chapter  16
18 Pages

Project Analysis

The availability of funding is always a major constraint in the provision of infrastructure. The decision of whether a road is to be provided is thus dependent on its cost in relation to the benefits it will generate. This comparison is generally referred to as cost/benefit analysis (CBA). Benefits may be directly economic by reducing the costs incurred by the road user in using the road or they may be indirectly economic in the sense of supporting the development of a geographical region. Alternatively, a road may hold little or no economic benefit as such but is nevertheless useful to the community at large. It has, in fact, a value of utility. Examples are access to schools, hospitals, places of worship and recreational facilities or

CONTENTS

16.1 Introduction ............................................................................... 387 16.2 Fundamental philosophies of engineering economics .................. 388 16.3 Equivalence ................................................................................ 390 16.4 Interest formulae ........................................................................ 391 16.5 Problems involving gradient ....................................................... 393 16.6 Methods for comparing competing proposals ............................. 394

16.6.1 Introduction .................................................................. 394 16.6.2 Net present worth ......................................................... 395

16.6.2.1 Scheme A (Do nothing alternative) ................ 395 16.6.2.2 Scheme B ....................................................... 395 16.6.2.3 Scheme C ...................................................... 395

16.6.3 Equivalent uniform annual cash flow ............................. 395 16.6.3.1 Scheme A ....................................................... 396 16.6.3.2 Scheme B ....................................................... 396 16.6.3.3 Scheme C ...................................................... 396

16.6.4 Benefit/cost ratio ........................................................... 397 16.6.5 Rate of return ............................................................... 398

16.7 Factors included in economic studies ......................................... 399 16.7.1 Introduction .................................................................. 399 16.7.2 The worth of time saved ...............................................400 16.7.3 Operating costs ............................................................. 401 16.7.4 Crash costs ................................................................... 401 16.7.5 Direct costs ................................................................... 403

16.8 Utility analysis ........................................................................... 403

areas. In these cases, a form of CBA known as social CBA (Snell, 2011) or utility analysis is brought into play. Both forms of analysis are discussed in this chapter.