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 BUSINESS ADMINISTRATION THESIS HoChiMinh City - 2010 1 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 i 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. ii 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. iii 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 iv 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 v 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 vi 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 vii Abbreviations 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 1 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 [...]... 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... 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... measurement of HIFU in public investments 26 Experiences of performance measurement in public investments Expectations of performance measurement in public investments Perception of outcome measurement in public investments Objectives used to evaluate performance in public investments The fulfilment of HIFU assignment in public investments The efficient, competent, and transparent use of HIFU public funds The. .. guiding a number of content on monitoring and 3 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. .. 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. .. 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. .. 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. .. 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... importantly, it raises awareness of the performance measurement in the public sector 4 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,... 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 : 5 - To identify the appropriate method to evaluate the performance of HIFU investments in public sector - To evaluate the effectiveness of . 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. 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. 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