COST-BENEFIT ANALYSIS OF PROPOSED GODAGAMA DEVELOPMENT NODE UNDER THE GREATER MATARA DEVELOPMENT PLANNING PROGRAM

Abstract

Cost-benefit analysis is an essential tool of modern project management to measure the
economic value as well as its aesthetic, cultural and social acceptance of the program. In this
study, it is intended to examine how cost-benefit analysis can be applied successfully to spatial
planning in development. The study area chosen is the southern town of Matara and a costbenefit
analysis is performed to assess the benefits that would accrue if the Township was
developed under a proposed project. A special feature of this study would be the linking of the
spatial planning project with the cost benefit-analysis, which is a novel approach but one that
has rarely been discussed in the relevant literature. According to the result of the analysis, this
project would cost LKR 717.93 Million. It is certain that if the funds are allocated, the project
can be implemented successfully.

Full text

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COST-BENEFIT ANALYSIS OF PROPOSED GODAGAMA
DEVELOPMENT NODE UNDER THE GREATER MATARA
DEVELOPMENT PLANNING PROGRAM
GPTS Hemakumara
Department of Geography, Faculty of Humanities and Social Sciences, University of Ruhuna
Matara 81000, Sri Lanka
ABSTRACT
Cost-benefit analysis is an essential tool of modern project management to measure the
economic value as well as its aesthetic, cultural and social acceptance of the program. In this
study, it is intended to examine how cost-benefit analysis can be applied successfully to spatial
planning in development. The study area chosen is the southern town of Matara and a cost-
benefit analysis is performed to assess the benefits that would accrue if the Township was
developed under a proposed project. A special feature of this study would be the linking of the
spatial planning project with the cost benefit-analysis, which is a novel approach but one that
has rarely been discussed in the relevant literature. According to the result of the analysis, this
project would cost LKR 717.93 Million. It is certain that if the funds are allocated, the project
can be implemented successfully.
Key Words: Cost-Benefit Analysis, Development Project, Township Management, Urban
Planning, Project Management
Introduction
A cost-benefit analysis (CBA) is usually performed to identify the most effective and economic
way to conduct a transaction, engage in an activity, implement a project or accomplish a mission
when there are several alternative ways of setting about it. The purpose of the analysis is to help
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determine the best approach that would yield the desired results while keeping the costs as low as
possible (David, Dube, & Ngulube, 2013). The CBA, also referred to as benefit-cost analysis
(BCA) makes use of a systematic process for working out the costs of following a given
approach or policy and weighing it against the benefits. The approach that can provide the most
benefits for the least cost is then chosen for implementation. Both governments and
organizations depend on cost-benefit analysis to help them decide on the best option before
launching a major undertaking.
Cost-benefit analyses serve two important purposes: They can provide a good indication of
the soundness of an investment or a decision. They can justify same by showing that the overall
benefits are more than worth the costs and to what extent.
They make it possible to compare different approaches to implementing a given program by
providing rough estimates of the total cost of each option and the benefits available from each
option (Mishan & Quah, 2007).
Cost-benefit analysis is not the same thing as other types of investment analysis. In CBA, costs
and benefits are assessed in terms of money value and this includes corrections made for the time
value of money. The value of benefits realized and the value of money invested in the venture
over time are calculated to give their Net Present Value (NPV). There are various other types of
investment or project analyses such as, cost-effectiveness analysis, cost–utility analysis, risk–
benefit analysis, economic impact analysis, fiscal impact analysis, and social return on
investment (SROI) analysis. Therefore, the analytic technique employed for quantifying the risks
and benefits of programs and projects over a given period of time (Pearce, Atkinson, & Mourato,
2006), must use the same process to make comparisons valid (De Groot, Alkemade, Braat, Hein,
& Willemen, 2010). In contrast to the present value (PV) method of investment appraisal, CBA
makes use of the net present value (NPV) method by excluding the investment and returns
(Lohmann, 2009). Though mostly used for performing financial analysis, CBA is also used for
other purposes. It is frequently employed to work out environmental and social costs versus
benefits of projects whenever these can be quantified with an acceptable degree of accuracy
(Boardman & Boardman, 2008).

