Cost Benefit Analysis For Road Projects

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Cost Benefit Analysis For Road Projects

Cost Benefit Analysis For Road Projects .............................................................................1

Constraints/Limitations faced in the development of the Cost-Benefit matrix for

JSIF Road Projects: - ...................................................................................................1

Introduction To The Cost- Benefit Format As Presented .............................................1COST ITEMS ..............................................................................................................3

BENEFITS EXPLAINED ...........................................................5

COSTS ITEMS .............................................................................................................10

Benefits ......................................................................................................................11Criterion For The Location of Road Projects ............................................................15

Project location Table .................................................................................................18MATRIX ANALYSIS ................................................................................................18

Road Matrix ...............................................................................................................19

Constraints/Limitations faced in the development of the Cost-

Benefit matrix for JSIF Road Projects: -

(a) The time period of two weeks (14 calendar days) is extremely

short for the carrying out of the task at the professional level

required.

(b) The experiences of other SIFs, in Africa, Asia and Latin America

points to the usage of the focus group method in identifying Costs

and Benefits,

(c) The experience of other SIFs, in Africa, Asia and Latin Americapoints to or indicate the usage of technical experts in the field of

Economics, Environmental Management, Cultural Preservation,

Transport Engineers and Civil Engineers among others in

developing these types of tools.

Introduction To The Cost- Benefit Format As Presented

The approach taken in designing the Cost-Benefit Analysis tools

below took into consideration the following two needs of the

organization:- need to allow for flexibility in identifying cost

components as well as benefits , in keeping with the focus of the

organization at a given point in time , as well as the experience and

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level of technical competence of the individual/s using the tools;

secondly the fact that the value cost and benefits identified are

community based ( unique) and thus may not have universal

application.

The potential needs that may come about as a result of the

implementation of Community Based Contracting was taken into

account. It is to be noted that the tools presented below went a bit

further than traditional Cost-Benefit Analysis as will be seen on

further evaluation, while seeking to maintain an adequate level of

simplicity . As such while the traditional Cost-Benefit Tables are

presented, a Project Selection Table (Measure) is also added for

completeness . The Lower cut off point for project selection is one

for management to decided on in keeping with priorities and policies

and thus is in no way a technical one. The Project Selection Table is

also intended to act as a control mechanism for the Cost Benefit

Table. While owing a lack of information ,the Cost Benefit Table

might indicate that a given road project proposal is undesirable, the

Project Selection Table (or Measure) will either confirm this finding

or in the case of non confirmation , indicate that there is a need to

reanalyze the proposal. The Road Matrix , is also an additional tool

that maybe used in conjunction with the Cost-Benefit Table and the

Project Selection Matrix as another layer of control.However please

note that all three tools have been so designed as to have Stand

Alone capabilities, with none being dependent on the other.

Once again it is important to note that any given Cost or Benefit

may be included or ignored without compromising ones objective .

Values of individual Costs and or Benefits must be relevant to andgenerated from data from the community where the request was

generated. The Project Selection Table can be done based on data

already existing in or available to JSIF. The Road Matrix similar to

the Project Selection Table (Measure) is a simple tool, it requires no

specialist knowledge and based on simple questions requiring a Yes

or No answer, to which a number value of either (1) or (0) is

attached.

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It should be noted however , that these tools would be of greater

value to the organization, if the MIS section were to assist in putting

them in the form required for computer aided processing.

COST ITEMS

(1) The items presented in the COST column are to be valued

at the prices prevailing in the given community at the given

point in time when the cost benefit analysis exercise is

taking place> There is in Jamaica no single unit size price

for land or agricultural outputs, prices are location /

community based.

(2) The effective span for the average tree is taken to be twenty

years (20 years), it is however recognized that the average

tree if undisturbed can live up to any where between 30 to

100 years.

(3) The agricultural output value of the Common Mango

Tree over a period of twenty (20 years) is taken to be the

shadow/non market price of any given tree, regardless of

type, genius or specie of that tree.

(4) The cost of restoring a given area of disturbed land to its

natural state is taken to be the shadow/non market price

of the damage done to the environment.

