UNIT 4 MONITORING AND EVALUATION

Structure
4.0 Objectives
4.1 Introduction
4.2 Monitoring of Watershed Projects
42.1 What is Moriitoring?
422 Selection and Identification of Key Indicators for Monitoring
42.3 Collection of Information/Data
42.4 Monitoring of Identified Indicators

4.3 Monitoring at Various Levels

4.3.1 Central Level
4.32 State Level
4.3.3 District Level
4.3.4 Project Implementation Agency

4.4 Monitoring Tools

4.4.1 Watershed Programme Monitoring Information System
4.42 Supplementary Observation Mechanism
4.4.3 Quarterly Progress Report (QPR) based Monitoring

4.5 Evaluation of Watershed Projects

4.5.1 What is Evaluation?
4.52 Need for Evaluation in Watershed Projects
4.5.3 Evaluation Indicators
4.5.4 Evaluation Mechanism

4.6 Project Evaluation Techniques

4.6.1 Un-discounted Techniques
4.62 Discounted Techniques

4.7 lnlpacti\ssessnaent
4.7.1 Types of Impact Assessment
4.8 Let Us Sum Up
4.9 Keywords
4.10 Suggested Readings
4.11 Model Answers to Check Your Progress

4.0 OBJECTIVES
After studying this unit, you should be able to:
• explain the concept and importance of monitoring watershed programmes;
• describe the monitoring activities at different levels;
• discuss about the watershed programme monitoring information system;
• justify the need for evaluation of watershed progr~es; and
• explain the various techniques of monitoring and evaluation of the watershed
programme, 5
Monitoring, Evaluation
and Capacity Building 4.1 INTRODUCTION
Can you explain why monitoring and evaluation are required in watershed project?
Monitoring and evaluation offers an exciting opportunity to prove the impact of
the watershed project. Monitoring and evaluation is a regular, systematic collection
and analysis of information to track the progress of project implementation. It can
be a crucial signpost that keeps you on track, a chance to re-assess priorities, and
an activity that helps compile an evidence base for future proposals. Monitoring
and evaluation provides government officials, executive managers, and civil society
with better means for learning from past experience, improving planning, organizing
and allocating resources, and demonstrating results as part of accountability to
key stakeholders. Within the development community, there is a strong focus on
results. Further, monitoring is not limited only to the supervision of the project
activities, but also it is the process of complete evaluation of the project required
for mid-term correction/modification/closing down the existing one and starting
a new project. It is the most important managerial tool in ongoing projects.
Evaluation helps in identifying the strength and weaknesses, merits and demerits,
costs and benefits of the projects. Evaluation is generally applied at a project's
mid-term and at its end. It also helps in further refming the project/programme
components. Hence, final evaluation is necessity which will enable us to learn
lessons of success or failure. Therefore, monitoring and evaluation is applied to
answer following two questions:

a) Are we doing the project right? (Monitoring)

b) Are we doing the right project? (Evaluation)

4.2 MONITORING OF WATERSHED PROJECTS

Monitoring produces timely, accurate and adequate information about the impact
of the watershed project. It provides data so that plans can be adjusted and
resources managed in answer to the project needs and opportunities. Its aim is
to record information in sufficient details to illustrate accountability and to 'provide
future evaluators. So far, you have understood why monitoring is required in a
watershed project? Now, let us learn what is monitoring?

4.2.1 What is Monitoring?

Monitoring is a continuous and periodic review and the surveillance by the
management at different levels of the implementation ofa project to ensure that
the deliveries, work schedules, targeted output and other required actions are
being carried out as per the plan. Now, you can understand that monitoring is a
management function which begins with the start of a project and ends with the
completion of the project, but, it is a continuous process during the implementation
of project. Monitoring of watershed project focuses on the following aspects:

a) Implementation: It relates to the several activities performed regularly as

well as occasionally that are essential for the proper functioning of a project,
viz. delivery and distribution of the project resources including credit and
inputs, etc.

b) Performance: It relates to the level-of achievements of the project targets

such as area treated, peoples groups mobilized, area increased under net
6 cropped and gross cropped etc.
c) Impact: It deals with effects ofthe project operation and socio-economic Monitoring and
development in the form of changes in the livelihood and nutritional security Evaluation
of the watershed beneficiaries. It further deals with the changes in the local
environment and ecology which improves with project operation and
performance.

Monitoring is an essential tool for successful implementation of the watershed

projects. During the process of monitoring, identify the shortfalls, deviations,
problems as well as the lessons for improving future project planning and
organization. Monitoring has direct bearing on improving the project outcomes
and also the efficiency and efficacy of public spending. Monitoring is done
at different levels. The Government of India has adopted multiple monitoring
mechanisms to cover the various aspects of the watershed projects.

4.2.2 Selection and Identification of Key Indicators for

Monitoring

According to the plan of a project, the key indicators should be determined by

the project manager, technical staff and the monitoring unit at the very beginning
of the project unit. Before identifying indicators, project plan should be carefully
examined. The selected indicators should be:

a) Simple and easy to measure

b) Reliable and replicable

c) Sensitive to changes

d) Simple to compute

e) Easy to understand and interpret

Since most of the time, benchmarks data are not available or inadequate,
participatory impact evaluation may be adopted, the evolution team may largely
use PRA techniques for information/data collection during field visit.