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The Greater Matara Urban Area [GMUA]
Matara is a coastal town located in the Southern Province of Sri Lanka, with a resident
population of 71,000 and a day time population of 100,000. It had a low population density of 43
persons per hectare in 2001. It has few landmarks, a low building density and not much traffic
congestion. The growth rate is presently 0.8%. Though Matara was elevated to Municipal
Council status in 2003 the people in the central and outer areas still do not receive proper
municipal services due to the weak administration (Amerasinghe & d’Auria, 2007).
The Greater Matara Urban Area [GMUA] was constituted in 2001 by the Urban Development
Authority (UDA). It comprises Matara, Thihagoda, Malimbada, Welipitiya, Weligama,
Godagama and Devinuwara. This area is of a partly urban but mostly rural character with a
population of 268,000, and an average density of 15 persons per hectare. The GMUA was
declared as an Urban Development Area by the UDA under the UDA Law in 2005, and its
development is guided according to this authority’s plan (UDA, 1978). The draft of the
development plan identifies seven major development projects as shown on Figure 1.
Figure One : Major Development Nodes in GMUA
Figure 1: Seven Major Development Projects in Greater Matara Region
(Source: Urban Development Plan, Matara)
1
6
7
5
4
3
2

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The seven major development projects centered on the Main Node of Greater Matara are:
1. Weligama - Commercial
Commercial Complex, Bus Stand, Fisheries, Recreational, Tourism
2. Sports & Housing
Commercial Complex, Bus Stand, Fisheries, Recreational, Tourism
3. Godagama – Institutional
Administrative Complex, Courts Complex, Health, Police, Industrial Park
4. Environmental
Eco-tourism, Water Recreational
5. Matara - Commercial
Market Complex, Archaeological Conservation, Beach Park, Town Hall,
Housing & Tourism
6. Devinuwara - Educational
IT Campus, Fisheries Harbor, Tourism
7. Environmental
Eco-tourism
Study Area: Godagama - New Urban Center Development Area
For this assignment the Number 3 project of the above program has been chosen to perform a
cost-benefit analysis. Number three project consists of,
• Hospital Complex
• Administrative Complex
• Courts & Prison Complexes
• Multimodal Transport Center (rail, road and water)
• Shopping Arcades
• Kiralakele Wetland Conservation Park
• City Lake and Nature Trail
• Police Complex
• Sports Village

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Figure 2: Godagama Development Node, Project Are
Objectives of project
“To set Matara in an advantageous position by transforming it into an important economic hub of
the South by moving its non-commercial activities into the Godagama Node, and to utilize the
land in the Greater Matara Urban Region for the most productive economic activities by
implementing a futuristic renewal program.”
Methodology
The first stage of the project is devoted to implementing five components of the program. Cost
and benefit data were collected for this purpose from the concerned authorities and officers and
tabulated as indicated in Table 1.

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Table 1: Summary of Costs and Benefits over the Project Period
Stages
Cost Items
Cost in Rs M
Benefit Items
Benefit in
Rs
Million
1
Acquisition
Land Value
Land Acquisition
2,000.00
9,600.00
Resettlement
2,500.00
2
Site Preparation
750.00
Economic Benefit
2,000.00
3
Layout Designing
Survey Plan
100.00
Aesthetic Value
2,000.00
Architectural Design
150.00
4
Construction
Basic Infrastructure
3,500.00
General Construction
Construction
Value:
Hospital
820.00
Economic Benefit
8,000.00
Administrative
Secretariat
122.00
Life Style
5,750.00
Courts
184.00
Peace & Calm
4,600.00
Police
352.00
Annual Revenue
7,500.00
Town Hall
115.00
Industrial Park (under
construction)
1,000.00
Prison
552.00
Other
1,000.00
5
Operational
2,000.00
Employment
Opportunity
4,100.00
Total
15,145.00
43,550.00

