ProjectEvaluation (2)

8/6/2019 ProjectEvaluation (2)

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RAI BUSINESS SCHOOL

ASSIGNMENT

Subject: Project Evaluation & Implementation

Program: PM SEM: 4

Faculty Name: Sumesh Kumar Marks: 15

Email Id: [email protected]

1) Explain financial appraisal of a project.

1) What is SCBA? Explain different approaches of SCBA that the financial

institutions are adopting

2) Financial appraisal is a method used to evaluate the viability of a proposed3) project by assessing the value of net cash flows that result from its4) implementation. Financial appraisals differ from economic appraisals in the5) scope of their investigation, the range of impacts analysed and the methodology6) used. A financial appraisal essentially views investment decisions from the7) perspective of the organization undertaking the investment. It therefore measures8) only the direct effects on the cash flow of the organisation of an investment9) ,decision.

Cost-benefit analysis

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Cost-benefit analysis (CBA), sometimes called benefit-cost analysis (BCA), is aneconomic decision-making approach, used particularly in government and business. CBAis used in the assessment of whether a proposedproject, programme or policy is worthdoing, or to choose between several alternative ones. It involves comparing the total
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expected costs of each option against the total expected benefits, to see whether thebenefits outweigh the costs, and by how much.

In CBA, benefits and costs are expressed in money terms, and are adjusted for the timevalue of money, so that all flows of benefits and flows of project costs over time (which

tend to occur at different points in time) are expressed on a common basis in terms oftheir "present value."

Closely related, but slightly different, formal techniques includecost-effectivenessanalysis, cost-utility analysis,economic impact analysis, fiscal impact analysis and SocialReturn on Investment (SROI) analysis.

Contents

[hide]

1 Theoryo 1.1 Valuation

o 1.2 Time

o 1.3 Risk and uncertainty

2 Application and history 3 Accuracy problems 4 See also 5 References 6 Further reading

7 External links

[edit] Theory

Costbenefit analysis is often used by governments and others, e.g. businesses, toevaluate the desirability of a given intervention. It is an analysis of the cost effectivenessof different alternatives in order to see whether the benefits outweigh the costs (i.e.whether it is worth intervening at all), and by how much (i.e. which intervention tochoose). The aim is to gauge the efficiency of the interventions relative to each other andthe status quo.

[edit] Valuation

The costs of an intervention are usually financial. The overall benefits of a governmentintervention are often evaluated in terms of the public's willingness to pay for them,minus their willingness to pay to avoid any adverse effects. The guiding principle ofevaluating benefits is to list all parties affected by an intervention and place a value,usually monetary, on the (positive or negative) effect it has on their welfare as it wouldbe valued by them. Putting actual values on these is often difficult; surveys or inferencesfrom market behavior are often used.
http://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Cost-effectivenesshttp://en.wikipedia.org/wiki/Cost-effectivenesshttp://en.wikipedia.org/wiki/Cost-utility_analysishttp://en.wikipedia.org/wiki/Cost-utility_analysishttp://en.wikipedia.org/wiki/Economic_impact_analysishttp://en.wikipedia.org/wiki/Economic_impact_analysishttp://en.wikipedia.org/wiki/Social_Return_on_Investmenthttp://en.wikipedia.org/wiki/Social_Return_on_Investmenthttp://en.wikipedia.org/wiki/Cost-benefit_analysishttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Theoryhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Valuationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Timehttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Risk_and_uncertaintyhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Application_and_historyhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Accuracy_problemshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#See_alsohttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Referenceshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Further_readinghttp://en.wikipedia.org/wiki/Cost-benefit_analysis#External_linkshttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=2http://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Cost-effectivenesshttp://en.wikipedia.org/wiki/Cost-utility_analysishttp://en.wikipedia.org/wiki/Economic_impact_analysishttp://en.wikipedia.org/wiki/Social_Return_on_Investmenthttp://en.wikipedia.org/wiki/Social_Return_on_Investmenthttp://en.wikipedia.org/wiki/Cost-benefit_analysishttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Theoryhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Valuationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Timehttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Risk_and_uncertaintyhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Application_and_historyhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Accuracy_problemshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#See_alsohttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Referenceshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#Further_readinghttp://en.wikipedia.org/wiki/Cost-benefit_analysis#External_linkshttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=1http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=2


