90747 – K5

Cost-Benefit Analysis
Assignment 2
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Title of Project:
Cost-Benefit Analysis of Improving Basketball Facilities for
Noarlunga Community

by
Shiqi (Sebastian) Yan
Bonifacio, Michael Bonn

JUNE 2019
 Description of Project
Increase incidence of crime in the community:
In Adelaide alone, crime rate involving young individuals (ages 15-25 years old) have been increasing over the past 5
years. A data from the South Australian Police shows that as of January 2019, the cases of robbery and related offences
increased by about 13% compared to prior years. Offenses against property such as theft rise by 16%.
Another data from the South Australian Government shows that the South Coast of Adelaide has a high rate of young
offenders with 945 cases from 2017 to 2018. This speaks to the youth in the community being bored and don’t have
accessible means to connect and do recreational activities with peers.
Purpose of the Project:
Ease these issues in the community of Noarlunga through the creation of an indoor basketball court/sports facility. The
assumption is that by engaging the community to sports and other recreational activities, it will reduce the incidents of
crime in the locality.
Studies suggest collective benefits to individuals and the community brought by sports. Private and government agencies
are quick to point out that participating in sport and recreation contributes to community health and wellbeing;
confidence-building and empowerment; social integration and cohesion; national and cultural identity; and reduction in
crime and vandalism (Canada, 2005).
Also, this project aim to cultivate sports-related talents, so that in the future, they can work for sports industry such as
becoming a basketball player, trainer, merchandiser, etc. I.e., create new employment for youth in the future.
The program will be steered by the local government of South Australia in coordination with local council and officials of
Noarlunga Centre. This is an ex-ante cost-benefit analysis.
 Step 1 of CBA
Specifying the set of alternative projects (status quo and 2 new alternatives)
1. Status quo (existing outdoor basketball court);
Disadvantages: less appropriate facility (the flooring are concrete which can cause/prone to more injuries), subject
to weather conditions.

2. Indoor basketball court; and

3. Multi-sport indoor facility (for basketball, volleyball and badminton).
Justifications for Option 1 and 2: construction of sports facility:
A study by Grieve and Sherry, (2011) suggested a variety of impacts, particularly the noneconomic benefits, of a
development of a new sports facility in a community in Melbourne. Some of these expected benefits are community
development and overall improvement in quality of life. Also, there is a significant increase in accessibility, exposure,
participation and success in the community.
Noneconomic impacts of sports facilities as stated by Chaplin (2002) are: 1. social and psychic impacts (enjoyment
provided by sports and sports facilities); 2. community visibility and image impacts (city and local benefits
associated by major sports facility, employment); 3. political impacts (political costs and benefits such as
enforcement); and 4. development impacts (infrastructure re/development of the area surrounding the district
encompassing a new sport facility).
 Step 2 of CBA
• Decide whose benefits and costs count for status quo and alternatives.
 Step 3 of CBA
This study will consider the costs and benefits to the following stakeholders:

Youth: improve personal qualities, healthy and less prone to diseases, entrance fee
Schools: school performance, less costs in student issues
Businesses: sales in sports equipment and apparel, job creation
Local Community: Less crime, Better relationship in community
Hospital/Drug Industry: Income from sport related injuries, sale of medicines
Government: income tax from employment generated
Taxpayers: construction costs, maintenance cost not covered by fee,
Law enforcement/society: Lower enforcement costs
Society/Externality: Additional employment and income, productivity
 Step 3 of CBA
• Catalogue the impacts and select measurement indicators (units) for status quo.
 Step 3 of CBA
• Catalogue the impacts and select measurement indicators (units) for Alternative One.
 Step 3 of CBA
• Catalogue the impacts and select measurement indicators (units) for Alternative Two.
 Step 4 of CBA
• Usage and Players simulation for 3 alternatives

• Overall assumption
 Overall Project life: 15 years (Av. Life of an indoor court)
 Av. Hourly salary (social workers, teacher, police, admin staff, cleaner, etc.) for all the occupations involved is $25/hr.
 The indoor court operates 10 hrs/day and 7days/wk except public holiday.
 2% growth in value every year over the life of the project
 Av. The youth will become work force on 8th yr onward of the project life
 Entry fee to the court is $3/person
 Step 4 of CBA
• Predict the impacts quantitatively over the life of status quo.
 Step 4 of CBA
• Predict the impacts quantitatively over the life of Alternative One.
 Step 4 of CBA
• Predict the impacts quantitatively over the life of Alternative Two.
 Step 5 of CBA
• Monetize (attach dollar values to) all impacts for Status Quo.
 Step 5 of CBA
• Monetize (attach dollar values to) all impacts for Alternative One.
 Step 5 of CBA
• Monetize (attach dollar values to) all impacts for Alternative Two.
 Steps 6 & 7 of CBA
• Discount benefits and costs to obtain present values for Status Quo.
• Compute the net present value (NPV) of Status Quo.

