— 2a rapier | | | tevelop i Service projects 4 ] isers, not the physical [M we am | alysis ca Be pe ysis (CEA) combi effectiveness anal E (de benefit) to evaluate in similar to ineremental ROR veedure for comparing Prvge a complement tothe disc discussed here. Examples are included. PROBLEMS Understanding B/C Concepts 9.1 What is the primary purpose of a public sector project? 9.2. Inconducting a B/C analysis, (a) why is it usually necessary to take a specific viewpoint in categoriz~ ing cost, benefit, disbenefit estimates; and (b) what are two specific viewpoints that you can identify if the situation is a financial transaction between you and another person? Between your company and. an international customer? 9.3. Identify the following projects as primarily public or private sector. (a) Bridge across Ohio River (©) Coal mine expansion (©) Baja 1000 race team (@) Consulting engineering firm (6) New county courthouse building D Flood control project (@) Endangered species designation (A) Freeway lighting (lumen increase) (@ Antarctic cruise for you and your spouse D)_ Crop dusting airplane purchase 9.4 Identify the following funding sources as primarily public or private, (a) Municipal bonds @) Retained earnings (©) Sales taxes (4) Automobile license fees (© Bank loans () Savings accounts (@) An engineer's IRA (Ini Account) State fishing license revenues Entrance fees to Tokyo Disneyland State park entrance fees il Retirement () oO a | 9.5 Explain how the viewpoint establish I ed bef Public sector analysis is started oe. mate from being categorized as cost, or vice versa, ee can turn an esti. a disbenefit to a ie valu economic tems associated good way 10 jnes cost esti idependent or mutual BIC analysis. Te heat alternatives. fessional ethics i | challenges in the publie sector for engi ‘mutually exclusive sussion on prot neers, 96 97 98 Project B/C Value 99 9.10 1 largely SRE TN TTT ie intangibles of the : sased onthe ntang a hme proves oF EM. Brag MS omc) tia of eg me monmonetity efcivenss ra clasve projec USing Procedures qa concept of dominance is nomad gg a Chapt 1 Som Pte ‘tected oficial and government consgge Identify the viewpoint (e-g., budget, govern, nit, citizen, business owner), and categorzg following cash flows as a benefit dishes cost: s {@ $600,000 annual income to are busi from tourism created by new freshwater ervoir/recreation area ‘$450,000 per year for repainting of brijg across the Mississippi River $800,000 per year maintenance by contin, ship port authority Loss of $1.6 million in salaries for bor residents because of strict enforcement immigration laws Reduction of $600,000 per year in carrein, because of improved roadways Expenditure of $350,000. for gual replacement on freeway $1.8 million toss of revenue by farmer because of highway right-of-way purchases ® oO @ © wn @ Identify the following as primarily private or pu lic sector characteristics: (@) Large investment ©) No profits (©) Funding from fees (®) MARR-based selection criteria (©) Low interest rate (A Short project life estimate (8) Disbenefits List two advantages of a public-private partnshi? (PPP), aoa Where is the salvage value placed in a come Sonal B/C ratio? Why? How is it hand mathematically? props costs & yeah be be estimated annual cash flows for a tunicipal government proj project are $750,000 per year, benefits of $900,000 Pe and disbenefits of $225,000 per year. Calculaf See et Pei 11 eat to caleba te serra ot seme tt elves Sane ste aro sous The hn ee so ilon wih nmi ae woe SIN000 I he meee sae arc vor who wil geeh ee = liste coment Be ee Gacom rte of OF por gear ee eeeer is wcaseree Ss ot wad lh an 413. Aspartof the rehabilitation of the downtown area ofa southern U.S. city, the Parks and Recreation Department expects to develop the space below several overpasses into basketball, handball, min- iature golf, and tennis courts. The estimates are: initial cost of $190,000, life of 20 years, and annual M&O costs of $21,000. The department expects 20,000 people per year to use the facilities an average of 2 hours each. The value of the recre- ation has been conservatively set at $1.00 per hour, Ata discount rate of 6% per year, what is the BIC ratio for the project? 