Methodology for Feasibility Studies

ΓενικήΔιεύθυνσηΕυρωπαϊκώνΠρ

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξης

MethodologyforFeasibilityStudies

SavvasZannetos,PhDPlanningOfficer

DirectorateGeneralEuropeanProgrammesCoordinationandDevelopment

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςRusskyIslandBridge

>$1.000.000.000

50.000vehicles/day

>$1.000.000.000

50.000vehicles/day

Servesanislandof5.000!!!

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςMadrid“Radiales”

• Toll motorways alongside existing free expressway and national road

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςMadrid“Radiales”

• Toll motorways alongside existing free expressway and national road

ΑεροδρόμιοCastellón(€150εκ.)Επίσημαεπιχειρησιακό:Μάρτιος2011Πρώτηπτήση:14Ιανουαρίου2014!!!!!

BerlinBrandenburgAirport

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςBerlinBrandenburgAirport

15yearsofplanning

Constructionbeganin2006

15yearsofplanning

OriginallyplannedtoopeninOctober2011

15yearsofplanning

Autumn2020becamethenewofficialopeningdate

15yearsofplanning

Autumn2020becamethenewofficialopeningdate

€20million/month

Whathappened?

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςWhiteelephants…Thisiswhatwewantto

avoid!!!!

Whatdowewant?

Low Value High

abilityofSuccess

Low Value High

abilityofSuccess

Low Value High

abilityofSuccess

Low Value High

abilityofSuccess

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςPublicInvestmentManagement

Bureaucratshaveatendencytosee“costs”and“benefits”differentlydependingontheirpositionoragency

Bureaucratshaveatendencytosee“costs”and“benefits”differentlydependingontheirpositionoragencyMosthavenoformaltrainingonCostBenefitAnalysis

Guardians Spenders

Guardians

OftenfoundinBudgetaryDepartments

Guardians

OftenfoundinBudgetaryDepartmentsBenefits=RevenueInflow

Guardians

OftenfoundinBudgetaryDepartmentsBenefits=RevenueInflowCosts=RevenueOutflows

Guardians

– BudgetImpactAnalysis

Guardians

– BudgetImpactAnalysis

ProblemsarisewhenaGuardiandoesBudgetImpactAnalysiswhilethinkingheisperformingaCostBenefitAnalysis

Spenders

OftenfoundinlineMinistries

Spenders

Buildersorprofessionaldeliverersofgovernmentprojects

Spenders

RegardExpendituresasBenefitsratherthanCosts(eglabour)

Spenders

RegardExpendituresasBenefitsratherthanCosts(eglabour)

Tendtosupportanyalternativeratherthanthestatusquo(noproject)

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςStepsinProjectAppraisal

Definetheprojectobjectivesandscope1

StepsinProjectAppraisal

Definetheprojectobjectivesandscope

Identifyandchooseprojectalternatives

Demonstratethedemandfortheservices

Identifyrelevantbenefitsandcosts

Valueeconomicbenefitsandcosts

CalculateNPVforallprojectalternatives

Analyserisksandplanfortheirmanagement

Assessaffordabilityandsustainability

Identifythepreferredprojectalternative-Recommendation

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςDefinetheProjectObjectivesandScope

OverallObjective

ProjectPurpose

OverallObjective

ProjectPurpose

ProjectOutputs

OverallObjective

OverallObjectiveGeneralobjectivessuchas

• incomeincreases,• standardoflivingimprovement,• povertyreduction,• naturalresourcesprotectionetc.

towhichthepurposeisgoingtocontribute

ProjectPurpose

Theproject’scentralobjectiveexpressedintermsoftheachievementofsustainablebenefitsforthetargetgroup

ProjectOutputs

Achievementscreatedbytheproject,whichproducetheservicesorfacilitiescorrespondingtotheprojectpurpose.

pecificeasurablechievableelevant

ime-bound

Identifyandchooseprojectalternatives2

IdentifyandChooseProjectAlternativesforAppraisal

• Comparisonoflife-cyclecostsandbenefitsofthereferenceprojectandfeasibleprojectalternatives

