1. Participatory model for cost benefit analysis of livelihood interventions

2. 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

3. Contents Cover page Contents Instruction sheet
Initiative investment – background Information
Component costs

4. 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

5. 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.

6. 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

7. 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

8. Key steps for cost benefit analysis
Identify:
Costs
Benefits
Discount the costs
Quantify
Discount the benefits
Calculate cost-benefit ratio

9. What is Cost Benefit Analysis? Measuring it…….
Where:
𝐵0−𝐵𝑛 benefits between year programme started through to year to conduct study
𝐶0−𝐶𝑛 costs between year programme started through to year to conduct study
𝑟0 – rn discount rate for programme duration
𝑁𝑃𝑉= 𝐵0−𝐶0 (1+𝑟 ) 0 + 𝐵1−𝐶1 (1+𝑟 ) 1 ……… 𝐵𝑛−𝐶𝑛 (1+𝑟 ) 𝑛

10. Cost Benefit Analysis in the context of livelihoods programme
Identify programme:
Costs components
Benefits components
Quantify
Costs components
Discount the benefits
Calculate cost-benefit ratio

11. Introducing the CBA model
Excel spreadsheet with eight linked spreadsheets
Formulae are imbedded
Discount rate assumed at 10% (discuss and adjust accordingly)

12. Fieldwork
The purpose of fieldwork is to collect data on programme costs and benefits
Identify data sources
Initiative/ project annual reports, quarterly reports, management reports, etc. (include indirect costs and benefits
Interviews with communities and relevant staff
Identify all risks

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

14. Thank You!!