Integrating Gender In Cost-

Benefit Analysis Of Innovations

To Enhance Smallholder
Farmers’ Resilience And
Climate Change Adaptation

Berber Kramer and Mélody Braun | Winter 2024

Teaching Team

Berber Kramer, Senior Lecturer Mélody Braun, Senior Lecturer

Paulina Smith Ruiz, Teaching Assistant Homa Taheri, Teaching Assistant

What to expect
Overview of each of the 4 modules of the course
• Module 1 : General Overview Of CBA:
• 1A: Key Concepts Of CBA: Net Present Value and Discount Rate
• 1B: Why Does Gender Matter in CBA?
• Module 2 : Introducing Risk Aversion And Benefits Beyond NPV in CBA
• 2A: What Are The Desired Intervention Benefits?
• 2B: Risk Aversion And Utility
• Module 3 : Incorporating Changes in Women’s Empowerment in CBA
• Module 3A: How To Account for Changes In Empowerment?
• Module 3B: Practical Application of CBA Framework
• Module 4 : Evaluation Methods To Generate More Rigorous CBA Estimates.
Making the Most of Our Course

• Presentations and course materials will be sent to all registered participants.

• Please keep your microphones muted and cameras off to save bandwidth.

• Please use the Q&A feature to ask questions. We will have specific times during the

class to answer them.

• Attendance is voluntary but only those who attend 80% of the course will receive a

certificate of completion.
MODULE 1

General Overview Of CBA

6

Overview of the module

• Module 1A: Key concepts of CBA: Net Present Value and Discount Rate
• Definitions
• Calculating the Net Present Value
• Determining the discount rate
• Module 1B: Why does gender matter in CBA?

CBA for CIS | Winter 2024 | page 6

MODULE 1A

Key concepts of CBA:

Net Present Value and
Discount Rate
Definitions

What is a CBA?

Cost-Benefit Analyses are used to

measure the benefits of an
intervention, minus the costs
involved in making it happen.

Those benefits are typically

measured in monetary terms,
focusing on ‘net present value’
(NPV) of future cash flows.

CBA for CIS | Winter 2024 | page 8

Definitions
Cash Flow
Cash flow in time t, denoted as CFt, is the net balance of cash moving into and
out of a business at a specific point in time.
CFt equals the difference between revenue and cost in time t.

Time Value of Money

Money received or paid at different times has a different value.

As a result, it is not possible to simply sum values over time in a CBA, unless
you convert it to a common base/unit.

CBA for CIS | Winter 2024 | page 9

Definitions

Time Line

Drawing the timeline is a visual approach for showing the stream of cash flows over time.

Denote the current period as

time 0 and the following periods
as time 1, 2, 3 etc.

CF0 denotes the cash flow in

current period and CF1 , CF2, etc.
represent cash flow in the
following time periods.

CBA for CIS | Winter 2024 | page 10

 Definitions
Aggregating Cash Flows
Question: Can we add/subtract
different cash flows in different
time periods to find the total cash
flow?

Answer: No.
Because of the Time Value of Money, it is incorrect to simply add/subtract cash flows at
different times. We should first use a Discount Factor as the exchange rate for time and
bring all cash flows to the same time base, then add/subtract the values as needed.

CBA for CIS | Winter 2024 | page 11

 Definitions
Discounting
Discounting CFs moves them back in time to the same time base to calculate their total
value, using a discount rate, and a discount factor.

Discount rate
It is an estimated rate used to convert future cash flows into present value
• Accounts for the fact that a dollar today is worth more than a dollar in the future, because
of returns on investment, interest rates, inflation etc.
• The lower the estimated value of future cash flows, the higher the discount rate.

Discount Factor
It is a multiplier used to convert future cash flows to their present value. The discount factor
1
for converting CF in time t to time 0 would be: 𝑡 or (1+R)-t, where R is the discount rate.
(1+𝑅)

CCB
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Example
Discounting on timeline

We can now
add/subtract these CFs,
because they are in the
same time units (time
0).

CBA for CIS | Winter 2024 | page 13

Definitions
Net Present Value (NPV)
Financial metric used to assess the profitability of an investment or project by comparing:

• The present value of the cash outflows, or costs related to the investment,
• The present value of the cash inflows, or expected returns of the investment over time,
such as revenue, savings, benefits, based on an estimated discount rate.

→ In other words, it is the sum of all discounted future cash flows.

• Formula:
∞
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠 where σ∞
𝑡=0 ∶ denotes summation of values from time 0
𝑁𝑃𝑉 = ෍ 𝑡 onwards.
𝑡=0 (1 + 𝑅)
t = time of the cash flow
R = discount rate

NPV > 0 : expected returns (estimated in present value) > costs

NPV < 0 : expected returns (estimated in present value) < costs
CBA for CIS | Winter 2024 | page 14
Calculating the Net Present Value (NPV)
Example
• You are considering an investment that requires an initial cost of $1,000
• Cash inflows are expected to be $500 per year for the next three years.
• The discount rate is 5%.
∞ 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠
𝑁𝑃𝑉 = ෍ 𝑡
𝑡=0 (1 + 𝑅)

−1000 500 500 500

𝑁𝑃𝑉 = 0
+ 1
+ 2
+ 3
≈ 361.62
1 + 0.05 1 + 0.05 1 + 0.05 1 + 0.05

Discussion
Is this a good investment, or not?
CBA for CIS | Winter 2024 | page 15
 Calculating the Net Present Value (NPV)
Exercise

1. Let’s calculate the NPV of a crop investment over a period of 3 years with a 5% discount rate.
You invest 1000$ on year 0, then 200$ per year on year 1-3.
You hope to generate $800 in year 1, $900 in year 2, $1000 in year 3.
What would be your net cash flow and discounted cash flow each year?

