3360 UNIT 16 2014-I-01
Transcript of 3360 UNIT 16 2014-I-01
-
8/19/2019 3360 UNIT 16 2014-I-01
1/24
ENGR 3360U Winter 2014
Unit 16
Engineering Economic Analysis
in the Public ector
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-0
-
8/19/2019 3360 UNIT 16 2014-I-01
2/24
Unit 16 EEA in the Public ectors
!hange Recor"
! 2014#$#0% $nitial !reation
2014#$#0%16#2 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
3/24
Unit 16 EEA in the Public ectors
!ourse ,utline
1' Engineering Economics
2' General Economics
1' )icroeconomics
2' )acroeconomics
3' )oney an" the *an- o.!ana"a
3' Engineering Estimation
4' $nterest an" E/uialence
' Present Worth Analysis
6' Annual !ash lo
%' Rate o. Return Analysis
' Pic-ing the *est !hoice
5' ,ther !hoosing echni/ues
10' Uncertainty an" Ris-
11' $ncome an" &e7reciation
12' A.ter#ta8 !ash los
13' Re7lacement Analysis
14' $n.lation1' )ARR election
16' Public ector $ssues
1%' What Engineering shoul" -no
about Accounting
1' Personal Economics .or the
Engineer
2014#$#0% &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco1#3
-
8/19/2019 3360 UNIT 16 2014-I-01
4/24
Unit 16 EEA in the Public ectors
Unit 16 Roa" )a7
9 16'1 Public "ecision .actors
9 16'2 $nterest rates in the 7ublic 7ro:ects
9 16'3 *ene.it;!ost Ratio
9 16'4 !onentional an" )o"i.ie" *
9 16' $ncremental *
9 16'6 inancing+ "uration+ an" 7olitics o.inestments
2014#$#0% &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco16#4
-
8/19/2019 3360 UNIT 16 2014-I-01
5/24
Unit 16 EEA in the Public ectors
16'1 Public Pro:ects
9 $nestment ,b:ectie ; Pur7ose o. inestment in 7ublic 7ro:ects can
sometimes be ambiguous'
; =General el.are o. society> ; here are "i..erent 7ers7ecties to consi"er'
9 Positie an" negatie e..ects
;
?o "o you measure bene.its orconse/uences@
; he goernment ansers to eeryone'
2014#$#0%16# &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
6/24
Unit 16 EEA in the Public ectors
ie7oint
9 $n"ustry ie7oint consists largely o. thecounting costs an" bene.its' ; E8ternal conse/uences are ty7ically not consi"ere"
unless there is goernment regulation in that regar"'
2014#$#0%16#6 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
7/24
Unit 16 EEA in the Public ectors
ie7oint
9 Goernment generally ta-es the ie7ointo. its constituents' ; )unici7ality+ 7roince+ an" country
9 A ie7oint in the any 7roblem is to ta-ethe ie7oint at least as broa" as those
ho 7ay the costs an" those ho receie
the bene.its' ; !osts can s7rea" across "i..erent areas an"
bene.it local regions Bbri"ges etc'C'
2014#$#0%16#% &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
8/24
Unit 16 EEA in the Public ectors
1'2 Public Pro:ect $nterest Rate
9 etting an interest rate in the 7ublic sector is not asclear#cut as "oing so in in"ustry'
9 ime#alue o. money ; ome oul" argue that there is little or no time beteen
collecting money .rom ta8 7ayers an" s7en"ing those ta8"ollars'
; As such there is a 0D interest rate
9 !ost o. !a7ital ; )ost leels o. goernment borro money in a""ition to
collecting ta8es an" as such the interest rate shoul" be the
cost o. borroing money'
2014#$#0%16# &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
9/24
Unit 16 EEA in the Public ectors
Public Pro:ect $nterest Rate+ cont>"'