Choose 6.5% as the discount rate according to:

Peter Abelson & Tim Dalton, 2018. "Choosing the Social Discount Rate for Australia," Australian Economic Review,
The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 52-67,
March.
 Steps 6 & 7 of CBA
• Discount benefits and costs to obtain present values for Alternative One.
• Compute the net present value (NPV) of Alternative One.

Choose 6.5% as the discount rate according to:

Peter Abelson & Tim Dalton, 2018. "Choosing the Social Discount Rate for Australia," Australian Economic Review,
The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 52-67,
March.
 Steps 6 & 7 of CBA
• Discount benefits and costs to obtain present values for Alternative Two.
• Compute the net present value (NPV) of each Alternative Two.

Choose 6.5% as the discount rate according to:

Peter Abelson & Tim Dalton, 2018. "Choosing the Social Discount Rate for Australia," Australian Economic Review,
The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(1), pages 52-67,
March.
 Step 8 of CBA
• Perform sensitivity analysis for Status Quo.
 Step 8 of CBA
• Perform sensitivity analysis for Alternative One.
 Step 8 of CBA
• Perform sensitivity analysis for Alternative Two.
 Step 9 CBA
• Evaluation and make a recommendation based on NPV and sensitivity analysis.
At a discount rate of 6.5%, the indoor basketball court has the largest NPV amounting to $5,102,509
compared to status quo and option 3 (sports facility) with the NPV amounting to $2,513,619 and
$4,074,057, respectively.
Results of the sensitivity analysis using the social discount rate of 3.25% and 9% are as follows:

NPV @ 3.25% NPV @ 9.0%

Status quo 8,193,999 4,605,571
Indoor basketball court 15,358,560 8,601,805
Indoor sports facility 10,564,893 6,155,196

Based on calculations from steps 7 and 8, the construction of an indoor basketball court is the
recommended course of action for Noarlunga Community. It has the highest Net Present Value (NPV).
 Evaluation & Conclusion
• Conclusion
Based on the identified factors using the 9 steps in the cost-benefit analysis, the project has the potential
to provide economic and non-economic benefits more than the cost. The proponents recommend the
implementation of the project for the community of Noarlunga.

• Evaluate the limitations of your suggestion.

1. Some of the costs and benefits of the project (especially the spillover effects such as value of improved
life, effects on the economy of Australia, benefits apart from reduction of theft, etc.) were not monetized
and considered in the computation of the Net Present Value (NPV) for all the alternatives.
2. The recommendation was based on the option that has the largest NPV. Though the NPV is higher, it
doesn’t mean that it covers a larger number of population. Construction of a multi-sport indoor facility
can serve more young individuals in Noarlunga, and the demographic coverage would be better than
option 2 (most of the basketball players are male). Moreover, if the priority of the local government is to
maximize the number of beneficiaries and has enough budget, we would recommend option 3.
 References
(2017). Cost to build a sports facility. Sports and Recreation facilities costs. Retrieved from
https://www.centralbuild.com.au/blog/cost-to-build-an-indoor-sports-facility/
Australian Police & South Australian Government. (2019) Crime rate among young offenders. Crime incidence
in South Australia. Excel file. Website. Retrieved from
https://data.sa.gov.au/data/dataset/crime-statistics/resource/bf604730-9ec8-44dd-88a3-f024b387e0e4
Australian Taxation Office. (2019). Individual income tax rate. Australian Government. Retrieved from
https://www.ato.gov.au/Rates/Individual-income-tax-rates
Canada. (2005). Strengthening Canada: The socio-economic benefits of sport participation in Canada Report
August 2005. The Conference Board of Canada. http://
www.pch.gc.ca/progs/sc/pubs/socio-eco/index_e.cfm Retrieved 31.07.2008.
Chapin, T. (2002). Identifying the Real Costs and Benefits of Sports Facilities, Lincoln Institute of Land Policy
Working Paper. Department of Urban and Regional Planning, Florida State University, FL.
Grieve, J. & Sherry, E. (2011). Community benefits of major sport facilities: The Darebin International Sports
Centre. Sport Management Review. PDF file
Herens, M. et. al. (2015). Predictors of willingness to pay for physical activity of socially vulnerable groups in
community-based programs. SpringerPlus. Retrieved from (http://creativecommons.org/licenses/by/4.0/)
Morocutti, G. (2017). Maintenance and management costs of open sports facilities. PDF file