Hints:

• Net cash flow = Revenue – costs

𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
• Discounted Cash Flow in year t = 𝑡
Where:
(1+𝑅)
• t = time of the cash flow
• R = discount rate

CBA for CIS | Winter 2024 | page 16

 Exercise

Fill this table:

Year Cost (USD) Revenues (USD) Net Cash Flow (USD) Discounted cash flow
= CF = (USD) = CF/(𝟏 + 𝑹)𝒕
Revenue - Cost
0 1000 0
1 200 800
2 200 900
3 200 1000

CBA for CIS | Winter 2024 | page 17

 Calculating the Net Present Value (NPV)
Exercise

2. Assume a discount rate of 10%. In other words, money received in the future is worth
10% less per year than money received today.
Calculate the discounted cash flow each year.

𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
Discounted Cash Flow in year t =
(1+𝑅)𝑡

CBA for CIS | Winter 2024 | page 18

Calculating the Net Present Value (NPV)
Exercise

3. Now, can you calculate the NPV?

∞
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠 Where:
𝑁𝑃𝑉 = ෍ 𝑡
• t = time of the cash flow
𝑡=0 (1 + 𝑅) • R = discount rate

Hint: NPV = Sum of the discounted cash flows for all years – initial investment

Alternatively, you can use the excel function:

=NPV(0.1, [sum of net cashflows]) + [initial cash flow on year 0)

CBA for CIS | Winter 2024 | page 19

Calculating the Net Present Value (NPV)
Exercise

4. Discuss the results : is the investment profitable?

Hint:
NPV > 0: The investment is profitable and should be considered.
NPV < 0: The investment would result in a loss and should be reconsidered.

CBA for CIS | Winter 2024 | page 20

Determining the discount rate
Estimating the value of future cash flows to determine the appropriate discount rate involves
several factors, that vary depending on context, individual preferences, and type of investment.
For example:

Time preference : whether people prefer to Higher time preference (preference for immediate cash)
→ → higher discount rate
receive money now or later → reduced value placed on future cash flows

Risk affecting future cash flows (market risk,

→ Uncertain or risky future cash flows are less valuable → higher discount rate
operational risk, economic risk)

Inflation à Reduced purchasing power → higher discount rate

Liquidity constraints : availability of liquid

à High liquidity constraints (limited available liquidity) →
assets that can be accessed without → higher discount rate
more value on having cash now than later
significant loss of value

The weighted average cost of capital (WACC), higher costs of capital

Cost of debt (loans) and equity (shares) à combining the cost of debt and equity, is often used as → higher discount rate
the discount rate.

CBA for CIS | Winter 2024 | page 21

Determining the discount rate

Exercise / Assignment

How much are you willing to give up to receive 100 USD in one year? Calculate your discount rate
based on your answer.

Hint: Discount rate represents the percentage of the future value that an individual is willing to
sacrifice to receive the present value immediately.
Present value
Discount rate = (1 − ) × 100
Future value

CBA for CIS | Winter 2024 | page 22

Determining the discount rate

Exercise / Assignment

Let’s look at the problem from a different angle: consider the following scenarios and write down
your replies. Calculate your discount rate based on your answers.

• Would you prefer to receive 50 USD today or 100 USD in one year?
• How about 60 USD today vs 100 USD in one year?
• Or 70 USD today vs 100 USD in one year?
• Or 80 USD today vs 100 USD in one year?
• How about 90 USD today vs 100 USD in one year?

Hint: If you prefer an offer of X USD today to Y USD in one year and are also prefer an
offer of X+1 USD today to Y USD in one year, your discount factor is at least (1-X/Y)*100.

CBA for CIS | Winter 2024 | page 23

24

Key points
• Cost Benefit Analysis (CBA) is a financial
evaluation method used to determine a
project’s feasibility and economic efficiency
by comparing its total costs and total benefits.

• Net Present Value (NPV) is the main tool of

traditional CBA approaches. It provides a
measure of profitability by comparing the
value of future cash flows to the initial
investment.
• In profitable projects, NPV is positive and in
unprofitable projects, NPV is negative.

CBA for CIS | Winter 2024 | page 24

MODULE 1B

Why does gender

matter in CBA?
Definitions
Gender (USAID)
Gender is “a socially defined set of roles, rights, responsibilities, entitlements, and obligations
of females and males in societies. The social definitions of what it means to be female or
male vary among cultures and change over time”. This is distinguished from the term sex,
which is a biological distinction. However, in practice sex and gender are used
interchangeably when discussing disaggregation of data and its use.

