The intent of this paper is to two crease. First is to keep a elaborate treatment about cost-benefit analysis and how it is used. The 2nd is to use the theory of cost-benefit analysis to a existent undertaking: the Wonder World Drive flyover in San Marcos. Texas. The treatment about cost-benefit analysis looks at how to place costs and benefits that are involved in a undertaking and so how to mensurate these costs and benefits in dollar sums. The importance of clip and price reduction rate is discussed and an appropriate price reduction rate established. Finally the types of determination standard are identified and correlated with the appropriate policy type. The City of San Marcos has approved support to construct an flyover on Wonder World Drive in order to short-circuit the frequent trains that plague the City. This will be the first train flyover in the metropolis. Because this is the first flyover. there were many benefits to be considered.
The costs and benefits of the undertaking are identified and utilized in a conceptual model tabular array. This conceptual model tabular array is so operationalized to mensurate the costs and benefits in dollar sums. The Wonder World Drive flyover is a individual determination theoretical account. significance that there are no viing policies determinations. The best determination standard is to happen the Net Present Value of the undertaking. The Discount rate that has been used is the same that is mandated by the Office of Management and Budget. Private and societal rates are used to demo what the undertaking is deserving utilizing changing rates. The costs and benefits are considered over the life of the undertaking ( 25 old ages ) and discounted consequently to happen the present value. Once the present value of each cost and benefit is known. the net present value of the undertaking is established.
The paper that follows takes an in-depth expression at cost-benefit analysis and how it is utile in the populace sector. The first subdivision of the paper looks at a reappraisal of literature about cost-benefit analysis. The 2nd subdivision sets the phase for a cost-benefit analysis on a main road betterment undertaking that is underway in San Marcos. Texas. In chapter four of this paper a treatment about the methodological analysis of how the operationalization of the costs and benefits of the main road betterment undertaking is done. After a cost-benefit analysis has been performed the consequences are discussed and a decision is derived from these consequences. Cost-benefit analysis is one of the most widely accepted methods for make up one’s minding whether a public investing is a good usage of public resources. Here. the benefit-cost analysis technique is being applied to the Wonder World Drive flyover in San Marcos Texas to find if the undertaking is a good usage of financess. By implementing the analysis. metropolis functionaries and occupants can derive a better apprehension about worth of the Wonder World Drive flyover. Cost-benefit analysis is a technique used in both the private and public sectors.
It has been officially used in the populace sector since the 1930’s. In 1936. the Flood Control Act mandated a new standard for public investing to guarantee that mensural benefits exceed measured costs. Cost-benefit analysis is peculiarly utile when sing dearly-won undertakings like the Wonder World flyover. Fiscal resources are scarce in the populace sector and therefore an organisation needs to seek out the best return on their investing. Many organisations in the populace sector authorization that a cost-benefit analysis be performed prior to funding any undertakings. Cost-benefit analysis can be used to put the precedences for an disposal and guarantee that revenue enhancement dollars are spent expeditiously and in the best involvement of the populace. It is obliging to analyze cost-benefit analysis because it is a widely used and acceptable method of determination devising. Cost-benefit analysis has been in pattern in the populace sector for over 60 old ages. There are diverse applications of cost-benefit analysis as a determination doing tool to measure things such as ; transit. instruction. wellness and safety plans and the environmental undertakings. This type of analysis evaluates the profitableness of a undertaking by deducting the costs of the undertaking from the grosss or benefits. This expression is referred to as net present value ( NPV )
What is Cost-Benefit Analysis?