The following are the key indicators for the watershed project:

i) . Physical outputs: This includes for instance, hectares of trees planted terraces
completed, meters of stream bank protected, and their progress, costs,
inputs and accomplishments against the original plan and time schedule.

ii) Land use changes: Land use changes over time are usually a major concern
of watershed projects. By comparing the data of different periods the project
can get a picture of land use trends as well as the impact of the project
work.

ill) Erosion, sedimentation, water quality and runoff: These are also major
concerns of watershed projects. One or two may be more important than
the others depending on the main objectives of the project. For instance, if
on-site erosion is of greater concern than flooding and sedimentation, then
the monitoring work should be concentrated on the former. Likewise, if
heavy sedimentation of a reservoir is the major concern, the task should
include monitoring of both erosion and sedimentation rates.
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Monitoring, Evaluation iv) Farm income, production and land productivity: Increase of farm income
and Capacity Building through an increase of crop or animal production or marketing may be one
of the major objectives of watershed projects. In terms of natural resources
protection, however, land productivity in the long run may be more important
than short-term income. Whatever the major concern is both needs to be
monitored.

v) Sustain ability and development: Whether the watershed or soil

conservation work will be sustained after the project is terminated is an
important concern. The success or failure of a project is normally judged by
its sustain ability. Many projects have rural development components.
Monitoring of development work, such as kilometers of road built and
maintained and numbers of houses improved, is also necessary.

4.2.3 Collection of InformationlData

In the process of formulating watershed projects, there must be some inventory
data already collected that can serve as baseline information for monitoring uses.
These may include soils, rainfall, land use land capability, physical problems of the
watershed infrastructure, and socio-economic conditions. Such data are usually
essential to serve the needs of the subsequent monitoring work. As a project
proceeds, additional data should be sought as required by the monitoring
programme. Contact with farmers, interviews, farm planning and supplemental
surveys are usually required. For collecting new data, close attention should be
paid to the availability and usefulness of the data as well as the time and resource
limit, Data that is too expensive to collect or takes too long to obtain should be
avoided.

4.2.4· Monitoring of Identified Indicators

Monitoring of the following indicators is crucial for the watershed project:

a) Physical Outputs: Monitoring of physical outputs is the most essential and

straightforward. Each project should design and establish a sound database
that inclldes, for instance, planned work, yearly schedule, overall targets,
sub-targets and accomplishments. The database is better linked to various
maps and diagrams. Geographic Information Systems (GIS) is essential to
establish such monitoring data. In addition, cost of project work needs to be
closely monitored.

b) Land Use Changes: You know that proper land use in accordance with the
capability of each piece of land is probably one of the most important goals
for watershed projects. Therefore, monitoring land use changes in a watershed
or and area is necessary. In addition to surveying of land using remote
sensing techniques, a land capability map should also be produced.

c) Erosion, Sedimentation, Water Quality and Runoff: As you may

understand that monitoring of all or part of these indicators is normally
requires for a watershed project. However, these kinds of environmental
data are not easy to collect. Often, the project life is too short to obtain a
meaningful result, or the area is too small to produce a significant impact
downstream. Generally speaking, to make hydrological data usable for
monitoring purposes, a decade of records is required.

d) Income, Production and Land Productivity: A baseline socio-economic

survey is usually done at the inception of a project. Periodic and repeated
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 surveys will provide information on the project's impact and benefit. Monitoring and
Beneficiary contact monitoring should be carried out routinely. Land Evaluation

productivity is related to resource conservation, which is both a government

and a public concern. Farmers may deplete soil resources in order to make
a living. There are many ways to increase farm production and income; yet,
for the benefit of the nation as well as future generations, maintaining or
improving land productivity is a fundamental task.

e) Sustain ability and Development: Project sustainability can be monitored

by the number of farmers who participate in the project, their maintenance
work, and the rates of adoption of new. techniques. A higher percentage of
farmers adopting the recommended work would indicate higher sustainability.
For watershed or conservation projects aimed at rural development, a close
monitoring of development work is necessary, which may include housing,
road building maintenance domestic water, small irrigation,fuel- wood supplies,
and marketing facilities.

Check Your Progress 1

Note: a) Use the space given below for your answers.

b) Check your answers with those given at the end of the unit.

1) What is monitoring? Explain its need for watershed programmes?

..................................................................................................................
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. .

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2) List key indicators of watershed projects .

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4.3 MONITORING AT VARIOUS LEVELS

Monitoring has direct bearing on improving the delivery system and also efficiency
and efficacy of public spending. Monitoring of watershed programmes is done at
various levels and the same is described below:

4.3.1 Central Level

In the past, separate systems were established for central projects and for the
monitoring of the 20 Point Programme and infrastructure performance. A separate
Ministry of Programme Implementation was also responsible for monitoring tasks.
Of late, the monitoring system at various levels has got into a stereotyped
mechanism, handling routine information. During the Eighth Plan, efforts were
made to evolve a system of regular flow of relevant information to make monitoring
9
Monitoring, Evaluation an effective tool of management actios-at ail levels.The Planning Commission has
and Capacity Building recently taken steps to address this issue in consultation with the Central Ministries.
It has initiated a practice of holding of Quarterly Performance Review (QPR)
meetings under the concemed members in the Planning Commission. The objective
is to review from time-to-time the performance of the Central Ministries' plan
programmes and schemes, both from the physical and financial points of view,
correlate the two, identify constraints and bottlenecks, and suggest remedial
measures.
4.3.2 State Level
.In the past, government departments had adopted several procedures for collecting
and reporting information. The information generated for operation was from
annual and other periodical reports, minutes of meetings, etc. However, realizing
the merits of the problem, a post of Development Commissioner was created,
who was in charge of all the development work under the supervision of the
Development Committee, usually chaired by the Chief Minister. Later on, on the
Central Government pattern, in some of the states, a separate Ministry of
Programme Implementation was also responsible for monitoring tasks. Currently,
most the states are having their own Planning Boards/ Planning Commissions on
the Central Government Pattern. They have developed their own system of regular
flow of relevant information to make monitoring an effective tool of management
action at all levels.

