Foundations of Cost Benefit Analysis

Introduction

“Cost-Benefit Analysis” is a term often used to refer to a common-sense approach of undertaking a task only if the benefits outweigh the costs. In the infrastructure/ project finance space, a CBA actually refers to a defined methodology of undertaking separate assessments of both financial and economic benefits and costs, and the aim of this session is to explain the key principles behind the CBA approach, and present a number of practical examples and case studies. Specifically, this session will focus on two main aspects:

1. Need for and purpose of a CBA – When is a CBA needed, and what are its benefits/ applications?
2. Typical CBA methodology – overview of the methodological steps adopted in undertaking a CBA, in line with financial and economic principles, and specific guidance issued by entities such as the EIB and the EC.

Who Should Attend?

This seminar is relevant for all professionals, government officials and private sector officials, students and anyone having an interest in understanding how a CBA is developed, and its interpretation.

Session Outline

Background Information

The private and public sector are both faced with the ultimate economic question – how to make the best use of their finite resources. This applies to the construction of new physical facilities and equipment, infrastructure, new processes or systems, and investments in other types of assets. There are various investment tools that aid in such decision-making, with a Cost-Benefit Analysis being one such tool.

A CBA has the double role of looking at both the financial position of the project promoter, as well as the wider position of the community or economy as a whole. In this regard, private sector entities often stop at the first part (i.e. their own financial impact), which is typically referred to as a financial feasibility study. A CBA goes a step further by looking at the internalisation of wider benefits and costs that are likely to result from the project being looked into. As a result, this further part delves into the economic benefits and costs.

Objectives of this session

The objective of this session is to discuss and attempt to answer the following questions:

When is a CBA needed? For which project/ entity is it mostly relevant? What are the benefits of adopting a CBA approach? What does the CBA methodology consist of? What are the quantitative aspects of a CBA relate to? How should the results of a CBA be interpreted?

These questions will be explored in the context of both the theoretical underpinnings (as indicated in CBA guidelines provided by the EC or EIB) and practical CBA case studies.

Topics on the agenda

• Decision-making under a finite resource situation
• Investment tools
• CBA – its role
• CBA applications
• CBA methodology
  • Project perimeter
  • Options Analysis
  • Financial Analysis
  • Economic Analysis, including examples of economy benefit estimation
  • Risk analysis
• Common pitfalls

Registration fee

• Regular fee: €75

Date

This session will be held on the 19th of September between 9:00am and 12:30pm (with 30 minutes break).