Note:  OP and BP 10.04 are complemented by OP/BP 10.00, Investment Lending: Identification to Board Presentation.  OP and BP 10.04 replace the Operational Memorandum Treatment of Environmental Externalities in the Evaluation of Investment Projects, 10/4/93, and draw on the following documents: OMS 2.20, Project Appraisal; OMS 2.21, Economic Analysis of Projects; OPN 2.01, Investment Criteria in Economic Analysis of Projects; OPN 2.02, Risk and Sensitivity Analysis in the Economic Analysis of Projects; OPN 2.04, Economic Analysis of Projects with Foreign Participation; OPN 2.05, Foreign Exchange Effects and Project Justification; OPN 2.06, Use of the Investment Premium and Distribution Weights in Project Analysis; OPN 2.07, Reporting and Monitoring Poverty Alleviation Work in the Bank; and OPN 2.09, Presentation of Project Justification and Economic Analysis in Staff Appraisal Reports.  Additional guidance on project economic evaluation is provided in Handbook on Economic Analysis of Investment Operations. Questions may be addressed to opmanual@worldbank.org. |
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1.  Proposals for Bank1 investment projects are grounded in the sectoral priorities established through economic and sector work (ESW).  The economic evaluation of projects integrates financial, institutional, technical, sociological, and environmental considerations .22.  The same basic approach to evaluation is used throughout the project cycle for identification, appraisal, implementation, completion and performance audit reporting, and impact evaluation. Before appraisal, "back-of-the-envelope" calculations may suffice, but during appraisal and afterwards, a full evaluation is necessary.  Analyses are transparent and replicable.  During implementation, evaluation tracks key project-related variables that experience has shown are correlated with successful outcomes.  Project Cycle Identification and Preparation3. The task manager (TM) 3ensures that the project is anchored in the Country Assistance Strategy and that the rationale for the Bank's involvement is clearly spelled out. 4  The TM also ensures that the project team takes account of existing ESW in assessing whether the policy, incentives, and institutional framework are conducive to making the project sustainable.  The TM makes a preliminary estimate of the project's expected net present value and risks.  These assessments are made as early as possible in the project cycle and are recorded in the project documentation.
Appraisal
4. The Staff Appraisal Report (SAR)
(a) provides a clear definition of the project's economic objectives; (b) examines the incentives that will make the project function as planned; (c) considers environment- and poverty-related factors5and establishes the criteria for monitoring the project's performance during implementation; and (d) fully documents the assumptions, methodology, and results of the project's financial and economic evaluation, risk analysis, and fiscal impact assessment. Specifically, the SAR (i) shows the yearly flows of benefits and costs, consistent with the project's expected disbursement profile; (ii) documents the prices used for the financial and economic evaluations, the country parameters used for the economic analysis, the net present value of the project, and the switching values; (iii) identifies the project's main risks and gives the results of the sensitivity analysis; and (iv) examines the project's financial impact (the impact of its capital outlays and recurrent costs and benefits) on the sponsoring institution and on public finances.  Assumptions are anchored in experience; the SAR explains any deviations from experience.
Responsibilities
5. The Regional vice presidents (RVPs) are responsible for the quality of the economic evaluation in individual operations in their respective Regions.  The RVPs ensure that the Regions apply consistently the Bank's methodology for economic evaluation and risk analysis.  In approving operations, the RVPs hold the country department directors accountable for the quality of the economic evaluation.  The lead economists ensure that their departments apply consistently the Bank's methodology for economic evaluation and risk analysis.  The Central Vice Presidencies select the methodology for economic and risk analysis, design training programs, and disseminate best practice.  They also advise TMs on poverty and environmental considerations.
____________ "Bank" includes IBRD and IDA, and "loans" includes IDA credits and IDA grants. A handbook on the methodology for project economic evaluation will provide detailed guidance on methodology for carrying out economic evaluation. This statement gives the TM responsibility for the economic evaluation, but the actual tasks may be assigned to another member of the project team. See  OP/BP 10.00, Investment Lending:  Identification to Board Presentation. See OP/BP 4.01, Environmental Assessment, and OP 1.00, Poverty Reduction.
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