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One source of controversy is placing a monetary value of human life, e.g. when assessingroad safety measures or life-saving medicines. However, this can sometimes be avoidedby using the related technique ofcost-utility analysis, in which benefits are expressed innon-monetary units such as quality-adjusted life years. For example, e.g. road safety canbe measured in terms of 'cost per life saved', without placing a financial value on the life

itself.

Another controversy is the value of the environment, which in the 21st century issometimes assessed by valuing it as a provider of services to humans, such as water andpollination. Monetary values may also be assigned to other intangible effects such as lossof business reputation, market penetration, or long-term enterprise strategy alignments.

[edit] Time

CBA usually tries to put all relevant costs and benefits on a common temporal footingusing time value of money formulas. This is often done by converting the future expected

streams of costs and benefits into apresent value amount using a suitable discount rate.Empirical studies suggest that in reality, people do discount the future like this.

There is often no consensus on the appropriate discount rate to use - e.g. whether itshould be small (thus putting a similar value on future generations as on ourselves) orlarger (e.g. a real interest rate or market rate of return, on the basis that there is atheoretical alternative option of investing the cost in financial markets to get a monetarybenefit). The rate chosen usually makes a large difference in the assessment ofinterventions with long-term effects, such as those affecting climate change, and thus is asource of controversy. One of the issues arising is theequity premium puzzle, that actuallong-term financial returns on equities may be rather higher than they should be; if so

then arguably these rates of return should not be used to determine a discount rate, asdoing do would have the effect of largely ignoring the distant future.

[edit] Risk and uncertainty

Risk associated with the outcome of projects is also usually taken into account usingprobability theory. This can be factored into the discount rate (to have uncertaintyincreasing over time), but is usually considered separately. Particular consideration isoften given to risk aversion- that is, people usually consider a loss to have a largerimpact than an equal gain, so a simple expected return may not take into account thedetrimental effect of uncertainty.

Uncertainty in the CBA parameters (as opposed to risk of project failure etc.) is oftenevaluated using a sensitivity analysis, which shows how the results are effected bychanges in the parameters.
http://en.wikipedia.org/w/index.php?title=Cost-utility&action=edit&redlink=1http://en.wikipedia.org/wiki/Quality-adjusted_life_yearhttp://en.wikipedia.org/wiki/Quality-adjusted_life_yearhttp://en.wikipedia.org/wiki/Market_penetrationhttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=3http://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Present_valuehttp://en.wikipedia.org/wiki/Discount_ratehttp://en.wikipedia.org/wiki/Climate_changehttp://en.wikipedia.org/wiki/Equity_premium_puzzlehttp://en.wikipedia.org/wiki/Equity_premium_puzzlehttp://en.wikipedia.org/wiki/Equity_premium_puzzlehttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=4http://en.wikipedia.org/wiki/Risk_aversionhttp://en.wikipedia.org/wiki/Risk_aversionhttp://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Sensitivity_analysishttp://en.wikipedia.org/wiki/Sensitivity_analysishttp://en.wikipedia.org/w/index.php?title=Cost-utility&action=edit&redlink=1http://en.wikipedia.org/wiki/Quality-adjusted_life_yearhttp://en.wikipedia.org/wiki/Market_penetrationhttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=3http://en.wikipedia.org/wiki/Time_value_of_moneyhttp://en.wikipedia.org/wiki/Present_valuehttp://en.wikipedia.org/wiki/Discount_ratehttp://en.wikipedia.org/wiki/Climate_changehttp://en.wikipedia.org/wiki/Equity_premium_puzzlehttp://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=4http://en.wikipedia.org/wiki/Risk_aversionhttp://en.wikipedia.org/wiki/Expected_returnhttp://en.wikipedia.org/wiki/Sensitivity_analysis