(5) The real cost of health problems resulting from civil works

projects is difficult and politically even for JSIF

undesirable, to calculate at full or true value, therefore the

cost of treating sinusitis in an individual for the duration of

the project times the population size, is used as the basis for

the calculating the shadow price of dust related illnesses.

(6) The cost of bringing direct benefits to a particular gender is

not calculated and should not be calculated for JSIFs civil

work projects, regardless of their type.If the cost of the

benefits of Maternity Leave With Pay or Equal Pay For

Equal Work were calculated before their enactment, their

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enactment would not be affordable or economically

justifiable.

(7) The opening or restoring of long closed road ways, in some

instances, where this type of activity results in a sudden

significant increase in traffic flows or individual

mobility/access to urban centres, can lead to irreversible

loss of cultural forms and or ways of life. The archiving of

cultural information within this framework and within the

context of growing local and tourist demand for Jamaican

Cultural Information is of critical importance. .

(8) An increase in access, and improved communications

generally leads in the Jamaican context of things to increase

urban influences and pressures. Along with these urban

type pressures comes some level of urban type crime e.g.

murder, robbery etc. While it is not possible to predict how

many acts a particular type of crime will be committed in

any give locale, its is recommended that consideration,

within the Jamaican Context, be given to the inclusion of a

shadow /non market price of this eventuality within the

Cost-Benefit Analysis.

Within this context the loss of an individuals life due to

murder is calculated to be the amount one unskilled

individual is expected to earn over a his working life, while

the base price for wounding regardless of the type of wound

or level of seriousness, it is taken to be the cost of visit the

nearest doctor plus the cost of any medicine used in treating

a knife wound to the limb or face. These

values are then multiplied by the number of these crimes

that occur over the last year in the nearest township orurban center in order to get the yearly cost of crime against

the individual, the cost of crime over the life time of the

project would be the yearly cost times 25 (the expect

minimum depreciation time of road is taken to be equal to

be that of one human generation or 25 years). Please note,

that this is a minimum cost approach.

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(9) In some communities, there is a cost to be paid by

contractors for project security and or social appeasement

to the area leaders or dons or to the police for permitting

the carrying out of the road project. This is a constant

feature with civil works in urban and near urban settings,

affecting road projects of all sizes from Highway 2000 to the

paving of a dirt road in a squatter community.

(10)Jamaican driving habits have resulted to accidents and

death on nearly all paved surfaces in the country, urban or

rural, especially in those communities where Robot Taxis

are the main means of commuter transportation. Therefore

its is recommended that the loss of life of one individual and

the injury of one individual resulting in at least three

months hospitalization, be budgeted for each year of the 25

years life span of a roads normal unmodified life.

Please note that not each and every cost item will be

relevant to each and every road project. Many of the

cost items listed have no relevance to road works in

urban settings.

BENEFITS EXPLAINED(1) Not all benefits will be applicable to each and every

community road project.

(2) All prices are local i.e. community based, the cost of visit a

doctor in one community may be $2500.00 in another it

may be only $500.00.

(3) The National Minimum Hourly Minimum Wage Rate is the

Weekly Minimum Wage divided by 40 hours, e.g. if the

weekly minimum wage is J$2500.00 then the National

Minimum Wage Rate is J $2500.00/40 is J$62.50 per hour.

(4) In some communities, there will be more quantifiable

benefits, which should be included in the Cost Benefits

Analysis. It is the duty of the sponsoring organization to

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ensure that all possible benefits and costs are duly

identifiable and quantifiable and recorded.

(5) Transport hours saved refers to the number of hours saved

by the average individual over the period of one year owing

to the rehabitation of the road, times the minimum amount

of money the individual could earn doing one hour work in

keeping with wages set by the National Minimum Wage Act

(see 3 above) times the traveling population (i.e. excluding

children under the age of six (6) years, adults over the age

of 65 years and severely physically challenged individuals).

(6) The reduction of teen-age pregnancies benefits refers to the

savings made by the community in not having to take care

of a given number of children not born owing to a reduction

in pregnancies. It is the cost of taking care of one healthy

child for 16 years times the expected reduction of teen-age

pregnancies. For example if the birth rate fell by four

births, then this saving/benefit =4 times the cost of taking

care of a child for 16 years times 25 years i.e. the expected

life span of the road. Here it is assumed that the reduction

of the birth rate by 4 for year will be held constant over the

expected life span of the road.

