Cost-Benefit Analysis in World Bank Projects

by Andrew Warner, Independent Evaluation Group, June 2010. Available as pdf

Cost-benefit analysis used to be one of the World Bank?’s signature issues. It helped establish its reputation as the knowledge Bank and served to demonstrate its commitment to measuring results and ensuring accountability to taxpayers. It was the Bank’s answer to the results agenda long before that term became popular. This report takes stock of what has happened to costbenefit analysis at the Bank, based on analysis of four decades of project data, project appraisal and completion reports from recent fiscal years, and interviews with current Bank staff. The percentage of projects that are justified by cost-benefit analysis has been declining for several decades, due to both a decline in standards and difficulty in applying cost-benefit analysis. Where cost-benefit analysis is applied to justify projects, there are examples of excellent analysis but also examples of a lack of attention to fundamental analytical issues such as the public sector rationale and comparison of the chosen project against alternatives. Cost-benefit analysis of completed projects is hampered by the failure to collect relevant data, particularly for low-performing projects. The Bank’s use of cost-benefit analysis for decisions is limited because the analysis is usually prepared after making the decision to proceed with the project.

This study draws two broad conclusions. First, the Bank needs to revisit the policy for costbenefit analysis in a way that recognizes legitimate difficulties in quantifying benefits while preserving a high degree of rigor in justifying projects. Second, it needs to ensure that when costbenefit analysis is done it is done with quality, rigor, and objectivity, as poor data and analysis misinform, and do not improve results. Reforms are required to project appraisal procedures to ensure objectivity, improve both the analysis and the use of evidence at appraisal, and ensure effective use of cost-benefit analysis in decision-making.

Social Return On Investment: A practical guide for the development cooperation sector

by Jan Brouwers, Ester Prins and Menno Salverda (2010) , Utrecht, Context International Cooperation / Creative Commons, 60pp, ISBN 978-90-77526-06-4.  Available free online

“Related to Cost Benefit Analyses and Participatory Planning, Monitoring and Evaluation is a new methodology called SROI; Social Return On Investment. As the term implies investments are not made to simply generate financial returns; in fact they create returns in many other areas, including poverty reduction or environmental protection. The SROI process attempts to provide insight in multiple values such that better decisions about investment (development) choices can be made.

The Social Return On Investment (SROI) practical guide, published by Context, international cooperation, provides guidelines and follows nine concrete steps in how to implement a SROI analysis. In this manual, the SROI idea is translated into the practice of international cooperation. What is interesting is that the manual is written in a write shop, where some fifteen SROI practitioners from Africa and Asia have shared and written down their practical experience. This results in a very readable guide with clear examples and practical tips of existing case studies and experiences.

Although SROI conceptualizing and practice should still be considered in its infancy, generally practitioners find that SROI can play an important role in creating awareness and appreciation of different (types of) values. In other words, by using SROI, the landscape of values, previously hidden (or externalised from market values) will change with social, environmental, economic and other values integrated.

Moreover, the communities, the development practitioners and all the related stakeholders, develop a TVC perspective (Total Value Consciousness – Economic, Social & Environmental), which helps in shifting mindsets or perceptions to planning and monitoring of development programs. The focus on social & environmental benefits will motivate the communities to participate in the program actively. This in turn creates a shift in the balance of whether a project is considered beneficial, profitable or commercially viable and consequently would lead to opportunities and implementation of new and innovative initiatives that genuinely contribute to positive social change and poverty reduction for all.

For whom?
For anyone interested in (new) methods for planning, monitoring and evaluation of social change or for those who want to try something different. SROI can be applied at an organisation level, at value chain levels or at the level of a more complex initiative at a community level. SROI can be applied in various fields: rural development, health, economic development, environmental economics, leadership programs, physical infrastructure, value of water infrastructure investment projects, etc. ”

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