Submit Search
Upload
Benefit-Cost Analysis for Evaluating Public Projects
•
Download as PPT, PDF
•
0 likes
•
6 views
AI-enhanced title
S
ssuser13b9f8
Follow
Engineering Economics
Read less
Read more
Engineering
Report
Share
Report
Share
1 of 18
Download now
Recommended
3.-Benefit-Cost-Analysis.pdf
3.-Benefit-Cost-Analysis.pdf
18010YeashRahman
Chapter-9-BC-ratio.pdf
Chapter-9-BC-ratio.pdf
MaheshBika
Lo4a benefit cost analysis (nabil)
Lo4a benefit cost analysis (nabil)
Abdulaziz AlSuwaidi
Chapter 9 benefit & cost analysis
Chapter 9 benefit & cost analysis
Bich Lien Pham
Chapter 9 benefit & cost analysis
Chapter 9 benefit & cost analysis
Bich Lien Pham
Vincent 3
Vincent 3
Chibueze C. Vincent
Chapter 3
Chapter 3
Chibueze C. Vincent
Ch9-Lecture 2018 (2).ppt
Ch9-Lecture 2018 (2).ppt
4723bilal
Recommended
3.-Benefit-Cost-Analysis.pdf
3.-Benefit-Cost-Analysis.pdf
18010YeashRahman
Chapter-9-BC-ratio.pdf
Chapter-9-BC-ratio.pdf
MaheshBika
Lo4a benefit cost analysis (nabil)
Lo4a benefit cost analysis (nabil)
Abdulaziz AlSuwaidi
Chapter 9 benefit & cost analysis
Chapter 9 benefit & cost analysis
Bich Lien Pham
Chapter 9 benefit & cost analysis
Chapter 9 benefit & cost analysis
Bich Lien Pham
Vincent 3
Vincent 3
Chibueze C. Vincent
Chapter 3
Chapter 3
Chibueze C. Vincent
Ch9-Lecture 2018 (2).ppt
Ch9-Lecture 2018 (2).ppt
4723bilal
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Global Infrastructure Basel Foundation
Public projects evaluation cba analysis
Public projects evaluation cba analysis
GIACR Engg. College, Rayagada
COST-BENEFIT ANALYSIS (2010)-1.ppt
COST-BENEFIT ANALYSIS (2010)-1.ppt
NamanyaBetrum1
8 150316005531-conversion-gate01
8 150316005531-conversion-gate01
abidiqbal55
8. Rate of return analysis
8. Rate of return analysis
Mohsin Siddique
Kuliah minggu 7 bca
Kuliah minggu 7 bca
Dell Cekidelldell
SCB analysis.pptx
SCB analysis.pptx
Oeli3
Lecture 11 benefit cost analysis
Lecture 11 benefit cost analysis
yogeshbhusal
Chapter_11.ppt
Chapter_11.ppt
ImamWahyudi387644
Project evaluation and cost benefit analysis
Project evaluation and cost benefit analysis
MAHONDO JAMES
Nce603 mod unit3
Nce603 mod unit3
MODASSAR ANSARI
3. eng. cost and estimation
3. eng. cost and estimation
Mohsin Siddique
3 150316005311-conversion-gate01
3 150316005311-conversion-gate01
abidiqbal55
Development project appraisal and sd(L6)1
Development project appraisal and sd(L6)1
Farha Sharmin
Cafe Swot Analysis
Cafe Swot Analysis
Carla Jardine
costbenefitanalysis-201224093003 (1).pptx
costbenefitanalysis-201224093003 (1).pptx
shafina27
9. benefit cost analysis
9. benefit cost analysis
Mohsin Siddique
9 150316005537-conversion-gate01
9 150316005537-conversion-gate01
abidiqbal55
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
lesleyryder69361
Chapter 15 cost estimation
Chapter 15 cost estimation
Bich Lien Pham
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
RajaP95
Artificial-Intelligence-in-Electronics (K).pptx
Artificial-Intelligence-in-Electronics (K).pptx
britheesh05
More Related Content
Similar to Benefit-Cost Analysis for Evaluating Public Projects
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Global Infrastructure Basel Foundation
Public projects evaluation cba analysis
Public projects evaluation cba analysis
GIACR Engg. College, Rayagada
COST-BENEFIT ANALYSIS (2010)-1.ppt
COST-BENEFIT ANALYSIS (2010)-1.ppt
NamanyaBetrum1
8 150316005531-conversion-gate01
8 150316005531-conversion-gate01
abidiqbal55
8. Rate of return analysis
8. Rate of return analysis
