Social Cost Benefit Analysis Costbenefit analysis is often used by governments and others, e.g.

businesses, to evaluate the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives(i.e. opportunity cost) in order to predict whether the benefits of a policy outweigh the costs of that policy, and by how much (i.e. one can rank alternate policies in terms of cost-benefit ratios). The aim is to gauge the economic efficiency of alternate policy options relative to each other including consideration of the costs and benefits of the status quo. Under rather heroic assumptions, altering(or maintaining) the status quo through implementation of a project with the highest cost-benefit ratio can lead the distribution of wealth in society towards pareto efficiency, which roughly states that no policy can improve somebody's situation without deleterious effects to another. Generally, cost-benefit analysis will, when all costs are considered, lead to the selection of projects such that society experiences an increase in social welfare from a utilitarian perspective. Otherwise, cost-benefit analysis offers no guarantees of increased economic efficiency or increases of social welfare; generally positive microeconomic theory is moot when it comes to evaluating the impact on social welfare of a policy. As an aid to planning, decision-making, evaluation and control, the social cost benefit analysis provides a scientific and quantitative base for the appraisal of projects with a view to determine whether the total social benefits of a project justify the total social costs. To make a scientific and systematic social cost benefit analysis of projects, it is necessary to weigh each projects advantages (benefits) and disadvantages (costs) to the society or nation as a whole. Thereafter, various projects under consideration are ranked on the basis of social cost benefit ratio and the final decision about the selection of a project is taken based on the score in ranking. In other words, a social costs benefit analysis is a vital tool for comparing economic alternatives. It is used on a mass scale to determine (a) which project or alternative or choice is socially viable (or most suitable), and (b) which project or alternative or choice is the optimal or the best solution? The need for a scientific social cost benefit analysis arises because of the fact that the criteria used for measuring commercial or trading profitability that normally guide capital budgeting in the private sector investing projects may not be appropriate for public or social (macro) projects investment decisions.

Private investors are most interested in minimizing private costs and hence they take into consideration only those elements or costs which directly affect their private earnings i.e. the private expenses and private benefits. Both private earnings and private costs are valued at the prevailing market prices for al accounting purpose. But the existence of externalities i.e. the social costs and social benefits introduces bias in the market price based investment decisions. Economists consider externalities as spillover effects, third-party effects etc. To be more precise, external economics and diseconomies are social benefits and social cost respectively.

According to Ahmed Belkaoui: An externally arises whenever a firms activities have a negative or a positive impact on the environment for which the firm is not held accountable. If the impact in positive, It is called an external economy or social benefit; if the impact is negative, it is an external diseconomy or social cost. He further stated that if the activities of a firm lead to a depletion of social resources, the result is a social cost; It they lead to an increase in social resources, the result is a social benefit. The total benefit that a society /nation receive from a project comprises both the private benefits (internal profits) that the owner of the project gets and the external benefits (also known as externalities or spillovers) that the society obtains. In other words, social benefits are equal to internal benefits to the owner of the project as well as external benefits to the society. Social costs would include, in addition to the private costs, any environmental damage, ecological imbalance, undesirable practices, human services used, monopoly costs, adverse effect on social order and the like. On the other hand, social benefits would involve improvements in environment, availability of goods and services, providing employment opportunities, decrease in poverty and any activity enhancing social welfare. Steps The following is a list of steps that comprise a generic cost-benefit analysis.

1) Establish alternative projects/programs 2) Compile a list of key players (those with standing or influence) 3) Select measurement and collect all cost and benefits elements 4) Predict outcome of cost and benefits over the duration of the project 5) Put all effects of costs and benefits in dollars 6) Apply discount rate 7) Calculate net present value of project options 8) Sensitivity analysis 9) Recommendation

