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INITIATIVE INTEGRATED STEP BY STEP PARTICIPATORY LIVELIHOODS COST BENEFIT ANALYSIS MODEL

IFRC


Programme

Initaitive overview / Background information

What is cost benefit analysis?

Understanding concepts and terminology

Key steps for cost benefit analysis

Cost Benefit Analysis – understanding the model & key parameters for measurement

Field work

2


Contents

1. Cover page 2. Contents 3. Instruction sheet4. Initiative Investment Background Information 5. Component costs


What is Cost Benefit Analysis?

Cost benefit is an important tool applied in social / community investment planning

It measures the costs and benefits associated with undertaking projects and programmes

It is complements financial analysis and meant to internalise and account more fully for non-market benefits and costs and takes into account such variables as environmental costs, biodiversity preservation, disaster preparedness, shadow prices, informal activities (with economic value), social opportunity cost of labour, opportunity cost of investment, etc.

Note:Commercial return is usually higher than social return


Concepts and terminology

Financial analysis – measures the financial return / profit accruing to the project

Economic analysis – measures the effect of a project / programme at a national scale by assessing the overall direct, indirect and macroeconomic impact of the project on improving the economic welfare of communities / citizens

Note that for a project to be economically viable it needs to be financial sustainable and economically efficient

If a project is not financially sustainable, economic benefits will not arise



Cost-benefit ratio – the ratio of the present value of the economic benefits stream to the economic cost stream, each discounted at the opportunity cost of capital / investment

Rule: Ratio should be greater than 1.0 for a project / programme to be acceptable.

Opportunity cost of capital in economic prices on marginal unit of investment in its best alternative use.

Poverty impact ratio – ratio of the net economic benefits accruing to the poor to the total net economic benefit of a project /programme



Discount factor / rate – a percentage rate re[presenting the rate at which the value of equivalent benefits and costs decrease in the future compared to the present value. The discount is used to determine the present value of future benefit and cost streams


Key steps for cost benefit analysis

1. Identify: Costs Benefits Discount the costs

2. Quantify Costs Benefits

3. Discount the benefits

3. Calculate cost-benefit ratio


What is Cost Benefit Analysis? Measuring it…….

Where: benefits between year programme started through to

year to conduct study costs between year programme started through to year to

conduct study –rndiscount rate for programme duration

𝑁𝑃𝑉=𝐵0−𝐶 0

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Cost Benefit Analysis in the Context of livelihoods programme

1. Identify programme: Costs components Benefits components

2. Quantify Costs components Benefits components

Discount the benefits

3. Calculate cost-benefit ratio


Introducing the CBA model

Excel spreadsheet with eight linked spreadsheets Formulae are imbedded Discount rate assumed at 10% (discuss & adjust accordingly)


Fieldwork

The purpose of fieldwork is to collect data on programme costs and benefits

Identify data sources ZRBI annual reports, quarterly reports, management reports, etc.

(include indirect costs and benefits Interviews with communities and relevant staff Identify all risks


Analysis

Quantify costs and benefits per programme component Populate the model Calculate the results Assess the benefit-cost ratio


Conclusion

Thank You!!

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