Multidisciplinary Journal Supported by TETFund. The journals would publish papers covering a wide range of subjects in journal science, management science, educational, agricultural, architectural, accounting and finance, business administration, entrepreneurship, business education, all journals

1. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
98
EVALUATION OF COST AND BENEFIT ANALYSIS AS AN APPRAISAL
TECHNIQUE FOR DEVELOPMENT IN NIGERIA.
Muhammad Hassan1
, Muhammad Kabir Usman2
, Sadiya Danjuma3
and
Haruna Ahmadu4
1, 2,3
Department of Estate Management and Valuation
4
Department of Urban and Regional Planning,
Nuhu Bamalli Polytechnic, Zaria.
muhdkayb@yahoo.com
ABSTRACT
The main trust of investment appraisal is the examination of cost and benefit from an investment
in any proposed investment, be it private, corporate or government. There are various
implications in form of costs and benefits to the investor. Individuals and institutions other than
the primary investor may in some situation be directly or indirectly affected by the proposed
investment. The nature of the investment appraisal to be executed will depend on the type of
investment, the motive for the investment, the location of the investment and the person or
organization embarking on the investment. Cost and benefits can be viewed appropriately from
individuals, community and the different levels of government. This paper examines cost and
Benefits Analysis as an appraisal technique for national development. The method employed is a
review of related literature research and data were obtained from journals, articles and
published text. The paper focuses on the stages involved in the analysis as well as other issues
such as legal restriction, political instability, budgetary, physical and administrative constraints
that may prevent the achievement or findings of the analysis. It also note however, that not all
cost and benefit can be quantified, measures other than cost and benefit analysis should be
considered in making investment decision.
Keywords: Cost benefit analysis, Investment, National development

2. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
99
1.0 INTRODUCTION
Resources required to satisfy needs are available in exhaustible amounts, therefore it behooves
on individuals, groups-private and public enterprises etc. to exercise a high level on rationality
when they choose to employ them. The available resources i.e. resources not consumed are at
best invested in schemes or [projects that will yield benefits, profits, increase in wealth or
improved welfare condition. The returns to these investments could come in a continuous stream,
at specific regular intervals or at the end of the lifespan or the project depending on the form the
investment takes. Ajayi (1998)
Investors in the past employed the back of the envelope approach for consideration of their
investment proposals. The approach was effective to a large extent for man’s demand than mere
quite simple and did not require a great deal of skilled thinking and planning. Also, the investors
of that era had a small number of competitors to compete with. Modern time investment is
characterized by associated diverse complexities, stiff competition offered by a horde of similar
minded business men and uncertainties resulting in high risk levels. Therefore, a great deal of
consideration appraisal is essential.
Individuals investing mainly for profit in financial terms (private investors) now make use of
technique such as Internal Rate of Return (IRR) and the Net Present Value (NPV). Individuals
and group considering projects and schemes that will be beneficial to the public have the Cost
Benefit Analysis (CBA) as the appropriate technique. The C.B.A makes use of the Discounted
Cash Flow (DCF) technique which is also the nucleus of the I.R.R and the N.P.V technique.
Though believed to be an extension of them, the C.B.A however differs from the I.R.R and the
N.P.V techniques in several ways.
2.0 CONCEPTUAL CLARIFICATION, LITERATURE REVIEW AND THEORETICAL
FRAMEWORK
2.1 What Is Cost Benefit Analysis?
The C.B.A is a technique allowing public minded individuals and bodies (private and public) to
carry out benefiting (profitability/worthwhile) assessment of schemes or projects they intend to
execute. The investors here have to consider the impact their projects would have on them and
also on the society.

3. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
100
According to Balchim(1986), the cost and benefit evaluated here include those borne by external
individuals i.e. those not directly involved with the decision to invest in addition to those the
decisions executors will bear themselves. The external individuals considered here may not be
limited to those immediately surrounding the project easily observed to be affected but also to
resident far away from the project site but whom some effect may come to. Projects of this
nature are people oriented, providing welfare benefits to the people. Public bodies such as
government agencies, corporations and even some individuals are a few of the investors that
could have such investment intentions demanding the C.B.A technique.
There are costs and benefits to every project. The cost and benefits considered by the analysis are
not restricted to those easily evaluated and expressed in financial terms as number of crucial ones
have no ready market value but must be counted. Valuing external cost and benefits of this
nature pose some headaches to the analyst.
The analyst also has to apply an appropriate discount rate to all the cost and benefit accruing to
the project at whatever time in its life to enable their present time values to be known for the
total capital involvement is to be expressed in present time value.
In addition to the task above, deciding the limits to which externalities should be considered
poses some other problem. Crippling limitations are also experienced. All of them contributing
to making the appraisal expensive to fund, demanding a great deal of human and financial
resources if the desired goal is to be achieved. In Nigeria, as well as some other third world
countries, the absence of reliable data, census population figures, dearth of selfless public
officers, it will take a miracle for improved welfare conditions to be realized when government
choose to alienate the suffering of its people through the provision of infrastructure that are best
appraised using the C.B.A technique. Corruptions at various levels have let the C.B.A fail when
it is employed in Nigeria for the appraisal of infrastructure project.
2.2 Stages in a Cost and Benefit Analysis Study.
The procedure of a C.B.A study applies sensitivity and probability analysis which allows the
consideration as far as reasonably possible of past occurrences and results associated with
projects executed of similar nature to the one being considered. This consideration however does

4. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
101
not imply that predictions based on them are surely experience for the new project. Since past
events are never exactly repeated, future predictions based on them can at best be precise
approximations (Umeh, 1977). When new forms of spending are considered, it still applies the
theories as far as it reasonably possible.
According to Layard and Giaster, (2008)The C.B.A study is executed in a systematic manner of
stages:
- Identification and extent of cost and benefit
- Measurement and valuation of the cost and benefit.
- Timing and discounting of flows of cost and benefit.
2.2.1 The Identification and Extent of Cost and Benefit to Be Considered.
It is the intention of the C.B.A to consider all Cost and Benefit (private and social) accruing to a
project submitted to it. Private cost and benefits to a project can be easily established. For
example, the private cost and benefits to a planned project, say a road construction work would
include the cost of the road work paid to the contractor.
The cost of acquiring the land on which the road way is to be built, the cost of maintenance and
the cost of capital assuming it is borrowed. The private benefits could take the form of revenue
accruing to the road provider if motorist are made to pay usage fees at toll gates erected along it.
The provider is also happy that he has solved some transportation needs of the people.
Social cost accruing to the project could include the loss of an inherited land, for the land could
have been forcefully taken over by the regulatory body with a law or act newly enacted.
Compensation if given may never equal the value the initial owner placed on it. The people of
the locality would have to put up with a higher noise level than formerly experienced. Death or
injury to the inhabitants of the area may be recorded. Where the road is an important busy one,
the exhaust fumes given off by the presence of heavy vehicular traffic could cause adverse health
conditions for the people.
Social benefits envisaged to be guaranteed by the project include saving in journey time for road
users where the road shortens the distance between two economically important towns. There
could be an increase in property value in small towns” opened up” by the new road. However,

5. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
102
some analyst claim including the gain would result in double-counting as it is already taken care
of by savings in journey time. The new road would definitely offer economic gains to towns for
which the communication facility have been provided. Manufactured goods and agricultural
produce can now easily reach the much desired market.
2.2.2 The Measurement and Valuation of the Cost and Benefits.
When the cost and benefits to be encountered under the project have been identified, they have to
be measured and valued. Cost and Benefit could be tangible and intangible. Tangible ones such
as travelling time saved, reduction or increase in the number of accidents recorded accruing to
the project can be quite easily measured where an efficient system of data collection and storage
exists. Intangibles such as good tastes in architecture can accrue as well.
The cost and benefit identified and measured have to be accorded values usually expressed in
monetary terms. This is essential to enable easy comparisons to be made with other competing
projects or alternatives to a project. Sometimes money values are not always used as the
“Buchannan” report on “Traffic in towns” used an index number system for evaluation. Values
to cost and benefit are best derived from the market price index, where the market for them exist.
For example, the construction cost for a length of roadway could be derived from the cost paid to
a construction for a road of the same specification he built in the past.
The derived values would require some form of adjustments as externalities and monopolies
render some market imperfect. Sometimes, certain cost and benefit exists that are not traded in
the market, for example hearing impairment offered residents of an area by heavy vehicular
traffic. Values must be placed on them too. The Cost benefit analyst therefore invents values for
them accurately as reasonably possible. The resulting values are regarded as shadow or
administrative values. For example, a typical shadow price would be hourly wage rate to be used
in evaluating the time saved by the motorist using the Kawo bye-pass in Kaduna Metropolis.
More difficult problems arise when the value of life is being considered or damage created by
vehicular noise, difficulties are encountered here but should not be ignored because they are
difficult to measure and value.
Three general procedures exist for valuing intangibles. They only offer a guide as they cannot
cater for all forms of intangibles.

6. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
103
 The market could be stimulated by direct enquiry or survey with questions framed to
bring people’s true valuation in a situation where there is no transaction. Where the
intangible relates to a cost, the surrogate value will be the compensation demanded by the
sufferer to put up the nuisance. Samples must be carefully chosen, questions carefully
phrased and subsequent questions incorporated to serve as a check on the crucial answers
which may be conditioned by peoples incomes and also by the questionnaire.
 Another approach is to draw up inference from the observed behavior of people. A
suitable example here is the valuation of time. People do not buy and sell their time
except in terms of a contract or a paid occupation, but they nevertheless value time which
would be lost or gained by longer or shorter journeys to work or recreation. Time values
can therefore be inferred from empirical studies showing how people trade time against
matters which can be measured in monetary terms. For instance, how an individual
behaves when presented with alternative means of transport, one faster than the other, say
a Lexus car and a Volkswagen beetle car. Under normal circumstances, at even
distribution of wealth, individuals will prefer having a Lexus car to the Volkswagen
beetle for the superior quality of luxury and its ability to cover distance quicker. Say we
neglect the factors of comfort they would offer and reckon only with the reduction in
travel time offered by the Lexus car. An analyst could decide to adopt the difference in
value of the cars as the value people are prepared to pay for saving in travel time
provided.
 Another approach could extract the value directly from the society for intangibles. An
intangible such as a “Mosque” could be marked for demolition for public electricity
project to take its place. The government after valuing the property at say twenty million
naira is prepared to offer twenty and a half million to the Mosque officials to relocate the
Masjid. The worshippers may prefer twice that amount of money for their Mosque could
mean more to them than just the property’s worth. The extra they are demanding can be
used by the analyst as the value of the intangible i.e. Mosque with no market value.
Shadow values are however liable to bias and subjectively especially where a great deal
of discretion is applied by the analyst to cater for new form of spending. Due to this
particular problem, it is often thought that the Cost and Benefit Analysis is best used

7. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
104
when comparing similar projects rather than in comparing projects of completely
different natures (e.g. a water work project and a school expansion program)
2.2.3 Timing and Discounting of Flows of Costs and Benefits
After establishing and deciding on how to value the cost and benefits accruing to a
project, the analyst has to work out an appropriate time schedule when they will be
encountered. At whatever time they are, they will have to be reduced to a common period
at the time of the initial capital involvement. This is important for money spent or
received at the future time is worth less than an equal amount spent or received at the
present time. The flows of cost and benefit should be assessed for each year in the life of
the project so that either the net present social value or social yield can be calculated. The
Net Present Social Value (N.P.S.V) of a project is the sum of the present value of future
cash flows for all years of the project life. For example, to determine the N.P.S.V of a
proposed project, the forecast net of cash flows are discounted to the time of the initial
capital outlay. The rate of interest used to discount should be the social opportunity cost
of capital employed i.e., the rate of return that can be earned by investing the capital in
the next best social alternative. The N.P.S.V calculates profitability by subtracting the net
present values of all expenditures when they occur from the present values at all revenue
when they occur. Any project evaluated to have a positive present, that is greater than
zero, is a viable one and one revealing the highest N.P.S.V is the most profitable of all
alternatives to a project.
The social yield method requires that yields on alternative projects are known so that
comparisons can be made. If the yield of the project under consideration exceeds that on
the alternative, the project is worthwhile.
A problem encountered here is the selection of an appropriate discount rate. Innumerable
rates of interest reflecting different degrees of risk, knowledge and liquidity are available
in the investment market. Ideally, the rate chosen should be that of the managing risk free
yields for projects with a similar length of life. Since there is always some form of risk to
be borne, sensitivity analysis should be conducted discounting the cash flows at a number
of different discount rates and only if the project appears worthwhile under most
circumstances, should it be accepted. This is strongly recommended especially for

8. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
105
projects executed where the economy of the country is highly unpredictable like the case
of the Nigerian economy. As a way out of this problem, the long-term cost of borrowing
to the government can be employed if accepted.
2.3 Other Issues
While the ultimate desire requiring the Cost and Benefit Analysis is the assessment of the
worthwhile of a product, it is good practice to alert the client concerning constraints that
could prevent the achievement of the result/finding of the study. They are as follows:
 Budgetary constraint: the study of a project could show that it is profit earning.
The project may not be executed at all where the studying shows that the project
would require a great deal of financing before the returns accrue for possible
plough back. Where such an amount of money is not available for this form of
investment having so long as a gestation period it could be wise to abandon it.
Also where there is considerable doubt as to the availability of capital in the
market future form the maintenance of a white elephant project, it might be wise
not to dabble into it.
 Physical constraint: where a major requirement for a project is available in an
inelastic supply form, an investor could be advised to stockpile such a
requirement to insure the project against adverse effects that could come when the
material price suddenly rises in the market.
 Distributional constraint: certain projects are economically most efficient if
sited at certain locations. The decision taken is informed about the effects the
project will bear if the prescribed site is changed. Most government in Nigeria
frequently disregards the advice and replaces the prescribed sites with others for
political reasons.
 Legal restrictions: There must be legal framework for any project to be
executed. Where there is extreme pressure on legislature to repel on existing law,
it might be fool hardy for an investor to stick to his guns and insist on executing
the project affected by the law since it has shown to be profitable by the study.

9. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
106
 Administrative constraints: These ones are imposed by the limitations of the
administrative machinery. Where they are not as efficient as demanded by a
project, the project can be affected.
 Social instability: In a society highly instable like Nigeria, it is necessary to
highlight the effects a project will bear if demonstration or crises occur. This
information could be included in the report if desired by the client.
3.0 METHODOLOGY
Related literature on cost and benefit analysis study were reviewed, thus a knowledge base for
the current research was established.
4.0 DISCUSSION
4.1 The Cost and Benefit Analysis as an Appraisal Technique for National Development
Government can employ the C.B.A in the making of policies. This tool is greatly employed by
several governments developed nations. It informs the decision taker not only on the cost and
benefits to be associated with a project, but also who (what section of the society) bears them.
This service it provides becomes very useful where a given policy-maker is desirous of
distributing wealth amongst its people. As such, a project offering a high yield but regressive
income might be rejected and another with a low yield but income in line with the policy
objectives (favorable income distribution effects) will be accepted.
According to Pamela, M, (2007), C.B.A is intended to help decision makers to clarify areas of
argument and disagreement, separating data from assumptions and allowing those who disagree
to test the effect of alternative analysis. C.B.A is a strategic management tool that will allow
decision maker assume the effectiveness and efficiency of a government agency current and
future plan. For example, an agency in the process of making a major investment decision about
integrated solution that would prepare it for the 21st
century would be directed by the Federal
Government to compute a C.B.A to justify the investment decision upon completion of the
C.B.A, the agency would use the study to quantify the cost and benefit, decide in a plan of action
and submit a request for funding that would support the decision. As can be seen in the example,

10. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
107
the C.B.A provides many sources of information that can translate the National Development. It
helps government understand how to evaluate complex solutions, provide consistency in the
analysis and facilitate comparison among project alternatives.
5.0 CONCLUSION
The C.B.A has proved to be a useful tool for project evaluation. This is reflected in the manner it
considers project proposals submitted to it. Though it does all the consideration of some degree
of subjectively in the creation of shadow prices, in the selection of discount rates and in the
establishment of limits for considered alternatives, it still remains most useful in the hands of
policy makers for it does allow systematic examination of all aspects of a scheme including
externalities which are not allowed for in any purely private appraisal.
Generally, the best results are obtained from the C.B.A when it is used for choosing between a
limited range of alternatives with few intangibles to contend with of a given project because of
the difficulties encountered with defining, measuring and valuing of the intangibles.
However useful the C.B.A is, it can only be employed to aid better decision-making and not a
substitute for decision makers.
6.0 RECOMMENDATIONS
 C.B.A should be used for any project that involves policy development, capital
expenditure, use of assets or setting of standards.
 For a C.B.A to be truly viable for a project, it should be updated periodically
during the projects lifecycle as additional information regarding the project
implementation realized.
 C.B.A furnishes helpful information to the decision makers to aid them in making
effective investment decision. Nonetheless, it is not always possible to quantify
and convert intangible into cost and benefits associated with these investment
decisions. Therefore, future study may consider how to convert intangible cost
and benefit, such as strategies, capabilities or performance measures into more
defined tangible costs and benefits so that economic estimates computing net
present values are even more accurate and reliable in decision making and
investment decision.

11. Nuhu Bamalli Polytechnic Multidisciplinary Journal 2: (2) 98-108 Muhammad et al. (2017)
108
REFERNCES
Abelsun, P. (1979), Cost and Benefit Analysis and Environmental Problems, Gower Publishing
Company, Westmead, UK.
Ajayi, C.A (1998), Property Investment and Analysis, Ayo Publishers, Ibadan. Nigeria
Akersun, C.B (1985), The Appraisers Workbook, American Institute of Real Estate Appraisers,
Chicago, USA
Balchin, N. (1991), Urban Land Economic and Public Policy (Fourth Edition), Hamphire
Macmillian Education Ltd. UK
Barsby, C. (1972), Cost-Benefit Analysis and Manpower Programs Lexington Books.UK
Buchanan, C.(1971), ‘Note of dissent’, Roskil Commission on the Third London Airport, Report,
HMSO
Baum, A. and Crosby, N. (1988), Property Investment Appraisal, Rutledge, London. UK
Baum, A. and Mackman, D. (1989), The Income Approach to Property Valuation, Rutledge,
London.
Layard, R., Giaster, S.(1994), Cost-Benefit Analysis, Cambridge, U.K: Cambridge University
Press.
Neil, G. and Van Dijk(2008), Competition Policy: What Are The Cost And Benefit Of Measuring
Its Cost And Benefit? De Economist
Pamila, M.(2007) The Effectiveness Of Cost And Benefit Analysis In Making Federal
Government Decision, Journal Of Centre For National Security 6:11
Umeh, J. A.(1977), Feasibility and Viability Appraisal, Onibonje Publishers Ltd, Ibadan, Nigeria