12-Multicriteria%20Analysis

12-Multicriteria%20Analysis - Engineering Economics ECO...

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Unformatted text preview: Engineering Economics ECO 1192 Lecture 12: Multi-criteria Analysis Claude Théoret University of Ottawa ECO 1192A -- Fall 2009 12. Multicriteria Analysis 2 Recommended Reading • Fraser et al.* chapter 12 • Park chapter 10 • J.L Riggs. D.D Bedworth. S.U. Randhawa and A.M. Khan Engineering Economics . Second Canadian edition. McGraw-Hill Ryerson Limited. Toronto. 1997 • G.J. Thuesen and W.J. Fabrycky Engineering Economy . Ninth Edition. Prentice Hall. 2001 ECO 1192A -- Fall 2009 12. Multicriteria Analysis 3 Introduction • All project decisions (except for the payback method liquidity) have focused on a SINGLE criterion: profitability • e.g., highest NPW for projects with identical lives • In most situations, project decisions are based on a number of criteria or attributes Cars: price, comfort, after-sale servicing, colour …. Housing: price, number of rooms; location .. • Decisions are usually more complex when based on multiple criteria ECO 1192A -- Fall 2009 12. Multicriteria Analysis 4 What is a project? • Investment • Financial • Real property • Policy/program • University bursaries • Social assistance • Consumption of a good or service • Major purchase (e.g., plasma TV), holiday, trip …. ECO 1192A -- Fall 2009 12. Multicriteria Analysis 5 Types of project analyses 1. Cost-effectiveness 2. Financial 3. Economic (e.g., cost-benefit) 4. Multi-criteria City of Ottawa Highway Bypass Usage (vehicles) expected per year $5M Toll per trip $2 Average cost per vehicle (wear+tear of highway) $0.05 Initial cost: studies, analyses, construction $200M Greenhouse effects : CO2 emissions – health hazard $0.03 per vehicle Noise pollution for surrounding areas $0.01 per vehicle Time savings (avoid busy Queensway) 10 minutes Average hourly work rate of users $25 Annual decrease in residential property values $20,000 Annual reduction of fatal accidents 10 Estimated value of a life $500,000 Annual reduction in vehicle accidents 300 Average material cost per accident $2,000 Scenic route: value per trip $0.06 ECO 1192A -- Fall 2009 12. Multicriteria Analysis 7 1. Cost Effectiveness • Objective: Major city seeks to reduce accidental deaths by 20 per year • Given budget ($) • Two programs are earmarked to reach objective • Subsidies for household fire detectors • Street improvement (widening, patrolling ..) • Major issue: budget ($) allocation between the two programs 1. Cost Effectiveness 10 15 20 Subsidies: fire detectors ($) Street Improvement ($) Budget A Budget B Budget C • Objective (Budget A) : reduce accidental deaths by 10 • Objective (Budget B) : reduce accidental deaths by 15 • Objective (Budget C) : reduce accidental deaths by 20 Y Z ECO 1192A -- Fall 2009 12. Multicriteria Analysis 9 1. Cost Effectiveness • Z = aX α Y (1-α) Where • Z = goal or objective (e.g., save 20 lives annually) • a: constant • X: program 1 expenditures • Y: program 2 expenditures Z = aK b L c a = a = 0.5a = a = 0....
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This note was uploaded on 06/24/2010 for the course FIR 4440 taught by Professor Moore during the Spring '08 term at U. Memphis.

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12-Multicriteria%20Analysis - Engineering Economics ECO...

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