Mohsin Siddique
Kuliah minggu 7 bca
Kuliah minggu 7 bca
Dell Cekidelldell
SCB analysis.pptx
SCB analysis.pptx
Oeli3
Lecture 11 benefit cost analysis
Lecture 11 benefit cost analysis
yogeshbhusal
Chapter_11.ppt
Chapter_11.ppt
ImamWahyudi387644
Project evaluation and cost benefit analysis
Project evaluation and cost benefit analysis
MAHONDO JAMES
Nce603 mod unit3
Nce603 mod unit3
MODASSAR ANSARI
3. eng. cost and estimation
3. eng. cost and estimation
Mohsin Siddique
3 150316005311-conversion-gate01
3 150316005311-conversion-gate01
abidiqbal55
Development project appraisal and sd(L6)1
Development project appraisal and sd(L6)1
Farha Sharmin
Cafe Swot Analysis
Cafe Swot Analysis
Carla Jardine
costbenefitanalysis-201224093003 (1).pptx
costbenefitanalysis-201224093003 (1).pptx
shafina27
9. benefit cost analysis
9. benefit cost analysis
Mohsin Siddique
9 150316005537-conversion-gate01
9 150316005537-conversion-gate01
abidiqbal55
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
lesleyryder69361
Chapter 15 cost estimation
Chapter 15 cost estimation
Bich Lien Pham
Similar to Benefit-Cost Analysis for Evaluating Public Projects
(20)
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Harvard Busniess School - Financing Infrastructure Projects in Cities by Prof...
Public projects evaluation cba analysis
Public projects evaluation cba analysis
COST-BENEFIT ANALYSIS (2010)-1.ppt
COST-BENEFIT ANALYSIS (2010)-1.ppt
8 150316005531-conversion-gate01
8 150316005531-conversion-gate01
8. Rate of return analysis
8. Rate of return analysis
Kuliah minggu 7 bca
Kuliah minggu 7 bca
SCB analysis.pptx
SCB analysis.pptx
Lecture 11 benefit cost analysis
Lecture 11 benefit cost analysis
Chapter_11.ppt
Chapter_11.ppt
Project evaluation and cost benefit analysis
Project evaluation and cost benefit analysis
Nce603 mod unit3
Nce603 mod unit3
3. eng. cost and estimation
3. eng. cost and estimation
3 150316005311-conversion-gate01
3 150316005311-conversion-gate01
Development project appraisal and sd(L6)1
Development project appraisal and sd(L6)1
Cafe Swot Analysis
Cafe Swot Analysis
costbenefitanalysis-201224093003 (1).pptx
costbenefitanalysis-201224093003 (1).pptx
9. benefit cost analysis
9. benefit cost analysis
9 150316005537-conversion-gate01
9 150316005537-conversion-gate01
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
Sheet4Assignment 1 LASA # 2—Capital Budgeting TechniquesSheet1So.docx
Chapter 15 cost estimation
Chapter 15 cost estimation
Recently uploaded
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
RajaP95
Artificial-Intelligence-in-Electronics (K).pptx
Artificial-Intelligence-in-Electronics (K).pptx
britheesh05
Sachpazis Costas: Geotechnical Engineering: A student's Perspective Introduction
Sachpazis Costas: Geotechnical Engineering: A student's Perspective Introduction
Dr.Costas Sachpazis
Study on Air-Water & Water-Water Heat Exchange in a Finned Tube Exchanger
Study on Air-Water & Water-Water Heat Exchange in a Finned Tube Exchanger
Anamika Sarkar
★ CALL US 9953330565 ( HOT Young Call Girls In Badarpur delhi NCR
★ CALL US 9953330565 ( HOT Young Call Girls In Badarpur delhi NCR
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Biology for Computer Engineers Course Handout.pptx
Biology for Computer Engineers Course Handout.pptx
DeepakSakkari2
Introduction-To-Agricultural-Surveillance-Rover.pptx
Introduction-To-Agricultural-Surveillance-Rover.pptx
k795866
VICTOR MAESTRE RAMIREZ - Planetary Defender on NASA's Double Asteroid Redirec...
