the Bank's portfolio of projects differs by sector. The difficulties often encountered in the agriculture, natural resources and social sectors are reflective of the social and institutional complexities that the Bank and DMCs face in the design and implementation of projects in these sectors. There are also substantial differences in the quality of Bank project portfolios by country. 12. Typical characteristics of problem projects, whatever the country or sector, include delays in implementation (Bankwide delay in project completion now averages 2.9 years per project), inappropriate design (technical, social and institutional), poor quality construction, and non-utilization or partial utilization and maintenance of project facilities. The causes are numerous, and are in fact the subject of this report. Chapters II and III examine these causes, and the extent to which they need to be addressed to enhance the quality of the Bank's portfolio. 13. The need to improve project quality in terms of better implementation performance by DMCs and greater developmental impact of the Bank's assistance is vital to the mission and effectiveness of the Bank as a development institution. Problem projects and portfolios can have substantial economic and social costs because of delays in the accrual of benefits, the partial rather than full realization of intended benefits r even the non-accrual of benefits. Resources are getting scarce globally, and the Bank is required to deliver the highest value possible for money invested. Extensive investments are at stake, and the Bank's DMCs can ill afford the economic, financial and social benefits that re foregone because of ineffective projects. Besides, the DMCs must repay the loans despite project failure. In addition, the Bank's projects often playa key role in the development processes of its DMCs. Failures can lead to significant negative impacts on the momentum of the overall development process and the well-being of the communities involved. In smaller countries, such as the Pacific Island Developing Countries (PIDCs), the financial and developmental Implications assume even greater proportions. Since project implementation is the responsibility of borrowers, the Bank needs to assist its DMCs more effectively in resolving implementation problem and minimizing delays.
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