Example of a benefit-Cost analysis
Annual flow of Costs and Benefits (Extremely simplified)
Regional Workshop on Economic Valuation of Marine
& Coastal Resources
PERSGA
Dr. Asem Nabulsi
Slide 1
Annual Flow of Costs
4000 3500 3000 2500 2000 1500 1000 500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 total incremental cost
Slide 2
investment
Dr. Asem Nabulsi
Incremental production cost
Total Incremental Benefit
Total Incremental Benefit 5000 4000 3000
$
2000 1000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Year Total Incremental Benefit
Dr. Asem Nabulsi Slide 3
Streams of Net Benefit (before discounting)
5000 4000 3000 2000 1000 0 -1000 -2000 -3000 Year total incremental cost
Dr. Asem Nabulsi
$
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18
Total Incremental Benefit
Incremental net benefit
Slide 4
Streams of Net Benefit (after discounting)
3000 2500 2000 1500 1000 500 0 1 -500 -1000 -1500 -2000 total incremental cost
Dr. Asem Nabulsi
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Total Incremental Benefit
Incremental net benefit
Slide 5
The results of NPV after discounting
NPV
NO Discount
Total incremental Cost
Total Incremental Benefit
Incremental Net Benefit
36477 18506
65490 26574
29013 8067
Discount
Dr. Asem Nabulsi
Slide 6
Sensitivity Analysis
• Necessary for a succesful benefit-cost analysis. • Aims to find out how sensitive (vulnerable) is the result to changes in the streams of costs and/or the streams of benefits. • Can be utilized to check the reaction to a certain event or development. • Helps to show the critical points at which the project can become (or stay) feasible or at a loss.
Dr. Asem Nabulsi Slide 7