MODULE 11 Part i

Project Management and Economy-

Engineering economic decision making –
Benefit to Cost Ratio BCR

Expected Outcomes
After completing this module, you should be able to describe: the interest and its
equivalent related to engineering cost
 Benefit to Cost Ratio
• Mostly the intention of BCR calculation is to justify the benefit
of the spending cost to public and society. So BCR calculation is
applied for a public project such as construction of public
transport, stadium, railway system, school, construction of
four-lane highway Pekan to Kuantan, new secondary school at
Indera Mahkota, Kuantan, new township facilities and
infrastructure at Gebeng for industrial zone or a new highway
from Desaru to Pasir Gudang, Interkota buses services from
town of Kuantan to Pekan etc.
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 Benefit to Cost Ratio
• This technique utilizes the ratio of benefit to cost either
calculated using present worth or annual cash flow. This
technique used to determine public interest project or
infrastructure development such as formula ;
𝑏𝑒𝑛𝑒𝑓𝑖𝑡−𝑑𝑖𝑠𝑏𝑒𝑛𝑒𝑓𝑖𝑡 (𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑟 @ 𝑝𝑢𝑏𝑙𝑖𝑐)
• 𝐵𝐶𝑅 =
𝑐𝑜𝑠𝑡𝑠 (𝑔𝑜𝑣𝑒𝑟𝑛𝑚𝑒𝑛𝑡)

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Example 1
• Calculate the BCR of a route improvement from Pekan to
Kuantan as given information. Use interest, i = 5% (country’s
2017 GDP growth rate, 5.9%).
4 line basic route without a toll, (B) 4 line with a toll, fencing road and
R and R facilities, (T)

Initial cost, $ 10,000k 15,000k

Maintenance cost per year, $ 35k 55k

Road-user cost per year, $ 450k 200k

(Summarized from Figure 5.1
study)

Figure 5.1 Road-user cost per year, $ parameter study (https://www.ugpti.org/resources/reports/downloads/mpc13-

254.pdf)
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Example 1

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Example 1

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 Example 2
1 2
• During a rainy season year 2014, the main highway from Kuala Lumpur to
Kuantan was not accessible due to a flood which submerged several
locations (route 1) and force the route to be closed. The situation
worsened whenever a second route by using previous federal road (Kuala
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Lumpur – Lanchang – Temerloh – Gambang – Kuantan) also flooded and
closed to all vehicles activity (route 2). All passenger, raw material or
documents were stuck. Finally, road user was deviated to an alternative
route 3 (Kuala Lumpur – Kuala Pilah – Muadzam – Kuantan) which 4
distances almost 150% more. Another option available is Kuala Lumpur –
Kuala Pilah – Leban Chondong – Pekan –Kuantan route which act as an
alternative route 4. Both routes were jammed packed by heavy and light
vehicle during the rainy season. As a result, both routes were maximally
optimized which potentially creating dangerous occasion and increase the
accident tendency. After the monsoon season finished, a proposal was
made to upgrade both alternative route 3 and 4. This step taken to ensure
this alternative route is adequate and prepared for higher traffic
congestion if anything happen at route 1 and 2. The cost estimate is as
given information. Use interest, i = 5% (country’s 2017 GDP growth rate,
5.9%).
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Example 2

4 line basic route without a 4 line basic route without a

toll, (N) Kuala Lumpur – Kuala toll, (S) Kuala Lumpur – Kuala
Pilah – Muadzam – Kuantan Pilah – Leban Chondong –
Pekan –Kuantan

Initial cost, $ 90000k 85000k

Maintenance cost per year, $ 100k 55k
Road-user cost per year, $ 1500k 2000k
(Summarized from Figure 5.1
study)

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Example 2

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Example 2
500
• 𝐵𝐶𝑅𝑁−𝑆 =
5000 𝐴/𝑃,5%,30 +45
500
• 𝐵𝐶𝑅𝑁−𝑆 =
5000(0.0651)+45
• 𝐵𝐶𝑅𝑁−𝑆 = 1.35
• Each ringgit spent by government for project N, public is
benefitted $1.35 which is more than a value of 1. Project N
should be accepted and constructed. Choose project N.

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