Cost-benefit analysis is a determination devising assistance utilized by economic experts and finance officers to measure a undertakings worth. The cost-benefit analysis considers the pecuniary costs and benefits of a undertaking and enables determination shapers to put resources in a more efficient mode. But how are costs and benefits identified and measured? What method should be used for measuring costs and benefits? The cost-benefit analysis procedure has a built in conceptual model. Once an analyst can place what the model is. the remainder falls into topographic point. Both the conceptual model and operalization tabular array are cardinal elements when executing a cost-benefit analysis. Fuguitt and Wilcox ( 1999. 35 ) defines cost-benefit analysis as: ‘’Cost-benefit analysis is a utile attack to measure whether determinations or picks that affect the usage of scarce resources promote efficiency. Sing a particular policy and relevant options. the analysis involves systematic designation of policy effects. followed by rating of societal benefits and costs and so application of the appropriate determination criterion’’ . Eva Galambos and Arthur Schreiber ( 1978. ) have identified four stairss for a successful cost-benefit analysis.
The first measure is to place the cost and benefits of the undertaking. Second. the costs and benefits are measured in dollars. Third. the costs and benefits are considered over the life of the undertaking. Finally. a determination must be reached. In the concluding phase. the determination shaper decides whether this is a undertaking that will bring forth adequate societal benefit to warrant the outgo of limited financess. These four stairss provide a “conceptual model for helping determination shapers in understanding the determination situation” . Within the four stairss are five elements identified by Christopher McKenna: aims. options. benefits and cost. a theoretical account and a standard. McKenna defines each component as follows: The aims are the coveted effects intended to be brought approximately by the project. Options are the possible utilizations of resources. or possible attacks to use. Benefits are consequences that improve society’s public assistance. Costss are resources consumed by the project. A theoretical account represents the relationship between qualities of an option and the effects. A standard is the footing for choosing one option.
Using McKenna’s five elements to the Wonder World Drive flyover we see the aim for the Wonder World Drive flyover is to happen if the undertaking is a good investing for the City. The 2nd component is to measure options. In all cost-benefit undertakings there are options to weigh against each other. In undertakings where there is merely one proposal ( like the Wonder World Drive undertaking ) the option would be non to implement the undertaking. The 3rd component is placing the costs and benefits that will ensue from the undertaking. A research worker must be able to place what costs are invested into the undertaking and what benefits can be expected from them. The costs and benefits of the Wonder World Drive flyover are discussed in the Settings chapter of this paper. Basically. a cost makes up the negative and benefits the positive. The difference between the net present benefits ( NPB ) and the net nowadays costs ( NPC ) yields the Net Present Value ( NPV ) of the undertaking. There is a difference between the value of current and future dollars. In order to compare future benefits and costs across clip the net present value of benefits and costs is calculated.
The 4th component is the theoretical account used for the analysis. In the Wonder World Drive instance the theoretical account is specified in an operalization tabular array where each cost and benefit is measured in dollars. The concluding measure is choosing a standard for measuring the undertaking. Such as utilizing net present value or benefit cost ratio. Benefit-cost analysis is a powerful tool for act uponing public determinations. Kornhauser ( 2000. 1039 ) provinces in his article. On Justifying Cost-Benefit Analysis. that “cost-benefit analysis is both a theory and a practice” . Kornhauser goes on to interrupt down the pattern of cost-benefit analysis into three parts: ( I ) A formal theory that derives dealingss between an individual’s cardinal penchants and a ranking. in footings of money. of policies ( two )
A theory of measuring that identifies existent universe correlatives of the theoretical entities manipulated in the formal theory ( three ) Applications of the formal theory and theory measuring to specific policy determination The formal theory proposed by Kornhauser assumes that persons will hold a chiseled policy penchant that will outdo function their demands. Individual demands can be found through study techniques. The demands of the person can be satisfied through the benefits that a undertaking or policy will supply. In the instance of the Wonder World Drive overpass the demand is determined by mensurating how many people are utilizing the route. Once the costs and benefits are known. they can be measured in market values. These market values are so applied to a determination standard to set up the worth of a policy or undertaking.
Identifying Costss and Benefits
Undertaking costs are the value of goods and services that are required for a undertaking. This includes initial and repeating costs of the undertaking. Some of the initial costs include: research and development. planning. proving and rating. preparation. land acquisition. edifice installations. vehicles and equipment. Recuring costs are those costs that are necessary to maintain a undertaking or plan running. Recuring cost can include: forces. stuffs. lease of edifice and equipment. care. administrative operating expense. instruction. and security and insurance. Care costs are those cost that will happen throughout the life of the undertaking.
