PED guidebook main sxn rev6. FINAL.pdf - LGRC DILG 10

Strengthening Provincial/LocalPlanning and Expenditure ManagementProject Evaluationand DevelopmentExample (y.3) NPV (B-10%, C+10%).• All cost estimates are increased by 10%,• estimates of benefit stream are reduced by 10%.• Compute the corresponding NPV.Example (y.4): Consider again our communal irrigation project. The result of thesensitivity analysis is given below. Here, we see that the project is more sensitiveto changes in the benefit stream. A 30% decrease in benefits will make the NPV tobe negative. We, therefore, need to reinforce our CIP and include provisions for theproper operations and maintenance. Any component that can raise productivity,e.g., better technologies will also address this problem.NPV resulting from% Change Increase in Cost Decrease in BenefitsIncrease in costand Decrease inBenefits10 6,295,769.95 3,764,624.87 2,704,632.2920 5,235,777.37 173,487.21 (1,946,497.94)30 4,175,784.80 (3,417,650.44)40 3,115,792.2250 2,055,799.6560 995,807.0770 (64,185.50)8090100Also, from the table we see that a 70% increase in the cost of investment andoperations and maintenance costs will cause the NPV to be negative. Thus, weshould be wary of implementing this project if the project costs escalate by about70%. Still, we note that the margin of 70% is liberal. We should be able toinclude the technical assistance package without compromising the economicfeasibility of the study, at the same time that the benefit stream is assured.If the project’s economic viability is compromised, givensmall deviations from the assumed cost and benefitstreams, the project should be reinforced or else shelved. Itcan still be undertaken if the deviation is deemed highlyunlikely to happen within the implementation period.RGEdillon January 200657