4.3.3 District Level

For the district level, provision was made for a District Planning Committee under
the chairmanship of the collector, consisting of a District Planning Officer and
other officer of technical development departments and some non-official members
(Member of Parliament (MP), Members of Legislative Assemblies (MLA) and
Village Panchayat, Member of Cooperative Societies and Member of Academic
Institutions). A major step was taken with the creation of District Rural Development
Agency (DRDA). The staffing structure of the DRDA consist one Economist!
Statistician, Credit Planning Officer and a Rural Industries Officer who are together
said to constitute the planning team of the DRDA. All these officers are responsible
for planning, project formulation as well as implementation in their respective
sectors.

4.3.4 Project Implementation Agency

Monitoring system at project implementing agency level is more different as
compare with monitoring mechanism developed and adopted by the District Rural
Development Agency. In case of centrally and state sponsored development
programmes/ projects, DRDA is the implementing agency. However, in case of
large sized project, self-built evaluation mechanisms are being created to avoid
the delay and to improve the quality of information gathered. Sometimes,
independent agencies like academicians, private organizations as well as NGOs
are assigned this task depending upon the requirements of the sponsoring agencies.

4.4 MONITORING TOOLS

For effecting monitoring of the Watershed Programmes, the following monitoring
tools are available:
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4.4.1 Watershed Programme Monitoring Information Monitoring and
Evaluation
System
Watershed Programmes Monitoring Information System (WPMIS) is a web based
application which can be accessed by the URL http://wpmis.nic.in. The WPMIS
is aimed to collect and compile the project-details and Quarterly Progress Reports
related to all the watershed projects sanctioned by the Department of Land
Resources (DoLR) under all the three area development programmes namely
Integrated Wasteland Development Program (IWDP), Drought Prone Areas
Program (DPAP) & Dessert Development Program (DDP). WPMIS serves the
purpose of adding value to the present monitoring system in force and is more in
the nature of "On-Line Real-Time Management Information System".
Under this system, monitoring the registered individuals and the officials of the
governmental and non-governmental organizations as the guidelines will carryout
the monitoring of the allotted districts. The state authority provides online the '<,

QPRs ofDDPIDPAP/IWDP Projects. The evaluator uses these proformas and

provides the feedback on all the important activities including physical and financial
on every quarter. The individual suggestions and feedback are reviewed by the
designated officer and the pertinent in formations are utilized for refining and
improvement of the programmes.

For Districts: List of all the projects and their fund-releases, sanctioned for the
concerned district will be presented to the authenticated DRDAlZP users of
WPMIS. The DRDAlZP officials may compile QPR as per DoLR format by
'simply filling the related quarter's data of progress made. The prepared QPR may
then be printed and used for the purposes of circulation andlor documentation.
Meanwhile, the process will maintain all the QPRs and projects in arranged order;
and these will remain available on web for quick reference.
For States: Concerned state officers may also sign-in to view the QPRs and
related reports. To get such state-level user account, fill the Request for State
level user-account form and send to the concerned officer in DoLR, New
Delhi. The state level monitor has to apply to the government of India for the
registration on the prescribed form available at the monitoring website of the
Ministry of Rural Development.

4.4.2 Supplementary Observation Mechanism

To strengthen the monitoring at the state and the district levels, the services of the
identified district and state institutions will be registered with the department. The
observer a partnership relationship with district authorities' state department will
be established. These institutions will assist in generating information/feedback
based observation taken of the projects. The Institutions will provide timely and
precise input regarding the pace and the quality of implementation of the project.

The proposed arrangements will serve the purpose of adding value to the monitoring
system in force. The general idea is to supplement the efforts in place by instituting
in- house mechanism that will be more in the nature of online real time management
information system. The information about the watershed projects will be generated
on regular basis. Institutions appointed as the observer will act as guide and
adviser to the district authorities and also work as eyes and ears of the government.
The institutions will spare the services of an officer assisted by one or two
ministerial staff for performing the expected jobs, including identification ofleading
activity required in each of the watershed projects. 11
Monitoring, Evaluation a) Selection of Institutions: All district level institutions having proximity to
and Capacity Building the project area should have necessary and adequate expertise and
infrastructure, including manpower dealing with the watershed development
programmes. However, the additional work load will be carried out by the
existing manpower. In case of non-availability of such institutions, the institutions
available nearby will be assigned the job. Reputed and experienced NGOs
are also selected in absence of the government Institutions. Similarly, the
state level institutions are also identified to coordinate the work of the district
level institutions. They should also visit at least one third of the projects of
the state.

b) Methodology for selection of these institutions entails rest with state

government. State government in consultation with the state watershed
advisory committee select an institution on the approval of the Department
of Land Resources. More than one such institution can be appointed to cater
the need huge task. The district level institutions are appointed by the State
Government on the recommendations of the Zila Parishad under the information
to the Department of Land Resources. The tenure of the district institutions
are three years. These institutions are provided funds for the undertaking the
tasks.

