Project Evaluation Essay

REPORT ON PROJECT evaluation FOR KALAHI-CIDSS PROJECT, PHILIPPINES IntroductionThis immatures report considers the following expulsion evaluation mannerologies in the context of the KALAHI Comprehensive and merged Delivery of Social Services (CIDSS) sick in the Philippines (the travail)(a) mo assoilary abridgment(b) frugalal abstract(c) brotherly counterbalance proceeds synopsis(d) other evaluation methods including willingness to pay, planning balance sheet and cost long suit compend.In order to analyse the relevance of the various evaluation methods to the Project, it is seize to have regard to the objectives of the Project. The overarching objectives of the Project as outlined in the rational framework for the Project were to improve local governancereduce pauperisation andimprove the bore of life of the poor.By considering the various evaluation methodologies, it is realistic to identify the evaluation methods that best assume to the Project, in light of its objectives. mo straighten outary abbreviationOverview of monetary compend fiscal abstract is an requisite opus of intercommunicate appraisal which is necessary to estimate the fiscal profit gene regularised by a put up. monetary analysis attempts to resolve the net financial benefit (or loss) to anagency rather than the net benefit (or loss) to the economy or society. Financial evaluations argon only concerned with cash menstruations in and out of the organisation. (Commonwealth of Australia 2006, p. 28) Assessing the financial benefit of a bug out whitethorn be achieved through a consideration of the following (a) net endue regard as(b) financial inseparable esteem of gift. rascal 1ARCH1260 last-place ease up appreciateNet present value is compute by brush offing a hurls cash pass along using the minimum undeniable rate of recurrence on new enthronement (cost of capital), summing them over the lifetime of the proposal and extrapolateing the sign investiture outlay. (Levy and Sarnat 1982, p.55) It is necessary to apply a send packing rate, that is the minimum required rate of unsay on new investment, to future cash receipts to furbish up the present value of those profits.The minimum required rate of consequence often mulls interest rates at which capital could otherwise make water interest in the grocery if it was non invested in a project. It is indeed necessary to sum the present value of cash receipts and deduct the initial cash investment for the project. Where the net present value is positive, the project may be accepted as financi everyy viable. Financial native rate of regressThe financial internal rate of make pass is cypher by determining the rate at which the net present value of a project equals zero. (Brent 1990) In determining financial internal rate of return, future cash receipts must be time-discounted to present set to relate to the initial investment outlay for the project. Levy and Sarnat (1982, p.55) suggest that as a general principle, where financial internal rate of return exceeds the discount rate, that is the minimum rate of return on new investment, a project may be accepted. Application of financial analysis to the case learnFinancial analysis is an essential valuation methodological analysis to be employ to theProject to correct its financial viability. One of the key objectives of the Project was to maximize the use of the World Bank patronage in order to operate that the Project was economical on the wholey advantageous to the Philippines theme economy. (Araral and Holmemo 2007, p. 8) The funding of the subprojects was to be provided in counterpart by provincial, municipal and barangay local governments, in addition to funding from communities and private sources. As Araral and Holmemo (2007, p. vii) indicate, such(prenominal) contributions were intended to reduce the fiscal daze of the project on the national government. Accordingly, it w as necessary for the various investors to be overconfident of the profitability of the Project. Moreover, the World Bank (2001, p. 25-26) required a financial analysis of the Project in order to determine the cost potency of the Project and ultimately, whether to provide a loan to the Philippines government.However, it is noted that whilst carrying out a financial analysis is an essential aspect of project appraisal, in that respect is a leg of un trustedty surrounding financial analysis at the outset of a project. This is particularly so in the context of developing countries where economic rapscallion 2ARCH1260uncertainty affects market prices. Moreover, a financial analysis does not take account of external cost or benefits. (Commonwealth of Australia Jan 2006) ECONOMIC digestOverview of economic analysisEconomic analysis has a b passer focus than financial analysis, it considers the overall impact of a project on improving the economic welfare of the citizens of the countr y concerned. It assesses a project in the context of the