Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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3.4.5.2 Project identificationThe main features to take into consideration are shown in the box below:THE MAIN FEATURES TO BE CHECKED AND ANALYSEDBasic data (for example):- identification of the catchments area, the size of target companies (e.g. craftsmen, SME’s, medium and large.) and theproductive segments,- the number, size and type of companies involved,- the types of real services and scientific/technological laboratories, if present.Technical and engineering features (for example):- location and surface of the equipped area and the breakdown into plots,- internal viability and links with external networks,- significant technical elements, such as specialised laboratories, multimedia services centres, etc.3.4.5.3 Feasibility and option analysisThe feasibility of the project should be verified by estimating the demand from existing companies torelocate to the new industrial area and the number of new companies that would be born thanks to thenew equipped area.The options analysis should consider alternative policy approaches, e.g. direct subsidies to companies formoving premises, purchases of real services, technological innovation, new production lines or newlyconstituted companies, etc.3.4.5.4 Financial analysisFinancial inflows• Rent or licensing costs of land• Rent or licensing costs of warehouses• The sales prices of real servicesFinancial outflows• Investment costs- works- general expenses- expenses for special equipment• Operating costs- goods and services necessary for the running of theinfrastructure- maintenance- technical and administrative personnel costs- energyThe time horizon for project analysis is usually around 20 years3.4.5.5 Economic analysisThe strategic goal for these types of investments is usually to create a favourable environment for theeconomic growth of a relatively depressed area. This long-term objective should be achieved through:- diffusion of entrepreneurial knowledge and skills among the beneficiary companies- the re-training of personnel- the birth and/or relocation of new service companies- reputational effects- general reduction of start-up related business costs.Anyway these aspects should be fully analysed in an economic impact analysis.126
A Cost-Benefit Analysis should consider:BenefitsCostsBetter positioning in the market for existing companies. To evaluate the benefit arising from the betterpositioning, it is necessary to consider:- savings in transport costs- effect of possible promotional activities- lower costs for basic services- technological improvements- availability of real servicesIn addition to the costs listed in the financial analysis, the other costs that might be considered are:- environmental costs- urban and transport congestion caused by the realisation of the infrastructure. Note, however, that sincethe impacts considered increase in the area surrounding the new infrastructure, they should decrease in therest of the catchments area; the global effect – which is what should be considered in the analysis – maybe for the better or for the worse3.4.5.6 Risk assessmentCritical factors- Investment costs- Difficulty in forecasting the real rate of penetration in the catchmentarea, from the point of view of both the relocation of companies andthe development of new businessesMainvariablesto consider- Expropriation costs- Equipment costs- The rate of installations in the area- The birth and early mortality rate of new businessesCHECKLISTEstimate the demand from existing companies to relocate to the new industrial areaForecast the number of new companies that would be born thanks to the new equipped areaEvaluate carefully possible expropriation costsThe main economic benefits are represented by the cost savings that being located in such an area could ensure for thecompanies. In evaluating the cost savings it is necessary to forecast the costs that a company is expected to sustain iflocated in an industrial zone and the costs the same company would have sustained in another location with the samebusiness level.127
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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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- the marginal external costs: cong
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Page 84 and 85: 3.1.3.7 Other project evaluation ap
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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
Page 103 and 104: 3.2.3.2 Project identificationBasic
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Page 111 and 112: Examples of objectives are:- change
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Page 115 and 116: 3.3.3.6 Risk AnalysisCritical facto
Page 117 and 118: 3.3.4.6 Risk assessmentCritical fac
Page 119 and 120: 3.4.1.5 Economic analysisThe follow
Page 121 and 122: Financial inflows• Admission fees
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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 142 and 143: Table 4.12 Financial return on capi
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Page 146 and 147: 4.2.4 Economic analysisThe benefits
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Page 156 and 157: 4.3 Case Study: investment in an in
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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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