4.4.3 Quarterly Progress Report (QPR) based Monitoring

The individual can assess the QPR of the allotted watershed and analysis can
provide feedback. The QPR, in general, is submitted by all the PIAs to the
Government of India. This report provides information, not only on the physical
and financial but also highlights the procedures in accomplishing works and activities.
In this case also the officials of both governmental and non-governmental
organizations are appointed on request.

Check Your Progress 2

Note: a) Use the space given below for your answers.

b) Check your answers with those given at the end of the unit.

1) Describe the various levels of monitoring.

2) What do you understand by watershed programme monitoring information

system?

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 Monitoring and
4.5 EVALUATION OF WATERSHED PROJECTS Evaluation

Evaluation takes an objective look at what you've been doing and identifies the
reasons for both success and failure, and how your future work can learn from
both. It is normally carried out at the end of the project. However, an evaluation
can be carried out either at a specified time, or as is the case with a multi-phased
project, at the end of a phase. Equally, evaluation is a means by which those
administering the project are held accountable to both beneficiaries and funding
agency. Evaluation as a process determines systematically and objectively the
relevance, efficiency, effectiveness and impact of project activities in the light of
its defined objectives.

4.5.1 What is Evaluation?

Evaluation can be defmed as "a periodical study to measure, establish and analyse
the realisation of objectives as well as the process leading up to their realisation,
aimed at determining, inter alia, a project's effectiveness, efficiency, policy and/or
significance, and at improving intervention processes".

The term "evaluation" is also used for routine checks as to see whether monitoring
returns are being compiled correctly. To avoid any doubt, this would be considered
as concurrent evaluation. Evaluation analyses the judgement of information in
order to assess value, worth or impact of a project. Additionally, it looks at the
dynamics of development interventions and identifies the reasons for both success
and failure and how one can learn from both. Evaluation is an instrument to gain
deeper insights into processes and circumstances that influence the implementation
of plans. It requires baselines, regular data collection and evaluation frameworks
built into the project at the time of implementation.

Two objectives of evaluation are to:

i) learn from experience in order to enable the realization of qualitative

improvement and greater effectiveness in future, and

ii) render accountability to donors, with a view to the assessment and approval
of new project proposals.

Evaluation is done periodically and serves to analyze a situation to determine why

something happened and suggest what might be done to correct undesirable
situation. It is a good mechanism to pin down reasons for failure of treatment
measure and to devise an alternative solution to avoid such situation and even
provide mid-term corrections. There can be a pre-project evaluation or baseline
study to assess whether the anticipated effects of a project are materializing. A
mid-term evaluation will provide insight into change which can enable a project
to meet its objectives more efficiently whereas an ex-post evaluation can be useful
for planning similar project in future. An ex-post evaluation is done at end of the
project to overall achievements and impact ofthe project in meeting the intended
objectives.

4.5.2 Need for Evaluation in Watershed Projects

Evaluation is done after completion of the watershed project. It is always necessary
to evaluate the project so as to identify the strengths and weakness for further
refining of the components in the projects. Evaluation will necessary for:
13
Monitoring, Evaluation i) measuring the progress and achievements of the project,
and Capacity Building
ii) determining the need for changing the direction of the whole approach,

ill) making work more effective through better planning in future,

iv) improving monitoring and data collection methods,

v) controlling project costs corresponding with the achievements,

Vl} ascertaining the strength and weakness of the project,

vii) sharing the experience and impact of the project, and

viii) comparing project activities with similar other projects.

4.5.3 Evaluation Indicators

Performance indicators are measures of inputs, processes, outputs, outcomes,
and impacts for development projects, programs or strategies. When supported
with sound data collection-perhaps involving formal surveys-analysis and reporting,
indicators enable managers to track progress, demonstrate results, and take
corrective action to improve service delivery. Participation of key stakeholders in
defining indicators is important because they are then more likely to understand
and use indicators for management decision-making. The common indicators in
watershed projects are as follows:

i) "Physical achievements,

ii) Socio economic,

ill) Efficiency, and

iv) Equity.

4.5.4 Evaluation Mechanism

Ministry of Rural Development, Gol undertakes concurrent evaluation, impact
assessment studies and quick evaluations from time-to-time, through reputed and
independent Research Institutions/Organizations. The main objectives of these
studies are to evaluate the performance of the Schemes at the field level, assess
the impact of the programmes and to identify the problems during course of
implementation so as to make mid-course corrective measures, wherever necessary.

Monitoring and Review

The Project Implementation Agency shall be responsible to submit progress reports
on each ofthe Watershed Development Projects once in every quarter to the ZP/
DRDA. Similarly, each Watershed Committee shall submit a quarterly report to
the ZPIDRDA after it is scrutinized and approved by the WDT. The formats for
these reports shall be developed on the basis of the success criteria given in the
Programme Guidelines. The format will be developed by the Ministry of Rural
Development to facilitate computerized reporting.

