Saving lives, changing minds. INITIATIVE INTEGRATED STEP BY STEP PARTICIPATORY LIVELIHOODS COST BENEFIT ANALYSIS MODEL IFRC

Saving lives, changing minds. 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

Saving lives, changing minds. Contents 1. Cover page 2. Contents 3. Instruction sheet 4. Initiative Investment Background Information 5. Component costs 1. Cover page 2. Contents 3. Instruction sheet 4. Initiative Investment Background Information 5. Component costs

Saving lives, changing minds. 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

Saving lives, changing minds. 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

Saving lives, changing minds. Concepts and terminology  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

Saving lives, changing minds. Concepts and terminology  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

Saving lives, changing minds. 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

Saving lives, changing minds. What is Cost Benefit Analysis? Measuring it…….

Saving lives, changing minds. 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

Saving lives, changing minds. Introducing the CBA model  Excel spreadsheet with eight linked spreadsheets  Formulae are imbedded  Discount rate assumed at 10% (discuss & adjust accordingly)

Saving lives, changing minds. 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

Saving lives, changing minds. Analysis  Quantify costs and benefits per programme component  Populate the model  Calculate the results  Assess the benefit-cost ratio

Saving lives, changing minds. Conclusion Thank You!!