Guidelines on the Preparation of Economic and Financial Analysis in the

Feasibility Study for IBUILD Greenhouse Subproject

I. Rationale

This guideline aims to provide Local Government Units (LGU) a step-by-step guide in the
preparation of the Economic and Financial Analysis (EFA) in the Feasibility Study (FS) of
Farm-to-Market (FMR) proposals under the Philippine Rural Development Project (PRDP).
Economic and financial analyses (EFA) in PRDP are conducted to determine economic
viability of proposed subprojects requesting funding from the Project. Any LGU who will
prepare Feasibility Studies (FS) must be fully aware about the general policies, guidelines,
data requirements, acceptable data sources and data gathering methodologies
recommended by PRDP in order to accomplish sound economic and financial analyses.

II. General Policies and Guidelines

Below are the general policies and guidelines to be adopted in the preparation of economic
and financial analysis in the feasibility study for IBUILD FMR subprojects.

a) The enhanced template for FMR will be used in the preparation of

Subproject Proposals for 2017 onwards.

b) Every subproject must at least pass the 10% sensitivity scenarios (both
increase in costs and decrease in benefits) in order to qualify for endorsement of
No Objection Letter 1 (NOL1). Qualification requires that under these scenarios the
Net Present Value (NPV) must be positive, Economic Internal Rate of Return
(EIRR) must be greater than 15% and the Benefit-Cost Ratio (BCR) must be equal
or greater than 1.0.

c) Any changes in the data in subsequent FS submissions as compared to

previous submissions should be documented and adequately justified. Frequent
changes in data and assumptions are discouraged. LGUs must be well informed
that all data used in the initial projection are assumed to have been validated in the
field and referenced from credible data sources.

III: Detailed guidelines and instructions in the preparation of Economic and Financial
Analysis (EFA)

General Instructions during preparation of EFA:

1. Always refer to the Program of Works for cost estimates
2. When filling-up the EFA excel file, only fill-in the cells highlighted in yellow
3. For all the data used in the EFA and FS, cite the sources and reference year (Note: use
the latest census). If possible, provide a link to the website of the data source.
Greenhouse Sub Project

Economic and financial analyses (EFA) in PRDP are conducted to determine viability of
proposed subprojects requesting funding from the Project. All proposals are required to
submit feasibility studies utilizing Benefit-Cost Analysis (BCA). The economic model (Figure
1) for Greenhouse considers cost estimates from Estimated Project Costs and Operation &
Maintenance Costs, which are then weighed against benefits such as Vehicles Operating
Cost (VOC) Savings, Savings in Output and Input Hauling, Savings in Travel Time of
Commuters, Benefits from New Agricultural Areas and Savings in Transport Losses. These
streams of benefits are considered in the analysis for they represent the direct impacts of
FMR subprojects to the local community. The period of analysis for FMRs considered the
total useable lifespan of FMRs, which is 20 economic years.

Costs Benefits

Estimated Project Costs Increase in Potential Yield

Operation and Savings from Avoidable

Maintenance Costs Damages

1. Tab1. Conversion of Financial to Economic Cost

The first table in the EFA template is the conversion of financial costs of the project to
economic cost. Items included in evaluating the economic cost are materials,
equipment, skilled labor, unskilled labor, overhead, contingencies and miscellaneous
(OCM), contractor’s profit, taxes, pre-engineering activities and engineering
supervision cost. Shown below is the detailed discussion per item in EFA Table 1.

Financial costs are converted to economic costs using appropriate methodologies and
conversion factors, such as shadow pricing for foreign components of construction
materials and shadow wage rate pricing for unskilled labor hired during construction.
Cost items that have significant foreign exchange component are to be shadow priced
using the Foreign Exchange Premium Factor of 1.2 to reflect its real value to the
economy, while Unskilled Labor expenses are subjected to the Shadow Wage Rate
Factor of 0.6 for the value of unskilled labor to the economy is 60% only of the
minimum wage as set by the NEDA.
 Data Requirements
Materials Materials are classified into 2 types:
(a) with foreign component and (b)
locally sourced. It is assumed that 60%
of material costs has a foreign
component, which is subjected to
shadow pricing using a factor of 1.2,
and the remaining 40% is base cost of
locally sourced materials.
Reliable and acceptable data
sources/Acceptable method of
data gathering
Material cost under financial cost
column in EFA template must be the
same with the cost reflected in the
Program of Works (POW). This must
be re-checked with the data in the
POW.

Note that shadow price of foreign

exchange is 20% higher than the
official rate and this applies to the
materials with foreign component.