(7) Increase in school attendance refers to the potential

increase income to be earned by the expected increase in

literate skilled individuals resulting from an increase in

school attendance stemming from the rehabitation of the

road. It is equal to the expected increase in school

attendance times the yearly of a skilled workman e.g.

mechanic times 25 i.e. the expected life span of the road.

(8) Increase access to prenatal and post natal care, refers to theincrease in savings of the community coming from the

expected reduction in home deliveries times cost of

hospitalization stemming from the most common

complications stemming from an unmonitored pregnancy

times 25. It is assumed that this yearly reduction in home

deliveries will be the same throughout the life span of the

rehabitated road.

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(9) Increased prevention of childhood diseases refers to the

savings to the community stemming from an increase access

to vaccinations. It is equal the increase in the number of

children vaccinated in the first year of the rehabitated road

times the cost of treating a child for mums, measles, etc,

plus the income loss to one parent owing the illness of the

child times 25.

(10)The increased ease of carrying shopping or household

supplies refers to the savings made by the individual in

transporting household goods, in terms of time and money,

as a result of the rehabitation of the road. It is equal to the

expected savings in shopping time by the average female

times the national minimum hourly rate times the number

of females in the community falling within the age range of

14-to-65 years, times the number of Saturdays in the

average year times 25.

(11)Time saved going to and from church refers to the savings

by the community stemming from the rehabitation of the

road in going to and from religious activities/events at the

church in terms of reduction in the cost of transportation

and in time by the church going segment of the population

times the number of Sundays in the average year times 25

years.

(12)Number of hours saved by children going to and from

school, is approached in a manner similar to (11) above.

(13)Number of hours saved going to and from cultural events

refer to the savings made by the young people and parents

of the community in maintaining a normal culturally active

life resulting from the rehabitation of the road. It is thehours saved going to and from the town centre once per

month times 12 (months in the year) times the number of

individuals in the community within the age range of 15 to

45 years times 25 (the expected lifespan of the road).

(14)Number of hours saved going to and from work refers to

the savings made by individuals who have to go to work

outside the boundaries of the community. It is equal to the

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number of hours saved by the average working individual

going to and from work on the average working day times

the number of individuals working outside the community

times the national minimum average minimum wage (see 3

above) times the number of working days in the average

year times 25 (the expected lifespan of the road is taken to

be 25 years).

(15)Increase in the yearly value of agricultural output refers to

that increase in the value of agricultural output that is

directly attributable to the rehabitation of the road, thus for

example, the increase in output stemming from an increase

in rainfall in a given year would not be included in this

calculation, nor would an increase in value stemming from

a shortage of a given agricultural product be included,

however an increase stemming from the greater use of

chemical fertilizer, or from an increase in the acreage under

cultivation would be included in this calculation. It is the

increase in value of agricultural output directly attributable

to the rehabitation of the road in an average year time 25

(the expected lifespan of the rehabitated road).

(16)Increase in the amount earned by truckers or country bus

operators, refer to the value of the yearly increase in

loads carried by these carriers as a direct result of the

rehabitation of the road times 25. The standard load is

given as being equal to 50 pounds of agricultural output.

(17)The increase in the number of taxi coming into the area

refers to the additional income earned by the communitys

taxi operators as a result of the rehabitation of the road. It

equal to the number of taxi entering the community as aresult of the rehabitation of the road times eight (trips per

day) times $200.00 (income earned per trip) times 365 (days

in the year) times 25 (the expected lifespan of the

rehabitated road).

(18)Estimated number of jobs gained as a result of the

rehabitation of the road, refers to the increase number of

jobs /employment gained as a direct result of the

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rehabitation of the road. It could come about as a result of

individuals who previously could not get to and from work,

now being able to seek employment outside of the

community, it could come about as a result of new business

opening in the community as a result of better access or

previously existing businesses expanding and employing

more individuals. It is equal to the number of new jobs

times the national minimum wage time 25 (assuming that

the amount of new jobs created over the 25 years period

will remain constant).