national economy, rather than for the project participants or the project entity that implements the project. Economic analysis differs from the financial analysis in terms of both(prenominal) (i) the breadth of the identification and evaluation of inputs and outputs, and (ii) the measure of benefits and cost. ( economics and evolution Resource Centre Feb 1997, p.9)The focus of economic analysis is the profitability of a project for society, rather than simply the project investor. quasi(prenominal) to financial analysis, through economic analysis, the net present value of a project may be calculated by summing the future flow of companionable benefits, little social cost (discounted to present values) and deducting the initial investment outlay. A project will be viable if the net present value of the project is great than zero, that is, social benefits exceed social cost. Moreover, the economic internal rate of return may also be calculated for a project, by considering the net present value of a project winning into account social costs and benefits. The higher the economic internal rate of return, the more(prenominal) beneficial the project is to society.Discounting must be factored into the tally of these analyses, being the minimum required rate of return on new investment, as an expression of societys preferences rather than on the introduction of interest rate as is used in financial analysis. In order to measure the social costs and benefits of a project, it is necessary to determine the common unit of account or numeraire that benefits and costs should be expressed in. Thirwall (1983, p. 213) suggests that whilst the numeraire may be expressed in municipal prices or transnational prices, using world prices is justified as it avoids the use of the exchange rate in order to value in a single coin some experts measured at world prices (traded goods) and others measured at domestic p rices (non-traded goods).It is also necessary, when carrying out economic analysis to adopt shadow prices. derriere prices place a value on a factor for which there is inadequate market information, addicted that a projects inputs and outputs should not necessarily be valued at current market prices because the market price may not reflect the social opportunity cost of the resource. (Devarajan et al Feb 1997, p. 36) For example, in the context of labour, a project mayPage 3ARCH1260employ an individual at a certain wage, which represents a financial cost, however that financial cost does not represent the social cost ofemployment, being the supply price of labour. As such, a shadow price may be adopted to reflect the social opportunity cost of employment generated by the project.Application of economic analysis to the case studyThe Project sought to achieve several benefits beyond profitability, including better infrastructure and services, increased company participation and imp roved theatrical role of life. Accordingly, economic analysis is relevant in that it evaluates the Projects benefits to all levels of government and to the alliance, rather than just the investors. An economic analysis can be carried out in respect of the infrastructure subprojects, as is evident in the analysis summarised by Aral and Holmemo (2007).For example, it is possible to quantify the cost of facial expression and bread and butter of roads against benefits such as number of households benefiting from a road and merchant vessels costs for paddy and fertilizer. (Aral and Holmemo 2007, p. 12) However, it should be noted that economic analysis is bland confined to those benefits and costs that can be measured. Whilst economic analysis is intelligibly utilitarian for assessing the economic benefits and costs of the infrastructure subprojects, other broader benefits, such as best access to social services and technology and possible benefits from goods in barangay governa nce (Aral and Holmemo 2007, p. 21-22), are not captured through economic analysis.SOCIAL COST-BENEFIT ANALYSISOverview of social cost-benefit analysisCost-benefit analysis involves the application of both financial analysis and economic analysis to a project to determine the strength of the project in being profitable and contributing to society. It attempts to measure the value of all costs and benefits that are expected to result from the activity. It includes estimating costs and benefits which are unpriced and not the subject of normal market transactions but which neverthe little connote the use of real resources. (Commonwealth of Australia Jan 2006, p. 5) Moreover, this analysis involves a consideration of statistical distributional issues, that is, how benefits and costs from a project are distributed amongst private and public sectors. (Little and Mirrlees 1990, p. 352)Page 4ARCH1260Application of social cost-benefit analysis to the case study The use of social cost-benefit analysis as a method of evaluation for the Project is beneficial in