19.6 Allocation Mechanisms Commonly Used
19.6.1 Introduction
The three commonly used cost attribution mechanisms are explained here:
(1) the separable cost-remaining benefits method (SCRB),
(2) the alternative justifiable expenditure method (AJE), and
(3) the use-of-facilities (UoF) method.
As each methodology has different data requirements and assumes underlying
factors for determining the allocation, the method which is finally chosen will
depend on the data available.
If the beneficiaries are in different countries or political entities, the attribution of
costs of transboundary infrastructure facilities is often based on the quantum of
services (e.g. water) benefiting each political entity. With this configuration, the UoF
approach becomes the most appropriate. When the beneficiaries of the infrastructure
(e.g. water) system belong to the same country and it is important that the infrastructure services are used beneficially, the cost allocation is usually established on
the benefits expected. With this configuration, the SCRB approach or a variation,
such as the AJE method is advocated.
The SCRB method specifically requires the benefits for each purpose/function
served to be determined. The AJE method is, in fact, the SCRB method suitably
modified, to consider the inability to determine imputed separable costs. In contrast,
the UoF approach assumes that the degree of use of the facilities represents a sensible
proxy for benefits expected.
19.6.2 The SCRB Method
The Separable-Cost Remaining-Benefits (SCRB) approach is based on the benefits
obtained by each party and should result in a fair sharing of costs. The SCRB method
systematically provides an approach based on benefits, when allocating joint costs,
and can, if needed, be amended with add-ons to a multipurpose project. There are
two main steps in the SCRB approach: (a) separation of costs and (b) distribution of
costs. The process is shown in Fig. 19.1.
The separation of costs allows determining the joint costs that need to be
distributed among all beneficiaries. It is necessary to compute the separable cost
for each purpose/function (X), which represents the multi-purpose project cost
minus the project cost with the purpose (X) omitted. This is, therefore, the minimum payment for user (X) when it benefits from the multi-purpose project. In
particular, separating costs involve the following steps:
1. Calculate the total project cost (which is obtained from the financial analysis).
2. Determine the project cost when each user is excluded. This is carried out by
removing each user (X) from the project, in turn, and computing the project cost
without any benefits accruing to user (X).
19.6 Allocation Mechanisms Commonly Used
551
19.6.1 Introduction
The three commonly used cost attribution mechanisms are explained here:
(1) the separable cost-remaining benefits method (SCRB),
(2) the alternative justifiable expenditure method (AJE), and
(3) the use-of-facilities (UoF) method.
As each methodology has different data requirements and assumes underlying
factors for determining the allocation, the method which is finally chosen will
depend on the data available.
If the beneficiaries are in different countries or political entities, the attribution of
costs of transboundary infrastructure facilities is often based on the quantum of
services (e.g. water) benefiting each political entity. With this configuration, the UoF
approach becomes the most appropriate. When the beneficiaries of the infrastructure
(e.g. water) system belong to the same country and it is important that the infrastructure services are used beneficially, the cost allocation is usually established on
the benefits expected. With this configuration, the SCRB approach or a variation,
such as the AJE method is advocated.
The SCRB method specifically requires the benefits for each purpose/function
served to be determined. The AJE method is, in fact, the SCRB method suitably
modified, to consider the inability to determine imputed separable costs. In contrast,
the UoF approach assumes that the degree of use of the facilities represents a sensible
proxy for benefits expected.
19.6.2 The SCRB Method
The Separable-Cost Remaining-Benefits (SCRB) approach is based on the benefits
obtained by each party and should result in a fair sharing of costs. The SCRB method
systematically provides an approach based on benefits, when allocating joint costs,
and can, if needed, be amended with add-ons to a multipurpose project. There are
two main steps in the SCRB approach: (a) separation of costs and (b) distribution of
costs. The process is shown in Fig. 19.1.
The separation of costs allows determining the joint costs that need to be
distributed among all beneficiaries. It is necessary to compute the separable cost
for each purpose/function (X), which represents the multi-purpose project cost
minus the project cost with the purpose (X) omitted. This is, therefore, the minimum payment for user (X) when it benefits from the multi-purpose project. In
particular, separating costs involve the following steps:
1. Calculate the total project cost (which is obtained from the financial analysis).
2. Determine the project cost when each user is excluded. This is carried out by
removing each user (X) from the project, in turn, and computing the project cost
without any benefits accruing to user (X).
19.6 Allocation Mechanisms Commonly Used
551