(19)Increase in the number of community-based business

refers to that increase in the number of new business

operating in the community where this increase is directly

attributable to the rehabitation of the road. It is assumed

that each business is expected to earn an income for its

proprietor at least an amount equal to the yearly Minimum

Wage. Thus value of this benefit is equal to the yearly

National Minimum Wage times the number of new

businesses times 25 years (assuming that each year for 25

years the same number of new businesses will come into

being.

(20)Increase in the number of individuals or tourists visiting

the community as a direct result of the rehabitation of the

road, refers to those visitors who pass through the

community for no other reason than curiosity or for the fact

that the road allows one to drive through. The potential

increase in earnings from this source is calculated to be the

expected number of visitors passing through per year

times the price of a Pepsi Cola times 25. The communitymay or may not realize this benefit.

(21)Improved pest/parasite control as a result of the road

project, refers to the savings made by the community as a

result of better hygiene /sanitation/bushing practices as

related to the rehabitated road, resulting in the number of

breeding spaces available to vectors and pests. It is

measured as the amount of money saved by the average

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family in treating insect bites and purging parasites in the

average year times the number of families in the

community times the number of years.

COSTS ITEMS Cost Pre

Construction

J$

Cost Post

Construction

J$Construction & Labour Cost

The cost of agricultural crops

destroyed by construction

Cost of land used or directly affected

by construction ($ per hectare)

Cost of trees lost (20 years times

price of 100 common mango [i.e.

average yearly harvest of mangoes]

times 25 years (life span of road)

Cost of domestic removal of

construction dust (i.e. amount of

hours lost per households for the

duration of project construction

times national minimum hourly rate

time the number of households in

communities)

Minimum cost of treating dustrelated illnesses (i.e. cost of treating

one individual with suffering from

sinusitis for the duration of project

construction times the exposed

population)

Cost of restoring the total affected

area to original state (i.e. minimum

cost of environmental damage)

Cost of anthropological recording

and cataloguing of local culture, its

distribution and storage.

Cost of increased exposure to urban

levels and type of crime (i.e. number

of individuals murdered in last

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calendar year times expected life

time earnings of one unskilled

individual plus number of wounding

per year in the nearest urban

settlement times the cost of one visit

to the doctor and the cost of treating

one individual for a knife wound to a

limb or face) times 25 years (life span

of road)

Cost of security and social

appeasement for duration of

construction project

Economic cost of one life and one

serious injury (requiring three

months hospitalization) for a period

of twenty five years

Total costs

Benefits Value J$Transport hours saved (national minimum

hourly rate times number of hours saved

for 25 years)

The reduction in teen age

pregnancies ((The cost of taking

care of one child for 16 years times

the expected reduction of teen age

pregnancies (, e.g. a expected

reduction by 4 pregnancies per year)

times 25))

Increase in school attendance (the

expected yearly increase number of

individuals attending school in times

the average yearly earnings of a

skilled trades man times 25)

Increase access to prenatal and post

natal care (measured by the expected

reduction in home deliveries times

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the cost of hospitalization as a result

of the most common complication

occurring to both mother and child

during delivery or as a result

unmonitored pregnancy times 25)

Increased prevention of childhood

diseases such as measles, mums etc

(the increased number of children

expected to be vaccinated against

childhood diseases in the first years

after road completition times the cost

of treating illness in one child for

each of the childhood diseases

vaccinated against times 25).

Increased ease of carrying shopping

or household supplies home

(expected reduction in time to carrygoods from nearest market and

supermarket/wholesale time

minimum national hourly rates times

number of females in community

between the age ranges of 14-to-65

years, time the number of Saturday s

in the average year times 25)

Time saved going to and from

church (expected reduction in time

on trips to and from church times

the national minimum hourly rates

times the number of church goers in

the community times the number ofchurch days in the year times 25)

Number of hours saved by children

going to and from school. Same

approach as above with hours saved

going to church.

Number of hours saved going to and

from cultural events or places e.g.

