Ghent University – Department Agricultural Economics Project Management Financial and economic...
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Transcript of Ghent University – Department Agricultural Economics Project Management Financial and economic...
Ghent University – Department Agricultural Economics
Project Management
Financial and economic analysis of investment projects
Project cycle
preparation
evaluation
Identification
appraisal
Implementation(monitoring)
Objective-oriented intervention planningLogical framework
PERTFinancial and economicalanalysis
Project selection
• Production• Marketing • Financial
• Labour• Administration
Difference between financial and economic analysis
• Financial analysis confronts expenditures with revenues for each entity involved (money flows)
• Financial analysis identifies the money needed to finance a project
• Economic analysis focuses on community aspects and evaluates by comparing the financial value of the resources used with the extra benefits generated for the community or economy as a whole
EVAL.
PROG.
SECTOR
Needs
ObjectiveInput
supportOutput
realisation
Results
Impact
Conceptual framework
Relevance
Use & sustainability
Effectivity
Efficiency
External factors
Basic principles for identification of costs and benefits
The increase of marginal income is measured under following principles:
• with- and without principle• Only direct effects• Constant price principle• Time = economic lifetime• Only monetary effects• Same denominator• Reality principle
2002 2004
Start of project
q
Time (t)
BEFORE
1
AFTERWITHOUTPROJECT
AFTERWITH PROJECT
2
3
2010
Construction of a dam against erosion Changes in the dam against saltation
Irrigation project Colonisation project
Classification of project impact
• Direct or primary impact: direct consequence of the project implementation– Investment effects
– Exploitation effects
• Indirect impact: result from links vertically related with the project• Secondary or multiplier impact: multiplier effects of the direct and
indirect benefits• External impact: positive or negative consequences for externals of
the project without compensation • Social impact: impact on redistribution of income, employment,
education, …
Poject Costs
• Definition:Costs are the financial consequences related to the use of resources
• Difference between:– investments (once-only)– operational costs (several times)
• Principle of marginal costs:Which resources would not be used if the project was not realised
Classification of operational costs
• Maintenance• Consumables• Labour• Taxes and levies• Management costs• Overhead costs• Contingency costs (underestimations)
Examples of benefits and costs of agricultural projects
Costs
• Physical production inputs
• Labour
• Land
• Contingency allowances
• Taxes
• Financial costs
Benefits
• Tangible benefits– Increased production– Improved quality– Time and location of sale– Product shape, lifetime– Reduced costs (transport,
mechanise)– Reduced losses
• Intangible– New job opportunities– Better health, reduced mortality– National integration
Phased costs and benefits
• Important to know the phased costs and benefits in time = cash flow
• Cash flow is the basis of:– Financial planning– The balance of costs and benefits in the financial
analysis– Basis for the estimation of the economic costs and
benefits (corrections needed)– Financing with loans, participations, subsidies,
advances
Amount(constant price)
0
Time (years)5 10 15 20
Capital costs (project investments)
Recurrent costs (project operation)
Cash flow
1
2
3
-1
-2
-3
investment
returns
Time (years)1 2 3 4 5 6 7 8 9 10
Cash flow
• Difference between earnings and expenditures of operational activities, supplemented with the current of capital within the project
• Earnings and expenditures• Financing + expenditures of capital• Total cash flow
Net present valueNPV
Internal rate of return IRR
Payback criterium
Benefit/cost ratio