VICTOR MAESTRE RAMIREZ - Planetary Defender on NASA's Double Asteroid Redirec...
VICTOR MAESTRE RAMIREZ
Decoding Kotlin - Your guide to solving the mysterious in Kotlin.pptx
Decoding Kotlin - Your guide to solving the mysterious in Kotlin.pptx
João Esperancinha
Microscopic Analysis of Ceramic Materials.pptx
Microscopic Analysis of Ceramic Materials.pptx
purnimasatapathy1234
Software and Systems Engineering Standards: Verification and Validation of Sy...
Software and Systems Engineering Standards: Verification and Validation of Sy...
VICTOR MAESTRE RAMIREZ
INFLUENCE OF NANOSILICA ON THE PROPERTIES OF CONCRETE
INFLUENCE OF NANOSILICA ON THE PROPERTIES OF CONCRETE
roselinkalist12
Design and analysis of solar grass cutter.pdf
Design and analysis of solar grass cutter.pdf
Tagore Institute of Engineering And Technology
IVE Industry Focused Event - Defence Sector 2024
IVE Industry Focused Event - Defence Sector 2024
Mark Billinghurst
CCS355 Neural Network & Deep Learning Unit II Notes with Question bank .pdf
CCS355 Neural Network & Deep Learning Unit II Notes with Question bank .pdf
Asst.prof M.Gokilavani
young call girls in Green Park🔝 9953056974 🔝 escort Service
young call girls in Green Park🔝 9953056974 🔝 escort Service
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Oxy acetylene welding presentation note.
Oxy acetylene welding presentation note.
eptoze12
VIP Call Girls Service Hitech City Hyderabad Call +91-8250192130
VIP Call Girls Service Hitech City Hyderabad Call +91-8250192130
Suhani Kapoor
Call Us ≽ 8377877756 ≼ Call Girls In Shastri Nagar (Delhi)
Call Us ≽ 8377877756 ≼ Call Girls In Shastri Nagar (Delhi)
dollysharma2066
Application of Residue Theorem to evaluate real integrations.pptx
Application of Residue Theorem to evaluate real integrations.pptx
959SahilShah
Recently uploaded
(20)
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
HARMONY IN THE NATURE AND EXISTENCE - Unit-IV
Artificial-Intelligence-in-Electronics (K).pptx
Artificial-Intelligence-in-Electronics (K).pptx
Sachpazis Costas: Geotechnical Engineering: A student's Perspective Introduction
Sachpazis Costas: Geotechnical Engineering: A student's Perspective Introduction
Study on Air-Water & Water-Water Heat Exchange in a Finned Tube Exchanger
Study on Air-Water & Water-Water Heat Exchange in a Finned Tube Exchanger
★ CALL US 9953330565 ( HOT Young Call Girls In Badarpur delhi NCR
★ CALL US 9953330565 ( HOT Young Call Girls In Badarpur delhi NCR
Biology for Computer Engineers Course Handout.pptx
Biology for Computer Engineers Course Handout.pptx
Introduction-To-Agricultural-Surveillance-Rover.pptx
Introduction-To-Agricultural-Surveillance-Rover.pptx
VICTOR MAESTRE RAMIREZ - Planetary Defender on NASA's Double Asteroid Redirec...
VICTOR MAESTRE RAMIREZ - Planetary Defender on NASA's Double Asteroid Redirec...
Decoding Kotlin - Your guide to solving the mysterious in Kotlin.pptx
Decoding Kotlin - Your guide to solving the mysterious in Kotlin.pptx
Microscopic Analysis of Ceramic Materials.pptx
Microscopic Analysis of Ceramic Materials.pptx
Software and Systems Engineering Standards: Verification and Validation of Sy...
Software and Systems Engineering Standards: Verification and Validation of Sy...
INFLUENCE OF NANOSILICA ON THE PROPERTIES OF CONCRETE
INFLUENCE OF NANOSILICA ON THE PROPERTIES OF CONCRETE
Design and analysis of solar grass cutter.pdf
Design and analysis of solar grass cutter.pdf
IVE Industry Focused Event - Defence Sector 2024
IVE Industry Focused Event - Defence Sector 2024
CCS355 Neural Network & Deep Learning Unit II Notes with Question bank .pdf
CCS355 Neural Network & Deep Learning Unit II Notes with Question bank .pdf
young call girls in Green Park🔝 9953056974 🔝 escort Service
young call girls in Green Park🔝 9953056974 🔝 escort Service
Oxy acetylene welding presentation note.