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cinemas, KFC, dances, library etc

(hours saved going to and from town

centre once per month times 12 (i.e.

months in the year) times national

hourly minimum wage times number

of individuals living in the

community between the ages of 15

and 45 years time 25)

Number of hours saved going to and

from work (hours saved times

number of individuals working

outside the community times the

national minimum hourly rate times

the number of working days in the

year times 25)

Increase in the yearly value of

agricultural output owing to therehabitation of the road times 25

Increase in the amount earned by

truckers or country bus operators

owing to an increase in agricultural

output stemming from the road

project (additional yearly output

divided 50 pounds times $100.00

(cost of transporting 50 pounds of

goods) time 25 crop years. One load

for the bus top is assumed to weigh 50

pounds)

Increase in the number of taxi

coming into the community per day

as a result of road project times eight

(8) trips per day times $200.00

(amount of money per trip) times 365

(days per year) times 25

Estimated number of jobs gained per

year as a result of the road project

times National Minimum Yearly

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Income times 25

Estimated increase in new

community based business venture in

the first year after completion ofroad project times Year National

Minimum Yearly Wage times 25

Increase in the number of

individuals and tourist per year as a

result of the road project times the

price of one Pepsi Cola or Coco Cola

time 25Improved pest/parasite control as a

result of the road project (measured

as a saving on the use of household

pesticides and medication for insect

bite and internal parasites per house

hold per year times number of

households times 25.

TOTAL VALUE OF BENEFITS

COST BENETIF = Total Value of Benefits Total Costs

If the Total Value of Benefits minus Total cost is positive, and if the Total

Value Of Benefits is greater than 25% of Contract value plus Contract

value then JSIF can go ahead with this project.

The Cost-Benefit Analysis Framework as presented above, is intended

to be used the Project Selection Measure (PSM) out lined below. This

measure seeks to address the fact that each Quartile 4 or Quartile 3

community is a unique entity, thus while a road rehabitation project

might have measurable impact on alleviating the conditions giving rise

to social poverty in one given Quartile 4 community in another there

might be no significant impact on the determining factors of social

poverty.

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As with the Cost Analysis Frame Work Outlined above, the PSM

approach suffered from a lack out enough time and related resources

desirable to carry out adequate study and testing before being

developed. As such, it should be seen as a guide to action, and not as a

Bible neither defining right or wrong nor offering prescriptions to all

selection problems.

Criterion For The Location of Road Projects

Given that JSIF road construction or road repair projects are so

designed to meet the objective of alleviating poverty, there is a need to

ensure that these projects actually do what they are intended to do. The

construction of a road by itself does not mean that poverty will be

alleviated, if this road has little or no impact on the day-to-day economic

and social lives of the targeted population.

In addition JSIF movement towards CBC requires the development of

more exacting tools allowing for the filtration of those requests which

are designed to mislead or to milk the organization and in seeking to

encourage the further development of JSIF capability to alleviate

poverty through road construction and or road repair projects, the

following table and formula is being suggested for use in project

selection: -

Scoring System: -

(1) The Quartile from which the request originated (#2Q) is given a

number value matching the Quartile number, which is then multiplied

by it. For example a request from a Quartile 3 community would be

given the value 3, which is then multiplied by 3, giving Q the value 9, for

a Quartile 4 community, the number value would be 4, which would

then be multiplied by 4 given Q a final value of 16.

(2) The level of isolation of the community takes the value i. Where the

community is over two miles from the nearest town the value ofiis 3, if

the distance of the community is less than one mile but more than

mile from the nearest town itakes the value 1, where the distance is less

than mile from the nearest town itakes the value 0. Therefore the

maximum value that ican take is 3. Whatever value is taken by the

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variable i is then multiplied by 3, the product of which is then inserted into

the PSM table.

(3) The level of female unemployment is given by the variablefum.

Where female unemployment is more than 20% of the female labour

force, the variablefum takes the value 3,where it is under 20% of the

female labour force but over 10%fum is equal to 2, where female

unemployment is less than 10% of the female labour forcefum takes the

value 0. Whatever valuefum takes, multiply it by 4 and insert the

product into the table.

(4) The job creation potential of the completed road project: - jcp takes

the value 1 or 0. If there is a job creation potential, then jcp is equal to 1,

if there is no job creation potential thenjcp is equal to 0. Multiply the

valuejcp takes by 3 and insert the value into the table.