Monthly review meetings of the WDT, DRDNZP are conducted during 3rd and
l O" of every month, respectively. State level review may be held once in a
quarter. While the usual monitoring of the physical and fmancial progress of the
watershed projects could be done through the quarterly progress reports, the
main purpose of the monthly review meetings is to discuss and analyze the
14 performance including the reasons for success and difficulties in the implemen •..J,
of the projects with a view to replicating successes and overcome barriers to Monitoring and
effective implementation. Evaluation

Evaluation and Process Documentation: The Ministry of Rural Development

and the State Governments may appoint independent institutions organizations to
carry out concurrent as well as post-facto evaluations of the Watershed
Development Projects. The Success Criteria laid down in the programme guidelines
are the basis for such evaluations. At the same time, independent consultants may
be asked to undertake action research projects to document the actual process
of project implementation, in a representative sample, to analyse and assess the
implementation processes. The results of these evaluations and process
documentation should be submitted to the State Level Implementation and Review
Committee and the Central Government with suggestions on policy issues as well
as improvement of working procedures.
Evaluation needs to be conducted in accordance with the following
points:
i) Evaluating a project closely against its plan of work.
ii) Use as much the project's existing monitoring data as possible.
ill) Remain objectives rather then subjective.

iv) Make goodwill recommendations as well as constructive criticism.

v) Study the project documents and reports before visiting site.,
VI) Listen attentively to the project's report during briefmg.
vii) Interview individual staff with understandingan~ encouragement.
viii) Evaluate big picture of the project (performance, achievements, efficiency
and impact) rather than smaller items.
ix) Closely evaluate each of indicators.
x) If shortcomings are found, determine whether it was due to project
design flaws or implementation.
xi) Use cost benefit analysis to examine the economic efficiencies of project,
if necessary.
xii) Compare areas with or without project to evaluate impact and
sustainability of project.
xiii) Draw up reasonable and operable conclusions and recommendations.

Check Your Progress 3

Note: a) Use the space given below for your answers.
b) Check your answers with those given at the end of the unit.
1) What is evaluation and explain its two important objectives?
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15
Monitoring, Evaluation 2) List common indicators used for evaluation of watershed projects.
and Capacity Building

4.6 PROJECT EVALUATION TECHNIQUES

The important techniques used for the quantification and drawing inferences on
measurable projects objectives are discussed below:

4.6.1 Un-discounted Techniques

The un-discounting technique, the following are the important measure:
o Urgency
ii) Payback period
ill) Return per Rupee of Investment
iv) Average annual Return per Rupee of Investment

i) Urgency

According to this measure, projects which are deemed to be more urgent get
priority over project which are not regarded as urgent. The problem with this
criterion is, how can the degree of urgency be determined? In certain situation,
of course, it may not be difficult to identify highly urgent investment. In many
cases, however, it is difficulty to determine the relative degree of urgency because
of lack of an objective and qualifiable basis. Therefore, in general, this criterion
should not be used for investment making except under exceptional cases.

ii) Pay Back Period (PBP)

In any investment decision, the objective is to recover the initial cost of resources
invested as quickly as possible. If the time factor is an important consideration,
then the project which yields income in a shortest possible time should be preferred.
Payback period as an investment criterion would give a ranking of project on the
basis of how quickly investment cost can be recovered.

Suppose, we have four projects A, B, C and D, with pay back period and
ranking as under:

Project Pay Back Period in Years Rank

A 2.0 I

B 2.0 I

C 2.8 N

D 2.7 ill

The payback period ranking makes project A and B more acceptable as compared
16 to C and D.
Limitation Monitoring and
Evaluation
Investment decisions are not only based on the recovery of the initial investment
as quickly as possible but also on getting the maximum return on investment
though the project may be slow yielding.

iii) Return per Rupee of Investment

By choosing return per rupee of investment as an investment criterion, we have

shifted our emphasis from quick recovery of investment to return per unit of cost.
In the pay back period, we ignored the return of the project after the pay back
period. The method of calculating return per rupee of investment is given as under:

Project Capital Net Return Return per Rank

Investment Rupee of
Investment

A 20 20.00 1.00 N

B 20 20.97 1.05 ID

C 20 23.50 1.18 I

D 20 23.50 1.18 I

Based on this criterion project C and D occupy higher rank while B and A are
relegated to the background. Thus, the investment decision depends upon the
criterion applied.

Limitation

In this criterion, we ignore the accrual of return over a time period.

iv) Average Annual Return per Rupee of Investment

In this criterion net return first divided by the number of years to arrive at the
average return per year and then the average return per year is divided by the
original investment cost to find average annual return per rupee of investment. The
procedure is given as under:

Project Project Total Net Average Average Rank

Duration Cost Return Net Annual
(years)· Return Return per
Rupee of
Investment

A 2 20 20.00 10.0 0.50 I

B 3 20 20.97 6.99 0.35 N

C 3 20 23.50 7.83 0.39 IT

D 3 20 23.50 7.83 0.39 IT

Thus, by using this criterion, the Project A has put at top as by pay back period
criterion. This criterion has again ignored the length of time of the return stream
and has thus given preference implicitly to projects with higher return in a short
period. 17
Monitoring, Evaluation
Time Value of Money: In the cases discussed above, we have not taken into
and Capacity Building
account an important element i.e time value of money. In a project or between
two projects, inputs incurred and output realized may not have same time period.
We cannot compare such project and cost-benefits items simply as discussed in
the undiscounted measures.
We have to consider the stream of costs and benefits accruing over a period of
time of the same value to us, which is not the case in reality. Hence, the discounting
of costs and benefits occurring at different periods of time would alone make
comparisons of costs and benefits valid lp order to arrive at the correct investment
decision. Therefore, the last three criterion described earlier suffer from the limitation
of costs and benefits occurring at different period of time not being comparable.
In the place, first they should be reduced to a common time period, i.e. one
should compare costs and benefits on a uniform basis to arrive at investment
decision to utilize the resources more efficiently. .
4.6.2 Discounted Techniques
The technique of discounting permits us to determine whether to accept for
implementation projects that have variously shaped time streams i.e. patterns
of when costs and benefits fall during the life ofthe project that differ from one
another-and that are of different durations. The most common means of doing
this is to subtract year-by-year the costs from the benefits to arrive at the
incremental net benefit stream-the so-called cash flow and then to discount that.
This approach will give one of three discounted cash flow measures of project
worth: the net present worth, the internal rate of return, or the net benefit-investment
ratio. Another discounted measure of project worth is find the present worth of
the cost and benefit streams separately and then to divide the present worth of
the benefit streams by the present worth of the cost stream to obtain the benefit-
cost ratio. Because the benefit and cost streams are discounted, the benefit-cost
ratio is a discounted measure of project worth. But because the benefit and cost
streams are discounted separately rather than subtracted from one another year
by-year, the benefit-cost ratio is not a discounted cash flow technique.
The investment criteria based on the discounting techniques are given below:
~ Net Present Value (NPV)
ii) Benefit Cost Ratio (BCR)
ill) Internal Rate of Return (JRR)
iv) Social benefit-cost analysis below
i) Net Present Value
This is simply the present worth of the cash flow stream. Sometimes, it is referred
to as Net Present Value (NPV). NPV is helpful in working out benefit-cost ratio
of the project. Selection criterion of the projects depends upon the positive value
of the net present worth, when discounted at the opportunity cost ofthe capital
this could be satisfactorily done, provided there is a correct estimate of opportunity
cost of capital. NPV is an absolute measure, but not relative.

NPV of the project is estimated using the following equation:

. -- P, P, P,
NPV = + + ... + C
(1 +i)t, (1 +i)t, (1+ i)( .
18 -~
, Where, Monitoring and
Evaluation
Net cash flow in first year, second year, ..... nth year;

Time period in first year, second year, ..... nth year;

Discount rate; and

C Initial cost of the investment.

Projects with positive NPW are given weightage in the selection compared to
those with negative present values, while zero NPW makes the investor indifferent.

ii) Benefit-Cost Ratio

The benefit-cost ratio is derived by dividing the present value of benefit, by the
present value of cost. The ratio between the two would indicate benefit per rupee'
of cost.

Present value of benefit

Benefit cost ratio (BCR)
Present value of cost
n

L(=1
BCR
n

L(=1
The decision rules associated with the benefit cost ratio are:

a) In case of single project accept the project. If BCR is positive and reject
the project ifBCR is negative. In case benefit cost ratio is one it is a matter
of indifference.

b) In the case of more than one project, rank the projects in descending order
ofBCR. The number of projects to be chosen will depend upon the availability
of investment funds.

Limitations of BCR as Investment Criteria

• Choice of discount rate.

• BCR discriminates against projects with relatively high gross returns

and operational cost.

• Inclusion or exclusion of certain costs in the calculation of BCR.

While limitations second and third can be taken care of in arriving at an investment
decision, the first factor i.e. selection of proper discount rate is the main limitation
of this method. Which discount rate should be chosen and why remains the major
hurdle. While the market rate of interest, due to various market imperfections,
does not correctly reflect the time preference of society for present over the
future, the choice of social discount rate or opportunity cost of capital is very
difficult to derive. Based on the prevailing market rate of interest, the distribution
of income in the economy and the planner's preference for the present over the 19
Monitoring, Evaluation future, a social rate of discount is arrived at and the present value of cost and
and Capacity Building benefits are calculated to derive the benefit cost ratio.

In order to take care oflirnitation, another investment criterion which is considered

more scientific and which does not require the assumption of a discounting rate,
is the internal rate of return.

iii) Internal Rate of Return (IRR)

The internal rate of return of a project is the discount rate which makes present
value equal to zero or benefit cost ratio equal to one. Internal rate of return does
not depend on the externally given rate of discount. In fact, IRR itself is a
discount rate at which net present value (NPV) = 0 and BCR = 1. It represents
the average earning power of money used in the project, over the project life.

In the working procedure, an arbitrary discount rate is assumed and its

corresponding NPW is arrived at. The positive NPW value of the project
indicates that IRR is still higher and the next assumed arbitrary IRR value must
be comparatively higher than the initial level. This process is continued until NPW
becomes negative. Then by interpolation method the exact IRR is found out using
the following formula:

Present worth of the cash

Internal Lower Difference flow at the lower discount rate
rate of = discount + between the two
return rate discount rates Absolute difference between the
present worth of the cash flow
at the two discount rates

It is important to note that IRR at its own does not provide a criterion for
selection of projects. It needs some other variable, i.e. that market rate of interest
or the social rate of discount for comparison to arrive at the decision. IRR as
an investment criterion can be used as follows:

• Choose a single project if IRR (r/) is greater than market rate of interest ( rJ

• With more than one project, rank the project in a descending order of value
ofIRR and choose that set of projects for which r1 is greater than or equal
to r2 subject to available investment fund.

iv) Social Benefit-Cost Analysis (SCB)

For a private commercial entrepreneur project choice is a simple exercise. Ifhe

his own objectives, which seem to be a reasonable assumption, all he has to do
is to ascertain which project satisfy his objective best. In general, profit
maximization remains main objective of an entrepreneur. For a planner, the
picture is somewhat more complex. In choosing projects he has to ascertain
which ones best satisfy the interest and objectives of the nation. His personal
objectives are unimportant; he must choose the best thing for the society.