Oxy acetylene welding presentation note.
VIP Call Girls Service Hitech City Hyderabad Call +91-8250192130
VIP Call Girls Service Hitech City Hyderabad Call +91-8250192130
Call Us ≽ 8377877756 ≼ Call Girls In Shastri Nagar (Delhi)
Call Us ≽ 8377877756 ≼ Call Girls In Shastri Nagar (Delhi)
Application of Residue Theorem to evaluate real integrations.pptx
Application of Residue Theorem to evaluate real integrations.pptx
Benefit-Cost Analysis for Evaluating Public Projects
1.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-1 Economic Analysis in the Public Sector and Benefit-Cost Ratios
2.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-2 Benefit-Cost Analysis Benefit-cost analysis is commonly used to evaluate public projects. Benefits of a nonmonetary nature need to be quantified in dollar terms as much as possible and factored into the analysis.
3.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-3 Framework of Benefit-Cost Analysis 1) Identify all users’ benefits expected to arise from the project. 2) Quantify these benefits in dollar terms as much as possible, so that different benefits may be compared against one another and against the costs of attaining them. 3) Identify sponsors’ costs. 4) Quantify these costs in dollar terms as much as possible, to allow comparisons. 5) Determine the equivalent benefits and costs during the base period; use an interest rate appropriate for the project. 6) Accept the project if the equivalent users’ benefits exceed the equivalent sponsor’s costs.
4.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-4 Valuation of Benefits and Costs Users’ Benefits: Identify all project benefits (favourable outcomes) and disbenefits (unfavourable outcomes) to the user. We should also consider the indirect consequences resulting from the project—the so-called secondary effects. We define the users’ benefits as follows: Users’ benefits (B) = Benefits – Disbenefits Sponsor’s Costs: Identify and classify the expenditures required and any savings (or revenues) to be realized by the sponsor. Calculate the sponsor’s costs by combining these cost elements: Sponsor’s cost = Capital cost + Operating and maintenance costs - Revenues
5.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-5 Valuation of Benefits and Costs Social Discount Rate: Two views of the basis for determining the social discount rate prevail: 1. Projects without private counterparts. The social discount rate should reflect only the prevailing government borrowing rate. 2. Projects with private counterparts. The social discount rate should represent the rate that could have been earned had the funds not been removed from the private sector.
6.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-6 Quantifying Benefits and Costs We can illustrate the process of quantifying the benefits and costs associated with provincial inspection systems for motor vehicles. Users’ Benefits Primary benefits. Deaths and injuries related to motor-vehicle accidents impose financial costs on individuals and society. Preventing such costs through the inspection program has the following primary benefits: 1. Retention of contributions to society that might be lost due to an individual’s death. 2. Retention of productivity that might be lost while an individual recuperates from an accident. 3. Savings of medical, legal, and insurance services. 4. Savings on property replacement or repair costs.
7.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-7 Quantifying Benefits and Costs Users’ Benefits Secondary benefits. Some secondary benefits are not measurable (e.g., the avoidance of pain and suffering); others can be quantified. Both types of benefits should be considered. A list of secondary benefits is as follows: 1. Savings of income of families and friends of accident victims who might otherwise be tending to the victims. 2. Avoidance of air and noise pollution and savings on fuel costs. 3. Savings on enforcement and administrative costs related to the investigation of accidents. 4. Avoidance of pain and suffering.