They include roadside care. drainage. and construction up support. These care types are categorized as modus operandi. preventative and major care. In add-on to traditional costs. analysts should see societal costs. Social costs are “what a community gives up in set abouting a project” . These societal costs are sometimes labeled as non-tangibles because they are hard to mensurate in dollars. “Environmental effects such as increased air or noise pollution and deluging from increased storm H2O runoff” are common societal costs included in benefit-cost analysis. Other societal costs are the incommodiousnesss people experience during the initial building of physical betterments. A cost-benefit analysis should include any societal costs and benefits. nevertheless. these “may be divided into local and non-local constituents for presentation to local determination makers” . Undertaking Benefits
Benefits are what a community or stakeholders can anticipate to derive from a undertaking or policy. In the instance of Wonder World thrust. the benefits are outlined in the conceptual model. These benefits are intended to do at least some of the population better off than they were earlier. For illustration. clip travel economy is considered a undertaking benefit. However. the benefits may non be distributed every bit among the occupants. Motorists who don’t usage Wonder World Drive on a regular footing will non see the same grade of benefits as those occupants who frequent Wonder World Drive. Yet all occupants are treated the same in respects to the load of cost. Undertaking benefits are weighted against undertaking costs in the Net Present Value expression. “Benefits in the comprehensive sense include all end products of the procedure or effects of an alternative” . Harmonizing to Kornhauser ( 2000. 1039 ) “benefits are normally defined entirely in footings of the alteration in single wellbeing that the policy induces … single wellbeing is understood as the satisfaction of subjective preferences” . These subjective penchants can be measured in the market picks that persons make. In a cost-benefit analysis. it is necessary to mensurate subjective benefits in pecuniary footings to guarantee that apples are non being compared to oranges. Measuring Costss and Benefits
Once the benefits and costs have been identified. the 2nd measure is to mensurate or delegate a dollar sum to each benefit and cost. Many bookmans argue that defects of cost-benefit analysis occur during the measuring of costs and benefits. Too frequently analysts will go forth out or falsely step costs and benefits. Often there will be benefit and cost variables that are hard to mensurate in market value. These are referred to as intangibles. Fuguitt and Wilcox have three rules for mensurating intangible variables: When a policy has hard-to-measure effects. the analyst should ( 1 ) value as many benefits and costs as possible utilizing pecuniary units ; ( 2 ) if unable to delegate a pecuniary value to a peculiar policy effect. seek to quantify it in physical units ; and ( 3 ) in the particularly hard state of affairs where the effect eludes quantification of any sort. identify and depict it qualitatively. When executing a cost-benefit analysis utilizing immeasurable variables. a determination shaper can gauge a threshold. “Intuitively. the determination shaper can weigh the immeasurable benefits and see whether or non these exceed the threshold” . There are a figure of ways to mensurate intangibles. It is of import to observe that the analyst can non “include increased net incomes from a concern as a societal benefit because there is a lessening in net income gross revenues elsewhere” . Oppositions of cost-benefit analysis argue “that in pattern cost-benefit analysts tend to underestimate determination effects that are hard to monetise or. worse yet. utilize this technique to dissemble the existent value picks that underlie judicial. administrative. or legislative decisions” . Time and Discount Rate
The construct of clip is of import in a cost-benefit analysis because the costs and benefits of a undertaking occur throughout its utile life. The “underlying clip value of money is the footing for using involvement rates. ( besides known as price reduction rates ) in measuring the present value of future costs and benefits” . The construct of a price reduction rate is cardinal to an economic analysis because the price reduction rate “allows effects happening at different times to be compared by change overing each hereafter dollar sum into tantamount present dollars” . In add-on. the higher the price reduction rate the lower the value of future benefits. For illustration the benefits of the Wonder World flyover will non be worth the same after 25 old ages. If a higher price reduction rate is used for this undertaking. the future benefits are deserving even less. Public vs. Private Ratess