combining a consideration of the financial viability of the project and the costs and benefits of the Project for society as a whole.It is relevant to turn to the scenarios for cost-benefit analysis for the case study. For roads, the best scenario for both road construction and road improvement is scenario 3. This is because whilst the net present value and economic internal rate of return for both scenario 1 and scenario 3 is the equal for both road construction and road improvement, the discount rate for scenario 3 in both instances is less than that for scenario 1. That means that the economic internal rate of return is proportionally greater than the discount rate in scenario 3 and as such the return on those projects is greater than it would be for the scenario 1 projects. Furthermore, in the case of both road construction and road improvement, scenario 2 is the worst scenario, as the net present value is sig nificantly less than the other scenarios and also the economic internal rate of return is lower.The higher the internal rate of return, the more beneficial the project. Overall, road construction under scenario 3 is a better cream than road improvement as both the net present value and economic internal rate of return is greater for road construction than road improvement. For school building, whilst scenario 1 and scenario 3 have the selfsame(prenominal) economic internal rate of return (15.91%) and the net present value for scenario 1 (at 42,729 USD) is slightly higher than that of scenario 3 (at 42,000 USD), scenario 3 is the best option as the economic internal rate of return is proportionally greater than the discount rate at 10%, rather than under scenario 1 where the discount rate is 15%. Accordingly, scenario 2 is the worst option with the lowest net present value and an economic internal rate of return which is less than the discount rate. Where economic internal rate of return is less than the discount rate the project should not be considered.As such,scenario 2 should not be considered. For school improvement, scenario 1 and scenario 3 have the same net present value (22,930 USD) and economic internal rate of return (15.10%), however scenario 3 is more favourable given that its economic internal rate of return is proportionally greater than its discount rate (10%) than scenario 1s discount rate (15%). Scenario 2 is the worst option given that it has a lower net present value than the other scenarios and its economic internal rate of return is less than its discount rate and as such it should not be considered. Overall, school building under scenario 3 is a better option than road improvement as the net present value of the project is greater and the proportional relationship amidst economicPage 5ARCH1260internal rate of return and discount rate is higher for school building than for school improvement.OTHER EVALUATION METHODSOverview of other ev aluation methodsWillingness to payWillingness to pay examines how much a soul is willing to pay for a good or service. The value that a person is willing to pay is then compared to the actual cost of the good or service. This technique relies on data collection through survey people in a community in which a project is proposed. For example, Whittington et al (1990) surveyed a village in southern Haiti regarding willingness to pay for water services. Whilst it is suggested that the viability of willingness to pay surveys is particular(a) given the mount for bias in individuals responses, Whittington et al concluded that such surveys were a feasible method of estimating willingness to pay for improved water services (1990, p. 308). Planning balance sheetThis evaluation methodology attempts to list intangible benefits of a project and also involves an analysis of the distribution of project benefits amongst society. Cost-benefit analysis only considers thosebenefits that can be eas ily measured. As Materu (1985, p. 4) suggests, the tendency to select projects on the ass of their expected quantified monetary benefits, with intangibles hardened as a minor balancing factor which is inherent in traditional forms of cost-benefit analysis, can be misleading because it may not reflect the true social value of an investment. The planning balance sheet onrush attempts to focus on all costs and benefits of a project to the community rather than simply quantifiable economic costs and benefits.Cost potency analysisCost effectiveness analysis involves an assessment of the cost of investment in a project against the benefits measured on the basis of strong-arm units rather than monetary value, for example, number of lives saved or children provided with an education. This enables an evaluation of the effectiveness of money spent to achieve program objectives. Cost effectiveness analysis is valuable for assessing the cost-effectiveness of alternatives programmes with si milar objectives, where the project objectives are clearly defined.Page 