The reason for doing social benefit-cost analysis in the choice project is that the
choice of one project rather than another must be viewed in the context of their
total national impact, and this total impact has to be evaluated in terms of a set
of national objectives. When one project is chosen rather than another, the
choice has consequences for employment, output, consumption, savings, foreign
20
exchange earning, income distribution and other things of relevance to national Monitoring and
Evaluation
objectives. The purpose of social benefit-cost analysis is to see whether these
consequences taken together are desirable in the light of the objectives of national
planning.

The simplest possible full social benefit-cost analysis will put a social price on
everything (costs and benefits); subtract the cost from benefit, add up for each
year, thus reaching a net social profit or loss for that year; and discount these total
by the average rate of interest to give the present social value.

4.7 IMPACT ASSESSMENT

Impact assessment is the systematic identification of the effects - positive or
negative, intended or not - on individual households, institutions, and the
environment caused by a given development activity such as a program or project.
It helps us better understand the extent to which activities reach the poor and the
magnitude of their effects on people's welfare. Impact assessments can range
from large scale sample surveys in which project population and control groups
are compared before and after, and possibly at several points during program
intervention; to small-scale rapid assessment and participatory appraisals where
estimates of impacts are obtained from combining group interviews, key informants,
case studies and secondary data. .

What can we use it for?

• Measuring outcomes and impacts of an activity and distinguishing these from

the influence of other, external factors.

• Helping to clarify whether costs for an activity are justified.

• Informing decisions on whether to expand, modify or eliminate projects,

programs or policies.
,
• Drawing lessons for improving the design of future activities.

• Comparing the effectiveness of alternative interventions.

• Strengthening accountability for results.

Advantages and limitations

It provides estimates of the magnitude of outcomes and impacts for different

demographic groups, regions or over time and provides answers to some of the
most central development questions - to what extent are we making a difference?
What are the results on the ground? How can we do better? Systematic analysis
and rigor can give managers and policy-makers added confidence in decision-
making. However, some impact assessment approaches are very expensive and
time-consuming. It also reduces utility when decision-makers need information
quickly. Further, it is always difficult to identify an appropriate counter-factual.

4.7.1 Types of Impact Assessment

Policy impact assessment is only one type of impact assessment and the other
kinds of impact assessment include:
21
Monitoring, Evaluation • Environmental impact assessment
and Capacity Building
• Social impact assessment

• Health impact assessment

• Integrated impact assessment

Environmental and social impact assessments are the specific contexts within
which the impact assessment takes place. Social impact assessment prospectively
assesses the potential social impacts of a specific policy or program initiative. For
example, the Health Ministry is often asked to report on the social impacts of the
introduction of a new health scheme under National Health Mission within a given
area. The impacts addressed in an environmental impact assessment are wide
ranging. For example, an environmental impact assessment of a major development
project will look at the impact(s) on the socio-economic environment, human
health, aboriginal archaeology, non-indigenous heritage, noise and vibration, air
quality, greenhouse gas emissions, transport and recreation and amenity with the
intent of assessing the overall impact on the environment.

Check Your Progress 4

Note: a) Use the space given below for your answers.
b) Check your answers with those given at the end of the unit.

1) What do you understand by NPV?

2) What are the limitations ofBCR?

4.8 LET US SUM UP

• Monitoring and evaluation is a regular, systematic collection and analysis of
information to track the progress of project implementation. It offers an
exciting opportunity to prove the impact ofthe watershed project. Monitoring
is not limited only to the supervision of the project activities, but also it is the
process of complete evaluation of the project required for mid-term
correction/modification/closing down the existing one and starting a new
project.

• The key indicators for the watershed project are physical outputs, land use
changes, erosion, sedimentation, water quality, and runoff, farm income,
production, and land productivity and sustainability and development.
22
• Monitoring has direct bearing on improving the delivery system and also Monitoring and
efficiency and efficacy of public spending. Monitoring of watershed Evaluation
programmes is done at various levels viz. central, state, district and PIA.

• For effecting monitoring of the watershed programmes, the monitoring tools

include Watershed Programmes Monitoring Information System,
supplementary observation mechanism and quarterly progress report based
monitoring.

• Evaluation takes an objective look at what you've been doing and identifies
the reasons for both success and failure, and how your future work can learn
from both. It is normally carried out at the end ofthe project. Evaluation is
generally applied at a project's mid-term and at its end. It also helps in
further refining the project/programme components.

• Performance indicators are measures of inputs, processes, outputs, outcomes,

and impacts for development projects, programs, or strategies. When
supported with sound data collection-perhapsinvolving formal surveys-analysis
and reporting, indicators enable managers to track progress, demonstrate
results, and take corrective action to improve service delivery. Ministry of
Rural Development, GoI undertakes undertake concurrent evaluation, impact
assessment studies and quick evaluations from time-to-time, through reputed
and independent Research Institutions/Organizations.