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[edit] Application and history

The practice of costbenefit analysis differs between countries and between sectors (e.g.,transport, health) within countries. Some of the main differences include the types ofimpacts that are included as costs and benefits within appraisals, the extent to which

impacts are expressed in monetary terms, and differences in the discount rate betweencountries. Agencies across the world rely on a basic set of key costbenefit indicators,including the following:

NPV (net present value) PVB (present value of benefits) PVC (present value of costs) BCR (benefit cost ratio = PVB / PVC) Net benefit (= PVB - PVC) NPV/k (where k is the level of funds available)

The concept of CBA dates back to an 1848 article by Dupuit and was formalized insubsequent works by Alfred Marshall. The practical application of CBA was initiated inthe US by the Corps of Engineers, after the Federal Navigation Act of 1936 effectivelyrequired costbenefit analysis for proposed federal waterway infrastructure.[1] TheFloodControl Act of 1939 was instrumental in establishing CBA as federal policy. It specifiedthe standard that "the benefits to whomever they accrue [be] in excess of the estimatedcosts.[2]

Subsequently, costbenefit techniques were applied to the development of highway andmotorway investments in the US and UK in the 1950s and 1960s. An early and often-quoted, more developed application of the technique was made to London Underground's

Victoria Line. Over the last 40 years, costbenefit techniques have gradually developedto the extent that substantial guidance now exists on how transport projects should beappraised in many countries around the world.

In the UK, theNew Approach to Appraisal (NATA) was introduced by the thenDepartment for Transport, Environment and the Regions. This brought together costbenefit results with those from detailedenvironmental impact assessments and presentedthem in a balanced way. NATA was first applied to national road schemes in the 1998Roads Review but subsequently rolled out to all modes of transport. It is now acornerstone of transport appraisal in the UK and is maintained and developed by theDepartment for Transport.[11]

The EU's 'Developing Harmonised European Approaches for Transport Costing andProject Assessment' (HEATCO) project, part of its Sixth Framework Programme, hasreviewed transport appraisal guidance across EU member states and found thatsignificant differences exist between countries. HEATCO's aim is to develop guidelinesto harmonise transport appraisal practice across the EU.[12][13] [3]
http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=5http://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Healthhttp://en.wikipedia.org/wiki/Discount_ratehttp://en.wikipedia.org/wiki/Benefit-cost_ratiohttp://en.wikipedia.org/wiki/Alfred_Marshallhttp://en.wikipedia.org/wiki/United_States_Army_Corps_of_Engineershttp://en.wikipedia.org/wiki/United_States_Army_Corps_of_Engineershttp://en.wikipedia.org/w/index.php?title=Federal_Navigation_Act_of_1936&action=edit&redlink=1http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-0http://en.wikipedia.org/wiki/Flood_Control_Act_of_1939http://en.wikipedia.org/wiki/Flood_Control_Act_of_1939http://en.wikipedia.org/wiki/Flood_Control_Act_of_1939http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-1http://en.wikipedia.org/wiki/London_Undergroundhttp://en.wikipedia.org/wiki/London_Undergroundhttp://en.wikipedia.org/wiki/Victoria_Linehttp://en.wikipedia.org/wiki/Victoria_Linehttp://en.wikipedia.org/wiki/New_Approach_to_Appraisalhttp://en.wikipedia.org/wiki/Department_for_Transport,_Environment_and_the_Regionshttp://en.wikipedia.org/wiki/Department_for_Transport,_Environment_and_the_Regionshttp://en.wikipedia.org/wiki/Environmental_impact_assessmenthttp://en.wikipedia.org/wiki/Environmental_impact_assessmenthttp://www.webtag.org.uk/topics/costbenefitanalysis.htmhttp://en.wikipedia.org/wiki/EUhttp://en.wikipedia.org/wiki/EUhttp://en.wikipedia.org/wiki/Sixth_Framework_Programmehttp://heatco.ier.uni-stuttgart.de/http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/pdf/3_full_en.pdfhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-2http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=5http://en.wikipedia.org/wiki/Transporthttp://en.wikipedia.org/wiki/Healthhttp://en.wikipedia.org/wiki/Discount_ratehttp://en.wikipedia.org/wiki/Benefit-cost_ratiohttp://en.wikipedia.org/wiki/Alfred_Marshallhttp://en.wikipedia.org/wiki/United_States_Army_Corps_of_Engineershttp://en.wikipedia.org/w/index.php?title=Federal_Navigation_Act_of_1936&action=edit&redlink=1http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-0http://en.wikipedia.org/wiki/Flood_Control_Act_of_1939http://en.wikipedia.org/wiki/Flood_Control_Act_of_1939http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-1http://en.wikipedia.org/wiki/London_Undergroundhttp://en.wikipedia.org/wiki/Victoria_Linehttp://en.wikipedia.org/wiki/New_Approach_to_Appraisalhttp://en.wikipedia.org/wiki/Department_for_Transport,_Environment_and_the_Regionshttp://en.wikipedia.org/wiki/Environmental_impact_assessmenthttp://www.webtag.org.uk/topics/costbenefitanalysis.htmhttp://en.wikipedia.org/wiki/EUhttp://en.wikipedia.org/wiki/Sixth_Framework_Programmehttp://heatco.ier.uni-stuttgart.de/http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/pdf/3_full_en.pdfhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-2