6ARCH1260Application of other evaluation methods to the case studyWhilst the willingness to pay cash advance might be suitable in respect of the infrastructure subprojects that are part of the case study, this evaluation method is not suitable for taking account of the broader aspects of the Project, such as improved community participation and look of life. However, the planning balance sheet approach is likely to be useful in analysing the benefits of those aspects of the Project, given that they are difficult to quantify in a monetary sense.In considering cost effectiveness analysis, whilst there may be some value in measuring the benefits of the Project on the basis of units such as number of people engaged in community decision-making, however this would be difficult to measure given the broad scope of the Project wherein programmes for improved governance and participation are to be shipshape to local b arangay communities. As such,this method of evaluation would not produce pursuant(predicate) results for carrying out preliminary appraisal of the Project. ConclusionsConducting a financial analysis is an essential part of appraisal for the Project in order to determine the financial profitability of the project for the investors. However, it is relevant to examine other aspects of the project to determine its viability given the objectives were broader than merely financial objectives. Economic analysis is relevant to apply market prices to the costs and benefits of the Project to society, rather than just the investors in the project. This enables a consideration of the net benefits of the Project as against the cost of capital using up required to implement the Project.Financial analysis and economic analysis are both relevant to conducting a meaningful evaluation of the Project, however, they are of limited use if applied independently. As such, social cost-benefit analysis of fers an effective methodology for assessing both the financial and economic costs and benefits of the Project, and enables a consideration of how those costs and benefits would be distributed amongst various sectors within society. By applying social cost-benefit analysis, it is possible to determine whether the benefits outweigh the costs of the project to the extent that the capital should not be invested elsewhere.However, whilst social cost-benefit analysis can be used to assess benefits and costs of those aspects of the Project that are easily quantifiable, such as the infrastructure subprojects, this method does not give weight to the benefits and costs associated with the intangible objectives of the Project such as increased community participation, improved local governance and quality of life. Here, the planning balance sheet approach is useful as a means to give weight to the intangible benefits of the Project to society.Page 7ARCH1260Aral, E. and Holmemo, C. 2007, Measur ing the Costs and Benefits of CommunityDriven Development The KALAHI-CIDSS Project, Philippines, Social Development Papers Paper No. 102.Brent, R. 1990, Investment Criteria, Chapter 2 in Project Appraisal for maturation Countries, New York Harvester Wheatsheaf, pp. 24-39.Commonwealth of Australia. January 2006, Introduction to Cost-Benefit summary and Alternative Evaluation Methodologies, Department of Finance and Administration. online http//www.finance.gov.au/publications/finance-circulars/2006/01.html Accessed 9 October 2011Devarajan, S., Squire, L. and Suthiwart-Narueput, S. February 1997, Beyond rove of Return Reorienting Project Appraisal, The World Bank Research Observer, 12(1), pp. 3546. Economics and Development Resource Centre. February 1997, Guidelines for the Economic summary of Projects, Asian Development Bank. onlinehttp//www.adb.org/Documents/Guidelines/Eco_Analysis/eco-analysis-projects.pdf Accessed 3 October 2011Levy, H. and Sarnat, M. 1982, The Economic Evalua tion of Investment Proposals, Chapter 3, in Capital Investment and Financial Decisions, 2nd ed., Englewood Cliffs, NJ Prentice Hall International, pp. 39-64.Materu, J. 1985, A Planning symmetry Sheet of a Sites and Services Project in Tanzania, University of Sheffield Department of townspeople and Regional Planning Occasional Paper Number 57.Thirwall, A. 1983, Social Cost-Benefit Analysis and the Shadow Wage, Growth and Development with Special Reference to Developing Economies, London Macmillan, pp. 202-216.Whittington, D., Briscoe, J., Mu, X. and Barron, W. 1990, Estimating the Willingness to Pay for Water Services in Developing Countries A Case Study of the Use of Contingent Valuation Surveys in Confederate Haiti, Economic Development and Cultural Change, pp. 293311. World Bank. 2010, The World Bank yearly Report 2010, The International Bank for Reconstruction and Development, The World Bank, Washington DC. onlinePage 8ARCH1260http//siteresources.worldbank.org/EXTANNREP2010/Res ources/WorldBankAnnualReport2010.pdf Accessed 10 August 2011Page 9