914 The BIC ratio for a flood control project along the Swanee River was calculated to be 1.3. If the ben- efits were $500,000 per year and the maintenance costs were $200,000 per year, determine the initial cos of the project at an interest rate of 7% per year and a 50-year life. 915 The State Legislative Budget Board approved add- {ng 4000 surveillance cameras along the 800-mile Texas-Mexico border from El Paso to Brownsville ata cost of $300 per camera. In addition to the cost of the cameras, manpower and other resources are xpected to cost $3.2 million per year. The benefits ssociated with interception of people and drugs ‘te estimated to be $5.1 million per year. What is the conventional B/C ratio at an interest rate of 6% er year over a 10-year project period? 16 The Ste Highway Department is considering @ bypass loop that is expected to save motorists $820,000 per year in gasoline and other automobile- Telated ‘expenses. However, local businesses will “*perience revenue losses estimated to be $135,000 9.7 9.18 9.19 9.20 921 ON A. ‘i Problems ach year. The cost of the loop will be $9,000,000. (@) Calculate the conventional B/C ratio using an interest rate of 6% per year and a 20-year project Period. (4) Calculate the conventional B/C ratio without considering the disbenefis. Is the project economically justified with and without consider- ing the revenue losses? (c) Develop the single-cell spreadsheet functions that will answer the two {uestions above. A rural, agriculture-based city that has. 17,000 households is required to install treatment systems for the removal of arsenic and other harmful chem- ‘cals from its drinking water. The annual cost is Drojected to be $150 per household per year. AS- ‘sume that one life will be saved every 3 years as a result of the removal systems. (a) What is the B/C tatio,ifa human life is valued at $4.8 million? Use fn interest rate of 8% per year and assume the life is saved at the end of each 3-year period. (b) What Justifies the project? ‘An Army Corps of Engineers project for improv- ing navigation on the Ohio River will have an ini- tial cost of $6,500,000 and annual maintenance of $130,000. Benefits for barges and paddle wheel touring boats are estimated at $820,000 per year. ‘The project is assumed to be permanent and the discount rate is 8% per year. Determine if the Corps should proceed with the project. ‘The following estimates (in $1000 units) have been developed for a security system upgrade at Chicago's O'Hare Airport. (a) Calculate the con- ventional B/C ratio at a discount rate of 10% per year, Is the project justified? (b) Determine the ‘minimum first cost that is possible to render the project just economically unjustified. tem, Cash Flow First cost, $ 13,000 AW of benefits, § per year 3,800 FW of disbenefits, year 20, $ 6.750 M&O costs, $ per year 400 Life, years 20 A consultant, after 3 months of work, reported that the modified B/C ratio for a city-owned hospital heliport projectis 1.7. Ifthe initial cost is $1 million. and the annual benefits are $150,000, what is the amount of the annual M&O costs used in the cal- culation? The report stated that a discount rate of (6% per year and an estimated life of 30 years were used. ‘The B/C ratio for a mosquito control program pro- posed by the Harris County Department of Healththe is epote tobe 21. The person who prepare epee stated tat te annual health Benes a na, and at sees oF $00 ama also stated that the costs fre mane to list t er year, bute forgot to is the the program (trucks, pumps, tanks, tial cost was amortized over & 10+) per year, what is the estimated initial ssh ow 22 Cattaethe B/C rete flowing 9 Cs a cma to 10% pe er 1 project justified? Estimate fm _ Sse PW ofteneti, § ey [AW of disheneis, Sear First cost, $ 1,200,000 Ma&0 cos, Sear 300,000 Life years 20 9.23 From the following data for a PPP project, calcu Tate the (a) conventional, and (b) modified benefit cost ratios using an interest rate of 6% per year and ‘an infinite project period. Tothe People Tothe Government Benefis: $100,000 per year Costs: $1.8 million now beginning now and $200,000 every 3 years Disbenefits: $60,000 per year