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	Table of Contents
p. 68 of 203 BACK | NEXT Foreword 1. Introduction to the Guidelines 2. User Instructions 3. Preparing and Appraising Investment Project 4. Financial Management of Executing Agencies 4.1. Financial Management Overview 4.2. Institutions and Systems 4.3. Financial Analysis 4.3.1. Introduction to Financial Analysis 4.3.2. Financial Analysis Objectives 4.3.3. Linkages with Cost Recovery and Tariffs 4.3.4. Preparing Financial Tables 4.3.5. Determining Fiscal Period Coverage 4.3.6. Forecasting and Financial Projections 4.3.7. Forecasting Assumptions 4.4. Measuring Performance 5. Reporting and Auditing 6. Financial Institutions 7. Knowledge Management

Financial Management and Analysis of Projects : 4. Financial Management of Executing Agencies : 4.3. Financial Analysis

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4.3.7. Forecasting Assumptions

4.3.7.1. Financial forecasting requires analysts to make assumptions, even though as many factors as possible in an analysis should be based on researched and actual empirical performance data.

4.3.7.2. A new project will require assumptions to be made by its designers and by the analyst regarding input costs, quality and quantities for both investment purposes and for operations and maintenance. Therefore it is essential that the analyst should list all assumptions, and the base date of the data, used in compiling the analysis in an Appendix to the RRP, as well as in the Project File.

4.3.7.3. The basis for assumptions should also be indicated, and in cases where an assumption is critical, and possibly contentious in nature, the grounds or basis for its adoption must be stated in the RRP text. An efficient management of an EA should be continuously monitoring costs and prices. Therefore, to be assured that this takes place, the financial analyst should request the EA to provide an annual review, as a contribution to project supervision, of the validity of key (critical) assumptions used (e.g., inflation rate, forecast costs of principal imports-like petroleum products, cement).

4.3.7.4. The listed assumptions in an RRP appendix and Project File should be used as a key supervision tool, by requiring the EA, as part of the financial reporting requirements to provide annual updates of specific (critical) assumptions requested by the financial analyst. By this means the financial analyst can maintain a continuous review of the factors on which the financial projections were based, and obtain early warning signals of potential deviations from the forecasts.

4.3.7.5. In the event that the borrower or EA is unable to provide the necessary data for updating, the analyst is responsible during supervision for obtaining the requisite data and preparing an annual revision to the Assumptions Appendix of the RRP.

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