Choice of an appropriate price reduction rate has a important impact on the result of cost-benefit analysis. As shown below. rates can be selected from two general classs: public and private. Furthermore. there is argument about the appropriate price reduction rate. The price reduction rate is used for dismissing future costs and benefits. Martin L Weitzman states that “the most critical individual job with discounting future benefits and costs is that no consensus now exists. or for that affair has of all time existed. about what existent rate of involvement to use” . William Davisson argues that the rate should be the market rate or the market chance cost i. e. private rate. David Newbery agrees with this theory saying that “the appropriate rate of price reduction to utilize in choosing public investment…is the private price reduction rate” . The private price reduction rate is the rate a private concern would utilize to borrow for a undertaking. Paul Grout. writer of Public and Private Sector Discount Rates in Public-Private Partnerships states “lower price reduction rates should be used for the populace sector than the private sector. Failure to make so will propose that private proviso is less efficient than public since the present value of private proviso will be overestimated comparative to public” . The determination of what price reduction rate is appropriate comes down to the difference between progressives and conservative positions about the function of authorities investings. High price reduction rates are consistent with a smaller authorities. The contrary is true for a low price reduction rate.
Choosing a Discount Rate
When taking a price reduction rate the analyst can utilize a high. moderate. or low rate. It is good to utilize more than one price reduction rate in order to compare the influence of altering price reduction rates on the viability of a undertaking. By utilizing a assortment of price reduction rates. the analysis demonstrates more objectiveness. At the Spring 2006 Microeconomics Theory Workshop at Yale University. Jean-Fancois Mertens and Anna Rubinchik-Pessach presented their paper entitled “Intergenerational Equity and the Discount Rate for Cost-Benefit Analysis” . In their paper they discussed the price reduction rates that are being used today. In a footer. the writers explain that both of these rates are rational. The 3 % involvement rate is the rate comparative to private nest eggs and the 7 % rate is “relative to capital preparation and /or supplanting. i. e. as the gross return on capital” . For this paper and the cost-benefit analysis that is to be performed on the Wonder World Drive flyover. the price reduction rate of 3 % and 7 % will be used as mandated by the Office of Management and Budget. Decision Standard: Performing Cost-Benefit Analysis
Three types of determinations
Once the costs and benefits of the undertaking have been identified and measured. the clip skyline determined. and price reduction rate established. the analysis can be performed to measure the undertaking. There are three sorts of general determination types that have been identified by Fuguitt and Wilcox ; ( 1 ) one determination. ( 2 ) several options that are reciprocally sole and ( 3 ) several options that are non reciprocally sole. Benefit-cost analysis is intended to measure options or options. In the instance where merely one plan or undertaking is being evaluated ( 1 ) . the options are to either proceed with the undertaking or non to continue. When a policy shaper is faced with several options that are reciprocally sole. ( 2 ) the pick is which one to implement. Mutually sole options are those where merely one can be executed because of scarce resources. When faced with several constabularies that are non reciprocally sole ( 3 ) the determination shaper can take a subset of options to use the best usage of financess. Choice Standard
There are a assortment of methods for choosing the best policy ; Pareto standard. Pay back period. Net present value. Present Value. and benefit-cost ratio. The Pareto standard is the most conservative attack to make up one’s minding capital undertakings. This subdivision will discourse each and so place which is the best standard for the Wonder World Drive flyover. The Pareto standard provinces that a undertaking is economically executable if “no one is worse away and at least person is better off” . If this criterion were used for all public undertakings. few would of all time be implemented. “Cost-benefit analysis is concerned with accomplishing economic efficiency in the usage of resources. regardless of who derives the benefits and who bears the costs” . In other words. cost-benefit analysis does non look at equity of the distribution of cost ( e. g. . does non utilize the Pareto standard ) . The payback period ( PBP ) is the weakest step with respect to rating of a proposed undertaking. The PBP does non take into history the clip and value of money. Payback period can be found by spliting the initial capital spending ( ICO ) by the one-year cyberspace flow ( S ) . Annual capital flow can be found by deducting one-year outgos from one-year benefits.
