Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

investment cost threshold, clearly it is good practice that the managing authority looks at the latter in asimilar way. In fact, some projects, not falling into the ‘major’ category, will form a sizeable share ofoperational programmes. National guidelines will probably use different thresholds to define the extent ofCBA to be performed on any investment project included in an Operational Programme.5. LimitationsWhile the project appraisal guidelines presented are intended to be both practical and well grounded ininternational experience and evaluation research, they have obvious limitations. CBA is applied socialscience and this is not an exact discipline. It is largely based on approximations, working hypotheses andshortcuts because of lack of data or because of constraints on the resources of evaluators. It needsintuition and not just data crunching and should be based on the right incentives for the evaluators to dotheir job in the most independent and honest environment.Establishing this environment is largely a matter of institutional building, local culture and transparency ofthe decision-making process, including the political environment. No technical document can addressthese important issues which are beyond the scope of the Guide. In fact, the content of the CBA Guide isno more than a structured set of suggestions, a check list, but good project analysis needs adaptation tolocal circumstances and it should be based on professional skills and personal ability.More expert readers may find that many issues have been dealt with too briefly or have been overlooked.The reading list at the end of the Guide, and the reference to some web-sites, can offer some additionalmaterial. However a selection was necessary and the criterion for what to include and what to exclude wassimple: relevance to the EU context combined with feasibility. After all, if some techniques of analysishave been proposed or discussed until now in learned journals only, or have been applied in a very smallnumber of cases, there was limited scope to include them here. It is not the aim, here, to coverexhaustively the huge academic literature on project analysis. Also, the Guide is a generalist text and, whileit includes case studies and summary information on specific sectors, the reader in search of detailedguidelines on special fields, e.g. high speed railways, ports, health or some environmental projects, isadvised to consult the specific applied CBA literature. Some key references are given in the bibliography.6. The six steps for a good appraisalThe approach of this Guide is to suggest that a project appraisal document should be structured in sixsteps: A presentation and discussion of the socio-economic context and the objectivesThe first logical step for the appraisal is a qualitative discussion of the socio-economic context and theobjectives that are expected to be attained through the investment, both directly and indirectly. Thisdiscussion should include consideration of the relationship between the objectives and the prioritiesestablished in the Operational Programme, the National Strategic Reference Framework and consistencywith the goals of the EU Funds. This discussion will help the Commission Services to evaluate therationale and policy coherence of the proposed project. The clear identification of the projectIdentification means that the object is a self-sufficient unit of analysis, i.e. no essential feature orcomponent is left out of the scope of the appraisal (half a bridge is not a bridge); indirect and networkeffects are going to be adequately covered (e.g. changes in urban patterns, changes in the use of othertransport modes) and whose costs and benefits are going to be considered (‘who has standing’?).The study of the feasibility of the project and of alternative optionsA typical feasibility analysis should ascertain that the local context is favourable to the project (e.g. thereare no physical, social or institutional binding constraints), the demand for services in the future will beadequate (long run forecasts), appropriate technology is available, the utilisation rate of the infrastructure13