• Alternatives,includetechnicalvariantsofthereferenceproject

• “Business-asusual”/“donothing”/“statusquo”isalwaysanalternative

Sector YearsRailways 30Roads 25-30Portsandairport 25Urbantransport 25-30Watersupply&sanitation 30Wastemanagement 25-30Energy 15-25Broadband 15-20Businessinfrastructure 10-15Buildings 20Othersectors 10-15

Demonstratethedemandfortheservices3

DemonstratetheDemandfortheServicesoftheProjectandAlternatives

Designingappropriatelysizedcapitalassetswiththenecessarycapacityforcurrentandfutureusers

Makingreliablecostestimates

Estimatingthebenefitsoftheprojectaccurately

Arrivingatarobustconclusionontheeconomicviabilityoftheproject

AbsoluteDocumentationFeasibilityReport

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςExtrapolation

“Simplyextrapolatingcurrenttrendswithoutquestionisnot,acceptable.Thishasbeenafrequentcauseofover-orunder-investmentinmanycountries.”

ManualforPre-SelectionandAppraisalofPublicInvestmentProjects

GovernmentofCyprus

Year0 Year5 Year10 Year15 Year20

RegressionAnalysis

AdjustedRSquaredAIC

ANOVATable

ANOVATableDegreesOfFreedom

ANOVATableEntriesANOVATableFStatistics

ANOVATableMeanSquares

ANOVATablePValues

ANOVATableSumsOfSquares

BasisFunctions

BetaDifferences

BestFit

BestFitParametersBIC

CatcherMatrix

RegressionAnalysis

CoefficientOfVariation

CookDistances CorrelationMatrix

CovarianceMatrix

CovarianceRatios

AssumptionsDesignMatrix

DurbinWatsonD

EstimatedVariance

FitDifferences

FitResiduals

FunctionFVarianceRatios

HatDiagonal

DiagnosticPlotsMeanPredictionConfidenceIntervals

MeanPredictionConfidenceIntervalTable

MeanPredictionConfidenceIntervalTableEntries

MeanPredictionErrors

ParameterConfidenceIntervalsParameterConfidenceIntervalTable

ParameterConfidenceIntervalTableEntries

ParameterConfidenceRegion

ParameterErrors

ParameterPValuesParameterTableEntries

ParameterTStatistics PartialSumOfSquares

PredictedResponse

Properties

Response

RSquared SequentialSumOfSquares

StandardizedResiduals

StudentizedResiduals

VarianceInflationFactors

OptimismBiasOver-optimisticforecastsofdemandareaworldwide

causeofpoorpublicinvestmentdecisions

3outof10projectsdemandisoverestimatedbymorethan10%Mean=-7%SD=12.30

Identifyrelevantbenefitsandcosts4

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςIdentifyrelevantbenefitsandcosts

Societal

(i.e.Nationalperspective)

Allbenefitsandcostsforthesocietyasawhole

RelevanttoeconomicanalysisRelevancemeansthattheycanclearlybetracedbackasaneffectoftheproject,i.e.,theywouldnothaveoccurredwithoutit

“Identifyingandvaluingbenefitsisusuallythemostdifficultandtimeconsumingpartofanappraisalandtheareawheremistakesaremostfrequentlymade.Carefulattentionisthereforeneededonidentifyingandvaluingbenefits.”

ManualforPre-SelectionandAppraisalofPublicInvestmentProjects

GovernmentofCyprus

Double-countingbenefits

Counting“job-creationbenefits”

Ignoringdisplacementeffects

Countingmultipliereffects

• RelevantEconomicCosts

• ActualUseofEconomicResources

• Reflectthecostof

forgoingthealternative

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςRelevantEconomicCosts

Initialcapitalcosts

Physicalcontingencies

Opportunitycosts

Disruptionduringconstruction

ReplacementcostsStaffcosts

Operatingcosts

Attributableadministrativeoverheads

NegativeexternalitiesMitigationcosts

RelevantEconomicCosts

CoststhatarenotrelevanttoEconomicAnalysis

• Inflation– economicanalysisasthisisperformedusingvaluesexpressedinrealterms

• Depreciation– hasnodirecteconomiceffect

• Capitalchargesorinterestpayments– Capitalchargesareanaccountingdevicereflectingtheopportunitycostoffundstiedupinowningcapitalassets

