Proj Devt Flashcards
3 Phases of Project Development
Pre-investment Phase
Investment Phase
Post-investment Phase
Sub-phases of pre-investment phase (4)
Project concept or identification
Project definition or preparation
Project feasibility study
Project approval and financing
Sub-phases of investment phase (2)
Detailed engineering/design
Project implementation
Sub-phases of post-investment phase (2)
Project operation
Ex-post evaluation
Occurs when resources can no longer be reallocated to make some economic agents better off without making one or more individuals worse off
Pareto optimum
Occurs when the gains to those who benefit from a project are sufficient to compensate those who are made worse off and still leave residual benefit
Potential Pareto improvement
This refers to the situations when markets fail to allocate resources efficiently. Some reasons are failure of competition, or monopoly power, public goods, externalities, information failure, and incomplete markets.
Market failure
Refers to the assessment of the project’s commercial profitability and capability to service its obligations. A project’s financial attractiveness to its investors is measured by the use of financial indicators such as ___
Financial analysis, net present value (NPV)
Assessment of the project’s desirability in terms of its net contribution to the economic and social welfare of the country as a whole. Residual benefit is measured by the ___ of the incremental net economic benefits
Economic analysis, net present value (NPV)
A tool used in project analysis to identify and possibly quantify the costs and benefits of a project that accrue to the different project participants, e.g., consumers, suppliers, government, project workers
Distributional or stakeholder impact analysis
An assessment of the adequacy of the local institution responsible for managing the different stages or phases of the project
Institutional analysis
- A technique for assessing a project’s risk
- Simultaneously takes into account the different ranges of possible values and different probability distributions, either continuous or discrete, for key project variables
Monte Carlo simulation
The analysis of project risks associated with the value of key project variables (e.g., price of the good the project will produce, inflation, price of key inputs) and therefore the risk associated with the overall project result
Risk analysis
The analysis of the possible effects of adverse changes on a project
Sensitivity analysis
Costs that are incurred with or without the project and have no opportunity costs to the project
Sunk costs
- The value of the inputs and outputs including the effect of general inflation
- This is the price of a good seen in the market
Nominal/current price
- The value of the inputs and outputs without the effect of general inflation
- It reflects the value of the good relative to the other goods in the economy
Real/constant price
Nominal price formula
Nominal price = real price x (1 + inflation rate)
A process of translating future values into its present worth. This process takes a future peso amount and reduces it by a discount factor that reflects the appropriate interest rate
Discounting
- The difference between the present value of the benefit stream and the present value of the cost stream for a project
- Should be greater than ___ to be acceptable
Net Present Value (NPV), zero
Net Present Value formula
NPV = (B-C) / (1+r)^t
The ratio of the present value of the project (financial or economic) benefits stream to the present value of the project (financial or economic) costs stream, each discounted at the appropriately defined discount rate
Benefit-Cost Ratio (BCR)
Benefit-Cost Ratio formula
BCR = (NPV of benefits) / (NPV of costs)
- This appraisal technique is primarily used in social projects and programs, and sometimes in infrastructure projects, when quantifying benefits in monetary terms is difficult
- Useful in choosing from different technologies that provide the same service
Cost Effectiveness Analysis
A collection of buyers and sellers that interact, resulting in the possibility of exchange
Market
- Reflects demand for a product for final consumption purposes
- Examples of such products are basic food commodities, housing, clothing, health care and basic educational services
Consumer demand / final demand
- The demand for a product used as an input in the production of other goods and services
- Examples are the demand for lumber for furniture-making, for oils and fuels for industrial processes, and for research, training and skills for various productive applications
Producer demand / intermediate demand
- Special case of consumer demand where services have no market price, where needs are virtually unlimited, and where instead of consumer incomes, the limiting factor is government’s ability to pay
Demand for social services
The movement of a variable that tends to oscillate above and below its secular trend line for a period longer than one year, sometimes even longer than twenty years
Cyclical fluctuation
Behavior of the variable that indicates a pattern within a period of one year
Seasonal variation
Used to understand which among the independent variables are related to the dependent variable, and to explore the forms of these relationships
Regression
The degree to which two variables are systematically associated with each other
Correlation
The statement of a project’s cash inflow and outflow year by year throughout its expected life
Financial cash flow statement
The benefit forgone by not putting the asset to its best alternative use
Opportunity cost
The highest financial price it could be sold for
Financial opportunity cost
Current assets net of its current liabilities
Working capital
An accounting cost which reflects the interest foregone because funds are tied up in the construction of the project