Only cells highlighted in yellow must

be filled in as the values for “with
foreign component” and “locally-
sourced” will automatically be
computed.
Equipment Equipment cost is the equipment Equipment cost under financial cost
rental cost based from the 2009 column in EFA template must be the
Association of Carriers and Equipment same with the cost reflected in the
Lessors, Inc. (ACEL) Rates. Program of Works (POW). This must
be re-checked with the data in the
Only cells highlighted in yellow must POW.
be filled in. Equipment cost is base
cost, which does not include taxes. Tax
for this item is already calculated
under “Taxes” item.
Skilled Labor Skilled labor includes heavy Skilled labor cost under financial cost
equipment operator, mason, foreman, column in EFA template must be the
carpenter, welder and steel same with the cost reflected in the
fabricators. Program of Works (POW). This must
be re-checked with the data in the
Only cells highlighted in yellow must POW.
be filled in. Skilled labor is base cost
which does not include taxes. Tax for
this item is already calculated under
“Taxes” item.
Unskilled Labor Unskilled labor includes laborers, Unskilled labor cost under financial
helpers, warehouse men, and cost column in EFA template must be
timekeepers. the same with the cost reflected in
the Program of Works (POW). This
Only cells highlighted in yellow must must be re-checked with the data in
be filled in. The assumption is that the POW.
conversion factor for unskilled labor is
0.6 since its value is 60% only of the
minimum wage rate (source: NEDA).
Overhead, Overhead, Contingencies and OCM cost under financial cost column
Contingencies and Miscellaneous (OCM) is 12% of total in EFA template must be the same
 Data Requirements
Miscellaneous direct cost if subproject cost is PhP5
(OCM) million below; 9% if PhP5 million to
PhP50 million; 7% if PhP50 million to
PhP150 million; 6% if above PhP150
million.
Only cells highlighted in yellow must
be filled in. Tax for this item is already
calculated under “Taxes” item.
Contractor’s Profit Contractor's Profit is 10% of total
direct cost if project cost is PhP5
million below; 8% otherwise.
Only cells highlighted in yellow must
be filled in. Tax for this item is already
calculated under “Taxes” item.
Taxes Tax is 12% of total mark-up value of
the base cost and all items sourced
locally. Taxes should not be included in
the economic value of project cost.
Pre-engineering Pre-engineering activities include FS
Activities and DED Preparation, and Right of
Way Acquisition Costs. Pre-
engineering activities are 5% of base
direct cost + 12% tax; economic cost,
however, should exclude tax.
Engineering Engineering Supervision is 5% of base
Supervision direct cost + 12% tax; economic cost,
however, should exclude tax.
Reliable and acceptable data
sources/Acceptable method of
data gathering
with the cost reflected in the
Program of Works (POW). This must
be re-checked with the data in the
POW.
Contractor’s Profit under financial
cost column in EFA template must be
the same with the cost reflected in
the Program of Works (POW). This
must be re-checked with the data in
the POW.
Taxes under financial cost column in
EFA template must be the same with
the cost reflected in the Program of
Works (POW). This must be re-
checked with the data in the POW.
Pre-engineering activities cost has
already been derived under financial
cost column in EFA template which is
5% of base direct cost + 12% tax.
This cost cannot be found in the
Program of Works (POW) since it is
not included in the total project cost
to be funded by PRDP. This cost must
be shouldered by PLGU/MLGU. In
deriving for the economic cost, tax
should be excluded.
Engineering Supervision cost has
already been derived under financial
cost column in EFA template which is
5% of base direct cost + 12% tax.
This cost cannot be found in the
Program of Works (POW) since it is
not included in the total project cost
to be funded by PRDP. This cost must
be shouldered by PLGU/MLGU. In
deriving for the economic cost, tax
should be excluded.
 1. Tab2. Investment Cost

Tab 2 of the EFA presents a summary, in economic terms, of investment cost and
operating & maintenance cost over the 20-year project life of each FMR. The detailed
computations for investment cost and operating & maintenance cost are presented in
Tab1 and Tabs 3 (3a and 3b), respectively.

Data Requirements Reliable and acceptable data

sources/Acceptable method of data
gathering
Total Economic Total economic value under Total economic value is the capital cost
Value investment cost reflects the of the project in terms of economic cost.
economic value of the subproject
converted from the total financial
cost. Economic value is reflected on
year 0 since this cost represents the
capital cost but in economic terms.
The PLGU/MLGU is not required to
provide inputs as the cell already
has a formula.
Total Investment Total investment cost is the sum of Total investment cost is the sum of the
Cost the total economic value. The economic value. Basically, the total
PLGU/MLGU is not required to investment cost is the capital cost.
provide inputs as the cell already
has a formula.
Operation and Operation means to operate the The Operation and Maintenance of the
Maintenance Cost system in a right manner ensuring completed Other Infrastructure
that all the component structures Subprojects is both the responsibility of
are running in good condition. the Local Government Unit and the
Maintenance refers to ensuring that beneficiary community/ies. Costs for
all component structures of the this section are derived in table 3a
system are periodically repaired, (Road Maintenance Unit Cost).
monitored and maintained in a
correct manner.

