Economics Evaluation Analysis
Economic evaluation refers to the systematic analysis of the costs and benefits related to a project proposal (Magnus, 1996). Its purpose is to assess the overall benefits to be derived from a project about to be undertaken. It uses quantitative, monetary and qualitative factors to help decision makers choose right programs, regulatory reviews and policy formulation in respect to community and social services. Before embarking on economic evaluation, it is required that one consults with the Economics Unit to clearly establish the required level of analysis and the arrangements to be made for the conduct of the evaluation. For complex evaluations, the Economics Unit may commission independent consultants to carry out the work. The following are the general guidelines that need to be followed when conducting an economic evaluation analysis:
1. Clearly define the desired results in specific terms as possible and the area that the proposed project will cover. At this point, budgetary and time constraints need to be specified clearly
2. List down the widest range of possibilities that will help your team achieve the intended results. Concentration on traditional solutions should be resisted
3. The third step is to analyze the options at hand through Cost Benefit Analysis (CBA)
4. Determine the net monetary benefit of each alternative. Quantifiable amounts to be expressed in constant dollar terms by excluding inflation. After discounting future streams of costs and benefits, net present value (NPV) is obtained by subtracting costs from the sum total of benefits. A worthwhile project has an NPV greater than zero
5. The next stage is to analyze the inherent risk and its impact on costs and benefits
6. Evaluate distributional impacts by identifying geographic areas that will be significantly affected
7. Finally, select the best option. Choice depends on whether the projects at hand are either divisible or fixed. In addition, it also matters whether the projects are fixed or variable.