Interest during construction (IDC)
Represents the value of additional resources required beyond the original cost to complete the project
Physical contingency
The maximum amount consumers are prepared to pay for a good or service
Willingness to pay
The economic price of foreign currency
Shadow exchange rate
- The cost of a company’s funds (both debt and equity), or, from an investor’s point of view “the required rate of return on a portfolio company’s existing securities”
- It is used to evaluate new projects of a company
Economic cost of capital (ECC)
Percentage difference between the Shadow Exchange Rate and the Official Exchange Rate
Foreign Exchange Premium
A good or service is considered ___ when an increase in demand (supply) by a project does not affect the amount demanded (supplied) by domestic consumers (producers)
Tradable goods and services
A commodity or service is ___ from a country’s point of view if its domestic price lies above its FOB export price or below its CIF import price
Non-tradable good
- A means of testing how sensitive a project’s outcomes (cashflows, NPV or IRR) are to changes in one parameter value at a time
- “What-if” analysis
Sensitivity analysis
This analysis allows a number of variables to be altered in a consistent manner at the same time
Scenario analysis
Collecting, recording and reporting information concerning any and all aspects of the performance of a project or a program that a project manager or head of the organization/agency or controlling agency may wish to know
Monitoring
- A development management approach aimed at enhancing the likelihood of achieving the desired outcomes and longer-term impact of development projects
Results Monitoring and Evaluation (RME)
Points in a project when a major activity either begins or ends, or cost data becomes critical
Milestones
Defines a project in a structured format via the facilities and the items required to build the facilities, or the contracts required to complete construction of the facilities
Work breakdown structure (WBS)
A chart depicting work to be done and some of the interrelationships between and among all phases of the work
Gantt chart
Plotting project activities according to network techniques results in the depiction of the project as a collection of parallel paths from project start to finish. The network will show several courses of paths of project completion
Critical path method (CPM)
The ___ will present the sequence of activities requiring the longest time for project completion.
Critical path
- A participatory planning tool whose power depends on the degree to which it incorporates the full range of views of intended beneficiaries and others who have a stake in the project design
- A tool for summarizing the key features of a project design at the time of project identification, during preparation and at appraisal
Logical framework (LogFRAME)
A two-page report that highlights the main areas of slippage and shortfall, the problems leading to the shortfall and the action areas requiring immediate attention
Flash report
- A consolidated flash report on all projects where critical milestones have slipped or the commissioning date has not been honored
- Presents an at-a-glance picture of shortfalls and bottlenecks faced by major projects
Exception report
A liability equal to the amount of the purchase or the proportion of it that was not in cash
Accounts payable
An asset equal to the amount of the sale net of cash receipts. These are amounts owed to the project proponent by its customers
Accounts receivable
An indirect benefit associated with the improvement in the extent to which the basic needs of specified segments of society, e.g., the poorer house¬holds, are met
Basic needs externality
The amount of cash held for facilitating the transactions of the business
Cash balance
The price of an imported good at the port of destination
Cost of insurance and freight
Savings to existing consumers arising from the difference between what they are willing to pay for an output and what they will actually pay for the project’s output
Consumer surplus
Ratio of a commodity’s economic price to its financial (demand or supply) price
Commodity specific conversion factor
Cash and other assets that are expected to be realized in cash or sold or consumed during the normal operating cycle of the entity or within one year, whichever is longer
Current assets
These are obligations that are expected to be satisfied either by the use of current assets or by the creation of other current liabilities
Current liabilities
Systematic short-term movements with higher values, followed by lower values, followed by higher movements again
Cycle term
The price at which purchasers are willing to buy a given amount of project output, or the price at which a project is willing to buy a given amount of project input
Demand price
A percentage term representing the rate at which the value of equivalent benefits and costs decrease in the future compared to the present
Discount rate
A table or a formula listing all possible values that a discrete random variable can take on, along with the associated probabilities
Discrete probability distribution
Markets with distortions which drive a wedge between marginal economic benefit and marginal economic costs, such as taxes, subsidies, tariffs, monopoly power, externalities
Distorted markets
The value to the economy of the set of activities given up by the workers including the non-market costs (or benefits) associated with the change in employment
Economic cost of labor or the shadow wage rate
The real rate of return in economic prices on the marginal unit of investment in its best alternative use
Economic opportunity cost of capital or Social discount rate
The weighted average of the demand price (willingness to pay) and the supply price (economic resource cost).