Operation and Maintenance cost is

already linked to table 3b (Annual
Maintenance Cost). The
PLGU/MLGU is not required to
provide inputs as the cell already
has a formula.
Total Operation Total Operation and Maintenance Total operation and maintenance cost is
and Maintenance Cost is the sum of the total the sum of the operation and
Cost operation and maintenance costs. maintenance cost per year.
The PLGU/MLGU is not required to
provide inputs as the cell already
has a formula.
Total Investment Total Investment and O&M Cost is Total investment cost is the sum of the
and O&M Cost the sum of the economic cost and economic cost and O&M cost.
O&M cost. The PLGU/MLGU is not
required to provide inputs as the
cell already has a formula.
 Tab3a. Annual Road Maintenance Unit Cost

This table details the required maintenance activities and corresponding costs. Such
costs are also converted to economic costs, adopting similar principles in Tab1.

Data Requirements Reliable and acceptable data

sources/Acceptable method of
data gathering
Common road This aspect reflects the Activities and costs to be filled in
maintenance activities activities done during the the highlighted cells must be
include, but are not operation and maintenance of consistent with the activities and
limited to, the following the Portland Cement Concrete costs reflected in the Operation
items: Pavement (PCCP). Only cells and Maintenance Plan and Budget
 Repainting, highlighted in yellow must be (Appendix E).
replacement faucet, filled in.
repair of lightning
fixtures and door knob For economic conversion, it is
(Warehouse) assumed that all laborers
 Cleaning/replacement involved in the O&M activities
of industrial exhaust are unskilled laborers. The
fan (warehouse) assumption is that conversion
 Repair of wooden factor for unskilled labor is
palette (Warehouse) 0.6 since its value is 60% only
 Change of Net lining of the minimum wage rate
(cacao SD) (source: NEDA).
 Replacement of UV
Sheets (Cacao SD)
 Replacement of drying
trays (Cacao SD)
 Inspection & Repair of
fermentary boxes
 Inspection & Repair of
platform (fermentary)

Tab3b.Annual Maintenance Cost

This provides an overview of maintenance activities and annual costs. Such costs are
also converted to economic costs, adopting similar principles in Tab1.

Data Requirements Reliable and acceptable

data sources/Acceptable
method of data gathering
Road length: Total proposed road length must Total road length must be the
Portland Cement be entered in the highlighted cells. same with the road length
Concrete found in FS and POW.
Pavement (PCCP)
 Data Requirements
Unit Maintenance Cost: Unit maintenance cost for PCCP
Portland Cement must be the economic cost of O&M
Concrete per kilometer as reflected in table
Pavement (PCCP) 3a (Road Maintenance Unit Cost).
PLGU/MLGU is not required to
provide inputs as the cell already
has a formula.
Annual Maintenance Annual maintenance cost for PCCP
Cost: is the product of the total proposed
Portland Cement road length and the O&M cost per
Concrete kilometer. Formula is already
Pavement (PCCP) derived, thus PLGU/MLGU is not
required to provide inputs in the
cells for annual maintenance cost.
Capital Maintenance Annual Capital Maintenance is
every 6th year undertaken every six years.
PLGU/MLGU is not required to
provide inputs as the cell already
has a formula.
Total Annual Total annual maintenance cost is
Maintenance Cost being derived by adding the annual
maintenance cost for PCCP and
capital maintenance every 6th year.
These cells already contained
formula for derivation of the
results.
Tab 4 Increase in Potential Yield
Data Requirements
Utilization Rate % Utilization rate or area of the
greenhouse being used
Proportion out of the % utilization rate for specific
total utilization rate commodity
Number of Seedlings Number of seedlings to be stored
in the greenhouse (per
commodity) or the number of the
capacity of crop or total population
of crop in the greenhouse facility
Seedlings planted per Number of seedlings planted per
hectare hectare or the total number of
seedlings/plant per hectare
outside the greenhouse facility
Reliable and acceptable
data sources/Acceptable
method of data gathering
Cost for the O&M per
kilometer is not the financial
cost but the economic cost
derived from table 3a. This
cost must be re-checked in
table 3a.
Annual maintenance cost is
the annual economic cost for
the O&M activities of the
proposed road.
Every six years, there is an
additional 60% of the annual
cost for the periodic
maintenance of the road.
Total annual maintenance
cost must be the same with
the total investment and O&M
cost found in table 2
(Investment Cost). These
costs must be consistent with
the cost in FS particularly
under Investment and O&M
Cost in the Economic Cost
portion of the FS.
Reliable and acceptable
data sources/Acceptable
method of data gathering
Ex. CAGRI, OPAG, PAGRI
IBUILD data based on POW
Ex. CAO
Ex. CAO
 Data Requirements Reliable and acceptable
data sources/Acceptable
method of data gathering
Estimated Area to be the quotient of the total number of
planted seedlings and seedlings planted
per hectare
Yield per hectare (w/o Actual average of historical/time Ex., BAS
project) series data say 10 years or 5 years
Yield of commodity per hectare
without the project