Savings: $90,000 per year 9.24 With an installed capacity in excess of 11,000 MW, the Belo Monte dam complex on the Xingu River in Brazil will be the world’s third largest hy- droelectric dam. The project is expected t0 cost 16 billion and will begin producing electricity upon completion by the end of 2019 after the ‘5-year construction period. Even though the dam will provide clean energy for millions of people, environmentalists are sharply opposed. They say it will devastate wildlife and the livelihoods “of 40,000 people who live in the area to be flooded, Assume that the funding will occur evenly over the ‘5-year constuction period (i, $3.2billion per yea), and thatthe disbenefits will be $66,000 for each Petyais never necessary? IX, Ys gg all this tye of project, which cena a thd be certed ase 0 the eae B/C values? srnatives iment of Defense i consider 939 The Detme National Wildlife Preserve forse sis are metals. The cash NWS Asoc ug tno are summarized, The extraction pest Froid to 5 years and the interes ates 10g py tear Use the BIC method to determine which Wry isacceptable. The monetary units Smilin (Note: Problem 9.56 includes further anal this situation.) site A ¢ Tnitial cost, $ 50 om Annual cost, S/year 3 Annual benefits, S/year 20 co Annual disbenefits, lyear___0.5 2 9.40 Four mutually exclusive, direct benefit alternatives are compared using the B/C method. Which ale native, if any, should be selected? ‘ABIC Ratio When teat ‘Compared ith Investment, B/C ee Alternative $Milion Ratio JK Lo I Do k 2% 096 040 — ip 330 im 142 ae — M 4S 0.89 0.72 0.80 _008_= 941 The city of Valley View, California, is consile ing various proposals regarding the dispost! Tepes. All proposals involve shreddin. ee nefits differ in each plan. An incremet®) rae Was initiated, but the engineer seen the study left recently. Using 4 204 y Go) Agri 24 and an interest rate of 8% per I in the blanks in the incremental BIC ‘umns of the table, sive sh be selected? (6) Which alternatiWhen Compared putcos, BC __ itary ‘suiion Ratio P_ eg ag r 40 2 a @ 50 14 _ s 30 1s Se ‘rom te information shown for possible location ffeamperounds and lodging ata national park se ermine which project, if any, should be selecrea ffom ibe six mutually exclusive projects Seles incremental BC ratios are included. Ifthe py comparisons have not been made, state which oft Spare rede. Location enter Oo ann Gare GO) SH 35 Wom Totns pea som ETON Te riianeutton conpaiton ane @mit “os Gv on Hes auto hed Lon Ime or nw Lo Hee 136 Jak os Im 140 Kral 040 Gus Lez 943, You have been requested to compare four mutually exclusive alternatives using the B/C method and the results shown, Which alternative, if any, do you recommend? ABIC Ratio Equivalent When Compared Total Cost, Direct __with Alternative Atutie _$Milion s/cRatio XYZ 0 x 20 05 — Y 30 107) 1.70 — z 50 mit ie ~2__o inna t3_ 100 = °4 In order to safeguard the public health, environ- ‘Ment, public beaches, water quality, and economy South San Diego County, California, and Tijuana, Mexico, federal agencies in the United Sates and Mexico developed four alternatives for eating wastewater prior to discharge into the Probiems, eean. The project will minimize untreated waste ‘ater flows tha have caused chronic and substan- tial pollution in the Tijuana River Valley. the ‘Tijuana River National Estuarine Research Re- Serve, coastal areas used for agriculture and public ‘eereation, and areas designated a cial habitat for federal- and statelisted endangered species. For the costs and benefits estimated, which alter ative should be selected on the basis of a B/C analysis at 6% per year and a 40-year project pe ‘od? All monetary amounts ar in § million unis Pond Expand Advanced Partial ‘System _Plant Primary Secon a a M&OcomSyer 55 5324 945 ‘Several alternatives are under consideration to en- hhance security at a county jail. Since the alterna- tives serve different areas of the facility, all that are ‘economically attractive will be implemented. De- termine which one(s) should be selected, based on B/C analysis using an interest rate of 7% per year and a 10-year study period. Esta Now Steel Access (comes (59) Serr 5_‘bing (FT) Cone AC) Fistcost 