Project failure or mismanagement has become the rule and not the exception in project management. This observation is true specially in case of public sector projects but the private sector is not the exception. Although, the causes of failure/ mismanagement of any specific project will depend upon case to case basis, the main causes of project failures or mismanagement in Indian industries are generalized in the followings list, which is only an illustrative one and not the exhaustive. Delays in plant location and site selection, land acquisition, receiving clearances from financial/ regulatory authorities or bodies of the government. Lack/inadequacy of infrastructural facilities. Selection of incompetent consultant and/or contractor- resulting poor performance, delays etc. Failure on the part of the owner and/or executing authority in timely project planning and integrated team efforts of all the agencies involved. Insufficient funding arrangements Poor or outdated technology acquisition. Political influences in the selection of plant site, labour and staff, vendors, contractors, suppliers etc. Underserved protection to the public sector vendors, contractors and suppliers, on the basis of government guidelines. Law and order problems at plant site. Under-utilization of plant site. Time and cost overruns-leading to erosion of financial outlays , delay in project execution , over capitalization situation, resulting in high cost of products, rendering the project non-competitive. Insufficient procedures of scrutiny, approval and transmittance of designs, drawings, specifications, engineering schedule, work schedule etc. Poor selection of vendors, manufacturers, fabricators, suppliers etc. Practice of accepting lowest quotation, irrespective of the vendor quality and competency. Delay in supply/import of critical machineries and equipment. Lack or inadequacy of quality control equipments and/or arrangements. Poor logistics planning.

 Indecisions or delayed decisions at different stages of project management. Defects in plant erection and installations. Weak project team and/or lack of managerial talents. Absence of personal accountability and commitment among project team members by the project team and/or the organization. A microscopic analysis of the above discussed causes of project failure or mismanagement reveals that much of these causes can be avoided/controlled through committed involvement of all the agencies in an integrated style, implementing sound project management practices and giving a significant weightage to human aspects of project management. In order to implement a project in a successful manner, an organization launching a project should first select a project management team comprising of professionals such as engineers, technicians, managers and accountants with responsibilities in their respective fields. The team should be headed by a project Manager with individuals within a defined parameters responsible for their respective fields to achieve a common goal i.e, to complete the implementation within projected schedule projected cost and deliver the project with defined quality. Once the project management team is finalized, followings steps with their activities are undertaken. Step I : Initiation and Defining Activities : 1. Developing and defining objectives. 2. seeking managements approval, if the project owner is not the promoter. 3. Team identification with training requirements 4. Project details, specifications and authorization including project scope communication plan, control meetings, risk analysis, time schedule project cost, quality, flow of funds, key project issues, control procedures etc.

Step II Project Planning Activities : 1 Planning is directed to answer-what need by done, when and what cost. 2. plans and specifications should be clearly understood to weed out confusion, if any 3. Project team members to understand the team organization, project key issues and to demonstrate commitment leading to harmonizing the tem efforts. Step III : Project Execution Activities :

1. Mobilization and lining up necessary resources for the project. 2. Carry out assigned work-packages within committed targets. 3. Carry out control meetings, monitor the actuals, review the progress as against the task set and take corrective actions. Step IV : Project Completion Activities : 1. Handover the project to the project owner by way of commissioning the project. 2. Project post appraisal and report. Peculiarities of the nature and category of projects call for a special approach to ensure success of a project. The main components required for a successful project management are as follows: (a) A clearly defined project objective (b) An integrated total project plan with detailed project report, broken down into tasks and activities with daily targets. (c) An integrated project team, including representatives of the owner and/or executing authority, consultant, main contractor, suppliers of critical equipments, funding institutions, central and state government etc. (d) The necessary resources (e) An effective quick-hitting control system. Project is a perfect blend of human and non-human resources pulled together in an organization to achieve a specified purpose. A project has a single set of objectives and when these objectives are achieved, the project is termed to be completed. Therefore, a project has a finite and well-defined life span. Project management is an important managerial activity for any organization. Wherever there is a need for a specified time-bound work, project management is called for-whether it is a specified timebound work, project management is called for-whether it is an educational institution, a hospital, a publishing house, a business house, a financial institution, an agricultural and rural development work, a social work or an industrial construction project. Project management envisages meticulous planning, effective implementation and professional organization to achieve the management of cost, time and performance. Therefore, the traditional form of organization with functional divisions, hierarchical relationship and continuous flow of repetitive work is not suitable for project management. Project management calls for sharper tools of planning and control and improved ways of coping with human problems as a project has certain distinctive features of a

