IPA Funds Programme Management 12-19 sept. 2011 1 Bölgesel Rekabet Edebilirlik Operasyonel...

IPA Funds Programme Management 12-19 sept. 2011

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Bölgesel Rekabet Edebilirlik Operasyonel Programı’nın Uygulanması için Kurumsal Kapasitenin Oluşturulmasına Yönelik Teknik Yardım

Technical Assistance on Institutional Building for the Implementation of RCOP in Turkey

This project is co-financed by the European Union and the Republic of Turkey

Project Appraisal in depth for Business Infra and Business

Support

[email protected]

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Project Project AAppraisal ppraisal

Objectives

Understand key principles of project

appraisal

Project selection by selection criteria

approach

Key points

Call for proposals

Selection criteria

Feasibility Study

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The Project PipelineThe Project Pipeline PProcessrocess

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The Project AThe Project Appraisal ppraisal PProcessrocess• Not eligible (Information to MC and

Lead Applicant)• Eligible

0 Knock out (objective of the project can not be fulfilled)

1 Very poor2 Poor3 Adequate4 Good5 Excellent

1. Eligibility Check

2. Quality Check

3. Approval

• Rejected• Approval with conditions• Approval

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A. Eligibility A. Eligibility CCheckheck

• Documents submitted in due time• Application is complete• Application is fully and properly filled, signed,

dated and stamped• All Co-financing Statements are correctly filled

and printed• (draft) Partnership agreement• Partnership, budget, etc. following rules

(minimum / maximum partners?)

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B. Quality B. Quality CCheck (Selection heck (Selection CCriteria)riteria)

1) Relevance of the proposal

2) Coherence of the proposal

3) Quality of results

4) Quality of management

5) Quality of partnership

6) Budget and finance

• Content related

• Implementation related

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The general evaluation criteraThe general evaluation critera

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CriteriaCriteria for Project Appraisal for Project Appraisal

Important categories of appraisal criteria:1. Institutional assessment (implementation related) 2. Relevancy of the project3. Coherence of the proposal4. Effectiveness and efficiency5. Risk assessment6. Economic and financial assessment7. Sustainability of the project8. Cross-cutting issues

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1.1. Institutional Assessment: Institutional Assessment: ssuitabililityuitabilility o of f applicant and partners applicant and partners

for implementing the projectfor implementing the project

• Are the implementation structure and responsibilities clear?

• What is the experience of applicant with relevant project implementation experience?

• Is a PIU established and no. of operational staff?• Experience of staff in PIU?• Financial status of applicant?• Partnership: are relevant partners involved (NGOs, key

SMEs etc.) eligible and suitable?

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1.1. Business infra and support Business infra and support projectsprojects

Partnership:

•Is a key branch or business organisation involved?

•Are key players in the sector involved?

•Is there a demand pull mechanism in the project?

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2. Relevanc2. Relevancyy of the project of the project

• Justification: what are the key problems the project should solve or what are the needs of the target group (or opportunities)?

• Does the project address the causes of these problems/needs of the target groups or opportunities?

• Are the target groups the relevant ones?

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2. Relevancy: 2. Relevancy: business infra business infra and business supportand business support

Business infra: •Demand and shortage?•The right concept and sectors targeted?

Business support: •The right clusters or SME types targeted?•The right training and consultancy planned (relevant for business needs)?

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3. 3. Coherence of the proposalCoherence of the proposal

• Is the project logically structured (LFA: overall objective, specific objective, activities, measurable indicators quantified)

• Do the activities lead to the results and specific and overall objectives?

• Is the target group clearly defined?

• Are the indicators well defined, SMART and relevant for assessing the achievements regarding the objectives

• Is there a clear and feasible implementation schedule?

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4. 4. Effectiveness and EfficiencyEffectiveness and Efficiency

• Are the expected impacts on the main objectives potentially substantial or very limited?

• What are the cost per effect obtained (cost-effectiveness)?

• Co-finance: are the contributions of main stakeholders who obtain benefits from the project in line with these benefits?

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Effectiveness: Effectiveness: Business infra Business infra and business supportand business support

Business infra: •Sustantial amount of new companies or visitors pot. attracted? •Net employment impacts substantial?Business support: •Impact on cluster growth, business turnover, profits or employment expected?•Impact on investments?•Impact on nr. of start-ups?

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EffectivenessEffectiveness:: innovation projects innovation projects

• Is the future growth potential of the relevant cluster likely?

• Is there a pull mechanism in the project to create market oriented innovations? (partnership: companies or branches involved, open shared facilities, innovation platforms and networking mechanisms)

• Uniqueness: is the innovation or research project different from other innovation initiatives elsewhere?

