The validation of the economic and financial indicators is one of the most critical aspects of project appraisal. The validation should focus on the rationality of the assumptions used in estimating costs and benefits; the methodologies applied are valid; and the formula and computations are correct. The main objective is to ensure an acceptable degree of accuracy of the feasibility indicators.
Economic analysis attempts to assess the overall impact of a project in achieving its larger social objectives. It builds on discounted cash flow analysis. With or without cost revenue sharing, the PPP project must be economically and socially desirable for the government to endorse it. The appraisal of economic aspects verifies whether the costs and benefits or the effectiveness indicators have been fully identified and appropriately measured. The various indicators of project worth such as the NPV, EIRR, and benefit-cost ratio (BCR) must be reviewed. For PPP, these indicators are often considered more important than the indicator of financial viability by the government. A project's EIRR must meet the hurdle rate of 15% whether it is for public or PPP implementation.
Financial analysis is done to ensure financial sustainability and profitability. The first looks at the availability of funds for the investment and operation stages; and the latter looks at positive yields for the project.