• Project Evaluation Techniques include un-discounting and discounting

techniques. The un-discounting technique includes Urgency, Payback period,
Return per Rupee of Investment and Average Annual Return per Rupee of
Investment. The discounting technique includes Net Present Value (NPV),
Benefit Cost Ratio (BCR), Internal Rate ofRetum (IRR), Social benefit-cost
analysis.

4.9 KEYWORDS
Benefit-Cost Ratio It is defined as the ratio of the present value of
benefit to the present value of cost.

Concurrent Evaluation: It is done during the execution stage of the project

and is meant to identify and analyze any pitfalls in
the execution of the project.

Impact It deals with effects of the project operation and

socio-econornic development in the form of changes
in the livelihood and nutritional security of the
watershed beneficiaries.

Implementation It relates to the several activities performed regularly

as well as occasionally that are essential for the
proper functioning of a project.

Payback Period It refers to the period of time required to recover

the cost of an investment.

Performance It relates to the level of achievements of the project

targets such as area treated, peoples groups
mobilized, area increased under net cropped and
gross cropped etc. 23
Monitoring, Evaluation
and Capacity Building 4.10 SUGGESTED READINGS
Anonymous. (1970). Guidelines for Project Evaluation. A United Nations
Publication.

Edgar Hernandez Becerra, Ignacio Velez. (1995). Monitoring and Evaluation

of Watershed Management Project Achievements. FAO Conservation Guide
24. Food and Agricultural Organization, Rome. pp. 32-35.

Jha, D.,Kumar P., Mruthyunjaya, S. Pal, S. Selvarajan and A. Singh (1995).

Research Priorities in Indian Agriculture, NCAP Policy Paper 3, National
Centre for Agricultural Economics and Policy Research, New Delhi, pp.ix+84

Little, LM.D. and Mirrlees, J.A. (1978). Project Appraisal and Planning for
Developing Countries. Oxford & IBH Publishing Co. New Delhi.

Roche, C. (1999). Impact Assessment for Development Agencies: Learning

to Value Change. Oxfam, Oxford.

Singh, 1.1.,Rai, K.N. and Singh, S.P. (1998). Course Manualfor Short Training
Course on Monitoring and Evaluation of Project. Academy of Agricultural
Research & Management, CCS HAU, Hisar, (Haryana).

Weiss, Carol H. (1998). Evaluation. Prentice Hall, New Jersey, Second Edition.

World Bank (2004). Some Tools, Methods and Approaches: Monitoring and
Evaluation, The World Bank, Washington, D.C. website: www.worldbank.org

4.11 MODEL ANSWERS TO CHECK YOUR

PROGRESS
Check Your Progress 1

1)' Monitoring is a continuous and periodic review and the surveillance by the
management at different levels of the implementation of an activity to ensure •
thatthe deliveries, work schedules, targeted output and other required actions
are being carried out as per the plan.
Monitoring is the second most important aspect after planning for the successful
implementation of watershed programmes. During the process of monitoring,
identify the shortfalls, deviations, problems as well as the lessons for improving
future project design and performance.

2) Key indicators for the watershed project are as follows:

• Physical outputs

• Land use changes

• Erosion, sedimentation, water quality and runoff

• Farm income, production and land productivity

• Sustainability and development

Check Your Progress 2

1) WPMIS is a web based application which can be accessed by the URL
24 http://wpmis.nic.in. The aim ofWPMIS is to collect and compile the project-
 details and Quarterly Progress Reports related to all the watershed projects Monitoring and
sanctioned by the Department of Land Resources (DoLR) under all the three Evaluation
area development programmes namely Integrated Wasteland Development
Program (IWDP), Drought Prone Areas Program (DPAP) & Dessert
Development Program (DDP).
2) Various levels of monitoring are as under:
i) Central Level
ii) State level
ill) District level
iv) PIA level
Check Your Progress 3
1) Evaluation can be defined as "a periodical study to measure, establish and
analyse the realisation of objectives as well as the process leading up to their
realisation, aimed at determining, inter alia, a project's effectiveness, efficiency,
policy and/or significance, and at improving intervention processes".
Two objectives of evaluation are to:
i) learn from experience in order to enable the realization of qualitative
improvement and greater effectiveness in future, and
ii) render accountability to donors, with a view to the assessment and
approval of new project proposals.
2) Following are the common indicatorsused for evaluation of watershed projects:
~ Physical achievements
ii) Socio economic
ill) Efficiency
iv) Equity
Check Your Progress 4
1) It is referred to as Net Present Value (NPV'). NPV is helpful in working out
benefit-cost ratio ofthe project. Selection criterion of the projects depends
upon the positive value of the net present worth, when discounted at the
opportunity cost of the capital this could be satisfactorily done, provided
there is a correct estimate of opportunity cost of capital. NPV is an absolute
measure, but not relative.
NPV of the project is estimated using the following equation:
Pn
NPV= + + ... + ----c
(1+ i) tn
Where,

Net cash flow in first.year, second year, ... nth year;

Time period in first year, second year, ... nth year;

Discount rate; and

c = Initial cost of the investment. 25

Monitoring, Evaluation Projects with positive NPV are given weightage in the selection compared
and Capacity Building to those with negative present values, while zero NPV makes the investor
indifferent.

2) Main limitation ofBCR are as follows:

• Choice of discount rate.

• BCR discriminates against projects with relatively high gross returns

and operational cost.

• Inclusion or exclusion of certain costs in the calculation of BCR.

26