Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

Market price: the price at which a good or service is actually exchanged for another good or service or for money,in which case it is the price relevant for financial analysis.Monitoring: the systematic examination of the state of advancement of an activity according to a pre-determinedcalendar and on the basis of significant and representative indicators.Multi-criteria analysis: MCA is an evaluation methodology that considers many objectives by the attribution of aweight to each measurable objective. In contrast to CBA, that focuses on a unique criterion (the maximisation ofsocial welfare), Multi Criteria Analysis is a tool for dealing with a set of different objectives that cannot be aggregatedthrough shadow prices and welfare weights, as in standard CBA.Mutually exclusive projects: projects that, by their nature, are such that if one is chosen the other one cannot beundertaken.Net Present Value (NPV): the sum that results when the discounted value of the expected costs of an investmentare deducted from the discounted value of the expected revenues. Financial net present value (FNPV). Economicnet present value (ENPV).Net revenues: the amount remaining after all outflows have been subtracted from all inflows. Discounting theincremental net revenues before financing gives a measure of the project worth of all resources engaged; discountingthe incremental net revenues after financing gives a measure of the project worth of the entity's own resources orequity.Non-tradable goods: goods that cannot be exported or imported, e.g. local services, unskilled labour and land. Ineconomic analysis, non-traded items are often valued at their long-run marginal cost if they are intermediate goods orservices, or according to the willingness-to-pay criterion if they are final goods or services.Opportunity cost: the value of a resource in its best alternative use. For the financial analysis the opportunity costof a purchased input is always its market price. In economic analysis the opportunity cost of a purchased input is itsmarginal social value in its best non-project alternative use for intermediate goods and services, or its value in use (asmeasured by willingness-to-pay) if it is a final good or service.Optimism bias: the tendency to be over-optimistic in project appraisal by under-estimating costs and overestimatingbenefits.Producer’s surplus: the value a producer receives over and above his actual costs of production.Programme: a co-ordinated series of different projects where the policy framework project purpose, the budget andthe deadlines are clearly defined.Project: a discrete on-off form of expenditure. Used in this Guide to define an investment activity upon whichresources (costs) are expended to create capital assets that will produce benefits over an extended period of time. Aproject is thus a specific activity, with a specific starting point and a specific ending point, that is intended toaccomplish a specific objective. It can also be thought of as the smallest operational element prepared andimplemented as a separate entity in a national plan or program.Project analysis: the analytical framework for the evaluation of a project’s feasibility and performance. It includesthe analysis of the context, the objectives, technical aspects, demand forecasts, financial and economic costs andbenefits project analysis is needed to determine if, given the alternatives, a proposed project will sufficiently advancethe objectives of the entity from whose standpoint the analysis is being undertaken to justify the project.Project cycle: a sequence of the series of necessary and pre-defined activities carried out for each project. Typicallyit is separated into the following phases: programming, identification, formulation, ex-ante evaluation, financing,implementation and ex-post evaluation.Project evaluation: the last phase of the project cycle. It is carried out to identify the success factors and the criticalareas in order to understand and diffuse the lessons learnt for the future.Public Private Partnership: a partnership between the public sector and the private sector for the purpose ofdelivering a project or a service traditionally provided by the public sector.Public Sector Comparator: this represents the least public procurement cost (including all capital and operatingcosts and share of overheads) to achieve the required service delivery outcomes, and is used as a benchmark forassessing the potential value for money of private party bids.246