Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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3.3.4.2 Project identificationMAIN FEATURES TO BE CHECKED AND ANALYSEDSpecific data of the project:- A clear idea should be given of two aspects, which are strongly interrelated,- type(s) of telecom service offered,- the implementation programme and the target market share.Technical and engineering features (for example):- physical data such as the length of cables (km) and area covered by the network (square km), the number and position ofcommutation/connection nodes,- data, building techniques and technical features of networks,- data, building techniques, technical features and layout of auxiliary plants e.g. electricity supply, lighting, and remote control,- covered area (square metres).Functional features (for example):- type of communications infrastructure, traffic volume and type,- maximum communication speed (baud),- the functional and physical links between the projected infrastructure and the existing telecommunications system,- type of commutation, communication protocol, frequency bands (GHz) and power (kW).3.3.4.3 Feasibility and option analysisIn order to verify the feasibility of the project, the key issues are the volume of traffic and the daily, weeklyand seasonal trends (the optimum capacity must be a reasonable compromise between the highest peaklevels of traffic and that which the system can handle).The different options in these kinds of projects could be related to:- possible technical alternatives within the same infrastructure (e.g. different types of cables, differenttransmission protocols, different commutation/connection technologies etc.),- alternative locations for radio stations, possible global alternatives for the projected infrastructure,which can offer similar services such as a satellite transmission or mixed network (air-cable) rather thanoptic fibre cables.3.3.4.4 Financial analysisThe financial inflows and outflows are:Financial inflowsFinancial outflows• Sales for services (tariff based) • Investment costs• Rent of equipments - works• Accession charges - general expenses- expenses for new equipment• Operating costs- raw materials for production- maintenance- technical and administrative personnel costs- fuel and electricityThe time horizon is usually 20 years for cabled networks and long distance cables but shorter (10 years)for other components.3.3.4.5 Economic analysisThe benefits of a telecom project are mainly to be found in the increasing efficiency and accessibility ofthe existing services and in the additional services provided.- the time saved for each communication (waiting time, transmission time, etc.), quantifiable byappropriate measurement units according to type of service; for valuation purposes the users may bedivided into categories, for example in the household sector reference can be made to the averageBenefits income of users, and in the business sector to the average added value- the new additional services, that would be unavailable without the project. In some cases the timesaved method can be applied for their quantification and valuation, but in most cases it is possible toestimate the willingness-to-pay for the service by the usersCosts - local environmental impacts116
3.3.4.6 Risk assessmentCritical factors- Future demand- Investment costs- Technological evolution and probable obsolescence of the infrastructureMainvariablesto consider- Growth rates for the population and businesses- Dynamics of the sales prices for services- Investment costs for technological development- Length of the substitution cycles (ageing, technical obsolescence) of theequipment installed3.3.4.7 Other project evaluation approachesAn important aspect that might be highlighted is the flexibility of the project and its adaptability to futuredevelopment in the field of telematic and multi-media services. It could be useful to check for theadaptability, in technological terms, to wider needs stemming from likely future development (forexample: cable versus wireless local networks).CHECKLISTTry to estimate the volume of traffic and the daily, weekly and seasonal trendsIn the case of telephones, the existence of government-regulated tariffs may help in forecasting price dynamicsIn addition to the financial revenues, the following economic effects should be taken into account:- the time saved for each communication (users may be divided into categories),- the new additional services, which would be unavailable without the project (willingness-to-pay).3.4 Other sectors3.4.1 Education and training infrastructures3.4.1.1 Project objectivesProjects may focus on one or more of the following:- basic education- vocational needs- higher education (universities, business schools, etc.)- particular needs for specialisation in productive areas- improvement of the positioning of young people in the labour market- elimination of discrimination between social classes, genders- better opportunities for the disabled.3.4.1.2 Project identificationIn order to evaluate the project it would be advisable to specify the following features:117
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ACRONYMS AND ABBREVIATIONSBAUB/CCBA
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TABLESTable 2.1 Financial analysis
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FIGURESFigure 1.1 Project cost spre
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Cohesion Fund, and through the leve
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or the plant will not reveal excess
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CHAPTER ONEPROJECT APPRAISAL IN THE
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Some specifications for financial t
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FOCUS: INFORMATION REQUIREDGeneral
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In particular, CBA results should p
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CHAPTER TWOAN AGENDA FOR THE PROJEC
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objectives, are, as far as possible
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considered the appropriate shadow p
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2.3.2 Feasibility analysisFeasibili
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This approach will be presented in
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Current assets include:- receivable