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Transport Canada has also promoted the use of CBA for major transport investmentssince the issuance of its Guidebook in 1994.[4]

More recent guidance has been provided by theUnited States Department ofTransportation and several state transportation departments, with discussion of available

software tools for application of CBA in transportation, including HERS, BCA.Net,StatBenCost, CalBC, and TREDIS. Available guides are provided by the FederalHighway Administration,[5][6]Federal Aviation Administration,[7]Minnesota Departmentof Transportation,[8]California Department of Transportation (Caltrans),[9] and theTransportation Research Board Transportation Economics Committee.[10]

In the early 1960s, CBA was also extended to assessment of the relative benefits andcosts of healthcare and education in works by Burton Weisbrod.[11][12] Later, the UnitedStates Department of Health and Human Services issued its CBA Guidebook.[13].[14]

[edit] Accuracy problems

The accuracyof the outcome of a costbenefit analysis depends on how accurately costsand benefits have beenestimated.

Apeer-reviewedstudy [14]of the accuracy of cost estimates in transportationinfrastructureplanning found that forrail projects actual costs turned out to be on average44.7 percent higher than estimated costs, and forroads 20.4 percent higher (Flyvbjerg,Holm, and Buhl, 2002). For benefits, another peer-reviewed study [15]found that actualrail ridership was on average 51.4 percent lower than estimated ridership; for roads it wasfound that for half of all projects estimatedtraffic was wrong by more than 20 percent(Flyvbjerg, Holm, and Buhl, 2005). Comparative studies indicate that similar

inaccuracies apply to fields other than transportation. These studies indicate that theoutcomes of costbenefit analyses should be treated with caution because they may behighly inaccurate. Inaccurate costbenefit analyses likely to lead to inefficient decisions,as defined by Pareto and Kaldor-Hicks efficiency.These outcomes (almost alwaystending to underestimation unless significant new approaches are overlooked) are to beexpected because such estimates:

1. Rely heavily on past like projects (often differing markedly infunction or size and certainly in the skill levels of the team members)

2. Rely heavily on the project's members to identify (rememberfromtheir collective past experiences) the significant cost drivers

