p_eval4_l11_pub

p_eval4_l11_pub - 1.011 Project Evaluation Public vs....

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1.011 Project Evaluation Public vs. Private Projects Carl D. Martland
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Project Evaluation in the Private Sector Analysis focuses on financial issues NPV based upon incremental costs and benefits and the (usually rather high) corporate discount rate Costs are generally well understood for any kind of an expansion to an existing system (but new technology may require analysis) Construction, equipment, operations, and maintenance Demand may or may not be well understood Carriers will respond to very clear trends Carriers may panic if growth stops or if traffic declines Carriers tend to be very leery of demand models that go beyond trends that are already evident and understood (which implies a tendency to be conservative in expanding services) Strategic plans play an important role Availability of funds is not necessarily tied to particular projects
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Project Evaluation in the Public Sector Public sector projects are much more complex (unless there is an independent agency that operates much like a private company). For many public transport projects: Cash flows from the project will be insufficient to justify the investment A high portion of the direct benefits will be in the form of reduced travel time or increased travel volumes Impacts on development and employment may be major goals of the project, not merely indirect benefits Decision-makers are elected officials who respond directly to public concerns about externalities Equity, aesthetics, etc. are important public concerns Public sector transportation projects compete with housing, education, defense, and other public concerns - much broader competition for funds than in a private company
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Public vs. Private Projects Based upon "Engineering Economy", Table 11.3 Private Public Purpose Financial Social Funding Taxes, Tax Free Bonds, Low Interest Loans Multi-Purpose Some Most Project Life Shorter Longer Benefits Financial Financial, Social, Economic, Aesthetic, . .. Conflict Moderate Politics Little-Moderate High Measure of Efficiency NPV,IRR,ROI Very Difficult
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Water Resource Project Based upon "Engineering Economy", Section 11.4 Dam Benefits Assist in flood control Provide water for irrigation Generate electric power Provide recreational facilities Provide drinking water Disbenefits Loss of farmland Loss of wild river Loss of fertile sediment on lower farmland Negative ecological effects of obstructing river flow
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Water Resource Project (Cont.) Based upon "Engineering Economy", Section 11.4 Inherent Problems Allocating costs to specific purposes Conflicts of interest among users Political Sensitivity Allocation of costs and pricing of public services from multi-use projects can be arbitrary
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Logic for Benefit/Cost Analysis The total benefits must exceed the total costs for federally funded projects (Flood Control Act of 1936) All benefits can be considered - and the benefits must be monetarized Benefit/cost calculations can be very difficult when non-financial factors are dominant!
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p_eval4_l11_pub - 1.011 Project Evaluation Public vs....

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