38000 87,000 99,000 M&O,Siyear 49.000 64.000 42.000 Benefits, year 110,000 160,000 74,000 Disbeneits, Syear_26.000 __21,000___32.000 Cost-Effectiveness Analysis 9.46 farious techniques have been proposed to curb cross-border drug smuggling into a country. ‘The costs of implementing each strategy along a particularly rugged section of the border are in- dicated below. The table also includes a score that is compiled based on deterrence, interdie- tion, and apprehension, with a higher score in- dicating better performance. For a budget of $60 million, determine which techniques should ‘be employed on the basis of a cost-effectiveness analysis. Activity Score Tethered aerostats 8 Boots-onthe-ground 2 Fence 2 Motion sensors 7 Seismic sensors 5 Drones 1 26 9.47 Productivity improvement is a primary goal for the mew owners of a plastic pipe extrusion plant268 e,ona tial bi ‘The CEO decided 0 unde ying em ‘ a veard productivity ployee morale a5 increasing progr fnoeasng een eden oe impemen heae O vironment ssn work enone ee aa wurveyed the employ: Pecan eae St emeciveness is oer remployees who rat their ob sai ram ot gan thse wr EY Ho ape pvemplaye cost of ech sty dented a A through F) andthe resulta (dec ae anon blow for te Si ba jloyee 10 as set aside $60 per employ SS esos ementation of as Go tbe permanent i ren tei ar jted rambo Tpetivenese and economical vewpons. Dt te anion surgi ae the best t implement Cechand or spreadsheet slaon, a insted strategy _Cowvemployee,§_Mearemen Sore a 320 30 B 2340 182 c 3.15 40 D 1080 15 Ez 8.65 33 = 15.10 9.48 There are a number of techniques to help people stop smoking, but their cost and effectiveness vary widely. One accepted measure of effectiveness of a program is “percentage of enrollees quiting.” ‘The table in this problem shows several techniques touted as effective stop-smoking methods, some historical data on the approximate cost of each program per person, and the percentage of people smoke-free 3 months after the program ended. ‘The Cancer Society provides annual cost-offset funding to cancer patients 0 more people can af- ford these programs. A large clinic in St. Louis, has the capacity (0 treat each year the number of people shown, Ifthe clinic plans to submit a pro- posal to the Cancer Society to treat a specified numberof people annually, estimate the amount ‘of money the clinic should ask for in its propos todo the following: eee (@) Conduct programs at the capacity level forthe technique wit the loves costefectveness (Offer programs using as many techniques as possible to treat up to 1100 people per year using the most cost-effective techniques, a ss real 700 ° Te Fence ee = femoamests® img 10 “ speion EY = = cone aa * pontine re . ‘and Public Sector analysis quce® “= Cot scutting tenet Benef tery (NRT 9.49. The annual cost and am effectiveness : a lvaged year for four mutually ¢ te set eats ne te sivey SCralculate (a) the cost effectiveness rai, let Cae fn) we the CER ga the best alternative a 355 5 208 i ’ oon a 102 j N eS ‘An engineering student has only 45 minutes, fone the final exam in her Engineering Econony {ass. She needs help in understanding costes tiveness analysis because she knows from the in ‘tructor’s review session that a CEA problem wi bbe on the exam. There is time for using ony one method of assistance before the exam; she maz select well. In a rapid process of estimation, se determines how many minutes it would take fx each method of assistance and how many points right gain for her on the final. The method sd estimates follow. Where should she seek helptobe most effective? 