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To begin with, public projects are quiet important and sensitive considering the costs and benefits associated. It is therefore a prerequisite to put into consideration the best method that is used to value these costs and benefits. This is in order to perform a cost-benefit analysis to show the validity of the project as well as the economical benefits involved. In line with this, it would not be wise or rather economical to put up a project that is not cost effective. In this case, it means that there should be a consideration of the costs involved in projects as well as the benefits of the project. If the costs exceed the benefits, then, the project is not worthy of being put up.
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In any public project, cost, benefits and the impacts of the project are of great importance. Cost-benefit analysis cannot be done without a specific procedure being followed. This is to mean that the valuing of the costs and benefits is not a one step job. The stakeholders of the project should be put into consideration. Accordingly, alternative policies should be considered along with an identification of the physical impacts including the measurement indicators appropriately. Since most of the public projects are long term, a prediction of the impacts of the project in its life should be considered. In connection to this, a dollar value should be attached to all the impacts of the project. Additionally, the present value of the dollar amounts over time should be evaluated along with the adding up of the costs and benefits. This is then followed by a sensitivity analysis of the results along with an alternative policy that has the largest net social benefits. This is because the projects are aimed at benefiting the public and therefore both negative and positive impacts along with all anticipated such impacts should be considered.
Investment appraisal on the other hand deals with the creation or rather purchase of assets with the sole aim of making profits in the future. It is an investment assessment made by an organization using financial resources on assets over a period of time. In this sense, the scale of the investment is considered. Along with it, the time cost before the investment yields returns is incorporated. There is also the aspect of the time taken for the investment to pay back with the profits expected in the long run. There should be a consideration of the alternative investment using the same amount and whether it can yield higher returns or not.
Comparing the valuing of costs and benefits of a public project in order to do a Cost-Benefit analysis and investment appraisal in order to yield returns, there are several similarities and differences as well. In an investment appraisal, financial resources are the only major consideration while in a public project; many aspects are involved besides the financial resources. So to speak, it calls for all stakeholders in the project to be considered before setting it up along with their willingness to pay for the costs as well as the benefits.
In a public project, the factors considered are the costs and benefits and alternative projects picking on the one that will yield more benefits compared to the cost. On the other hand, in an investment appraisal the anticipated returns are the most important factors and alternative investment that is likely to yield high returns with the same amount of money being used. Investment appraisal in most cases is monetary based while the value of costs and benefits of a public project are not purely based on monetary terms.
As a result, such projects become more complex in terms of assigning or rather attaching dollar value associated with both the negative and positive impacts. In most cases, the impacts are termed as physical impacts. In both cases, similarities are indistinguishable but the public projects looks at costs and benefits from a community point of view while investment appraisal looks at costs and benefits from the organization’s point of view. In other words investment appraisal is evaluated from an individual point of view. In combination with this, investment appraisal do not involve externalities as it is in the case of public projects which have to consider physical, social and economic impacts attaching monetary value to them using the present value of benefits and the present value of cost.
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