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The following items are usually not
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Mainly, the examiner uses the FRR(C
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The dynamics of the incoming flows
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eturn on their own capital (Kp). Th
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While the approach presented in thi
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2.5.1 Conversion of market to accou
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Table 2.9 Electricity price dispers
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2.5.1.2 Fiscal correctionsSome item
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previously estimated in projects wi
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FOCUS: ENPV VS. FNPVThe difference
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2.6 Risk assessmentProject appraisa
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Table 2.14 Impact analysis of criti
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Figure 2.6 Probability distribution
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eneficiary. The project proposer sh
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Page 82 and 83: As shown in Figure 3.1, only under
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Page 95 and 96: Territorial reference frameworkIf t
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Page 101 and 102: projects, as in other sectors in wh
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Page 111 and 112: Examples of objectives are:- change
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Page 119 and 120: 3.4.1.5 Economic analysisThe follow
Page 121 and 122: Financial inflows• Admission fees
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Page 125 and 126: The time horizon for project analys
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Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
Page 131 and 132: - finally, there is the traffic tha
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Page 136 and 137: 4.1.5 Scenario analysisTwo scenario
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Page 146 and 147: 4.2.4 Economic analysisThe benefits
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Page 158 and 159: ate of 0.6% per year is assumed for
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4.4 Case Study: investment in a was
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4.4.2 Financial analysisAlthough in
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THE CALCULATION OF REVENUESReferrin
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0.15 m 3 /m 2 a depreciation of 20%
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As result, the probability distribu
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Figure 4.13 Probability distributio
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Table 4.48 Financial return on nati
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Table 4.50 Financial return on priv
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16 17 18 19 20 21 22 23 24 25 26 27
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4.5 Case Study: industrial investme
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4.5.4.1 Investment costsThe total i
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Finally, a residual value was estim
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This analysis shows the need to pay
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Table 4.62 Financial return on inve
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Table 4.64 Return on private equity
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Table 4.66 Economic analysis (thous
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ANNEX ADEMAND ANALYSISDemand foreca
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The method applied for the forecast
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Furthermore, travel demand depends
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This Guide supports a unique refere
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A higher discount rate for countrie
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Figure C.1 Project ranking by NPV v
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The main problems with this indicat
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EXAMPLE OF SHADOW WAGE IN DUAL MARK
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Another exhaustive way to include d
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Figure E.2 Percentage of low income
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ANNEX FEVALUATION OF HEALTH &ENVIRO
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Figure F.1 Main evaluation methodsS
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- expenditure on capital equipment
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due to air pollution or water conta
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BENEFIT TRANSFER - SELECTED REFEREN
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ANNEX GEVALUATION OF PPP PROJECTSIt
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adjustments for Competitive Neutral
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ANNEX HRISK ASSESSMENTIn ex-ante pr
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Reference ForecastingThe question o
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Figure H.5 Levels of risks in diffe
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ANNEX IDETERMINATION OF THE EU GRAN
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A.4. Technological Alternatives and
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GLOSSARYAccounting period: the inte
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Market price: the price at which a
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BIBLIOGRAPHY1. ReferencesBelli, P.,
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Ray, A. 1984, Cost-benefit analysis
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EnvironmentGeneralAtkinson, G., 200
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European Commission, DG Tren, 2003,
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Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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