Stakeholders project management

1. 1
Lecture Notes
ECONOMIC COST-BENEFIT
ANALYSIS

2. 2
STAKEHOLDER
IMPACTS
OF PROJECTS

3. 3
Assess Stakeholder Impacts of
Projects
• A Comparison between economic and
financial values tells us who wins and
who loses, i.e., the Stakeholders

4. 4
ECONOMIC VALUE
FINANCIAL
VALUE
TAX IMPACT
NET BENEFITS TO
CONSUMERS
NET LABOUR
BENEFITS
=
+
+
ECONOMIC
VALUE
FINANCIAL
VALUE
TAX
IMPACT
NET
BENEFITS TO
CONSUMERS
NET LABOUR
BENEFITS
=
+

5. 5
FOR EACH INPUT AND OUTPUT VARIABLE:
• Economic = Financial + S Stakeholder Impacts
– Example of a non-traded good with a sales tax:
• Economic Value = Financial Value +
Change in Government Tax Revenues +
Increase in Consumer Benefits –
Loss in Profits to other producers
Taken over all variables and time periods of project (using a
common discount rate)
• NPV economic = NPV financial + S PV Stakeholder
Impacts
• Note: Stakeholder Impacts are often called
externalities of project

6. 6
General Relationship
NPVECO
eco = NPVFIN
eco + PVEXT
eco

7. 7
1. Identify the externalities
2. Measure the net impact of the externalities
in each market as the real economic
values of resource flows less the real
financial values of resource flows
3. Measure the values of the various
externalities throughout the life of the
project and calculate their present values
by using the economic discount rate
Stakeholder Analysis
is composed of six distinct steps:

8. 8
4. Allocate the externalities across the
various stakeholders of the project
5. Summarize the distribution of the project’s
externalities and net benefits according to
the key stakeholders in society
6. Reconcile the economic and financial
resource flow statements with the
distributional impacts

9. 9
Financial, Economic and Distributive Effects of Project
to Supply Non-Tradable Goods with No Distortions
Financial Value of Output = QsCBQd or P1 (Qd -Qs)
Economic Value of Output = QsCABQd
Difference (Economic - Financial) = CAB
CAB = P1P0AB -P1P0AC = Gain in Consumer Surplus - Loss in Producer Surplus
Economic Value = Financial Value + Gain in Consumer Surplus - Loss in Producer Surplus
= Financial Value + Distributive Impacts
Qd
Q0
QS
S
Q
C
A
B
S + Project
P1
P0
P
D
E

10. 10
Financial, Economic and Distributive Effects of Project to Supply
Non-Tradable Goods with Unit Tax
CAB = PS
1PS
0AB – PS
1PS
0AC
Since PS
1PS
0AB = Pd
1Pd
0EF Therefore, CAB = Pd
1Pd
0EF – PS
1PS
0AC
= Gain in Consumer Surplus - Loss in Producer Surplus
Economic Value of Output = Financial Value of Output + Change in Gov. Tax Revenues
+ Increases in Consumer Surplus - Loss in Producer Surplus
Q
Qd
S
Q0
C B
S + Project
QS
P
P d
1
P
(P0+T) =
d
0
P
s
1
s
0
P
E
F
A
D1
D0
Financial Value of Output =
QsCBQd
Economic Value of Output =
QsCAQ0+ Q0ABQd +AEFB
Increase in Government Revenue =
AEFB

11. 11
Measuring Distributive Impact from Financial and
Economic Values of Inputs with Tariffs
Financial Cost of Importable Goods = Qd
1CFQd
2
Economic Cost of Importable Goods = Qd
1GHQd
2*(1+Ee / Em - 1 )
Where (Ee / Em - 1) = Foreign Exchange Premium (FEP)
Financial Cost - Economic Cost = GCFHd
1 – Qd
1GHQd
2*(Ee / Em - 1) =
= Gain in Tariff Revenues to Government – Loss in Government Revenues from
Additional Use of Foreign Exchange in
Importing This Input
Q
A
H
D + Project
PCIF=Pw
Q
P
PCIF(1+t)=PW(1+t)
D
G
C
B F
d
2
S
s
0
Q s
1
d
1
d
0
Q Q
E
Q

12. 12
Examples:
– Who benefits from worker transportation?
– Why was the Makar Port built?
– Why was the Paphos hotel not built?