9 ,77ortunity !ost ; o ty7es ith goernment
9 Government Opportunity Cost: Opportunity cost on bestopportunity foregone to government.
9 Taxpayer Opportunity Cost: Suggests that a taxpayer could have
invested that money instead of paying the taxes.9 General rule o. thumb
; elect the largest o. the9 Cost of Capital9 Government opportunity cost9
Taxpayer opportunity cost9 he goernment may also set gui"elines'
2014#$#0%16#5 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
10/24
Unit 16 EEA in the Public ectors
16'3 *ene.it;!ost Ratio
9 )etho" use" almost e8clusiely in 7ublicinestment analysis
B/C atio ! "#uivalent $orth of net benefits/"#uivalent $orth of costs
F PW bene.its
-
8/19/2019 3360 UNIT 16 2014-I-01
11/24
Unit 16 EEA in the Public ectors
*ene.it;!ost Ratio BEWFEIU$AJEN W,R?C
9 he conentional *
9 Net bene.its to users areE87ecte" *ene.its ; &isbene.its
9 &isbene.its are negaties e..ects on in"ii"uals orgrou7s'
2014#$#0%16#11 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
-
8/19/2019 3360 UNIT 16 2014-I-01
12/24
Unit 16 EEA in the Public ectors
E8am7le 16#2
ho that the *
W an" AW .or this highay 7ro:ect'
irst cost 1')
Annual )aintenance 6K
Annual *ene.its to "riers 22K
300K Ji.e 30 years
$R D
2014#$#0% &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco16#12
-
8/19/2019 3360 UNIT 16 2014-I-01
13/24
Unit 16 EEA in the Public ectors
PW
PW bene.its F 22BP
-
8/19/2019 3360 UNIT 16 2014-I-01
14/24
Unit 16 EEA in the Public ectors
W
W bene.its F 22B
-
8/19/2019 3360 UNIT 16 2014-I-01
15/24
Unit 16 EEA in the Public ectors
AW
AW bene.its F 22 L 300B
-
8/19/2019 3360 UNIT 16 2014-I-01
16/24
Unit 16 EEA in the Public ectors
16'4 )o"i.ie" *
*
30C #6BP
-
8/19/2019 3360 UNIT 16 2014-I-01
17/24
Unit 16 EEA in the Public ectors
16' $ncremental *
9 or multi7le alternaties+ it is not 7ro7er tosim7ly calculate the *
alternatie'
9 $ncremental *ene.it;!ost Ratio )etho" ; $"enti.y all releant alternaties Bo7tionalC'
; !alculate the *
; Ran- the or"er o. 7ro:ects9 mallest to largest siOe o. "enominator
2014#$#0%16#1% &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
i 16 A i h bli
-
8/19/2019 3360 UNIT 16 2014-I-01
18/24
Unit 16 EEA in the Public ectors
$ncremental *
9 $ncremental *ene.it;!ost Ratio )etho"cont>"' ; $"enti.y increment un"er consi"eration'
9 Joest cost to ne8t highest cost
; !alculate *
U i 16 EEA i h P bli
-
8/19/2019 3360 UNIT 16 2014-I-01
19/24
Unit 16 EEA in the Public ectors
16'6 ,ther Public Pro:ect E..ects
9 Pro:ect .inancing ; maller 7ro:ects are .ully .un"e" through
ta8ation'
; Jarger 7ro:ects may re/uire borroing through bon"s'
9 P3 Public;Priate Partnershi7
; Nee"s i"enti.ie" by the goernment+ ho thenenters into an agreement ith 7riate in"ustry'
2014#$#0%16#15 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
U i 16 EEA i h P bli
-
8/19/2019 3360 UNIT 16 2014-I-01
20/24
Unit 16 EEA in the Public ectors
,ther Public Pro:ect E..ects+ cont>"'
9 Pro:ect &uration ; Goernment 7ro:ects o.ten hae long lies'
9 20 to 0 years or longer Bmuseums+ highays+ etc'C
9 Jarge 7ro:ects ith large initial inestment ; Jong lies re"uce the e..ect o. the large
inestment'
9 Joer interest rates re"uce the ca7italrecoery cost'
2014#$#0%16#20 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
U it 16 EEA i th P bli t
-
8/19/2019 3360 UNIT 16 2014-I-01
21/24
Unit 16 EEA in the Public ectors
Iuanti.ying E..ects
9 )any 7ro:ects hae "i..iculty /uanti.ying bene.its'
; E8am7le buil"ing a school
9 o. bene.it 7er 7erson@ E"ucational outcomes@
9 As a conse/uence o. the "i..iculty ineri.ying bene.its an" "isbene.its+ "i..erent
grou7s may /uanti.y "i..erently to su77orttheir 7ositions'
2014#$#0%16#21 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
U it 16 EEA i th P bli t
-
8/19/2019 3360 UNIT 16 2014-I-01
22/24
Unit 16 EEA in the Public ectors
Pro:ect Politics
9 Political in.luences hae an im7act on 7ublic 7ro:ects'
9 !om7eting ies an" 7olitical su77ort
; E8am7le Economic "eelo7ment ersusenironmental concerns@
9 !ontroersy9 Jong term 7ro:ects ersus short term
7oliticians9 he role o. 7olitics is .ar#reaching in 7ublic
7ro:ects+ as o77ose" to in in"ustry 7ro:ects'
2014#$#0%16#22 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
U it 16 EEA i th P bli t
-
8/19/2019 3360 UNIT 16 2014-I-01
23/24
Unit 16 EEA in the Public ectors
ummary
9 Goernments 7ro:ects try to ma8imiOe bene.its tothe 7ublic+ hile minimiOing the "isbene.its to the
7ublic'
9 Jegislatie restrictions ; en" to be larger an" a..ect more 7eo7le an"
grou7s
9 $nterest rates in the 7ublic 7ro:ects are morecom7licate" to "etermine or are legislate"'
2014#$#0%16#23 &r' (')' *ennett+ P'Eng'+ P)P ENGR 3360U Eng Eco
U it 16 EEA i th P bli t
-
8/19/2019 3360 UNIT 16 2014-I-01
24/24
Unit 16 EEA in the Public ectors
ummary+ cont>"'
9 *ene.its;cost ratio is a i"ely use" metho" toealuate an" :usti.y goernment#.un"e" 7ro:ects'
9 or consi"ering mutually e8clusie alternaties+incremental *
maintenance cost in the "enominator
; )o"i.ie" *