– Interestpaymentsareafinancialtransferwithintheeconomy

• Capitalchargesorinterestpayments– Capitalchargesareanaccountingdevicereflectingtheopportunitycostoffundstiedupinowningcapitalassets

– Interestpaymentsareafinancialtransferwithintheeconomy

• Sunkcosts– Inthiscasetheresourceshavealreadybeencommittedandhavenoalternativeuse

Annex2ManualforPre-SelectionandAppraisalofPublic

InvestmentProjects

GovernmentofCyprus

Valueeconomicbenefitsandcosts5

CalculateNPVforallprojectalternatives6

Analyserisksandplanfortheirmanagement7

Assessaffordabilityandsustainability8

Identifythepreferredprojectalternative-Recommendation9

ValueofEconomicsBenefitsandCostsBasicPrinciples

1. Proportionality– Financiallysignificant>=€5.0million

– Itisnotgenerallyexpected,thatthesamedepthofresearchandanalysiswillbecarriedoutforaprojectcosting,say,€5.0millionasforaprojectcosting,say,euro€150.0million.

– Exceptionsapply!!!!

1. Proportionality

2. IncrementalBenefitsandCosts

Theprojectmustbeappraisedonthebasisofincrementalanalysisi.e.aroadprojectimprovement.

The“With”and“Without”ProjectScenario

Incrementalitybasisconcept

Theprojectmustbeappraisedonthebasisofincrementalanalysisi.e.aroadprojectimprovement.

The“With”and“Without”ProjectScenario

Withoutprojectbenefitspath

Time(t)

WithProjectbenefitspath

ProjectCosts

Improvedroadprojectnetbenefits!!!

Onlyfilledareasmustbe

compared!!!

Incrementalitybasisconcept

1. Proportionality

3. Useofmarketprices

• Useofmarketprices– Defaultassumption

– Goodreflectionofopportunitycosts

– Adjustmentsmayoftenhavetobemade• TheoreticalExample:CostofLabour

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςMarketPrices

LabourDemand

LabourSupply

QuantityofLabour

LabourDemand

LabourSupply

QuantityofLabour

LabourDemand

LabourSupply

QuantityofLabour

LabourDemand

LabourSupply

QuantityofLabour

LabourDemand

LabourSupply

QuantityofLabour

L-1 L1

LabourDemand

LabourSupply

QuantityofLabour

L-1 L1

WageUnemployment

LabourDemand

LabourSupply

QuantityofLabour

L-1 L1

WageUnemployment

LabourDemand

Employment

LabourSupply

QuantityofLabour

L-1 L1

WageUnemployment

LabourDemand

Employment

LabourSupply

ConversionFactor

QuantityofLabour

L-1 L1

WageUnemployment

LabourDemand

Employment

LabourSupply

ConversionFactor

QuantityofLabour

L-1 L1

ShadowPrices

Costsidentificationandvaluationateconomicprices

TheCommoditySpecificConversionFactors(CSCF)Aconversionfactorcanbeusedtoexpressthe

relationshipbetweenfinancialpricesandeconomicvalue,ifthedistortionsareafixedproportionofthefinancialprice.

Conversionfactorsareusedtoconvertthefinancialcash-flowintotheeconomicresourcestatementfortheeconomicappraisal.

Costsidentificationandvaluationateconomicprices

TheCommoditySpecificConversionFactors(CSCF)Aconversionfactorcanbeusedtoexpressthe

relationshipbetweenfinancialpricesandeconomicvalue,ifthedistortionsareafixedproportionofthefinancialprice.

Conversionfactorsareusedtoconvertthefinancialcash-flowintotheeconomicresourcestatementfortheeconomicappraisal.

Price FinancialValue Economic

=CSCFi

ValueofEconomicBenefitsandCostsBasicPrinciples

1. Proportionality

4. Useofrealprices

• Useofrealprices– Commonbaseyear

– Realpricemovementsunrelatedtochangesinthegeneralpricelevel,maybetakenintoaccountwherethereisstrongevidencetosupportthis

• i.eincreasingrealrentalcosts

– AllassumptionsconcerningrealpricetrendsmustbestatedexplicitlyintheFeasibilityStudy!!!

