Chapter 28 Chapter Summary

This chapter introduced the definition of a development project and some of the debates about the relative importance of projects in development planning. It was argued that, while such projects needed to be planned in a wider sector context, it remains important that project investments are identified and planned in a systematic way and appraised to ensure that they make a positive contribution. Some of the useful tools for planning and designing projects are included in the logical framework approach, which has been used by many development agencies. Projects in different sectors can be appraised using the techniques of CBA and CEA. The first stage in CBA is to set out the costs and benefits at market prices to determine potential overall viability. This can then be further refined into a financial analysis to determine the financial profitability of commercial projects and to ensure that the financial plan of any project will work. To determine whether a project is a good thing from the national point of view, it is necessary to consider potential external costs and benefits, including those associated with environmental impact. It is also necessary to undertake an economic analysis using shadow prices if market prices are not perceived to reflect economic costs or values. In the process it is possible to undertake a distribution analysis to determine whether the benefits go to target groups, particularly those that are relatively poor. For some sectors, particularly in the social sectors where benefits may be difficult to value, it may not be possible to do CBA. In such cases it may be possible to undertake CEA to ensure that expenditure is relevant and efficient. Finally, it is important to account for the margin of error in the estimates made to determine whether the risk of failure is excessively high.