13. 13
Basic Facts
• Factory currently employs 20 workers.
• Workers currently use taxis at a cost of $1.00 per day.
• Factory wants to employ 40 workers, but can not recruit any additional
worker without either subsidizing transportation or paying higher wages.
• The proposal is to buy a bus for $25,000.
• Used Bus valued at $10,000 in year 5.
• The bus will operate for 250 days per year.
• It will be necessary to employ a driver to operate and maintain the bus
at a wage of $10.00 per day.
• The economic opportunity cost of employing the driver is equal to
approximately 80% of his wage.
• The charge per person/day on the bus will be 40 cents.
Workers Transportation Case

14. 14
Workers Transportation Case
• The cost of oil and gas will be $2.00 per day. The conversion factor
for oil and gas is estimated to be 0.60 because of the high taxes
imposed on their purchase price.
• The spare parts bill is expected to be $100 per year. Spare parts
have a tariff and taxes on them that are equal to 25 percent of their
c.i.f price.Thus, the spare parts conversion factor is equal to 0.80.
• The conversion factor for the bus use value is estimated to be 0.80.
• The ratio of the economic exchange rate to the market exchange
rate is equal to 1.
• No income taxes are levied on the income of public enterprise.
• The financial discount rate is equal to 6%, and the economic
discount rate is equal to 10%

15. 15
Workers Transportation Case
TABLE 1: FINANCIAL APPRAISAL
PV @10% 0 1 2 3 4 5
CASH INFLOWS
Receipts $16,679 4,000 4,000 4,000 4,000 4,000 0
Final in use values $6,209 0 0 0 0 0 10,000
TOTAL INFLOWS 4,000 4,000 4,000 4,000 4,000 10,000
CASH OUTFLOWS
Expenditures
Bus purchase 20,000 20,000
Tariff on Bus 5,000 5,000
Operating Expenses
Labor 10,425 2,500 2,500 2,500 2,500 2,500 0
Fuel 2,085 500 500 500 500 500 0
Spare parts 417 100 100 100 100 100 0
TotalOutflow 37,927 28,100 3,100 3,100 3,100 3,100 0
Net Cash Flow -15,038 -24,100 900 900 900 900 10,000
NPV Financial at 6% -13,509
NPV Financial at10% -15,038

16. 16
Measurement of Economic Benefits
Financial Revenue/person/day = $0.40
Economic Benefits/person/day = $0.85
[(20*$1.0+20*($1+$0.40)/2]/40 = $0.85
20 40 # of workers
0.40
1.0
$/day
Demand for workers’
transportation
Net Benefit
to workers
Net Benefit
to workers

17. 17
TABLE 2: ECONOMIC APPRAISAL
Conversion Factor PV at 10% 0 1 2 3 4 5
CASH INFLOWS
Receipts 2.125 35,444 8,500 8,500 8,500 8,500 8,500 0
Final in use values 0.8 4,967 0 0 0 0 0 8000
TOTAL INFLOWS 40,411 8,500 8,500 8,500 8,500 8,500 8,000
CASH OUTFLOWS
Expenditures
Bus purchase 1 20000 20000
Tariff on Bus 0 0 0
Operating Expenses
Labor 0.8 8,340 2000 2000 2000 2000 2000 0
Fuel 0.6 1,251 300 300 300 300 300 0
Spare parts 0.8 334 80 80 80 80 80 0
TotalOutflow 29,924 22,380 2,380 2,380 2,380 2,380 -
Net Cash Flow 10,487 (13,880) 6,120 6,120 6,120 6,120 8,000
NPV Economic at 10% 10,487
Workers Transportation Case

18. 18
TABLE 3: DISTRIBUTION OF NET BENEFITS OF THE
EXTERNALITIES TO STAKEHOLDERS
Workers Transportation Case
Economic value = Financial Value + Sum of Stakeholder Externalities
RECONCILIATION OF FINANCIAL, ECONOMIC, AND DISTRIBUTIVE ANALYSIS
NPV Financial + SUM of PV of externalities
at economic discount rate at economic discount rate at economic discount rate
10,487 -15,038 25,525
NPV Economics =
PV EXTERNALITIES
@10% Government Workers Driver
Receipts 18,764 18,764
Final in use values (1,242) -1,242
TOTAL INFLOWS
CASH OUTFLOWS
Expenditures
Bus purchase 0
Tariff on Bus (5,000) 5,000
Operating Expenses
Driver (2,085) 2,085
Fuel (834) 834
Spare parts (83) 83
Total Distribution 25,525 4,676 18,764 2,085