CBA can help: • Stop bad projects/programs • Adopt good projects/programs • Reduce uncertainty and manage risk • Monitor and implement effectively

1. Cost Benefit Analysis:
An Introduction

2. What is a Project ?
• The smallest separable unit that can be
planned, financed and implemented
independently.
• An activity that involves the use of scarce
resources during a specific time period for the
purpose of generating socio-economic return
in the form of goods and services.
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3. What is CBA?
• An ex-ante exercise to assess the investment
opportunity
• Assesses project as an “incremental” activity
• i.e. benefits “with” the project compared with
situation “without” the project…..
• as different from a “before” and “after” analysis.
• Reason: To identify the specific benefit arising
out of the additional or new investment.
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4. • Used by both govt and business
• CBA is used to:
• determine whether a proposed
project is worth doing
• choose the best from among
alternative proposals
• CBA involves comparing the total expected
costs of each option against the total expected
benefits.
• Costs & benefits must be adjusted to reflect the
time period in which they are experienced and
their true economic value.
Use of CBA
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5. • 2 way linkage between project analysis and development
plans
• CBA can help answer critical questions ex-ante
• Is the project beneficial for the economy/society?
• Is it sustainable?
• Who are the winners and losers? Do the poor benefit?
• What factors most impact performance?
• Should Govt. fund it? Are the benefits to society
higher than the costs?
• CBAA is closely linked with Monitoring and Evaluation:
• Collects baseline data, identifies critical variables
• Ex-post CBA compares with- and without-project
scenarios—one method of doing impact evaluation.
Use of CBA..
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6. Uses of CBA for us…
• Objective, unbiased decision making
• Safety net against
RTI+CVC/CAG/CBI/Courts/citizens
• Possibly a tool to muffle unreasonable demands
• Increases probability of right decisions
• Every PPP will need econ and fin appraisal
• Most of the Cabinet Notes will ask for alternates
and CBA of all the alternates
• In every public policy there is need for a CBA
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7. CBA can help:
• Stop bad projects/programs
• Adopt good projects/programs
• Reduce uncertainty and manage risk
• Monitor and implement effectively
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8. Methodology of CBA
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9. Investment Projects
Financial Appraisal
NPVe EIRR
Do we proceed further ?
Economic Appraisal
NPV ?
IRR ?
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10. What does CBA entail
• Financial appraisal of project from various points
of view
• Promoter
• Banker
• Government Deptt.
• Incremental
• Economic Analysis of project
• Distributive analysis
• Basic Needs Analysis
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11. Cost Benefit Analysis
• Concepts
• Finance, Accounts, Taxation, Economics, Statistics
• Principles
• Cash flows, opportunity cost, valuation of land,
‘incremental’ analysis
• Conventions
• ‘Zero’ year
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12. Comments / Questions
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