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Social Cost Benefi Analysis


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Social Cost Benefi Analysis- Our 3rd semester assignment on Project Management

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Social Cost Benefi Analysis

  1. 1. SOCIAL COST BENEFIT ANALYSIS (SCBA) By: Sheereen (027) Ankita (005)
  2. 2. WhAT IS SCBA? • Social cost-benefit analysis of anything is associated with its social impact. • Social cost benefit analysis is a part of calculating the merits of a project or a government policy. • Only after calculating the opportunity cost of a project, it is approved.
  3. 3. EXAMPLE •If a bridge is to be constructed then how much will it benefit the people who live in that . particular area, is to be analyzed. •Therefore, how many people are willing to use the bridge, how much traffic will be reduced and what is the increase in cost of travelling, will have to be assessed as a whole to come to a conclusion. •Suppose, if people are not willing to use the bridge if the cost of travelling from the bridge is $5 and if $7 has to be charged per vehicle to make this project feasible, then the government may consider dropping the project out.
  4. 4. EXAMPLE •On the other hand, if people are willing to travel using the bridge, being indifferent to the toll price-difference of $2, and the traffic is reduced by a good amount, then the government will sanction the project. •Therefore, it is beneficial to take up a project if its total benefits (B) are more than its total costs. •Thus, it can be said that if, B/C > 1 or even when B=C, then a project can be under taken.
  5. 5. EXAMPLE •Before sanctioning a project, cost and benefit of alternative projects are assessed too. •For example, the opportunity cost of setting up a hospital instead of a school.
  6. 6. ScoPE of SociAL coSt BEnEfit AnALySiS • SCBA can be applied to both public and private investments • Public Investment: SCBA is important specially for the developing countries where govt. plays a significant role in the Economic development • Private investment: Here, SCBA is also important as the private investments are to be approved by various governmental and Quasigovernmental agencies.
  7. 7. Importance of SocIal coSt BenefIt analySIS Market •Market failure when a big project is not affecting everyone but only a few. • A private firm would only look at profitability and related market prices to take up a deal but the government has to look at other factors. •To determine the social cost in case of market failure and when market prices are unable to define them. •These social costs are known as shadow prices.
  8. 8. Importance of SocIal coSt BenefIt analySIS Savings & Investment •Impact of the project on general savings and investment level. •A project that induces more savings are investment in an economy and not the other way round. Distribution & Redistribution of Income •The project should not lead to accumulating income in the hands of a few but, it should equally distribute the income.
  9. 9. Importance of SocIal coSt BenefIt analySIS Employment and Standard of Living •How a project affects employment and standard of living will be taken into account as well. • The deal should lead to increase in employment and standard of living. Externalities •Externalities are impacts of a project which can be both harmful and beneficial. •Therefore, both the effects are to be assessed before sanctioning a deal.
  10. 10. Importance of SocIal coSt BenefIt analySIS •Positive-externalities could be in the form improvement in technology and negative-externalities could be in the form of increase in pollution and destruction of ecology. Taxes and Subsidies •In a general cost benefit calculation, taxes and subsidies are considered as expenses and income respectively. •Though in case of social-cost benefit analysis, taxes and subsidies are considered as transfer payments.
  11. 11. conclUSIon •Social cost benefit analysis enables the government to take up new developments which will benefit everyone and not just a few. • Also, it helps in bringing about an overall development in an economy and can help make decisions that will increase employment, investments, saving and consumption, thus, improving the economic activities in an economy.