3. Rely on very crude heuristics to estimate the money cost of theintangible elements4. Are unable to completely dispel the usually unconscious biases of

the team members (who often have a vested interest in a decision togo ahead) and the natural psychological tendency to "think positive"(whatever that involves)
http://en.wikipedia.org/wiki/Transport_Canadahttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-3http://en.wikipedia.org/wiki/United_States_Department_of_Transportationhttp://en.wikipedia.org/wiki/United_States_Department_of_Transportationhttp://en.wikipedia.org/wiki/United_States_Department_of_Transportationhttp://en.wikipedia.org/wiki/TREDIShttp://en.wikipedia.org/wiki/Federal_Highway_Administrationhttp://en.wikipedia.org/wiki/Federal_Highway_Administrationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-4http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-5http://en.wikipedia.org/wiki/Federal_Aviation_Administrationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-6http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-6http://en.wikipedia.org/wiki/Minnesota_Department_of_Transportationhttp://en.wikipedia.org/wiki/Minnesota_Department_of_Transportationhttp://en.wikipedia.org/wiki/Minnesota_Department_of_Transportationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-7http://en.wikipedia.org/wiki/California_Department_of_Transportationhttp://en.wikipedia.org/wiki/Caltranshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-8http://en.wikipedia.org/wiki/Transportation_Research_Boardhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-9http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-10http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-11http://en.wikipedia.org/wiki/United_States_Department_of_Health_and_Human_Serviceshttp://en.wikipedia.org/wiki/United_States_Department_of_Health_and_Human_Serviceshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-12http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-13http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-13http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=6http://en.wikipedia.org/wiki/Accuracyhttp://en.wikipedia.org/wiki/Accuracyhttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Estimatedhttp://en.wikipedia.org/wiki/Estimatedhttp://en.wikipedia.org/wiki/Peer-reviewedhttp://en.wikipedia.org/wiki/Peer-reviewedhttp://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdfhttp://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdfhttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Planninghttp://en.wikipedia.org/wiki/Rail_transporthttp://en.wikipedia.org/wiki/Roadshttp://flyvbjerg.plan.aau.dk/Traffic91PRINTJAPA.pdfhttp://flyvbjerg.plan.aau.dk/Traffic91PRINTJAPA.pdfhttp://en.wikipedia.org/wiki/Ridershiphttp://en.wikipedia.org/wiki/Traffichttp://en.wikipedia.org/wiki/Traffichttp://en.wikipedia.org/wiki/Accuratehttp://en.wikipedia.org/wiki/Inefficienthttp://en.wikipedia.org/wiki/Pareto_efficiencyhttp://en.wikipedia.org/wiki/Kaldor-Hicks_efficiencyhttp://en.wikipedia.org/wiki/Kaldor-Hicks_efficiencyhttp://en.wikipedia.org/wiki/Transport_Canadahttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-3http://en.wikipedia.org/wiki/United_States_Department_of_Transportationhttp://en.wikipedia.org/wiki/United_States_Department_of_Transportationhttp://en.wikipedia.org/wiki/TREDIShttp://en.wikipedia.org/wiki/Federal_Highway_Administrationhttp://en.wikipedia.org/wiki/Federal_Highway_Administrationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-4http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-5http://en.wikipedia.org/wiki/Federal_Aviation_Administrationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-6http://en.wikipedia.org/wiki/Minnesota_Department_of_Transportationhttp://en.wikipedia.org/wiki/Minnesota_Department_of_Transportationhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-7http://en.wikipedia.org/wiki/California_Department_of_Transportationhttp://en.wikipedia.org/wiki/Caltranshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-8http://en.wikipedia.org/wiki/Transportation_Research_Boardhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-9http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-10http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-11http://en.wikipedia.org/wiki/United_States_Department_of_Health_and_Human_Serviceshttp://en.wikipedia.org/wiki/United_States_Department_of_Health_and_Human_Serviceshttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-12http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-13http://en.wikipedia.org/w/index.php?title=Cost-benefit_analysis&action=edit&section=6http://en.wikipedia.org/wiki/Accuracyhttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Estimatedhttp://en.wikipedia.org/wiki/Peer-reviewedhttp://flyvbjerg.plan.aau.dk/JAPAASPUBLISHED.pdfhttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Planninghttp://en.wikipedia.org/wiki/Rail_transporthttp://en.wikipedia.org/wiki/Roadshttp://flyvbjerg.plan.aau.dk/Traffic91PRINTJAPA.pdfhttp://en.wikipedia.org/wiki/Ridershiphttp://en.wikipedia.org/wiki/Traffichttp://en.wikipedia.org/wiki/Accuratehttp://en.wikipedia.org/wiki/Inefficienthttp://en.wikipedia.org/wiki/Pareto_efficiencyhttp://en.wikipedia.org/wiki/Kaldor-Hicks_efficiency


