This is a methodical approach that takes into account an options benefits

This is a methodical approach that takes into account

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This is a methodical approach that takes into account an options benefits (strengths), and dis-benefits (weaknesses) This approach allows: Factoring of non-monetary benefits into the analysis after they are quantified. Consideration of benefits and disbenefits to a broad range of users. Following difficulties are observed in public-project analysis: Identifying all potential users of the project. Identifying and quantifying all benefits and disbenefits of the project. Selecting appropriate present value for evaluation and analysis. 10 IE 492 Engineering Economics
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BENEFIT COST ANALYSIS (CONT.) Steps involved in Benefits Cost Analysis process: Establish objectives Identify constraints and specify assumptions Define base case and identify alternatives Set analysis period Define level of effort for screening alternatives Analyze traffic effects Estimate benefits and costs relative to base case Evaluate risk Compare net benefits and rank alternatives Make recommendations 11 IE 492 Engineering Economics
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BENEFIT COST RATIO (BCR) Benefit Cost Ratio is defined as: (B D) / C where, B = all benefits, D = all disbenefits, C = net cost of the project Note that all benefits and costs are expressed in present values i.e. BCR takes into consideration the Time Value of Money. Present Value (PV) is determined for all revenue and expense streams of the project / alternative. Discount rate / interest rate is usually taken form financial markets. Net Benefit Value (NBV) is defined as B D C. If the BCR > 1, then the project is acceptable. 12 IE 492 Engineering Economics
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