Abstract

The objectives of this study were three-fold. First, the study sought to design a scientific cost benefit analysis model to evaluate KRA project proposals before they are submitted to the National Treasury for possible funding. The second objective was to come up with streams of costs and benefits for the Authority’s sampled projects over their useful lifespan. The third objective was to use the cost benefit analysis model to evaluate future KRA project proposals. The literature
reviewed showed that in earlier years, cost benefit analysis was mainly applicable to government infrastructure projects in the fields of transport, urban settlement, health, education, defence and research and development. It further gained widespread application in the field of welfare economics where economic choice decisions had to be undertaken. This study therefore developed a cost benefit analysis model to evaluate KRA projects. The main input into the model was quantifying efficiency gains from the six sampled projects. The data on the sampled projects were collected from the KRA data base. The standard procedures of cost benefit analysis were then applied to the sampled projects. The results of the post ante cost benefit analysis show that the decision to invest in the projects was viable. This is because the projects yielded a positive net present value. A return on investment measure of project viability was applied to the sampled projects. The measure which is expressed as a benefit-cost ratio was 5.6 meaning that the expected benefits were over five times the expected costs of projects hence the projects were viable. Though it is not documented whether KRA applies the cost benefit analysis to its investment decisions, it is recommended that going forward, the Authority’s investment decisions should be informed by the results of an appropriate cost benefit analysis model. It is therefore recommended that all future KRA projects should be subjected to a cost benefit analysis to evaluate their feasibility before they are approved for implementation. Secondly, a comprehensive process of quantifying project costs and benefits should be undertaken to make cost benefit analysis meaningful. Benefits should not only comprise of expected revenue generation but also expected efficiency gains resulting from projects under analysis. KRA should therefore adopt a uniform cost benefit model that seeks to utilise all quantifiable costs and benefits over a project’s useful lifespan. Finally, since KRA operates under a tight budget constraint, sensitivity analysis should be undertaken to get the appropriate set of projects that yield highest net benefits and guarantee the best value for money and thus assist in arriving at the correct project mix.