non-routine and non-repetitive undertaking plagued with uncertainties, a co-ordinated effort of persons drawn from different divisions, disciplines and also from external agencies; and a dynamic, temporary and flexible relationships. These characteristic features make management of a project different from management of operations and involve issues like from of project organization, project planning, project implementation, project control and human aspects of project management. Therefore, in the undertaking of project management, following aspects are important: The objectives, scope and type of management The project phase concept The feasibility study involving preparation of detailed project report and project selection. Financial evaluation, cost and time overruns. Implementation phase in project management Other aspects like contracts and specifications, foreign exchange and import controls, power shortage, labour and tax incentives etc. Project management is the application of a collection of tools and techniques to direct the use of diverse resources towards the accomplishment of a unique, complex, one-time task within time, cost and quality constraints. Each task requires a particular mix of these tools and techniques structured to fit a project environment an life cycle of the project. Thus, project management means dedicating organizational resources to the end objective and keeping the totality in focus all the time. The emphasis in project management is on results with the holistic approach. A good project management seeks to remove, among other things, delays in execution, avoid cause of delays and identification of technical flaws in executing projects. Project management is the planning, organizing, directing and controlling of company resources for a relatively short-term objective that has been established to complete specific goals and objectives. Furthermore, project management utilizes the system approach to management by having functional personnel (the vertical hierarchy) assigned to a specific project (the horizontal hierarchy) In a project management, all work has inter-dependence and interrelationship with others. This approach of project management differs

from functional management in that the latter does not hold responsible to any one individual for a work from start end or from A to Z. This create problems of communication, co-ordination, commitment and control. No good decision could be taken without considering all inter-related things and no use ful result can be achieved without completing the whole work. The importance of any work depends on how it stands in relation to others and to the whole. The inter-relationship and even the work to be performed is liable to be changed, but the objective does not change. In project management environment, the future is uncertain unlike in an ordinary functional management, and therefore, it is necessary to keep an eye on the future and to adopt very fast changed needs of the further. Quick responses and flexibility are essential for dealing with ever-changing dynamic situations which pervade the project management. Thus, the aims and objectives of project management are: Timely completion of the project Avoidance of delay, technical flaws and drawings defects. Proper flow of funds. Proper tooling and techniques Proper control over chain reaction activities. Characteristics of a Project A project has several characteristics. The main characteristics of a project include the followings features: (i) Mission or set of objectives: A project has a mission or a set of objectives to be achieved within a distinct time, cost and technical performance goals. once the mission is achieved, the project is treated as complete. (ii) Ownership: Every project has an owner. Who, in the private sector, can be an individual or a company; In the public sector, a government or government undertaking; and in a joint sector organization, the ownership of project can be represented by a partnership of public and private sector.

(iii) Terminal stage : A project can not continue forever. It has to terminate at some time or the other. The set of objective indicate the terminal stage of the project. (iv) Team-work : Every project is planned, managed and controlled by an assigned team- the project team- to achieve the objectives as per specifications. The members of the project team may come from different organizational units, different disciplines and even from different geographical regions. (v) Uniqueness : A Project is unique and no two project are similar, ever, though the inputs, processing and results of two projects are identical. The nature of an organization, available infrastructure, location of the project and the people associated with a project make a project unique. (vi) Risk and uncertainty: Every project has risk and uncertainty associated with it and there can not be a project without any risk and uncertainty. The risk is perceived to be variability of actual returns from the estimated returns and uncertainty about future leads to variations in returns. The degree of risk and uncertainty also vary during the life-cycle of a project. An ill- defined project has a high degree of risk and uncertainty in comparison of a well-defined project. (vii) Sub-contracting : A substantial portion of each and every project is performed by sub-contracting. The gender the complexity of a project, the greater will be the extent of work performed by subcontractors. (viii) Customer-specific: A project is always customer-specific. The requirements and constraints within which a project is executed are generally stipulated by the customer or are planned considering the beneficiary customers. (ix) Life-cycle : Every project has a start and a terminal point-a characteristic of a life-cycle represented by growth, maturity and decay. The organization of a project changes as it passes through this cycle. The activities starting from the conception stage, mounting up to the peak during maturity or implementation, comes to the zero on completion and delivery of the project. (x) Management of change : Change is a natural phenomenon with every project throughout its life-cycle. Projects vary during its life span in terms of technology, equipments, materials, machinery, people, work ethics and organizational culture. Some changes in these variables my not have any major impact but some others may change

