Page 123 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes Problems which can be solved by Social Cost Benefits Analysis.

Notes Social Cost Benefits Analysis means to analyze the social cost and total social
benefits if we accept any project.

1st Problem: Rationale for SCBA

1. Market imperfection: We will not analyze social cost benefit; we can not find market
imperfections. After study of market rates following factors come in to our knowledge:

(a) Rationing factor: It means some of raw material prices are controlled by Govt. So,
it may increase our project cost but its social benefit will go to poor community.
(b) Regulation for providing minimum wage factor: It also affects social cost and benefits
of any project. Because company must have to pay this minimum wages.
(c) Foreign Exchange Regulations factor: Sometime, we have to deal at currency rate
which is less than actual market rate due to regulation on FOREX. So, we should
analyze this point also.
2. Externalities: Externalities are non-cash or benefits which an organization suffer or get if
it starts the project.

Example: If govt. makes road near your project plant, you can get this facility without
any payment. On the other side, if any other organization is polluting and spreading diseases,
its cost may suffer due to absence of your employee for going to hospitals.
3. Tax and Subsidies: Tax is payment on the earning of the project and it will reduce our
overall benefits. On the other hand, if govt. gives us subsidy for operating any project, it
will count for our cost benefit analysis.

2nd Problem: What is net benefit to society from a project?

With UNIDO approach, we can evaluate net benefit from any project. Formula is given below:
Amount (IN $)
Estimated profitability from a project XXXXX
Add net benefits of project in the term of economy XXXXX
+/- Adjustment for the impact of project on saving and investment XXXXX
+/- Adjustment for the impact of project on income distribution XXXXX
Total net benefits to society with the project XXXXX

3rd Problem: To Know the Effect of using one more Unit of Resources

With shadow price, we know the effect of using one more unit of resources on the social cost and
benefits. Shadow pricing is relating to decision of project manager. Before accepting the project,
we have to find the price if we have to use extra unit of resources. Suppose, we have to use one
more hour of labor, what will we pay and what will its effect on social benefits.

118 LOVELY PROFESSIONAL UNIVERSITY