PUBLIC INVESTMENTS EVALUATION -MULTI-CRITERIA ANALYSIS-

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1 The Academy of Economic Studies DAFI PUBLIC INVESTMENTS EVALUATION -MULTI-CRITERIA ANALYSIS- Coord: Conf. dr. Ana Maria Ciobanu Tutunaru Atena Georgiana Master graduate: Bucharest 2008

2 Multi-criteria analysis, an improved method of Cost-Benefit Analysis?

3 OBJECTIVES: 1.The importance of multi-criteria analysis in the evaluation of public investments; 2.Finding the appropriate model of multicriteria analysis 3.Using the multi-criteria analysis when evaluating the integrated wastes management system

4 Given the centrality of its role, you would think that the question of how best to value a business, private or public, would have been well researched. As we will show in this paper, the research into valuation models and metrics in finance is surprisingly spotty, with some aspects of valuation, such as risk assessment, being deeply analyzed and others, such as how best to estimate cash flows and reconciling different versions of models, not receiving the attention that they deserve. Aswath Damodaran - Valuation Approaches and Metrics: A Survey of the Theory and Evidence, Stern School of Business, November 2006

5 Multi-Criteria Decision Making (MCDM) is a well known branch of decision making. It is a branch of a general class of operations research models which deal with decision problems under the presence of a number of decision Depending upon the number of decision makers, the methods can be classified as single or group decision making methods. Decision making under uncertainty and decision support systems are also prominent decision making techniques criteria.

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7 Models of multi-criteria analysis: Weighted sum method (WSM) Weighted product method (WPM) Analytical hierarchy process (AHP) Preference ranking organization method for enrichment evaluation (PROMETHEE) The elimination and choice translating reality (ELECTRE) The technique for order preference by similarity to ideal solutions (TOPSIS) Compromise programming (CP) Multi attribute utility theory (MAUT)

8 In Romania municipal waste seem to increase by approximately 1 2 % annually. If this is the case then in few years it will be extremely hard and expensive to manage municipal solid waste in a sustainable manner. And this situation is seen in most developing countries.

9 Project X Discount Rate 5% VNAF/C (7,441,803 ) RIRF/C -5.21% Social discount rate 5.5% 5.5% VNAE 1,209,331 3,950,522 RON RIRE 6.76% 6.76% B/C Project Y Social discount rate 5.5% 5.5% Discount Rate 5% VNAE 1,003,105 3,276,843 RON RIRE 6.25% 6.25% B/C VNAF/C RIRF/C (6,832,645 ) -4.78%

10 PROJECT X PROJECT Y Criteria Points Percentage Impact Points Percentage Impact Economical 10 15% % 1 GDP/inhabitants 3 3 Average wage/inhabitant 2 1 Inhabitants density in the area 5 1 Environmental 6 25% % 1.5 Tourism in the area 3 3 Environment problems 3 3 Existing situation 3 20% % 0.25 Existing infrastructure connection degree 3 1 Public health 8 30% % 0.6 Hepatic diseases 5 1 Respiratory diseases 3 1 Technical 5 10% % 0.8 Easiness in land buying 3 4 Existing infrastructure oldness 2 4 TOTAL

11 CONCLUSIONS Multi-criteria analysis is the most important part of the Feasibility study, because it analysis and makes a hierarchy of the project depending on its general and specific objectives. This can make the difference between an eligible and not eligible project or between two or many projects that can be financed through European funds, but, considering the limited funding, it has to be made a decision to choose just one project. So, when the financial or economic analysis can t help us to make a decision, multi-criteria analysis is the best solution!

12 Thank you!