the very nature of a project. Therefore, the inter-relationship and management of change between these variables is required for successful completion of a project. (xi) Unity in diversity : Every project has the characteristic feature of unity in diversity. A project is a complex set of thousands of different activities which remain inter-related with each other. Although theses activities which remain inter-related with each other. Although these activities differ in terms of materials, machines, equipments, technology, people, ethics, work culture etc. Yet these are essentially inter-related during different stages of a project. Project is a single shot set of activities having a definite beginning and ending points. The activities of a project are performed in a particular order as they have precedence relationships. The key concept of a project is that it is a one-time occurrence, an occurrence that will not be repeated daily, weekly or monthly in converting organizational resources into goods or services. Construction of a house, establishing a plant or factory, arranging a birthday party or picnic, preparing for a competitive examination, municipal construction of new tennis court at a park and initial production of a new product are all projects. Each one is a one-shot set of activities, each has a definite beginning and ending points and each has a series of activities with precedence relationships. Project is an organized programme of activities carried out to reach a defined goal, often of a non-recurring nature with a specified terminal points. It is a time-bound package of scheduled and assembled activities dedicated to the attainment of a specific objective of successful completion of a work, on time and within the allotted budget. Various scholars, practitioners and management scientists have dealt with the concept of Project in their own way. According to F.L. Harrison, -A project can be defined as a nonroutine, non-repetitive, one-off undertaking, normally with discrete time, financial and technical performance goals. In the words of Little and Mirrlees, We mean by a project any scheme, or part of a scheme, for investing resources which can reasonably by analyzed and evaluated as an independent unit. According to the Encyclopedia of Management , Project is an organized unit dedicated to the attainment of a goal-the successful

completion of a development project in time within budget, in conformance with pre-determined programme specifications. Project is defined in the Dictionary of Management as an investment carried out according to a plan in order to achieve a definite objective, within a certain time and which will case when the objective is achieved. To quote Sinha and Sinha, A project is not a mere action or an activity or an attempt towards a particular aim; it is rather an integrated effort, including multifarious actions and activities, towards that aim. The report of the Economic Commission for Asia and Far East( ECAFE) describes that project is a smallest unit of investment activity to be considered in the case of programming. It will, as a rule, be a technically coherent undertaking which has to be carried out technically speaking, independently of other project. Similarly, according to the Food and Agriculture Organization (FAO), a project is an activity sufficiently self-contained to permit financial and commercial analysis. In most cased projects represent the expenditure of capital funds by pre-existing entities which want to prove their operation. It is convenient to divide all project into two board classes: (i) those that are revenue producing and self-financing (i.e. commercial type projects), and (ii) social projects. All the above definitions thus suggest that a project is an actionoriented undertaking. It is a one-short, time-tested, goal-directed, major undertaking requiring the commitment of varied skills and resources. According to the Project Management Institute, USA, A project is an undertaking with a defined objective by which completion is identified. In practice, most projects depend on finite or limited resources by which objectives are to be accomplished. A project is also defined as a non-routine, non-repetitive, one-off undertaking normally with-discrete time, financial and technical performance goals. It can be considered to by any series of activities and tasks that:

Have a specific objective to be specifications, Have defined start and end dates; Have funding limits ( if applicable);

achieved

within

certain

Consume resources ( time, money, equipment etc.) and Generate wealth (tangible or intangible).

