Economic Analysis in the Public Sector (Benefit Cost (B/C) Analysis)
Title: Economic Analysis in the Public Sector (Benefit Cost (B/C) Analysis)
1 Table of Contents
2 Overview of the case There are two mutually exclusive proposals presents, proposals A and proposals B which is given by Chief Manager of Saksama Sdn. Bhd. to appointed group. The appointed group will be consisting of project engineers, economic/financial advisors and project leaders who will make a final decision between these two respective proposals. Both of the proposals share similar goal which will be initiated to upgrade and improve electrical distribution utility station if approved by Saksama Sdn. Bhd. The first proposal, Proposal A is suggested to upgrade the overall the existing facility at lower cost and lower overall benefit. On the other hand, Proposal B is found to be more costly as compared to Proposal A but more beneficial to public since it acts as an alternative to build entirely new facility. The new facility will include many of cost saving including more efficient machinery, economy of scale and automation to reduce man power. The disbenefit related to the new facility includes the use of additional public land, the need for more roads and the disruption of traffic transportation.
Table 1: Cost and Benefit for Two Proposals
Item/Cost
Proposal A
(x Rm 1,000)
Proposal B
(x Rm 1,000)
Initial Construction Cost
40,000
4,000
Annual Maintenance Cost
1,500
150
Annual Public Benefit
6,500
650
Annual Public Disbenefit
1,500
0
Service Years
30 years
12 years
Note: Assuming that 6% interest rate.
3 Problem Statement As part of the committee, it is recommended that chief manager of Saksama Sdn. Bhd. used three types of method to determine which proposal will be chosen to improve electrical distribution utility station. The methods are using Conventional B/C analysis method, Modified B/C analysis method and Incremental B/C analysis method. The chief must used these three methods to determine which proposal/alternative to
1 Table of Contents
2 Overview of the case There are two mutually exclusive proposals presents, proposals A and proposals B which is given by Chief Manager of Saksama Sdn. Bhd. to appointed group. The appointed group will be consisting of project engineers, economic/financial advisors and project leaders who will make a final decision between these two respective proposals. Both of the proposals share similar goal which will be initiated to upgrade and improve electrical distribution utility station if approved by Saksama Sdn. Bhd. The first proposal, Proposal A is suggested to upgrade the overall the existing facility at lower cost and lower overall benefit. On the other hand, Proposal B is found to be more costly as compared to Proposal A but more beneficial to public since it acts as an alternative to build entirely new facility. The new facility will include many of cost saving including more efficient machinery, economy of scale and automation to reduce man power. The disbenefit related to the new facility includes the use of additional public land, the need for more roads and the disruption of traffic transportation.
Table 1: Cost and Benefit for Two Proposals
Item/Cost
Proposal A
(x Rm 1,000)
Proposal B
(x Rm 1,000)
Initial Construction Cost
40,000
4,000
Annual Maintenance Cost
1,500
150
Annual Public Benefit
6,500
650
Annual Public Disbenefit
1,500
0
Service Years
30 years
12 years
Note: Assuming that 6% interest rate.
3 Problem Statement As part of the committee, it is recommended that chief manager of Saksama Sdn. Bhd. used three types of method to determine which proposal will be chosen to improve electrical distribution utility station. The methods are using Conventional B/C analysis method, Modified B/C analysis method and Incremental B/C analysis method. The chief must used these three methods to determine which proposal/alternative to
References: [1] Incremental analysis. (n.d.) Retrieved on April 07, 2013 from http://www.engr.siu.edu/mining/paul/engr361/readings/Chapter%208.PDF. [2] Chapter 9 slides. (n.d.) Retrieved on April 07, 2013 from http://ise.tamu.edu/people/faculty/butenko/INEN303/chap9.pdf.