(5) Increased market access for agricultural products is given by the

variable ima. Where the completed road project significantly improves

the access of the market for agricultural products, ima takes the value 3,

where the completed road product has only a marginal impact on access

to the market for agricultural products ima takes the value 1, and if the

completed road project has no impact on the access to the market for

agricultural products, ima takes the value 0. Multiply the value of the

ima 2 and insert it into the table.

(6) The potential impact on local business is given by the variablepib. If

the completed road project has a significant positive impact on local

businesspib takes the value 3, if the completed road project has only a

marginal positive impact on local business, thenpib takes the value 1,where completed road project has no positive impact on local business

thepib takes the value 0. If the completed road project has a negative

impact local business thepib takes the value 3 (minus three). Multiply

thepib by 2 and insert its value into the table.

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(7) The potential increase in the area under agricultural cultivation

resulting from the completion of the road project is piac If there is a

significant potential of increasing the area under cultivation,piac takes

the value 4, if there is only a marginal potential increase in the area

under cultivation, thepiac takes the value 1, if there is no potential

increase in the area under agricultural production thepiac takes the

value 0. Should the completed road project has a potential to reduce the

area under agricultural production , thepiac takes the value 3 (minus

three). Multiply the value of the piac by 4 and insert it into the table.

(8)The distance from the nearest tourist resort is given by the identity

ntr. If the community in which the road is to be built is 5 miles or more

miles from the nearest tourist resort, the ntris equal to 4, if the

community is under 5 miles but not less than 3 miles from the nearest

tourist resort, the ntr is equal 2, where the community is less than 2

miles from the nearest tourist resort, the ntrtakes the value 1. Multiply

the value of the ntr and insert the product into the table.

(9) The level of teen-age fertility is given by the variableff. Where

teenage fertility is higher than the national level, thefftakes the value 5,

where it is lower than the national levelfftakes the value 2. Multiply the

value of theffby 6 and insert it into the table.

(11)The level of social organization of the community is

represented by the symbol #so. If a community is highly

organized, the #so is equal to 3, where the community is

poorly organized the #so takes the value 1. This variable

will have a significant role in indicating the communitys

ability to meet its contribution to any given project.Multiply the #so by 3 and insert the product into the table.

(12)The level of crime in a community is represented by the

variable lc. In communities with a high level of reported

violent crime, the lc takes the value 4, if there is a low level

of reported crime in the community; the lc takes the value

0. Multiply the lc by 6 (minus 6).

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Add all the numbers in the values column. The higher

the value ,the more desirable is the project for

implementation by JSIF, the lower the value , the less

desirable is the project for JSIF implementation.

Project location Table

Item Value

i

#2Q

fumjcp

ima

pib

piac

ntr

lc

ff

Total

PSM= #2Q +3.i+4 fum+ 3jcp+2ima+ 2 pib + 4piac+ 5ntr+ 3#so-6lc+6 ff

Where PSM= Project Selection Measure

MATRIX ANALYSIS

The matrix given below is intended to be used in the main for desk

screening. It seeks to analysis the desirability of implementing a given

road project on the basis of simple yes and no answers, where if the

answer to a question is yes a 1 is placed in the value column , if the

answer of the question is no , a 0 is inserted in the value column. At the

end all the number value is added. The maximum score (or value) a

project can get at the end of addition is six 6. This six (6) indicates that

the proposal is desirable . The lowest possible score a proposal can

obtain at the end of addition is 0. This 0 indicates that the project is

undesirable for implementation. For projects with scores between the

values of 3 and 6, the input of the Social Development Manager should

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be sought . For projects with scores between 3 and 0 , they are not very

desirable and should be rejected.

Road Matrix

Question Answer(yes or no)

ScoreYes=1

No=0

Are there more than 100 potential road users per

day residing in the community?

Could the road be used as a by pass in the event of

an emergency?

Would the rehabitation of the road increase

agricultural output by at least 15% ?

Would the rehabitation of the road lead to an

increase in the area under cultivation?

Would the rehabitation of the road lead to the

creation of new business possibilities in the given

community?

Would the rehabitation of the road lead to a

significant increase in the possibility of reducing

unemployment

Total (add the ones (1) in the third column)

End

Basil Fletcher

Documents

Cost Benefit Analysis For Road Projects