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Reference class forecastingwas developed to increase accuracy in estimates of costs andbenefits.[15]

Another challenge to costbenefit analysis comes from determining which costs shouldbe included in an analysis (the significant cost drivers). This is often controversial

because organizations or interest groups may think that some costs should be included orexcluded from a study.

In the case of the Ford Pinto (where, because of design flaws, the Pinto was liable toburst into flames in a rear-impact collision), the Ford company's decision was not to issuea recall. Ford's costbenefit analysis had estimated that based on the number of cars inuse and the probable accident rate, deaths due to the design flaw would run about $49.5million (the amount Ford would pay out of court to settle wrongful death lawsuits). Thiswas estimated to be less than the cost of issuing a recall ($137.5 million)[16]. In theevent, Ford overlooked (or considered insignificant) the costs of the negative publicity soengendered, which turned out to be quite significant (because it led to the recall anyway

andto measurable losses in sales).

In the field of health economics, some analysts think costbenefit analysis can be aninadequate measure because willingness-to-pay methods of determining the value ofhuman life can be subject to bias according to income inequity. They support use ofvariants such as cost-utility analysis and quality-adjusted life yearto analyze the effectsof health policies.

In the case of environmental and occupational health regulation, it has been argued that ifmodern cost-benefit analyses had been applied prospectively to proposed regulationssuch as removing lead from gasoline, not turning the Grand Canyon into a hydroelectric

dam, and regulating workers' exposure to vinyl chloride, these regulations would nothave been implemented even though they are considered to be highly successful inretrospect.[16] The Clean Air Act has been cited in retrospective studies as a case wherebenefits exceeded costs, but the knowledge of the benefits (attributable largely to thebenefits of reducingparticulate pollution) was not available until many years later.[1
http://en.wikipedia.org/wiki/Reference_class_forecastinghttp://en.wikipedia.org/wiki/Reference_class_forecastinghttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-14http://en.wikipedia.org/wiki/Ford_Pintohttp://en.wikipedia.org/wiki/Wrongful_deathhttp://www.safetyforum.com/fordfuelfires/http://www.safetyforum.com/fordfuelfires/http://en.wikipedia.org/wiki/Cost-utility_analysishttp://en.wikipedia.org/wiki/Quality-adjusted_life_yearhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-Ackermanetal2005-15http://en.wikipedia.org/wiki/Particulatehttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-Ackermanetal2005-15http://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-Ackermanetal2005-15http://en.wikipedia.org/wiki/Reference_class_forecastinghttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-14http://en.wikipedia.org/wiki/Ford_Pintohttp://en.wikipedia.org/wiki/Wrongful_deathhttp://www.safetyforum.com/fordfuelfires/http://en.wikipedia.org/wiki/Cost-utility_analysishttp://en.wikipedia.org/wiki/Quality-adjusted_life_yearhttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-Ackermanetal2005-15http://en.wikipedia.org/wiki/Particulatehttp://en.wikipedia.org/wiki/Cost-benefit_analysis#cite_note-Ackermanetal2005-15

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ProjectEvaluation (2)