Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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4.1.5 Scenario analysisTwo scenario analyses have been conducted on the two alternatives, each considering 20% changes in avariable baseline value:- reducing the value of time savings;- increasing the vehicles operating costs;- increasing investment costs.The analysis demonstrates that the performance of the free motorway is robust, while the results for thetolled option are more controversial. The ranking of the two options is not affected by the values appliedto time savings and externalities. In fact, for both options the project remains feasible from a socioeconomicpoint of view even when taking into account a lower value for the externalities and time savings.The results of the sensitivity analysis are shown in the following Table.Table 4.8 Project performances in the scenario analysisTolled motorway ERR (%) ENPV (Millions of Euros)Baseline case 5.0 -41.3- 20% value of time 3.8 -144.4+20% vehicles operating costs 4.8 -63.4+ 20% investment costs 3.9 -158.0Free motorway ERR (%) ENPV (€)Baseline case 7.8 212.9- 20% value of time 6.2 72.1+ 20% vehicles operating costs 7.8 239.9+ 20% investment costs 7.1 195.04.1.6 Risk assessmentThe risk assessment has been conducted on the investment costs, which emerged as a critical variable inthe sensitivity test: it has been completed only on the selected option, the free motorway, and only for theeconomic performance indicator ERR.An asymmetric triangular probability distribution has been assumed with the following range of values: theinvestments costs can be lower than the estimated ones by maximum 20% and they cannot be higher thantwice the estimated ones. These basic assumptions have been derived from the data collected for similarprojects. The probability distribution is shown in the following Figure 4.1:Figure 4.1 Probability distribution of investments costs, Triang (0.8; 1; 2)1.81.61.41.210.80.60.40.20X
The results of the analysis are presented in the following Figures, which show that the project risks arehigh since there is a 44.9% probability that the ERR will fall below 5.5%. Therefore, the results of theanalysis suggest that a risk management procedure should be incorporated into the projectimplementation.Figure 4.2 Results of the risk analysis for ERR25X
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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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- the benefits for the existing tra
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The following tables show some refe
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3.1.1.6 Risk assessmentDue to their
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As shown in Figure 3.1, only under
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3.1.3.7 Other project evaluation ap
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Page 95 and 96: Territorial reference frameworkIf t
Page 97 and 98: Cycle and phases of the projectGrea
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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
Page 105 and 106: 3.2.3.7 Other project evaluation ap
Page 107 and 108: In order to evaluate the overall im
Page 109 and 110: for regassification plants, number
Page 111 and 112: Examples of objectives are:- change
Page 113 and 114: decontamination if any;- the techni
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 125 and 126: The time horizon for project analys
Page 127 and 128: A Cost-Benefit Analysis should cons
Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
Page 131 and 132: - finally, there is the traffic tha
Page 134 and 135: c) Road users producer’s surplus:
Page 138 and 139: The financial performance indicator
Page 140 and 141: Table 4.10 Economic analysis (Milli
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 152 and 153: Table 4.22 Economic analysis (Milli
Page 156 and 157: 4.3 Case Study: investment in an in
Page 158 and 159: ate of 0.6% per year is assumed for
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Page 162 and 163: As a result, the probability distri
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Page 170 and 171: 4.4.2 Financial analysisAlthough in
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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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