1. Ghent University – Department Agricultural Economics Project Management Financial and economic analysis of investment projects

2. Project cycle Objective-oriented intervention planning Logical framework PERT Financial and economical analysis

3. Project selection Production Marketing Financial Labour Administration

4. 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

5. E V A L. P R O G. SECTORSECTOR Needs Objective Input support Output realisation Results Impact Conceptual framework Relevance Use & sustainability Effectivity Efficiency External factors

6. 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

7. 20022004 Start of project q Time (t) BEFORE 1 AFTER WITHOUT PROJECT AFTER WITH PROJECT 2 3 2010

8. Construction of a dam against erosion Changes in the dam against saltation

9. Irrigation project Colonisation project

11. 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, …

14. 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

15. Classification of operational costs Maintenance Consumables Labour Taxes and levies Management costs Overhead costs Contingency costs (underestimations)

16. 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

20. 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

21. Amount (constant price) 0 Time (years) 5101520 Capital costs (project investments) Recurrent costs (project operation)

22. Cash flow 1 2 3 -2 -3 investment returns Time (years) 12 34567 8 910

23. 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

26. Net present value NPV

28. Internal rate of return IRR

29. Payback criterium

31. Benefit/cost ratio