E421-11 - CHAPTER 11 EVALUATING PROJECTS WITH THE BENEFIT...

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CHAPTER 11 EVALUATING PROJECTS WITH THE BENEFIT / COST RATIO METHOD XXXXXX XXXXXX XXX X XXXXXXX XX $$$$
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PRIVATE VERSUS PUBLIC PROJECTS PURPOSE Private Project -- Maximize profit, minimize costs Public Project -- Offer social benefits (i.e., health, employment ) without profit CAPITAL SOURCES Private Project -- Private investors and lenders Public Project -- Taxation; Private Lenders FINANCING Private Project -- Individuals (for sole proprietorships and partnerships); stocks
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PRIVATE VERSUS PUBLIC PROJECTS MULTIPLE PURPOSES More frequently for public projects ( i.e., reservoir for: flood control, power source, irrigation, recreation) PROJECT LIFE Private Project -- 5 to 20 years; Public Project -- 20 to 60 years CAPITAL PROVIDER RELATIONSHIP TO PROJECT Private Project -- Direct Public Project -- Indirect or none NATURE OF BENEFITS Private Project -- Monetary or near monetary
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PRIVATE VERSUS PUBLIC PROJECTS PROJECT BENEFICIARIES Private Project -- Those undertaking project Public Project -- General public CONFLICT OF PURPOSES More common for public projects (i.e., dam for flood control vs environmental preservation) CONFLICT OF INTERESTS More common for public projects (i.e., intra-agency conflicts) POLITICAL INFLUENCE More common for public projects ( i.e., changing decision makers, pressure groups, financial and residential restrictions) EFFICIENCY MEASUREMENT Private Project -- Rate of Return on capital Public Project -- No direct comparison with private projects
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BENEFITS, COSTS, AND BENEFITS, COSTS, AND DISBENEFITS DISBENEFITS Benefits - The favorable consequences of the project to the project sponsors (i.e., the public for public projects) Costs -- Monetary disbursements required (i.e., of the government for public projects) Disbenefits -- The negative consequences of the project to the project sponsors
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SELF-LIQUIDATING PROJECT Any public project that is expected to earn direct revenue sufficient to repay the project cost(s) in a specified period of time.
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PROBLEMS ASSOCIATED WITH MULTIPURPOSE PROJECTS Difficult to evaluate and compare all benefits and all disbenefits associated with the project. Difficult to allocate costs appropriately to each of the various purposes. Difficult to prioritize importance of purposes where conflict of interest occurs between purposes. Difficult to deal with the various political sensitivities of Multipurpose public projects.
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DIFFICULTIES IN EVALUATING PUBLIC SECTOR PROJECTS 1. No profit standard as a measure of effectiveness 2. Difficult to quantify monetary impact of benefits 3. Little or no connection between project and public 4. Short-term rather than long-term benefits are
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This note was uploaded on 10/28/2009 for the course ENGM 400 taught by Professor Blank during the Spring '09 term at American University of Beirut.

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E421-11 - CHAPTER 11 EVALUATING PROJECTS WITH THE BENEFIT...

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