In this article, you will find every ins and outs of cost benefit analysis with a project of nursery. By reading this article, you will know about Conducting a Cost-Benefit Analysis for an Assumed Project to Decide Whether the Project is Profitable or Not?
What is a cost benefit analysis:
A cost benefit analysis is nothing but process of comparing costs and benefits of a project. A cost benefit analysis determines whether a project makes sense from a business perspective or not. Cost-benefit analysis process includes tallying up all costs of an environmental project or decision and subtracting that cost from the total projected benefits gets from the environmental project or decision.
If the projected benefits more than the costs, one can claim that the decision is a good one to make and the project can be run. On the other hand, the costs are more than the benefits, then a company may want to rethink the decision or project will be run or not. To conduct a simple cost benefit analysis establishment of a framework, identifications of cost and benefits, total value from the comparison of cost and benefits etc. are analyzed in details. In this study I have considered an imaginary plant nursery project of 10 years duration for which cost-benefit analysis has been done. The nursery will produce seedlings as well as sell nursery inputs.
Simple cost benefit analysis formula:
The following formulae were used to calculate the discounted values of costs and benefits:
Total discounted cost = C0+ C1/(1+i)+ C2/(1+i)2+…..+C5/(1+i)5
Total discounted benefits = B0+ B1/(1+i)+ B2/(1+i)2+…..+ B5/(1+i)5
Where C0, C1, …. C5 are costs incurred in year 0, 1, …., 5
and B0, B1, …. B7 are benefits received in year 0,1,…, 7 at a discount rate of i percent.
List of Probable Cost Sectors for a simple cost benefit analysis project:
Production Cost for a simple cost benefit analysis project:
- Land Lease
- Fertilizer and Pesticide
- Net and Bamboo
- Carriage inward (transportation cost for carrying materials from vendors)
- Labor Pump, water tank and associated water supply network
- Electricity Bill
- Stock Loss
- Provision (loss due to seedling mortality)
- Pot and Plastic Tray
Operational Cost for simple cost benefit analysis project:
- Salary and Benefits
- Stationeries, Supplies and Utilities
- General Expenses and Maintenance
List of Probable Benefits from simple cost benefit analysis project:
- Fruit Seedling
- Forest Seedling
- Medicinal Seedling
- Spices Seedling
- Seasonal Seedling
- Ornamental Seedling
- Revenue From Selling Nursery Inputs (such as earthen pot, spray machine of different sizes, secateurs, pruning knife, soil and fertilizer etc. for home and commercial gardening)
Production Cost for a simple cost benefit analysis of a project (establishing the plant nursery)
|Year||Land Lease||Seed||Seedlings||Polythene||Fertilizer and Pesticides||Net & Bamboo||Carriage inward||Labour||Pump and water network||Electricity Bill||Stock Loss Provision||Plot & Plastic Tray||Soil||Others|
Operational Cost for a simple cost benefit analysis of a project (establishing the plant nursery)
|Year||Salary & Benefits||Stationeries, Supplies & Utilities||General Expenses & Maintenance||Advertisement|
Benefits from a simple cost benefit analysis of a project (establishing the plant nursery)
|Probable benefits from nursury||Fruits seedling||Forest seedling||Medicinal seedling||Spices Seedling||Seasonal flowers||Ornamental plants||Nursery inputs|
Calculation for a simple Cost Benefit analysis project:
Calculating Discounted Cost and Discounted Benefits
|Year||Total Benefits||Discounted Benefit (Tk.) R=9%||Total||Discounted Cost (Tk.) R=9%|
Cost Benefits Ratio:
BCR= Total Discounted Benefit / Total Discounted Cost
The result of BCR is 1.6 which indicates the current discounting rate the plant nursery project will be a very much profitable one.
Cost-Benefit analysis or CBA is a process or tool to support decision making in projects. The imaginary nursery project gives an idea how CBA can put numerical insights in decision making. CBA is a necessary for every project that indicates the project will be profitable or not. Government should imply it in every sensitive project especially project related to natural environment.
I think after reading this article properly you can understand every ins and outs of the cost benefit analysis. Still you have any confusion, please free to leave a comment here.