1. Proportionality

4. Useofrealprices

5. Adjustmentfortaxes,subsidiesandtransfers

• Adjustmentfortaxes,subsidiesandtransfers– IndirectTaxes(i.eVAT)– Subsidies– SocialTransfers(i.esocialsecuritybenefits)

• Donotentailtheconsumptionorcreationofeconomicresources– excludedfromthevaluationofbenefitsandcosts

• Thus,marketpricesusedtovaluebenefitsandcostsareexpressednetofindirecttaxesandsubsidiesandthevalueofsocialtransfersarenotincludedasbenefitsorcosts

1. Proportionality

4. Useofrealprices

6. Ruleof½

• Ruleof½– Whereaprojectwillgeneratesignificantextrademandthebenefitsaccruingtonewusersmustbetreatedinadifferentwaytothosegoingtoexistingusers

– Thiseffectisapproximatedbytakingbenefitstogenerateddemandasbeinghalftheaveragebenefitgoingtoexistingusers

1. Proportionality

4. Useofrealprices

6. Ruleof½

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςValueofEconomicsBenefits

• Themostdifficultandresourceintensivepartofprojectappraisal

• Benefitestimatesshouldbebasedonrealorestimatedmarketpricesfortheservices

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςValueofEconomicsBenefits

• Wherenomarketexists,alternativemeansofestimatingvaluesforbenefitsshouldbeused.

Willingnesstopay

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςWillingnesstopay

2.Statedpreferencetechniques

1.Revealedpreferencetechniques

Revealedpreferencetechniques

Basedonactualobservablechoicesandfromwhichactualresourcevaluescanbedirectlyinferred

Statedpreferencetechniques

Respondentsaredirectlyaskedabouttheirwillingnesstopayforagoodorservice

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςIncontrastto….

“Εκτιμάταιότιησχετικήαναμενόμενηανάπτυξητεχνογνωσίαςτωνκυπριακώνεπιχειρήσεωνθαμπορούσεναανέλθεισε[€ΧΧΧ.ΧΧΧ],μεχρονικήυστέρηση1έτους.”

ΜελέτηΚόστουςΟφέλους

πουπαραδόθηκεστοΓραφείομας

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςCalculateNPVforallprojectalternatives

SocialDiscountRate

Risk-freerate 2.5%

Riskpremium 1.5%

Risk-adjustedrate 4.0%

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςCalculateNPVforallprojectalternatives

InterpretingtheResultsofaCBAWhenisanNPVhighenough?

€0 NPV

<€0 >€0

€0 NPV

<€0 >€0

€0 NPV

<€0 >€0

MAYBE YES

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςInterpretingtheResultsofaCBA

0 20 40 60 80 100 120

Alternative A

Alternative B

ComplementaryMeasuresofEconomicViability

EconomicInternalRateofReturn(EIRR)

EconomicInternalRateofReturn(EIRR)• ThediscountratethatwouldgiveanNPVofzerogiventhecashflowforecastsfortheproject

• Ithassomeproblems– MultipleIRRs– Smallinvestmentbias– Assumesreturnsarereinvestedatthesamerateofreturn(notalwaysthecase)

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςNPVvsEIRR

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Discount Rate (%)

NPV at 12% Discount Rate

Internal Rate of Return

TheIRRandNPVwillnotnecessarilyrankthealternativesbythesameorder

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Discount Rate (%)

TheIRRandNPVwillnotnecessarilyrankthealternativesbythesameorder

AlwaysuseNPVtocompareprojectalternatives

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Discount Rate (%)

1. NPV

2. EIRR

3. BenefitCostRatio(BCR)

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςAnalyserisksandplanfortheirmanagement

Constructionrisk

Demandrisk

Designrisk

Economicrisk

Environmentalrisk

Fundingrisk

Legislativerisk

Operation&maintenancerisk

Procurementrisk

Technologicalrisk

Howdowequantifyrisk?

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςHowdowequantifyrisk?

