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S U B M I I T E D B Y :
K A R A N S I N G H K H O K H A R
OPERATIONS OF SCBA
(SOCIAL COST BENEFIT
ANALYSIS)
STEPS IN THE OPERATION OF SCBA.
The basic steps involved in the operation of SCBA
are as follows:
 (A) Identification of all the costs and benefits of the
project over its economic life.
 (B) Measurement of costs and benefits.
 (C) Determination of social discount rate.
 (D) Selection of projects.
(A) Identification of all the costs and benefits
of the project over its economic life.
The first basic step in the operation of SCBA is the
development of cost benefit development of cost-benefit
profile of the project. This profile of the project process
involves :
 Identification of various parties which will be affected by
the project
 Determination of the project
 Valuation of the costs and benefits accruing to the
identified parties
 Cost and benefits of a project can be divided into three
categories-Primary, secondary and tertiary. These
categories are discussed as
(B) Measurement of costs and benefits.
 The basic problem in the measurement of costs and benefits is
the development of an ideal sot of prices that reflect the true
value of goods and services cither used as inputs or obtained
as outputs. From SCBA point of view, the prices should also
measure the social impact of the project. Two typos of prices-
market price and shadow price are widely used in project
appraisal method.
 As discussed earlier, market prices reflect the commercial
value of the goods and services and not the social values.
Social values of inputs and outputs can be reflected in market
price only in perfectly competitive markets. In actual practice,
however, the imperfections exist in the markets and the truck
values of the goods and services are distorted. Two
approaches arc available for determining the social costs and
benefits of a project -
Cont..
 (i) The first approach is to devise the prices which
will reflect the true social values of inputs and
outputs. These prices are called shadow prices or
accounting prices.
(ii) The second alternative is to work out the cost
benefit estimates al mercantile prices and then to
apply necessary corrections to those estimates upto
the extent of the imperfections that prevail in the
market.
(C) Determination of social discount rate.
 As the costs and benefits of a project normally occur at different points of
time, it is essential to convert the future cash flows to their present values
in order to as certain the real worth of the project. Discount rate is used for
the purposes of calculating this time value of money. Discount rate is some
interest rate which expresses the time preference for a particular future
cash flow. For an effective and realistic project appraisal, there should be a
suitable discounting period and a suitable discount rate :
 Discounting Period. The discounting period is.generally, the economic life
of a project. Some of the other factors which may be considered for
determining the length of the discounting period are :
 Life of Equipment
 Technological Changes
 Availability of raw materials
 Market Stability etc.
(D) Selection of projects.
 The same criterion as applied in financial profitability
analysis may be used under SCBA. Important tools
suggested for SCBA are NPV, IRR and BCR.
 NPV indicates the excess of Social benefits over social
costs discounted at social discount rates Projects with
higher or positive NPV are given preference over others.
 BCR is the ratio of gross discounted social benefits to
social costs. Projects with high BCR or with BCR which is
greater than 1 are preferred. IRR is defined as that rate of
discount which equates the aggregate social benefits to
the social costs. Projects with high IRR are generally
preferred.

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Operations of scba

  • 1. S U B M I I T E D B Y : K A R A N S I N G H K H O K H A R OPERATIONS OF SCBA (SOCIAL COST BENEFIT ANALYSIS)
  • 2. STEPS IN THE OPERATION OF SCBA. The basic steps involved in the operation of SCBA are as follows:  (A) Identification of all the costs and benefits of the project over its economic life.  (B) Measurement of costs and benefits.  (C) Determination of social discount rate.  (D) Selection of projects.
  • 3. (A) Identification of all the costs and benefits of the project over its economic life. The first basic step in the operation of SCBA is the development of cost benefit development of cost-benefit profile of the project. This profile of the project process involves :  Identification of various parties which will be affected by the project  Determination of the project  Valuation of the costs and benefits accruing to the identified parties  Cost and benefits of a project can be divided into three categories-Primary, secondary and tertiary. These categories are discussed as
  • 4. (B) Measurement of costs and benefits.  The basic problem in the measurement of costs and benefits is the development of an ideal sot of prices that reflect the true value of goods and services cither used as inputs or obtained as outputs. From SCBA point of view, the prices should also measure the social impact of the project. Two typos of prices- market price and shadow price are widely used in project appraisal method.  As discussed earlier, market prices reflect the commercial value of the goods and services and not the social values. Social values of inputs and outputs can be reflected in market price only in perfectly competitive markets. In actual practice, however, the imperfections exist in the markets and the truck values of the goods and services are distorted. Two approaches arc available for determining the social costs and benefits of a project -
  • 5. Cont..  (i) The first approach is to devise the prices which will reflect the true social values of inputs and outputs. These prices are called shadow prices or accounting prices. (ii) The second alternative is to work out the cost benefit estimates al mercantile prices and then to apply necessary corrections to those estimates upto the extent of the imperfections that prevail in the market.
  • 6. (C) Determination of social discount rate.  As the costs and benefits of a project normally occur at different points of time, it is essential to convert the future cash flows to their present values in order to as certain the real worth of the project. Discount rate is used for the purposes of calculating this time value of money. Discount rate is some interest rate which expresses the time preference for a particular future cash flow. For an effective and realistic project appraisal, there should be a suitable discounting period and a suitable discount rate :  Discounting Period. The discounting period is.generally, the economic life of a project. Some of the other factors which may be considered for determining the length of the discounting period are :  Life of Equipment  Technological Changes  Availability of raw materials  Market Stability etc.
  • 7. (D) Selection of projects.  The same criterion as applied in financial profitability analysis may be used under SCBA. Important tools suggested for SCBA are NPV, IRR and BCR.  NPV indicates the excess of Social benefits over social costs discounted at social discount rates Projects with higher or positive NPV are given preference over others.  BCR is the ratio of gross discounted social benefits to social costs. Projects with high BCR or with BCR which is greater than 1 are preferred. IRR is defined as that rate of discount which equates the aggregate social benefits to the social costs. Projects with high IRR are generally preferred.