• Promotion: is there a mechanism in the project to diffuse/ promote the innovations? (demonstration facilities, platforms, etc.)

• Is the innovation project linked to other initiatives or universities?

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EfficiencyEfficiency

Business infra: •Is the ratio between estimated costs and expected results satisfactory?

- Cost per ha land? - Cost per new companies or visitors pot. attracted? - Cost per gross or net employee created?

•Is the proposed expenditure necessary for the implementation of the action?

Business support: •Cost per business plan or company trained?•Cost per start-up expected?

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5. Risk 5. Risk AAssessmentssessment

• Are there important risks for the project?• Can the project deal with these risks (is the design so that risks are

minimized)?• Unacceptable risk (killer assumption): redesign the project!!!!• How to assess importancy of risks?

Impact on projects

Low Medium High

Probability 0.65 - 1.0 Medium High Unacceptable

0.3 - 0.64 Low High Unacceptable

0.0 - 0.29 Low Medium High

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RisksRisks

Business infra: •Competition and demand (attraction of new companies or visitors)•Cost overruns•Technical implementation and delaysBusiness support: •Low participation of target group•No demand pull mechanism •Innovations not diffused or adopted•Competition from other sectors or other innovation projects (in or outside Turkey)•Lack of other relevant support policies

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6. Economic and 6. Economic and FFinancial inancial AAppraisalppraisal

• Does the project really need a subsidy (is the project not profitable?) (see later)

• Is the project financially sustainable?

• How big are the expected main economic impacts (employment, incomes)?

• Are the outcomes of the CBA (if available) positive?

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7) Sustainability of the Project7) Sustainability of the Project

What is lasting after the project has been implemented?

•Institutional sustainability: what provisions for long term are made in the project?

•Exit strategy and follow –up available?

•Financial sustainability: are there financial means arranged for long term impacts?

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7. Sustainability mechanisms 7. Sustainability mechanisms for business supportfor business support

• Ownership of political and management levels• Budget agreements on financing of long term

business support (centers)• Sound business support models (services, target

groups, mechanisms)• Financial models (fee based business support)• Capacity building in services delivery and fund

raising

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Sustainability mechanisms Sustainability mechanisms for innovation projectsfor innovation projects

• Ownership of political and management levels• Bedding in research institutions and regional

network• Budget agreements on financing of long term

operational costs of research centers• Sound partnership/collaboration models and

dissemination/diffusion methods• Open facility sharing and up to date research and

facilities• Good legal framework for patents and publications

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88) Cross-cutting issues) Cross-cutting issues

Impacts on horizontal principles

•Gender equality

•Minorities and disadvantaged groups

•Environmental impacts

•Information Society and Innovation

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Exercise: Project AppraisalExercise: Project Appraisal

• Assess the OIS in your folder (and mainly read 2. Objectives, 2. Objectives,

Rationale, Results, Activities and SustainabilityRationale, Results, Activities and Sustainability and focus on

relevancy, effectiveness and sustainability of the project.

a) What are strong points of the operation?

b) What are weak points?

c) What should be improved?

d) How could sustainability be (further) improved?

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Steps in Steps in Feasibility Feasibility Analysis/Analysis/CBACBA

1. Step 1: Context analysis & project objectives

2. Step 2: Project identification

3. Step 3: Feasibility and option analysis

4. Step 4: Financial analysis

5. Step 5: Economic analysis

6. Step 6: Risk assessment and sensitivity analysis

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Step Step 11: : Context analysis & project Context analysis & project

oobjectivesbjectives

•Socio-economic context of the project•Consistency with EU and national frameworks

•Legislation•Policies

•What are the key objectives of the project?

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Step Step 22:: Project Identification Project Identification

•Problem or need analysis: what is the main problem or need as a

justification for the project?

•The project must be a clearly identified single unit of analysis

•Scope and scale of the project

•Identification of project services (“the project market”)

•Identification of relevant stakeholders (winners and losers)

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Step 3: Feasibility: demand Step 3: Feasibility: demand versus supplyversus supply

Land

0

2000040000

6000080000

100000

120000140000

160000

1 4 7 10 13 16 19 22 25 28

Years

M2

lan

d

Without project

With project

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Step 3) Step 3) Option Option AAnalysisnalysis

Are other policy options for reducing the problem considered? •Do Minimum alternative: cheaper smaller scale solutions, use of existing facilities

Global alternatives:•Non investment policy instruments (regulation, pricing etc.)

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Step 4 Financial AnalysisStep 4 Financial Analysis

What is the project’s commercial profitability?What amount of finance is needed and how will the project be financed? What will be the subsidy (or EU contribution)?Will the project be financially sustainable?

