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July 18, 2023Estimating the Economic Impact of interventions - Utkarsh Majmudar
Mon Ami undertakes craft related projects that result in proved livelihood for its for its beneficiaries. Companies fund project and part of the funds are used for administration, training, and other purposes. A part of the fund is used to produce craft items which when sold generate both revenue and working capital for the beneficiaries. Once the beneficiaries are trained, they can further train other people to improve their livelihoods.
So, how do we evaluate the outcome of this project? A simple way would be to think in terms of profits earned by the beneficiaries in the future. In a generic sense we can think of the life project as the number of years till which the beneficiaries stabilize. In this example we take it as three years. We assume that the project increases the income of the beneficiaries to 50,000 rupees per beneficiary. We also assume that each beneficiary will train 2 more beneficiaries each year. For this example, the costs associated with production are taken to be 0 but depending on the project there may be material, selling and other costs. Let us also assume that the economic cost of money is 6%, the rate that the beneficiaries can earn on bank deposits. We thus calculate the economic impact of the project:
| Year | 1 | 2 | 3 |
|---|---|---|---|
| Income per beneficiary per month | 50,000 | 50,000 | 50,000 |
| No of beneficiaries | 5 | 10 | 20 |
| Months in a year | 12 | 12 | 12 |
| Total income of all beneficiaries for the project per year | 30,00,000 | 60,00,000 | 1,20,00,000 |
| Cost of materials, selling etc. | 0 | 0 | 0 |
| Net income of beneficiaries | 30,00,000 | 60,00,000 | 1,20,00,000 |
Thus, the economic benefit of the project is 1.82 crores.
The same approach may be useful while approaching a company to grant money for the project. Suppose a company commits to provides 20 lakhs for the project, the effective economic benefit of the project from the
Providing a clear economic rationale for going ahead with this project. Alternatively, this can be seen as a straight return on investment number (ROI)
Utkarsh Majmudar
Author of Shift: Decisions for a Net Zero World Finance educator trainer and consultant, Bengaluru
A multidimensional professional with nearly two decades of experience encompassing academics and administration at premier business schools in India and working with large corporations in India at GE Capital, iGATE and HSBC. His work ranges across managing people and processes, training and hiring.
Apart from strong training capability he brings adept managerial competence, excellent communication and people skills, ability to interface with people at all levels, managing cross nation relationships and an ability work across varied domains.
He also contributes to a regular column for Economic Times and occasionally to CSRwire on CSR and sustainability issues.
