Financial and Economic Analysis

Description

A complete analysis of a project or programme must take into account the view of a specific stakeholder as well as the broader impact on society.  Such analysis must be informed by the measurement and calculation of flows in terms of costs and benefits or cost effectiveness.  The relevance, effectiveness, efficiency, sustainability and impact of the project or programme are assessed with respect to the resources to be applied, the activities to be undertaken and the results.

 The professional development workshop includes the following:

• The course defines the project and the programme and describes what Financial and Economic Analysis is as one of the facets of the appraisal of a project or programme. Complimentary to it are the considerations of social, institutional, technical and environmental analyses.  The course examines the different kinds of benefits that can accrue as tangible and non-tangible.  It introduces the cost-benefit analysis in the case of tangible benefits and in the case of intangibles the cost-effectiveness analysis.
• The course reviews Economic Analysis as an assessment of projects from the point of view of society as whole. Two approaches are considered for projects/programmes with tangible benefits, depending on whether the aim is to estimate the effects of the project/programme on the national economy or to assess the project/programme’s sustainability within the international economic environment.  Further it considers drawing up a consolidated account for all the stakeholders in the project/programme; calculating all the effects induced in the economy; determining the project/programme’s sustainability within the framework of the international economy;                 calculating the return on invested capital (i.e. profitability, based on its total effective cost, its foreign exchange cost, and/or its cost on the international market); and examining the project/programme’s relevance from the point of view of the economic policies and structural reforms being implemented.
• The course provides tools to define and identify a project or programme’s stakeholders, analyse the interests (characterised as convergent, divergent or conflicting) and adopts a rule basis for which stakeholders must be considered in a Financial and Economic Analysis.  The course examines how to identify the interests of all stakeholders in a project or programme. Which stakeholders are directly involved or are likely to be affected are analysed, on an individual basis. It also considers the possibility of creating sub-groups of similar stakeholders.
• The course examines ways to quantify the “with project” – the most likely evolution of the situation with the project or programme, “without project” – the most likely evolution of the situation without the project or programme and “additional” (or “incremental”) situations – pertaining to the difference between the two; and build up their three distinct and respective cash flow models.  It explores the main variants of the project or programme

• The course clarifies the different perspectives between financial (the activities and resource flows of the main stakeholders) and economic analysis (the impact on society) and which aspects of the project or programme analysis are best served by each type of analysis.  It demonstrates how economic analysis (based on the shadow pricing method and the effects method) allows one to measure the project or programme’s actual contribution to the national economy.
• The specification of assumptions and sensitivity analysis techniques are outlined.  The importance of properly specifying and justifying all the assumptions (concerning costs, benefits, etc.) underlying financial and economic analysis is highlighted and the main techniques for sensitivity analysis demonstrated.   The course also covers the interpretation of the results of sensitivity analysis carried out on the main variables that affect a project or programme’s profitability.  A series of external factors affect the outcomes of a project or programme which can and do result in variations in the costs, benefits and returns of a project/programme.
• The treatment of uncertainty and risk is examined in depth.  These elements introduce a heavy dose of realism into the analysis.  Through case studies It requires risk mitigation strategies to be developed.

Objective

The principal workshop objective is to provide participants with the tools to assess projects and programmes for relevance, effectiveness, efficiency, sustainability and impact.  Specifically to analyse and determine which will attract financing based upon financial and economic analysis (FIRR, EIRR).

Audience

The target audience is planning institution staff, planning and budget staff in the Ministry of Finance, planning and budget staff in line ministries as well as development partner officials involved in designing or administering project and programme support.   The vantage point for the course is a presumption of basic project management and financial and economic analysis concepts.

Pre-requisites

There are no pre-requisite for this course however participants should have some basic exposure to project management and financial analysis concepts and must appreciate the main upstream elements of planning and budgeting.  Given its intensive and comprehensive approach, it will be useful for participants to familiarize themselves with basic project management, planning and budgeting concepts and terminology prior to attending the course.

Learning outcomes

The expected learning outcomes for the participants are:

• Understand basic concepts and the language of Financial and Economic Analysis and the ability to assess projects and programmes as suitable for attracting aid financing.
• Have a clear understanding of the objective of Financial Analysis and Economic Analysis;
• Understand how to identify and do a stakeholder analysis;
• Understand how to undertake a “with project”, “without project” and “incremental” analysis;
• Obtain a good grasp of making realistic assumptions and recognising the risks and uncertainties associated with a project or programme;
• Performing a sensitivity analysis that covers the full range of uncertainty;
• Evolving risk mitigation strategies for the project or programme

Learning methods

The learning methods will include the following

• Introduction to key concepts through the “teaching and discussion” methods
• The use of original source material of key writers/thinkers in this area
• The use of extensive examples from many different countries with different experiences to illustrate the points put across
• The use of exercises (in particular short "buzz-group" sessions) to provoke and consolidate certain points raises
• The use of group work exercises to promote peer-to-peer discussion
• The use of substantial case studies to illustrate some of the key aspects and themes of the course.