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Introduction

This is a module about financial and economic appraisal of projects. The project is a very specific element of the public policy and management mix. It normally consists of an investment – that is, the creation of an asset which will generate benefits, financial and non-financial over a period of more than one year. This is not universally applicable as a working definition, as ‘project’ is often used to describe a set of discrete activities that do not always involve a capital investment, to achieve some specific goals. In this module, however, we will be dealing with capital investments.

This is a very specific and quite technical module, which will enable you to carry out financial and economic appraisals. It will give you enough theory to understand the financial and economic processes involved in such an appraisal, but the emphasis is on practice, with some critique of the methods involved. There are two related modules: Environmental and Social Impact Assessment is specifically concerned with these two aspects of project appraisal, themselves often also a formal requirement of the project approval process; while, the module Project, Programme and Policy Evaluation offers a post-hoc process of assessing whether projects, programmes and policies have been successful after implementation.

Learning outcomes

When you have completed all your work on this module, you will be able to:

  • the reasons for project and programme appraisal and evaluation
  • apply private sector investment appraisal techniques to different situations
  • explain and use cash flow analysis
  • discuss private sector appraisal techniques
  • use spreadsheets for investment appraisal
  • explain and comment on related issues of investment appraisal including choosing between mutually exclusive projects, and outline the difference between financial and economic analysis as applied to projects
  • apply the technique of social cost-benefit analysis that is used in project appraisal
  • explain and use the main valuation techniques of Revealed Preference and Contingent Valuation
  • analyse the strengths and weaknesses of these valuation techniques
  • apply cost-effectiveness analysis in situations where project benefits are not measurable
  • consider the most appropriate project evaluation techniques for different economic sectors
  • apply appropriate evaluation techniques in different economic sectors
  • critically review the advantages and limitations of social cost-benefit analysis
  • identify the problems of risk and uncertainty associated with project identification, preparation, monitoring and evaluation
  • use spreadsheets for analysing risk and uncertainty in project appraisal
  • interpret measurements of income distribution
  • outline the economic theory of diminishing marginal utility of income and consumption and explain its use as a basis for determining welfare or distributional weighting
  • assess the advantages and disadvantages of using distributional weighting in SCBA
  • explain how a system of weights can be applied to regional disparities in income, in the context of allocating public sector projects between the regions of a country.

Study resources

Study guide

The module study guide is carefully structured to provide the main teaching, defining and exploring the main concepts and issues, locating these within current debate and introducing and linking the assigned readings.

Key texts

Boardman AE, D Greenberg, AR Vining & DL Weimer (2014) Cost-Benefit Analysis: Concepts and Practice. 4th (International) Edition. Pearson.

Readings

Throughout the module you will be directed to study a selection of readings, including journal articles, book extracts and case studies that are of particular relevance and interest to the topics covered in the module.

Virtual learning environment

You will have access to the VLE, which is a web-accessed study centre. Via the VLE, you can communicate with your assigned academic tutor, administrators and other students on the module using discussion forums. The VLE also provides access to the module Study Guide and assignments, as well as a selection of electronic journals available on the University of London Online Library.

Module overview

Unit 1 Investment Appraisal Techniques I
  • 1.1 Introduction
  • 1.2 Cash Flow Analysis
  • 1.3 Private Sector Appraisal Techniques
  • 1.4 Conclusions
Unit 2 Investment Appraisal Techniques II
  • 2.1 Introduction
  • 2.2 Net Cash Flow and the Working Capital
  • 2.3 Mutually Exclusive Projects and Other Issues
  • 2.4 Conclusions
Unit 3 Social Cost-Benefit Analysis
  • 3.1 Introduction
  • 3.2 The Main Stages of a Social Cost-Benefit Analysis
  • 3.3 Theoretical Basis of Social Cost-Benefit Analysis
  • 3.4 Social Cost-Benefit Analysis Case Study
  • 3.5 The Social Discount Rate (SDR)
  • 3.6 Conclusions
Unit 4 Valuation Methodologies in Social Cost-Benefit Analysis
  • 4.1 Introduction
  • 4.2 Revealed Preference Methods
  • 4.3 Stated Preferences – Contingent Valuation
  • 4.4 Summary and Review
Unit 5 Sector Analysis and Case Studies in SCBA
  • 5.1 Introduction
  • 5.2 Transport Projects
  • 5.3 Water
  • 5.4 Education
  • 5.5 Environment
  • 5.6 Health Care
  • 5.7 Cost-Effectiveness Analysis (CEA)
  • 5.8 Summary and Review
Unit 6 Risk and Uncertainty Analysis
  • 6.1 Introduction
  • 6.2 Risk and Uncertainty
  • 6.3 Techniques for Risk Analysis
  • 6.4 Uncertainty
  • 6.5 Risk and Large Projects
  • 6.6 Spreadsheet Modelling and Risk Analysis
  • 6.7 Conclusions
Unit 7 Distributional Issues and Social Cost-Benefit Analysis
  • 7.1 Introduction
  • 7.2 Analysing the Distribution of Costs and Benefits
  • 7.3 Displaying Distributional Impacts
  • 7.4 Distributional Weighting
  • 7.5 Multi-Criteria Analysis (MCA)
  • 7.6 Conclusions
Unit 8 Critique and Reflection
  • 8.1 Introduction
  • 8.2 Standings, Value Assumptions, and Legitimacy of Cost-Benefit Analaysis
  • 8.3 The Strengths and Limitations of Social Cost-Benefit Analysis
  • 8.4 SCBA in Developing Countries

Tuition and assessment

Students are individually assigned an academic tutor for the duration of the module, with whom you can discuss academic queries at regular intervals during the study session.

You are required to complete two Assignments for this module, which will be marked by your tutor. Assignments are each worth 15% of your total mark. You will be expected to submit your first assignment by the Tuesday of Week 6, and the second assignment at the end of the module, on the Tuesday after Week 10. Assignments are submitted and feedback given online. In addition, queries and problems can be answered through the Virtual Learning Environment.

You will also sit a three-hour examination on a specified date in September/October, worth 70% of your total mark. An up-to-date timetable of examinations is published on the website in July each year.

Module samples

Click on the links below to download the module sample documents in PDF.