Application and history The practice of costbenefit analysis differs between countries and between sectors (e.g., transport, health) within countries. Some of the main differences include the types of impacts that are included as costs and benefits within appraisals, the extent to which impacts are expressed in monetary terms, and differences in the discount rate between countries. Agencies across the world rely on a basic set of key costbenefit indicators, including the following:

NPV (net present value) PVB (present value of benefits) PVC (present value of costs) BCR (benefit cost ratio = PVB / PVC) Net benefit (= PVB - PVC) NPV/k (where k is the level of funds available)

The concept of CBA dates back to an 1848 article by Jules Dupuit and was formalized in subsequent works by Alfred Marshall. The practical application of CBA was initiated in the US by the Corps of Engineers, after the Federal Navigation Act of 1936 effectively required cost benefit analysis for proposed federal waterway infrastructure The Flood Control Act of 1939 was instrumental in establishing CBA as federal policy. It specified the standard that "the benefits to whomever they accrue [be] in excess of the estimated costs. The application of cost-benefit techniques for broader public policy started from the work of Eckstein who in 1958 laid out a welfare economics foundation for CBA and its application for water resource development. Over the 1960s, CBA was applied in the US for water quality, recreation travel and land conservation ]. During this period, the concept of option value was developed to represent the nontangible value of preserving resources such as national parks . CBA was later expanded to address both intangible and tangible benefits of public policies relating to mental illness substance abuse, college education and chemical waste policies More recently, the Canadian Government issued a guide for cost-benefit analysis of regulatory policies

Accuracy problems The accuracy of the outcome of a costbenefit analysis depends on how accurately costs and benefits have been estimated. The public interest is an ever moving target containing a highly varied and complex set of interest based on the individual standing and/or stake holder role. Comparative studies indicate that similar inaccuracies apply to fields other than transportation. These studies indicate that the outcomes of costbenefit analyses should be treated with caution because they may be highly inaccurate. Inaccurate costbenefit analyses likely to lead to inefficient decisions, as defined by Pareto and Kaldor-Hicks efficiency .These outcomes (almost always tending to underestimation unless significant new approaches are overlooked) are to be expected because such estimates: 1. Rely heavily on past like projects (often differing markedly in function or size and certainly in the skill levels of the team members) 2. Rely heavily on the project's members to identify (remember from their collective past experiences) the significant cost drivers 3. Rely on very crude heuristics to estimate the money cost of the intangible elements 4. Are unable to completely dispel the usually unconscious biases of the team members (who often have a vested interest in a decision to go ahead) and the natural psychological tendency to "think positive" (whatever that involves) 5. Rely heavily on past like projects (often differing markedly in function or size and certainly in the skill levels of the team members) 6. Rely heavily on the project's members to identify (remember from their collective past experiences) the significant cost drivers 7. Rely on very crude heuristics to estimate the money cost of the intangible elements 8. Are unable to completely dispel the usually unconscious biases of the team members (who often have a vested interest in a decision to go ahead) and the natural psychological tendency to "think positive" (whatever that involves) 9. Reference class forecasting was developed to increase accuracy in estimates of costs and benefits. Another challenge to costbenefit analysis comes from determining which costs should be included in an analysis (the significant cost

drivers). This is often controversial because organizations or interest groups may think that some costs should be included or excluded from a study. Risk and uncertainty Risk associated with the outcome of projects is also usually taken into account using probability theory. This can be factored into the discount rate (to have uncertainty increasing over time), but is usually considered separately. Particular consideration is often given to risk aversion - that is, people usually consider a loss to have a larger impact than an equal gain, so a simple expected return may not take into account the detrimental effect of uncertainty. Uncertainty in the CBA parameters (as opposed to risk of project failure etc.) is often evaluated using a sensitivity analysis, which shows how the results are affected by changes in the parameters. Alternatively a more formal risk analysis can be undertaken using spreadsheet-based Monte Carlo simulations with add-in software such as @RISK or Crystal Ball. Finally, in short, we can define project as, project is a nonroutine one-off undertaking for future activities with specified performance goal.