1. SwitchingValuesanalysis– Aswitchingvalue(percentage)foraninput

variable,suchascapitalcost,isthatvalueatwhichtheproject’sNPVturnszero

– Easilycalculatedusingaspreadsheet

– Helpfulinconceptualisingtherobustnessoftheeconomiccase

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςHowdowequantifyrisk?

2. SensitivityAnalysis– establishingtheextenttowhichtheresultsofthe

quantifiedeconomicanalysis(NPV)aresensitivetochangesinthevaluesofthekeyinputparameters

• DeterministicSensitivityAnalysis

• ProbabilisticSensitivityAnalysis

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςDeterministicSensitivityAnalysis

1. RecalculateNPVassuminga10%increaseintotalcapitalcosts

2. RecalculateNPVassuminga25%increaseintotalcapitalcosts

3. RecalculateNPVassuminga10%decreaseintotalbenefits4. RecalculateNPVassuminga25%decreaseintotalbenefits5. RecalculateNPVassumingasimultaneousincreaseincapital

costsof10%anddecreaseinbenefitsof10%-thebasicpessimisticscenario

6. RecalculateNPVassumingasimultaneousincreaseincapitalcostsof25%anddecreaseinbenefitsof25%-thebasicworst-casescenario

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςProbabilisticSensitivityAnalysis

• MonteCarloAnalysis

• Moresophisticatedtechnique

• Generally,itwillonlyberequiredforverylargeandcomplicatedprojects

• ProbabilityDistributions

• ExpectedValues(ExpectedNPV)

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςMonteCarlo

MonteCarlo

€0 NPV

<€0 >€0

ProbabilitythatNPV<0NPVinbasecase

Analyserisks

€0 NPV

<€0 >€0

NPV in base case

Analyserisks

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςManagementofRisks

Presentaplanformanagingkeyrisks,includingmitigationmeasuresand/orreactivemeasuresshouldtherisksoccur

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςManagementofRisks

Allfinanciallysignificantprojectsareexpectedtohaveariskmanagementplan

FinancialvsEconomicAnalysis

MajorDifferencesbetweenFinancialandEconomicCost-BenefitAnalysis

FinancialAnalysis EconomicAnalysis

Perspective Agency/organisation/firm Economy/society

Objective Analysisofthenetfinancialimpactoftheproposalontheagency

Maximisingthesocialreturnstotheeconomy’sresources

Pricing Marketprices Opportunitycosts/shadowprices

Transferpayments(taxes&subsidies)

Included Excluded

Equity/distributionaleffects Excluded Canbeincluded,usuallytreatedqualitatively

Externalities Excluded Included

Depreciation Excluded(fromdiscountedcashflowanalysis,butincludedinfinancialstatements).

Excluded

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςAssessaffordabilityandsustainability

1. Carryoutfinancialanalysisoftheprojecttodeterminefinancialsustainabilityandprofitability– Financialsustainability=project’srevenuescoveritscostsandthatitwillnotrunoutofcash

– Financialsustainability≠financialprofitability– FIRR>WACC(WeightedAverageCostofCapital)

1. Carryoutfinancialanalysisoftheprojecttodeterminefinancialsustainabilityandprofitability

2. CarryoutBudgetaryAnalysisasanInputtoAssessingAffordability– Netimpactonthenationalbudget– Currentprices

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςBudgetImpactAnalysis

Year 1 Year 2 Year… Year 7 Post- Year 7

Budgetary CostsCapital Costs

Net Recurrent Costs • Operations • MaintenanceTotal Costs

Projected budgetary revenues (if any)Net Budgetary Impact

2. CarryoutBudgetaryAnalysisasanInputtoAssessingAffordability

3. Assessinstitutional/managerialsustainabilityoftheproject– assessmentofthecapacitiesoftheorganisation(s)responsibleforimplementingandoperatingtheproject

– keymilestones(planning,approval,construction)

