EREE 3104

DEVELOPMENT
PROJECT ANALYSIS

Social Cost-Benefit
Analysis
PREPARED BY :
CHAN SHU CHI EEE110009
CHEN WAN LOONG EEE110014
KEVIN TIU TZE XIAN EEE110044

PREPARED FOR:
MR. ANURDDIN BIN ABDUL GHANI
Social Cost Benefits Analysis technique for project
appraisal.
Discuss the strength and weakness of the technique
using practical examples from case studies.
Cost-benefit analysis (CBA)
Public policy decision tool:-
1) To assess whether or not the social benefits of a
proposed policy or project outweigh its social costs.
2) To facilitate the allocation of resources to their most
valuable uses.
Costs and benefits may occur over different periods of
time.
e.g., costs for a dam built today may be spent
primarily during the initial period of the project, but
benefits will accrue over the lifetime of the dam.
Present value of net benefits:
The tool to account all costs and benefits in the same
units across time periods.
Step 1: Define the Scope or Perspective of the Analysis.
Step 2: Conduct Cost Analysis
Step 3: Estimate Program Effects
Step 4: Estimate the Monetary Value of Outcomes
Step 5: Account for the Effects of Time
Step 6: Aggregate and Apply a Decision Rule
Step 7: Describe Distributional Consequences
Step 8: Conduct Sensitivity Analysis
Step 9: Discuss the Qualitative Residual
CBA is
imperfect!
Unable to reflect
social values
Social Cost
Benefits
Analysis (SCBA)
is introduced~
Valuing
the
priceless



CASE STUDY- VOLKERAK & ZOOM
LAKE, NETHERLANDS
The first project concerns an
environmental impact
assessment (EIA) and social
cost-benefit analysis for a
number of alternative ways to
reduce the problem of blue-
green algae (cyanobacteria) in
the freshwater lakes Volkerak
and Zoom in the province of
Zeeland in The Netherlands.

Executed for the Directorate-
General for Public Works and
Water Management (RWS).

Problem exists:-
1) Blue-green algae
2) Poor quality of the water
STRENGTH OF SCBA
Benefit to management and non-technical personnel:
Compare a system development project to other
types of investment opportunities.

For example of Volkerak and Zoom Lake, the SCBA can
yield the comparison of investment opportunity to the
Netherlands in terms of tourism which brings rise to GDP.

WEAKNESSS OF SCBA
1. Valuing environmental goods and services is
problematic.
2. Neglects equity.
3. Future is undervalued (discounting).
4. Neglects irreversible changes.
5. Undervalues innovative and visionary projects.
6. Expensive.
Problems of Valuing Environmental Goods &
Services
Neglect, underestimate or overestimate the value of the
environment for society
Inappropriateness of putting monetary values on the
environment.
Environmental effects are weighted

Volkerak-Zoom Lake, decision making exclusively on the basis
of an EIA:
Neglect the opposition from the agricultural sector and the
effects on recreation
Impossible to estimate a reliable upper and lower value of the
environmental effects
Neglects Equity

The net present value, gains and losses of all stakeholders are
simply added, neglecting effects on the poor different from
those on the rich.
Favour the rich at the expense of the poor.

Volkerak-Zoom Lake, recreational effects were not added to
the NPV.
Future is Undervalued (discounting).
Undervaluation of effects taking place in the far future if they
are discounted.
Irreversible effects are considered-discounting is not
appropriate
Hyperbolic discounting can be used in which the discount rate
is inversely proportional to the distance in the future.
Hyperbolic discounting is still rather unknown and therefore not
applied regularly.

Volkerak-Zoom Lake, with a discount rate of 2.5%, a benefit of
100 in 25 years is worth 54 in present value terms with
exponential discounting and 62 with hyperbolic discounting. For
a benefit of 100 in 100 years, this would be 8 and 28.

Neglects Irreversible Changes
Irreversible effect takes place after the end of the planning
period and is therefore not considered
Requires substantial additional knowledge and more
information on the risks and uncertainty surrounding the projects
and may therefore be expensive.

Volkerak-Zoom Lake, interventions would affect valuable and
rare nature. It is possible to estimate the costs of reconstructing
these areas and check whether the options chosen would be
no-regret options.
Undervalues innovative and
visionary projects.
Visionaries are necessary to develop innovative
developments and CBA analysts are necessary to
assess the social and economic effects.
Within the different phases of decision making, cost-
benefit analysts are important to select those
alternatives that are promising.

Volkerak-Zoom Lake, in first instance seven possible
alternatives were investigated, some of which had a
traditional and others who had a more innovative
approach. As the project had two phases, those
alternatives that might have looked interesting at
first instance, were filtered out. In such a way,
visionary but unreal ideas were filtered out.
Expensive
Cost depending on:-
Number of alternatives,
Size of the project
Number of effects
it may easily take a team of specialists a considerable amount of
time to determine all effects.

Volkerak-Zoom Lake, values from reference are applied for
valuing the environmental effects. For example when
translating the effects of the project to changes in soil, water
and air quality, and translating this further into health effects
and expenses.
~THANK YOU~