Since this is without the project the

data must be constant over
economic life of the project
Total production (w/o Estimated area to be planted times
project) yield per hectare (without the
project)
Yield per hectare (with average Yield of commodity per Ex. BAS
project) hectare with the project

It is allowable to project an
increase per year to achieve the
maximum average yield of the
commodity
Total production (with Estimated area to be planted times
project) yield per hectare (with the project)
Additional Volume Difference between total
production (with project) and total
production (w/o project)
Selling Price Selling price or prevailing market Ex. BAS
price of the commodity
Net Benefit Additional volume times selling
price or prevailing market price

Tab 5 Savings from Avoidance of Damages

Data Requirements Reliable and acceptable

data sources/Acceptable
method of data gathering
Total number of This is the total capacity of Ex. CAGRI, OPAG, PAGRI
seedlings seedlings inside the greenhouse
facility
% mortality without The percent of mortality outside Ex. CAO
greenhouse greenhouse facility
Total number of Total number of seedlings times %
available seedlings mortality without greenhouse
Number of seedlings Number of seedlings/plant per Ex. CAO
per hectare hectare
Area planted (with Total number of seedlings divided
project) by the number of seedlings per
hectare
Area planted (w/o Total number of available
 Data Requirements Reliable and acceptable
data sources/Acceptable
method of data gathering
project) seedlings divided by the number of
seedlings per hectare
Yield per hectare Actual average of historical/time Ex. CAO
series data say 10 years or 5 years
Yield of commodity per hectare
without the project
Number of cropping The actual crop season/rotation Ex. BAS and CAO
seasons per year practice per commodity
total production (with The sum of Area planted (with
project) project), yield per hectare and
number of cropping season
Total production The sum of Area planted (without
(without project) project), yield per hectare and
number of cropping season
additional production The difference between total
production (with project) and total
production (without project)
Selling price Selling price or prevailing market Ex. PSA, CAO, BAS etc
price of per commodity
Net Benefit The product of additional
production and selling price

Tab 6. Economic Analysis

This summarizes all the benefits and costs derived from the previous tables and yields
the computed EIRR, NPV, and BCR to reflect economic viability of the subproject.

Data Requirements Reliable and acceptable data

Economic Net Present PLGU/MLGU is not
Value (ENPV) required to provide inputs
in this portion as this will
automatically be computed.
Economic Internal Rate PLGU/MLGU is not
of Return (EIRR) required to provide inputs
in this portion as this will
automatically be computed.
Benefit-Cost Ratio (BCR) PLGU/MLGU is not
required to provide inputs
in this portion as this will
automatically be computed.
sources/Acceptable method of
data gathering
It must be noted that ENPV result
should be positive to make sure
that the investment yields a
positive impact to the society. A
project that has a negative ENPV
result will be rejected.
EIRR must be above 15%. Projects
with an EIRR below 15% will be
rejected.
BCR must be equal or greater than
1.0. A project with a BCR below
1.0 will not be accepted.

Tab 7. Sensitivity Analysis

This indicates the feasibility of the subproject given several scenarios of reduced
benefits and increased costs. The following scenarios are given: increase in cost of 5%,
10%, 15%, 20%, 30% and decrease in benefits of 5%, 10%, 15%, 20%, 30%) and the
feasibility of the subproject is tested for each scenario.

Data Requirements Directions in filling-up Reliable and acceptable data

data requirements
Sensitivity Analysis PLGU/MLGU is not
required to provide inputs
in this portion as this will
automatically be computed.
Sensitivity analysis
assesses risks by
identifying the variables
that most influence a
project’s net benefits and
quantifying the extent of
their influence.
sources/Acceptable method of
data gathering
The proposed subproject will be
accepted if its economic indicators
(ENPV, EIRR and BCR) are
satisfactory at both sensitivity
scenarios of increase of cost by
10% and a decrease of benefits by
10%.