Financial Analysis

FINANCIAL SUSTAINABILITYFINANCIAL SUSTAINABILITY

FINANCIAL PROFITABILITY

The answers to these questions are given by the financial analysis of the project

FINANCIAL VIABILITY

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This project is co-finnced by the European Union and the Republic of Turkey


Financial Financial return on investmentreturn on investment

Tab.2.5. Calculation of the Financial Internal Rate of Return of the InvestmentDiscount rate 6,0%

Years 1 2 3 4 5 6 7 8 9 10Revenues - - - 3,0 3,0 3,0 3,0 3,0 3,0 3,0 Residual value - - - - - - - - - 20 Total Revenues - - 3,0 3,0 3,0 3,0 3,0 3,0 23,0

Operating Costs - - - 2,0 2,0 2,0 4,0 2,0 2,0 2,0 Investment Costs 10,0 25,0 20,0 - - - - - - - Total Expenditures 10,0 25,0 20,0 2,0 2,0 2,0 4,0 2,0 2,0 2,0

Net Cash Flow 10,0 - 25,0 - 20,0 - 1,0 1,0 1,0 1,0 - 1,0 1,0 21,0 Discounted net C-F 9,4 - 22,2 - 16,8 - 0,8 0,7 0,7 0,7 - 0,6 0,6 11,7

FRR/C -10,2%FNPV/C -33,95

Tab.2.5. Calculation of the Financial Internal Rate of Return of the InvestmentDiscount rate 6,0%

Years 1 2 3 4 5 6 7 8 9 10Revenues - - - 3,0 3,0 3,0 3,0 3,0 3,0 3,0 Residual value - - - - - - - - - 20 Total Revenues - - 3,0 3,0 3,0 3,0 3,0 3,0 23,0

Operating Costs - - - 2,0 2,0 2,0 4,0 2,0 2,0 2,0 Investment Costs 10,0 25,0 20,0 - - - - - - - Total Expenditures 10,0 25,0 20,0 2,0 2,0 2,0 4,0 2,0 2,0 2,0

Net Cash Flow 10,0 - 25,0 - 20,0 - 1,0 1,0 1,0 1,0 - 1,0 1,0 21,0 Discounted net C-F 9,4 - 22,2 - 16,8 - 0,8 0,7 0,7 0,7 - 0,6 0,6 11,7

FRR/C -10,2%FNPV/C -33,95

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Step 5: Step 5: Economic analysis: Economic analysis:

socio economic costs & benefits of projects

• Contribution of the project to wellfare (well being) of the country or region: so all impacts are in principle included

• Perspective: society

Types of impacts:• Market impacts: for users and suppliers on the market of

project services (coverse financial analysis + add)• Non market (external) impacts: no market price available:

environmental impacts, social impacts• Indirect impacts: priced impacts for other markets/actors

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Outcomes CBAOutcomes CBADecision rules governmentDecision rules government

F IRR < r

E IRR< r E IRR > r

F IRR > r

No go Subsidize

Tax No goverm. subsidy

F IRR < r

E IRR< r E IRR > r

F IRR > r

No go Subsidize

Tax No goverm. subsidy

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Step 6. Step 6. Risk Risk and sensitivity and sensitivity analysis analysis

External risks (political, economic, demographic) •Project internal risks (technical, organizational etc.)Selection of important factors which influence the results (NPV of IRR):

Sensitivity analysis: impacts of different factors on outcomesdemand, FA, CBA

•Scenarios future amount of waste (or water/ energy consumption)•Discount rate•Higher financial costs etc.

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ExampleExample:: Possible risks business Possible risks business

infrastructureinfrastructure

•Competition of other business parks•Lower demand for land (lower economic growth)•Lower land prices•Higher investment costs•Higher operating costs•Delays in construction due to technical risks or land acclamation problems

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ConclusionsConclusions

• Feasibility studies are useful for decisions of government (project selection, timing, size)

• Feasibility studies can help to improve projects (timing, size)

• Feasibility study shows items for risk management

• Assumptions are important for the outcomes of the study

• Check the assumptions in the studies!

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Each group will identify for their project which elements should be in the Terms of Reference for a feasibility study

1. What are the most important questions and specific issues relevant for your project for the consultant to address?

2. Which important risks should be described and which sensitivity analysis should be undertaken?

3. If you have time: which partners/stakeholders would you invite for guiding & commenting on the study?

IPA Funds Programme Management 12-19 sept. 2011 1 Bölgesel Rekabet Edebilirlik Operasyonel...

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