COST-BENEFIT ANALYSIS FOR INVESTMENT DECISIONS, Flashcards
Every project has
certain phases in its development and implementation
First phase
First, the administrative feasibility of the project
implementation must be fairly assessed and the marketing and technical appraisals of the
the project must be provided to evaluate its feasibility
Second phase
Second, the financial capability of the
project to survive the planned duration of its life must be appraised
Third phase
Third, the expected economic contribution to the growth of the economy must be measured based on the principles of applied welfare economics and a series of assumptions used to undertake this
appraisal
Finally
Finally, an assessment must also be made to determine if, and how, this project assists in attaining the socio-economic objectives set out for the country
three independent outcomes
financial (or budgetary), economic, and distributional (or stakeholder) impacts of a project or program as three independent outcomes
The economic, financial, and stakeholder analysis of a project should also be closely linked because
The information obtained at one stage of the appraisal may be essential for the completion of another aspect of the evaluation.
A preliminary analysis of a public sector project that looks at financial variables alone is not very meaningful, no matter how accurately it has been carried out
The appraisal will be of more value to the public sector decision-makers if the analytical effort is spread out over all the important aspects of the project to derive its impact on the net economic well-being to
society as a whole
Stages in project appraisal
Idea, Prefeasibility, Feasibility, detailed design, inception
idea
The first and most important task of every procedure for project evaluation is to ensure that the prospective benefits of a project exceed its prospective costs. This is by no means a simple and straightforward task
pre-feasibility
The pre-feasibility study is the first attempt to examine the overall potential of a project.
pre-feasibility order of magnitude
whether the project is attractive enough to warrant more detailed design work?.
In order to avoid the acceptance of projects based on overly optimistic estimates of benefits and costs, the pre-feasibility analysis should
use estimates with a downward bias for benefits and an upward bias for costs.
pre-feasibility
Demand module Technical or Engineering module Manpower and administrative support module Financial/Budget module Economic module Environmental Assessment module Stakeholder module
Demand module
in which the demand for the goods and services, and prices, or the relative needs of social services are estimated, quantified, and justified.
Technical or Engineering module
in which the input parameters of the projects are specified in detail and cost estimates developed
Manpower and administrative support module
in which manpower requirements are
specified for the implementation as well as for the operation of the project and
sources of manpower identified and quantified
Financial/Budget module
in which the financial expenditures and revenues are evaluated along with an assessment of the alternative methods of financing.
Economic module
in which the project’s economic costs and benefits as a whole are appraised from the viewpoint of the economy.
Environmental Assessment module
Environmental Assessment module in which the various environmental impacts of the project are identified, evaluated and proposals developed for their mitigation.
Stakeholder module
Stakeholder module in which the project is appraised from the point of view of who receives the benefits and who pays the costs of a project. Where possible, quantification should be made to determine by how much each of these groups benefits or pays.
Secondary research
Utilization of the previous research
project Cycle
is important
Need, wants, and demand
n short, needs are things that satisfy the basic requirement. Wants are requests directed to specific types of items. Demands are requests for specific products that the buyer is willing to and able to pay for. In a consumer, market examples are usually very clear to identify.
CEA and CBA
Cost‐effectiveness analysis is a technique that relates the costs of a program to its key outcomes or benefits. Cost-benefit analysis takes that process one step further, attempting to compare costs with the dollar value of all (or most) of a program’s many benefits.
CEA and CBA2
calculates the monetary ratio of all costs to all benefits of a program
