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Suppose that you were recruited as an economic and financial analysis consultant for proposed
ADB funded project on 45 km rural road in Gorkha district connecting Barpak with district
a) Identify the fixed investment, annual operating cost and gross revenue of this project.
d) Financial and economic approach to capture risk on project implementation, and mitigation
plan?
Introduction
The project involves financial and economic analysis for road construction connecting Barpak in
Gorkha district with its district headquarter, Gorkha Bazar. This construction of 45 km rural road
will provide all-year road access to the rural communities in Gorkha lying within the proximity
of Barpak and Gorkha Bazar. After the devastating earthquake on April, 2015, the village was
left with less than 10 homes standing out of1200 homes and hence this project to facilitate road
connection between Barpak and Gorkha Bazar would reinforce the recovery phase Barpak
district is going through. Road access between Barpak and Gorkha Bazar aims to provide
convenience for the local people in reaching the district headquarter as well as increase value
addition for income generating activities of people like agricultural production and directs local
market towards commercialization by increasing access to the market. The project ultimately
extends to upgrade living standard of people by augmented access to connectivity and market
Financial Analysis
Cost of structures, such as retaining wall, longitudinal drains, cross drainage structure
Cost of bridges
Cost of bio engineering for slope protection, traffic safety, road furniture
3 Earthwork 1,55,32,195
5 Structures 4,69,33,083
engineering)
For the revenue, gross revenue will be collected from various direct and indirect sources which is
- Trade of agricultural products: Road construction will increase access for local
agricultural products to a wider market. With Gorkha Bazar being the headquarter of
Gorkha district, the connection will facilitate agriculture and trading goods from Barpak
to a larger mass.
- Tourism: With access to transportation from headquarter, the tourism at Barpak can be
enhanced. Local communities can earn revenue from more traffic of tourists flow into
Barpak.
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In addition, the construction of roads also brings non-monetary benefits. With road access,
there is improvement in the health of people as they have access to better health facilities and
at the same time, they don’t have to go through the polluted and dusty roads. The road
construction further decreases the chances for mortality and accidents. It increases the
convenience for people and saves time as well as energy of people to reach the district
headquarter.
Price information
NRs 000
1 Feasibility Study Km 7
3 Environment Study Km 15
6 Construction Survey Km 20
7 Earthwork
10 Pavement Works
Sub Total 1
12 Mis Work
of Sub Total 1)
Economic analysis
Performing economic analysis ensures that this project of road construction is efficiently using
the scarce resources and the investment made on the rural road connecting Barpak and Gorkha
Bazar will bring benefits to the people and result to overall welfare. Projects should be
-Economic surplus above the opportunity cost such that the opportunity cost depicts that the
- Finally, there should be availability of funds and resources to make the project happen. The
distribution of cost and benefits within the project further should be aligned with the
Economic analysis for the project of constructing 45 km rural road connecting Barpak and
Technical feasibility:
This test the feasibility of the technical aspects for the project. Human resources like engineers,
working labors for the designing, structuring and construction of roads are available. For the
construction of the roads machineries required can be leased and used. Hence, the project is
technically feasible. For being more technically sound, the road made should last long being
Financial attractiveness:
a. Maintenance costs:
Regular
Emergency
c. Revenue:
If the revenue exceeds the costs then the project is financially attractive.
Social acceptability:
Social acceptability as this project of road construction arrives as positive impact for the people
living in Gorkha. After the earthquake, Barpak has been in the recovery phase and hence access
to roads that connects Barpak to the district headquarter comes as a reinforcement to speed up
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the recovery. People can now easily visit the headquarters for any activities and they have access
to better commercial market to promote their local products and earn income. The road
construction comes as connectivity for people to have better access to needs as well as amenities
like education, health and businesses. The project uplifts the standard of the people and benefits
the society in different aspects like economic, social, cultural etc. Due to these positive impacts,
Economic Viability:
Access of road will create value addition through better access to education and commercial
transactions. Tourism can be enhanced as the availability of roads can increase the traffic of
visiting tourists in the village. Living standard of people can be uplifted as they get access to
resources in less time. In the long run, poverty can be reduced. Considering all these factors, we
Environmentally impact:
The project should be environment friendly and should preserve the surroundings around. During
road construction, there are chances of cutting down of trees and other environmental properties.
The road construction should be directed in such way that the environment is not affected badly.
Institutional:
Participation and support from local communities is a pivotal factor for the project to happen.
For the road construction, locals should be able to show their willingness and address the project
as their own. Their opinions should be valued through interviews and discussions and the sense
mitigation plan
The achievement of the project will bring different positive aspect such as:
Nevertheless, the project implementation can encounter various risks like uncertainties
requiring additional resources, equipment and funds and these should be traced through
approaches like BEP analysis. To ensure the project is economically feasible there should be
study on factors like EIRR, MPV and BCR which should be positive for all sections of road.
Mitigation plan reduces the chances of risk to occur or reduces the effects that risks can
- Finding out the root causes of risks that need to be identified and quantified in earlier
- Identification of alternative mitigation strategies, methods and tools like contracting for
each risk
For instance, to cope with the environment mitigation, measures can be used in three phases of
design phase, construction phase as well as operation and maintenance phase. In design phase,
for example, route selection such that proper selection of apt road during road construction can
minimize the probability of environment degradation. Detailed survey and design can be another
option.
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References
National Research Council. 2005. The Owner's Role in Project Risk Management. Washington,