Cost benefit analysis of urban regeneration projects:

Abstract

Economic appraisal is an important step in any investment project. Although various appraisal techniques are adopted in decision making related to investment projects, it is found in many instances that expected outcomes at the initial project planning have not been achieved at the completion of the project due to unforeseen changes. Various appraisal tools are used in investment projects to assess the feasibility of a project. Cost Benefit Analysis is an appraisal tool used to evaluate a decision related to investment of projects specially with social costs and social benefits. Urban regeneration in underserved settlement areas is a major investment project initiated by the Urban Development Authority (UDA). This project is initially developed with and expectation of liberating 450 acres of valuable urban lands for commercial developments. Hence the project seems to be a financially feasible project. However proper economic feasibility is yet to be done to evaluate this nationally important project. In the view of foregoing, this research is aimed to assess the economic feasibility the urban regeneration project done by the UDA, using Cost Benefit Analysis (CBA) technique and thereby identify the cost and benefit components of the project and evaluate the issues related economic feasibility of urban regeneration projects implemented in Sri Lanka. Mixed method approach was adopted in this research where qualitative and quantitative data were gathered through semi-structured interviews and document review were used for the final appraisal. Quantitative data was basically used for financial and economic appraisal of the project and qualitative data was used for sensitivity analysis and risk assessments. The research was carried out in two steps. The first step involved comprehensive literature review which provided the base for the primary data collection and guidance for subsequent procedure of inquiry. During the step two primary data was collected through Key Informant Interviews (KIIs) and documentary review. The data analysis and economic appraisal were done using the CBA Guide developed by European Union and NPV and ENP techniques. The case study revealed that although the projects is financially feasible, its financial and economic feasibility is highly sensitive to the income and expenditure predictions. marginal change in the cost of the project severely effects to the overall feasibility of the project. Therefore, if the proper economic appraisal was done using CBA technique for this project possible project risks could be identified beforehand and proper risk management plan would have been adopted to this project. Thus, this research recommends the incorporation of CBA technique in evaluating urban regeneration projects and other investment projects implemented by the government to properly appraise the investment decisions.