Risk analysis in the economic appraisal of a smallholder agricultural development project in Papua New Guinea

Abstract

Risk analysis in an economic appraisal of a smallholder integrated agricultural development project in Papua New Guinea was undertaken using a spreadsheet simulation model based on the use of several probability distribution functions to specify the uncertainty involved in seven major stochastic variables. The results indicated that there were differences between the estimated net present value and the internal rate of return (used to measure the economic viability of the project) when compared with those derived from the traditional deterministic approach of using the certain or most likely figures for all input variables. The level of actual government project expenditures as a proportion of planned approved government costs appears to be a major determinant of project viability.