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Project Cost
Table 2 indicates the operational costs of the project while it was being implemented during the
period 2005 to 2009. A 20% discount was applied when calculating the costs.
Table 2: Cash Outflow of Project (Project Cost)
STAGE
YEAR
ACTIVITY
INVESTMENT
DISCOUNT
FACTOR
(R=20%)
Year 0
(2004-12-31)
Stage One
Acquisition
Land Acquisition
2000.00
2000.00
Resettlement
2500.00
2500.00
Year 1
(2005-12-31)
Stage Two
Site Preparation
750.00
625.00
Year 2
(2006-12-31)
Stage
Three
Layout Designing
Survey Plan
100.00
69.44
Architectural
Design
150.00
104.17
Year 3
(2007-12-31)
Stage Four
Construction
Basic Infrastructure
3500.00
2025.46
General
Construction Works
Hospital
820.00
474.54
Adm.
Secretariat
122.00
70.60
Courts
184.00
106.48
Police
352.00
203.70
Town Hall
115.00
66.55
Industrial Park
(under construction)
1000.00
578.70
Prison
552.00
319.44
Others
1000.00
578.70
Stage Five
Year 4
(2008-12-31)
Operational Cost
1000.00
482.25
Year 5

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Present value (PV) of cost for each activity is shown in the final
column of Table 2. Total PV of Cost is = Rs. 10,606.93 Million
Project Benefit
Table 3 indicates the cash inflow during the project period and the benefits realized after the
project. Interest of 20% is applied on the estimate of each item until the year 2014.
Table 3: Total Cash Inflow of Project
Year
Activity
Benefit
Discount Factor
(R=20%)
Year 0 : 2004-12-
31
Employment Opportunity
200
200.00
Year 1 : 2005-12-
31
Land Value
200
166.67
Employment Opportunity
300
250.00
Year 2 : 2006-12-
31
Land Value
250
173.61
Employment Opportunity
400
277.78
Year 3 : 2007-12-
31
Land Value
300
173.61
Employment Opportunity
500
289.35
Year 4 : 2008-12-
31
Land Value
350
168.79
Employment Opportunity
600
289.35
Year 5 : 2009-12-
31
(2009-12-31)
Operational Cost
1000.00
401.88
15,145.00
10,606.93

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Land Value
400
160.75
Employment Opportunity
700
281.31
Year 6 : 2010-12-
31
Land Value
800
267.92
Employment Opportunity
1400
468.86
Economic Benefit
1000
334.90
Life Style
500
167.45
Peace & Calm
200
66.98
Annual Revenue
500
167.45
Aesthetic Value
2000
669.80
Year 7 : 2011-12-
31
Land Value
1600
446.53
Economic Benefit
1500
418.62
Life Style
750
209.31
Peace & Calm
400
111.63
Annual Revenue
1000
279.08
Year 8 : 2012-12-
31
Land Value
1800
418.62
Economic Benefit
2000
465.14
Life Style
1000
232.57
Peace & Calm
800
186.05
Annual Revenue
1500
348.85
Year 9 : 2013-12-
31
Land Value
1900
368.23
Economic Benefit
2500
484.52
Life Style
1500
290.71
Peace & Calm
1600
310.09
Annual Revenue
2000
387.61
Year 10 : 2014-12-
31
Land Value
2000
323.01
Economic Benefit
3000
484.52
Life Style
2000
323.01
Peace & Calm
1600
258.41
Annual Revenue
2500
403.76
Total
43,550
11,324.86

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Present value (PV) of benefit from each activity is shown in the final
column of Table 3. Total PV of benefits is = Rs. 11,324.86 Million
Cost and Benefit of Project
Hence, NPV =

 


Q
NN
P
NNR
C
R
B
00 )1()1(
= 11,324.86 – 10,606.93
= Rs. 717.93 Million
Therefore, this project should be accepted because NPV > 0.
Where,
R = Interest, N = Number of years, V = Value
Assumptions: Interest Rate is 20% throughout project period
No failures or difficulties in implementing project
Project starts around 2005-12-31 and is completed by 2009-12-31
Benefits realized by 2014 -12-31
Note: Value of this project has been estimated in tentative manner.
Conclusion
The start date and speed of implementation of project is dependent on the availability of funds.
The cost-benefit analysis takes into consideration not only the economic aspects of the project

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but also other facets like social justice, environmental impact and aesthetic value, etc. In fact,
there are positive indications that over the period from 2004 to 2014 much in the way of social
and environmental benefits have resulted from the project. The full benefits of the program will
be felt by the residents of the area from the year 2014. The value of benefits realized in the year
2014 was Rs. 717.93 Million, but the value of benefits will keep increasing steadily every year if
the project features are utilized optimally by those managing it. If some of the marshy lands in
the area are filled and reclaimed that will open up more space for many public facilities that will
help serve the people better. Thus, even more benefits will be realized.
References
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