9.50 Minutes [Assistance from for Assistance Points Git ‘Teaching assistant (TA) 15 » Slides on web 20 10 Friend in class 10 5 evar 0 eee Public Sector Ethics 9.51 In most developed countries, laws that potibt texting-while-driving (TWD) have been ¢ Hambara and Associates, a systems engineetité consulting. company, has won the contract to sit the Callaghan Police Department in implemesist ae that will have a zero-tolerance policy D, with the expressed goal to not increaé ‘Nerage number of violation tickets issteda ‘Ths is highly publicized goal because the ih icf is keenly aware of the public’s nega- a eae lice officers as they issue tickets for stn, especially for TWD. Assume tha ov for Hambara and have been identified as ie ead projectengineer on the Callaghan contract, imei, you recognize this a a public plan taf ince Hambara willbe responsible for aig ping and implementing projects, You willbe Sng te other four members of the Hambara er and two assigned liaison offices from the teafaghan Police Department tomorrow morning. ‘Tey expect you t0 present a general overview of approach 0 the project. ‘peeause of the sensitivity of the public, the chief's announced goal of no increase in ticketing, foi your own concerns about possible ethical di- Sessions within the police department and. your ‘jen Hambara team members, you need some siruc- fur to understand any ethical considerations that payarisein the fore. Use the format of Table 9-5, ‘spesaly the dimensions suggested inthe leftmost Gahuma, to identify for yourself the ethical consider- ‘tions of this project. This material will likely not te shared directly atthe initial meeting ofthe group. During the design and development stages of a re- rote meter reading system for residential electric- diy use, the two engineers working on the project for the City of Forest Ridge noted something dif- ferent than they expected. The first, an electrical/ software engineer, noted that their city liaison staff ‘member provided all the information on the soft- ware options, but only one option, the one from 932 — EXERCISES FOR SPREADSHEETS: 554 For the FOUNDATION Fieldbus Hl installation analyzed in Problem 9.27, do the following: (Data isrepeated below.) (@) Find the Pl forthe first 6 years of operation ©) Find the required ANCF for next year if Dickinson plans to invest an additional $150,000 in year 7 and wants to realize an increase in profitability such that PL = 1.20. 269 Exercises for Spreadsheets Lorir Software, was ever discussed and detailed. ‘The second designer, an industrial systems engi- further noted that all the hardware specifica tions provided to them by this same liaison all ‘came from the same distributor, namely, Delsey Enterprises. Coincidently, at a weekend family picnic for city employees, to which the engineers had been invited, they met a couple named Don Delsey and Susan Lorier. Upon reviews they learned that the man Don is the son-in-law of the city liison and Susan is his step-daughter. Based on these observations, before they proceed further with development of the system, what should the two engineers do, if anything, about their suspi- ccions that the city liaison person is trying to bias the design to favor the use of his relative's software and hardware businesses? ner, 953 Since transportation via automobile was intro~ duced, drivers throughout the country of Yalturia in Eastern Europe have driven on the left side of the road, Recently, the Yalturian National Con- ress passed a law that within 3 years, a right- hand driving convention will be adopted and im- plemented throughout the country. This is a major policy change for the country and will require sig~ nificant public planning and project development to implement successfully and safely. Assume you are the lead engineering consultant from Halcrow Engineers, responsible for developing and de- scribing many of these major projects. Identify six of the projects you deem necessary. State a ‘name and provide a one or two sentence descrip- tion of each project. not a requirement; it would be a convenience for future patients. When incremental B/C analysis was applied ata discount rate of 8% per year, using the estimates summarized below, the results were: Rank by increasing total cost: DN, 1,2 Location 1 vs. DN: B/C = 1.66 Conclusion: eliminate DN Location 2 v5.1: AB/C=0.50 Conclusion: selet location 1 be rm [out ez eisanaun Shae. Location 1 2 LC stoompeyer | OS 7 9 +H 7 Initial eos 5 7,200,000 2,000,000 meinen, sio000 | 15 8 10 0 0 5 10 ‘Annual M&O cost Sear 80,000 75,000 995 ‘Annual benefits, $) 520,000 There ae two potential locations to construct an ee cee eee onan a Urgent care walk-in clinic to serve rural residents. eae as it suitability, years 20 ‘The DN alternative is an option since the clinic is