Intersectionality (Merriam-Webster dictionary)

The complex, cumulative way in which the effects of multiple forms of discrimination
(such as racism, sexism, and classism) combine, overlap, or intersect especially in the
experiences of marginalized individuals or groups.

CBA for CIS | Winter 2024 | page 26

 Gender considerations in discount rate
Most farmers face challenges related to cash liquidity and credit constraints, which influences
discount rates.
Multiple socio-economic factors shape discount rates. These include access to resources,
participation in decision-making and power dynamics between men and women.

Research indicates that women may experience greater liquidity constraints than men:
• Women often have less access to livelihood resources and prioritize financial security for their
households.
• Women tend to have more limited access to credit and extension services, with different
factors influencing their access to formal credit markets.

As a result, the perceived value of future cash flows relative to immediate cash may vary
between men and women, leading to a different discount rate.

CBA for CIS | Winter 2024 | page 27

 Gender considerations in discount rate
Exercise

• Anna and John are each expecting to receive $1000 one year from now.
• Anna has higher liquidity constraints. It means she has limits in access to loan and needs cash
now. John is more comfortable waiting.
• Anna’s discount rate: 15% . John’s discount rate: 5% (lower due to fewer constraints)
Calculate the NPV for both Anna and John.
Anna:
∞ 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑠
𝑁𝑃𝑉 = ෍ 𝑡
𝑡=0 (1 + 𝑅)
John:
• Anna values the $1,000 future cash flow at $869.57 today because she needs the money
now due to her higher liquidity constraints.
• John values the same $1,000 at $952.38 today because he is more comfortable waiting,
reflecting his lower discount rate.
CBA for CIS | Winter 2024 | page 28
 Gender considerations in discount rate
Key take-aways

• This exercise reflects how the need for immediate funds for someone with liquidity
constraints can lower the value placed on future income, and, as a result, how discount rates
vary based on financial circumstances.

• All else equal, a limited access to loans or higher liquidity constraints lead to higher
discount rates.

CBA for CIS | Winter 2024 | page 29

 Discussion
What do you think is missing from this approach?
31

Limitations of NPV in valuing women’s work

Non-monetary value, informal and unrecognized labor

Lack of Formal Income: Women's work in informal sectors or family businesses
often goes unpaid or underpaid, resulting in a lack of clear cash flows to use in NPV
calculations.

Domestic and Care Work: Much of women's work, such as domestic chores and
caregiving to the children and elderly does not generate direct monetary returns.

NPV relies on quantifiable cash flows, which makes it difficult to capture the true
value of these activities.

CBA for CIS | Winter 2024 | page 31

32

Limitations of NPV in valuing women’s work

Non-monetary value, informal and unrecognized labor

Emotional and Social Costs and Benefits, Invisible Factors: The emotional and social
benefits of women's contributions to household and community well-being are significant
but hard to quantify in monetary terms, and not reflected in NPV calculations.

→ There is often insufficient data on the economic value of women's informal and
unpaid work, making it difficult to perform accurate NPV calculations.

Women’s heavy workloads may not only reduce their personal wellbeing but could also
introduce costs for their children and relatives who traditionally rely on women for
caregiving. By reducing the amount of (quality) time available for caregiving, increased
workloads could come at the expense of kids’ emotional wellbeing and cognitive
development.

CBA for CIS | Winter 2024 | page 32

33

Next in Module 2:
1- Measures of cost and benefit in NPV calculations
• Module 1 showed how NPV uses monetary values to assess the costs and
benefits of adopting a decision.
• However, there can be non-monetary benefits to an intervention

• Module 2 will discuss how a Theory of Change can help highlight intended
monetary and non-monetary benefits of an intervention

2- Accounting for risk and uncertainty in CBA

• Module 1 unpacked the concept of NPV, and related gender considerations.
• The basic NPV calculation discussed in module 1 does not consider risk or
uncertainties that farmers experience in their farming decisions.

• In module 2, you will explore how the concepts of uncertainty, risk aversion and
expected utility impact decision-making, and how to factor it in CBA
CBA for CIS | Winter 2024 | page 33
34

Recommended readings
• Berk, J., & DeMarzo, P. (2020). Corporate Finance (5th ed., pp. 132-206). Pearson.

• Falk, A., Becker, A., Dohmen, T., Enke, B., Huffman, D., & Sunde, U. (2018). Global
evidence on economic preferences. The quarterly journal of economics, 133(4), 1645-
1692. https://gps.iza.org/about

• Mutenje, M. J., Farnworth, C. R., Stirling, C., Thierfelder, C., Mupangwa, W., &
Nyagumbo, I. (2019). A cost-benefit analysis of climate-smart agriculture options in
Southern Africa: Balancing gender and technology. Ecological Economics, 163, 126–
137.

CBA for CIS | Winter 2024 | page 34

 QUESTIONS,
DISCUSSION

Berber Kramer and Melody Braun | Winter 2024

Integrating Gender in cost-
benefit analysis of innovations
to enhance smallholder
farmers’ resilience and climate
change adaptation

Berber Kramer and Melody Braun | Winter 2024