2. CarryoutBudgetaryAnalysisasanInputtoAssessingAffordability

3. Assessinstitutional/managerialsustainabilityoftheproject

4. Assessenvironmentalandsocialsustainabilityoftheproject– Monetised(alreadyassessedinSteps4–5)– Non-monetisedcostsandbenefitsshouldatleastbeidentifiedinquantitativeorqualitativetermsandtheirrelativeimportancecomparedtomonetizedbenefitsandcostsassessed

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςIdentifythepreferredprojectalternative

MakeaRecommendation

€0 NPV

<€0 >€0

MAYBE YES

MulticriteriaAnalysisTakeintoAccountNon-MonetisedBenefitsandCosts

andAffordabilityandSustainability

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςMulticriteriaAnalysis

1. Identifying(generallynon-monetised)projecteffectsthatarejudgedimportantenoughtobedecisioncriteria.

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

2. Scoringprojectalternativesagainstthesecriteria-usingquantitativemeasuresofeffectsuponwhichtobasescoreswhereverpossible.

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

3. Determiningweightsreflectingtherelativeimportanceofthecriteria

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4Weights 4 2 1 1

4. Combiningtheweightsandscoresforeachofthealternativestoderiveanoverallvalue

x1 x2 x3 x4Overall 3.70 5.87 4.84 6.40

4. Combiningtheweightsandscoresforeachofthealternativestoderiveanoverallvalue-multiplyingthevaluescoreoneachcriteriabytheweightofthatcriterion,andthenaddingalltheweightedscorestogether.

5. Performingasensitivityanalysistotestthesensitivityoftheresultstochangesinthescoresandweights.

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

g1 g2 g3 g4

x1 0.56 0.51 0.1 0.34

x2 0.93 0.74 0.45 0.22

x3 0.71 0.69 0.21 0.41

x4 0.99 0.44 0.99 0.57

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςCostEffectivenessAnalysis

SimilartoCost-BenefitAnalysis(Steps1–9)

MajorDifference

Itdoesnotinvolveplacingmoneyvaluesonthemajorbenefitsofaproject

Cost-effectivenessanalysiscomparesthecostofalternativewaysofproducingthesameorverysimilaroutputsoroutcomes

ResultNetPresentCost(NPC)NPC/UnitOutput(Outcome)

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςDeliverables

• FeasibilityStudy– supportedbytechnicalstudiesandimpactassessments– templatefortheoutlineoffeasibilitystudyispresentedasAnnex5totheManual

• ProjectAppraisalReport– executivesummaryofthefeasibilitystudy– mustcontainaclearandrecommendationonwhethertoproceed,justifiedonthebasisofthefeasibilitystudyfindings

– AtemplateforaProjectAppraisalReportispresentedasAnnex6totheManual

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςDeliverables

Rawdataandworksheets(excelfilesetc)usedtocalculatethevariousparametersoftheFeasibilityStudy,mustbesubmittedinelectronicform,inordertoenablethereviewofassumptionsandcalculationsbytheDGEPCD

Reproducibility(Replicability)

Theabilityofaresearchertoduplicatetheresultsofapriorstudyusingthesamematerialsaswereusedby

theoriginalinvestigator

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςReviewProcess

Checklist!!!!

Annex4Checklist

ManualforPre-SelectionandAppraisalofPublicInvestmentProjectsGovernmentofCyprus

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςWhatnottodo?

1. FeasibilityStudynotbasedonourmanual

2. “Hidden”Assumptions

3. “Disclaimer”

4. WOPscenariocomparedtosingleWPalternative

5. Valuationofbenefitsislargelybasedonindirectbenefits

– Avoid“GDP-increase”methods(Avoiddoublecounting)

6. CBAdoesnotcontaininformationonpotentiallysignificantnon-quantifiedcostsorbenefits

7. RiskanalysisinCBAisnotbasedonrealisticscenarios

8. Riskanalysisdoesnotdiscussmeasurestoreducerisks

www.dgepcd.gov.cy

ογραμμάτων,ΣυντονισμούκαιΑνάπτυξηςInsteadofanEpilogue

“Itisbesttothinkofthecost-benefitapproachasawayoforganizingthoughtratherthanasasubstituteforit.”

MichaelDrummond

Methodology for Feasibility Studies

Documents

Methodology Case studies

Detailed Feasibility Studies: Transmission

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