Federal Department of Foreign Affairs FDFA 
                                              Swiss Agency for Development and Cooperation SDC 
                                              Quality Assurance 
             
             
            SDC How-to-Note 
            Financial and Economic Analysis of Projects 
            with a focus on Cost Benefit Analysis (CBA) 
            and Cost Effectiveness Analysis (CEA) 
             
             
             
             
             
             
             
             
             
             
             
            Annexes: 
            1.  Glossary 
            2.  SDC requirements for financial and economic analyses of projects 
            3.  Example of discounting and compound interest calculation 
            4.  Example of the financial and economic analysis of an enterprise for a private-
               sector development intervention 
            5.  Relationship between steps in a financial and an economic efficiency analysis 
            6.  Applying CEA in the health sector 
            7.  Examples of various development institutions applying CBA and CEA 
            8.  Standard terms of reference for Cost Benefit Analysis 
            9.  SDC experiences with financial and economic analysis 
            10. Other working tools and methods 
               References and further reading 
             
                                    
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                 
                Documents mentioned in the text can be found in the SDC Field Handbook 
                 
                 
                Imprint 
                 
                Current version                          April 2015 
                Editor                                   Quality Assurance 
                Contact                                  dezaqualitaetssicherung@eda.admin.ch 
                Language versions available              English 
                SDC reference document type              Working Aid 
                 
                                                                                                                   
                 
                   Table of contents 
                    
                   Part 1 - Basic explanation.................................................................................................... 1 
                    
                   1.         Introduction .............................................................................................................. 1 
                   1.1.       Purpose of this How-to-Note .................................................................................... 1 
                   1.2.       Scope of the How-to-Note ........................................................................................ 1 
                   2.         Why the need for financial and economic analysis? ................................................. 1 
                   3.         Financial and economic analysis in the SDC’s PCM ................................................. 3 
                   4.         The difference between financial and economic analysis ......................................... 4 
                   5.         Basic considerations for the financial and economic analysis of projects .................. 4 
                   5.1.       Ex-ante and ex-post? ............................................................................................... 4 
                   5.2.       What about discounting? The importance of time ..................................................... 5 
                   5.3.       Cost-Benefit Analysis (CBA) or Cost-Effectiveness Analysis (CEA)? ........................ 5 
                    
                    
                   Part 2 - Advanced explanations .......................................................................................... 7 
                    
                   6.         Cost-Benefit Analysis (CBA) ..................................................................................... 7 
                   6.1.       What are the field of application, purpose and limitations of a CBA? ........................ 7 
                   7.         Cash flow and value flow tables ............................................................................... 7 
                   7.1.       Cash flow table ......................................................................................................... 7 
                   7.2.       Value Flow table ....................................................................................................... 8 
                   8.         Assessment criteria .................................................................................................. 8 
                   8.1.       Net present value (NPV) ........................................................................................... 9 
                   8.2.       Internal Rate of Return (IRR) and Economic Rate of Return (ERR) ........................ 10 
                   8.3.       Benefit-Cost Ratio (BCR) ....................................................................................... 11 
                   8.4.       Criteria for reading and interpreting the values ....................................................... 11 
                   9.         Sensitivity Analysis ................................................................................................. 12 
                   10.        Cost Effectiveness Analysis (CEA) ......................................................................... 15 
                   11.        CBA and CEA in other institutions .......................................................................... 15 
                   12.        Concluding reflection: Why it is worth the effort. ..................................................... 16 
                                                                    
                                                                                                                                         
                    
       Annexes ............................................................................................................................... 17 
        
       Annex 1: Glossary ............................................................................................................... 18 
       Annex 2: SDC requirements for financial and economic analyses of projects...................... 21 
       Annex 3: Example of discounting and compound interest calculation .................................. 24 
       Annex 4: Example of the financial and economic analysis of an enterprise for a private-
       sector development intervention .......................................................................................... 25 
       Annex 5: Relationship between steps in a financial and an economic efficiency analysis .... 28 
       Annex 6: Applying CEA in the health sector ........................................................................ 29 
       Annex 7: Examples of various development institutions applying CBA and CEA ................. 30 
       Annex 8: Standard terms of reference for Cost Benefit Analysis ......................................... 32 
       Annex 9: SDC experiences with financial and economic analysis ....................................... 34 
       Annex 10: Other working tools and methods ....................................................................... 35 
       References and further reading ............................................................................................ 36