Economic price
The percentage change in one variable divided by the percentage change of another variable, all things remaining unchanged. It measures the responsiveness of one variable to another variable holding other things constant.
Elasticity
Any difference between the observed values and forecasted values.
Error term
- Effects of an economic activity not included in the project statement from the point of view of the main project participants, and therefore not included in the financial costs and revenues that accrue to them
Externalities
- An occurrence or incident that confers benefits (damages) on some persons who are not fully consenting parties in reaching the decision that gives rise to the event in question
Externality
Summary indicators used to assess the financial situation and performance of a project. Such indicators are used to measure a project’s liquidity and solvency, operating efficiency, debt coverage and profitability, among others
Financial ratios
The assessment that a project will have sufficient funds to meet all its resource and financing obligations, whether these funds come from user charges or budget sources; will provide sufficient incentive to maintain the participation of all project participants; and will be able to respond to adverse changes in financial conditions.
Financial sustainability
The price of an exported good at the port of origin.
Freight on board
The three basic postulates underlying the economic analysis of projects
1 - undistorted demand price
2 - undistorted supply price
3 - costs and benefits
Harberger postulates
Additional output produced by a project over and above what would be available and demanded in the without project situation
Incremental outputs and inputs
An increase in the general price level
Inflation
A produced good or service which is used as an input to the production of another good or service
Intermediate good
The discount rate at which the NPV is equal to zero
Internal rate of return
Internal rate of return formula
0 = (B-C) / (1 + IRR)^t
An inter-agency committee of the NEDA Board tasked to evaluate the technical, financial, economic, social and institutional develop¬ment feasibility/viability of major capital projects and to review the fiscal, monetary and BOP implications of MCPs
Investment Coordination Committee
Translates present values of benefits and costs to their future equivalent
Compounding
A tool for decision-making wherein the marginal (i.e., incremental) benefit of the activity being considered is compared with the marginal (incremental) cost of undertaking the activity
Marginal analysis
The incremental benefit (e.g., revenue or utility)/cost (e.g., use of input) arising from a new activity
Marginal benefit/cost
The additional output produced with the employment of an additional unit of labor, holding constant the utilization of other factors
Marginal product of labor
- The common yardstick that measures the objective being maximized
- The unit of account used in measuring costs and benefits
Numeraire
The scale of the project that will maximize its net present value
Optimal scale of project
The beginning period of a project that will maximize the net present value of the project
Optimal timing of project
Exists when:
(i) agents are atomistic (i.e., there is no single buyer or seller which can influence prices);
(ii) there is no product differentiation;
(iii) there is perfect information (all economic agents know the information the others possess); and
(iv) there is no barrier to entry and exit.
Perfect competition
Simply normalizes the price level so that in the base period the index is equal to one
Price index
The excess of the revenue received by a producer of a commodity over the minimum amount they would be willing to accept to maintain the same level of supply
Producer surplus
The smallest, separable investment unit that can be planned, financed and implemented independently. It involves the use of scarce resources during a specific time period for the purpose of generating a socio-economic return in the form of goods and services
Project
The process composed of phases through which a project undergoes from inception to maturity.
Project cycle
Summary indicators used to determine a project’s profitability from both the financial and economic standpoints
Project evaluation criteria
Goods characterized by very low levels of subtractibility and excludability
Public goods
Implies that a good is available to all consumers at the same time, and consumption by one consumer does not use up or reduce the supply available for another consumer
Low subtractibility
Implies that if a good is provided to a consumer in a defined region then other consumers in that region cannot be easily excluded from consuming the same good
Low excludability
The return on capital that will accrue to the owners of a project after all financial obligations to lenders, government, workers, and suppliers are met
Return on equity
The rate used to discount the future streams of economic benefits and costs
Social discount rate
The ratio of the economic price value of all goods in an economy at their border price equivalent values to their domestic market price value
Standard conversion factor
The price at which project inputs are available, or the price at which an alternative to the project output is available
Supply price
This concept implies that money received or consumed today has greater value than the same money received or consumed at some future time
Time value of money
Long term movements in a series
Trend term
determined by calculating the relative weights of the capital resources and multiplying them with the corresponding opportunity cost of capital for each of the capital resource
Weighted average cost of capital (WACC)
The comparison of the situation before the project is implemented with the situation after the project is implemented
Before and after analysis
The comparison of the situation or state of affairs with the project against the most likely situation that would prevail without the project
With or without analysis
The price at which goods and services are available on the international market
World price
Benefit cost ratio formula
NPV of benefits / NPV of costs
Payback period formula
Initial investment / cash inflow