8.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-8 Quantifying Benefits and Costs Users’ Disbenefits 1. Cost of spending time to have a vehicle inspected (including travel time), as opposed to devoting that time to an alternative endeavour (opportunity cost). 2. Cost of inspection fees. 3. Cost of repairs that would not have been made if the inspection had not been performed. 4. Value of time expended in repairing the vehicle (including travel time). 5. Cost in time and direct payment for reinspection. Sponsor’s Costs 1. Capital investments in inspection facilities. 2. Operating and maintenance costs associated with inspection facilities. (These include all direct and indirect labour, personnel, and administrative costs.) Sponsor’s Revenues or Savings 1. Inspection fee
9.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-9 Definition of Benefit–Cost Ratio Let B and C be the present values of benefits and costs defined respectively by 0 0 (1 ) (1 ) N n n n N n n n B b i C c i bn=Benefit at the end of period n, cn=Expense at the end of period n, An= bn – cn N = Project life i =Sponsor’s interest rate (discount rate) 0 n b 0 n c
10.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-10 0 1 (1 ) ' (1 ) The / ratio is defined as ( ) , ' 0 ' K n n n N n n n K I c i C c i B C B B BC i I C C I C Equivalent capital investment at n = 0 Equivalent O&M costs at n = 0 Sponsor’s Cost
11.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-11 Example 1: Benefit–Cost Ratio A public project being considered by a local government has the following estimated benefit–cost profile: Assume that i = 10%, N = 5, and K = 1. Compute B, C, I, C’, and BC(10%).
12.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-12 Example 1: Solution = $20( / , 10%, 2) + $30( / , 1%, 3) +$30( / , 10%, 4) + $20( / , 10%, 5) = $71.98 = $10 + $10( / , 10%, 1) + $5( / , 10%, 2) + $5( / , 10%, 3) + $8( / , 10%, 4)+ $8( / , 10%, 5) =$37.41 = $10 + $10( B P F P F P F P F C P F P F P F P F P F I P / , 10%, 1) = $19.09 ’ = – = $18.3 71.98 10% 1.92 1, Accept the project. $19.09 $18.32 F C C I BC
13.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-13 Incremental Analysis Based on BC(i) 1. If one or more alternatives have B/C ratios greater than unity, eliminate any alternatives with a B/C ratio less than unity. 2. Arrange the remaining alternatives in increasing order of the denominator (I + C’). the alternative with the smallest denominator should be the first (j), the alternative with the second smallest denominator should be second (k), and so forth. 3. Compute the incremental differences for each term (B, I, and C’) for the paired alternatives ( j, k) in the list: ' ' ' k j k J k j B B B I I I C C C
14.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-14 Incremental Analysis Based on BC(i) (continued) 4. Compute the BC(i) on incremental investment by evaluating If BC(i)k-j > 1, select alternative k. 5. Compare the alternative selected with the next one on the list by computing the incremental benefit–cost ratio. Continue the process until you reach the bottom of the list. The alternative selected during the last pairing is the best one. 6. If ΔI + ΔC’ = 0, we cannot use the benefit-cost ratio. When this happens, just select the project with the largest B value. 7. In situations where public projects with unequal service lives are to be compared, compute all component values (B, I, and C’) on an annual basis. ( ) ' k j B BC i I C
15.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-15 Example 2: Incremental Benefit-Cost Ratios Consider three investment projects: A1, A2, and A3. Each project has the same service life, and the present worth of each component value (B, I, and C’) is computed at 10% as follows: a) If all three projects are independent, which would be selected on the basis of BC(i)? b) If the three projects are mutually exclusive, which would be the best alternative? A1 A2 A3 I $5,000 $20,000 $14,000 B 12,000 35,000 21,000 C’ 4,000 8,000 1,000 PW(i) $3,000 $7,000 $6,000
16.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-16 Example 2: Solution (a) Since PW(i)1 , PW(i)2, and PW(i)3 are positive, all of the projects are acceptable if they are independent. Also, the BC(i) values for each project are greater than unity, so the use of the benefit–cost ratio criterion leads to the same accept/reject conclusion as does the NPW criterion: A1 A2 A3 BC(i) 1.33 1.25 1.40
17.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-17 Example 2: Solution (b) Arrange the projects in increasing order of their denominators (I + C’) for the BC(i) criterion Ranking Base A1 A3 A2 I +C’ $9,000 $15,000 $28,000 2 3 $35,000 $21 ,000 ( ) ($20,000 $14,000) ($8,000 $1 ,000) 1.08 1 , select A2. BC i 3 1 $21 ,000 $12,000 ( ) ($14,000 $5,000) ($1 ,000 $4,000) 1.5 1 , select A3. BC i
18.
© 2012 Pearson
Canada Inc., Toronto, Ontario 39-18 Summary Benefit–cost analysis is commonly used to evaluate public projects. Several facets unique to public-project analysis are neatly addressed by benefit–cost analysis. An alternative way of expressing the worthiness of a public project is to compare the user’s benefits (B) with the sponsor’s cost (C) by taking the ratio B/C.
Download now