Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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3.4.4 Forests and parks3.4.4.1 Project objectivesForestry and park projects can have different primary objectives:- increasing the production of wood or cork for commercial or energy purposes;- safeguarding the environment (prevention of soil erosion, control of water, environmental protection);- promotion of tourist-recreational activities.3.4.4.2 Project identificationThe main features to take into consideration are shown in the box below:MAIN FEATURES TO BE CHECKED AND ANALYSEDTechnical and engineering features (for example):- geographic position and altitude;- surface area;- maps showing position and description of biotypes and other interesting natural phenomena (waterfalls, caves, springs, etc.).Functional features (for example):- detailed description of projected operations, the extent (number of trees to be removed or planted, etc.) and methodologies (chosen species,type of cultivation, etc.), time period, form of management, type of treatment and execution period;- number, position and lay-out of service buildings, such as visitor centres, lodgings, canteens, observation posts, warehouses, sawmills;- number, position and capacity of possible tourist reception structures, such as hotels, refuges, restaurants, etc.;- access routes and links with the local and regional road networks.3.4.4.3 Feasibility and option analysisIn order to evaluate the feasibility of the project, different variables need to be analysed according to thetype of project:- for projects directed at increasing the production of wood or cork, the demand for the type of wood tobe produced;- for projects directed at promoting tourist-recreational activities, the forecast trends for tourist flows,including their seasonal trends etc.An impact analysis showing the sustainability of the proposed project, from an environmental point ofview, would be helpful.Option analyses to be considered for comparisons are:- different areas of intervention within the same forestry district;- different methodologies for amelioration, reforestation and cultivation;- different routes or typologies for footpaths, tracks and equipped areas;- different positioning of entrances, visitor centres, car parks, camp sites, etc. for projects for equippedparks and forested areas.3.4.4.4 Financial analysisThe financial inflows and outflows are:Financial inflowsFinancial outflows• Admission fees • Investment costs• Sales of collateral services - works• Sales of commercial activities - general expenses- expenses for special equipment• Operating costs- raw materials for operation- maintenance- administrative personnel costs124
The time horizon for project analysis is around 25-35 years3.4.4.5 Economic analysisBenefitsCosts- The benefits arising from the utilisation and transformation of wood, valued using the added value offorestry companies- The tourist-recreational benefits: they can be quantified and valued using the visitors’ ‘willingness-to-pay’method or the ‘travel cost’ method (particular care must be taken to avoid double counting of benefits)- If predictable, one should also consider the increased income for the tourist sector and related activities inthe areas adjacent to or linked with the park or forest involved compared to a situation without(consistency is however needed in the CBA approach, and an income multiplier effect cannot be used atthe same time as a shadow wage)- The benefits arising from the improvement of the countryside and environmental protection, and thebenefits arising from hydro-geological protection; they can be evaluated on the basis of the costs due toflooding, landslides etc. that will be avoided thanks to the project and, if demonstrable, the higher addedvalue of woodland production compared to a situation without the intervention- Apart from the costs listed in the financial analysis, as converted into economic prices, the costs related toincreased transport could be considered3.4.4.6 Risk assessmentCritical factors- Trends in tourist flows- Operating costsMainvariablesto consider- The dynamics of the tourism sector in the region- The structure of preferences of tourists- The risk of depreciation of the natural asset3.4.4.7 Other project evaluation approachesWhenever the proposed project contains any elements, which are of naturalistic, environmental, orscientific importance in themselves (e.g. the protection of a threatened species), then these should beconfirmed by a panel of qualified independent experts.3.4.5 Industrial zones and technological parks3.4.5.1 Project objectivesThe main objectives pursued in these kinds of projects are:- The establishment of the infrastructure for industrial zones, commercial and service areas;- The relocation of productive plants from excessively congested or polluted areas;- The setting up of new companies and supporting existing ones in a technological park.125
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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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There are many ways to design an MC
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PROJECT APPRAISAL CHECK-LISTCONTEXT
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- reduction of congestion by elimin
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- the methods applied to estimate e
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Page 119 and 120: 3.4.1.5 Economic analysisThe follow
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Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
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Page 136 and 137: 4.1.5 Scenario analysisTwo scenario
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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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