PBP = ICO/S
Net Present Value ( NPV ) merely requires that the benefits exceed the cost of a undertaking. “Alternately expressed. the place states that the entire betterment by the gainers outweighs the combined reverse of the also-rans. or the benefit-cost ratio is greater than one” . This is a strong step of the worth of a undertaking. The undertaking present value is a step that is frequently used in concurrence with cost-benefit ratio. These two standard allow for good determination devising because they take into history the clip and value of money. Project present value is basically the present value of a undertaking utilizing the one-year capital flow S which is the one-year benefits minus one-year outgos. the price reduction rate R and. the utile life of the undertaking in figure of old ages n. The present value rente expression requires changeless one-year cyberspace flow for multiple old ages. Figure 1. 1 Present Value Annuity Formula
PV = S/R 1- 1/1+r N
S= Annual Net Flow
r= Discount Rate
n= Numbers of old ages
The Project cost-benefit ratio is found by spliting the present value of the undertaking by the initial capital spending. Ideally. undertakings with a high cost-benefit ratio are chosen. but the ratio must be greater than one to be considered. “This step is non influenced by the size of the investing. and so it better compares different-sized alternatives” . Harmonizing to the Kaldor-Hicks standard. a individual policy promotes efficiency if the societal benefits outweigh the societal costs. In a individual determination scenario. the best rating method is to happen if the Net Present Value ( NPV ) is positive. NPV is the present value of incremental net benefits generated throughout the policy clip skyline. The NPV is the present value of the benefits ( PVB ) minus present value of the costs ( PVC ) . NPV = PVB – PVC
In the twelvemonth in which the initial outgo is made. the advocate will be set at nothing ( this is because the cost is already at present value ) and increase to stand for each twelvemonth of the undertaking. All of these will be added together to happen the PVB and PVC. 2. PVC=C
Identifying Costss and Benefits for Wonder World Drive
Transportation system Costss
The Wonder World Drive flyover is a joint undertaking between the City of San Marcos and the Texas Department of Transportation. As stated in the San Marcos Capital Improvement papers. the City has get the Right of Way ( ROW ) . conducted the environmental appraisal. funded extenuation steps. completed building programs and extra comfortss for the overpass2. The Texas Department of Transportation will be responsible for funding the staying costs such as building costs which take into history the stuffs needed. rewards for workers. insurance. and machinery. The initial cost of the undertaking is determined by applied scientists and the cost is concluding one time a command for building is accepted. The undertaking costs are estimated for the utile life of the undertaking. The utile life of the undertaking is the clip period where no major fixs or betterments are expected. Engineers have determined the utile life of the Wonder World Drive undertaking to be 25 old ages. No important betterments. enlargements or major fixs are expected during this clip.
The right of manner ( ROW ) acquisition can be really dearly-won ( in both clip and money ) for transit undertakings. In 1999 the federal authorities spent 4 % of the federal main road support on ROW acquisitions. In some instances eminent sphere must be used to get the needful land for a main road betterment undertaking. Eminent sphere falls under both a pecuniary cost and a non-tangible cost to society. “A utile index of clip. cost and client satisfaction in ROW acquisition is the agency’s rate of belongings disapprobation. The disapprobation rate is the fraction of packages acquired through the power of eminent sphere. If the geting bureau and the belongings proprietor can non make an understanding. the bureau is lawfully permitted to get the belongings through its power of eminent sphere by registering its instance with the appropriate province or federal agency” .
The procedure of eminent sphere can increase the cost of ROW acquisition. It is best for a metropolis to avoid this type of disapprobation by looking at the city’s maestro program early and measuring what sort of undertakings is to come. It is best to get the needful land early to avoid hyperbolic cost once the undertaking is in the latter phases of planning. In add-on to the land itself. other costs involved in ROW include assessments. amendss. lawyer fees. administrative colonies. tribunal costs. resettlement costs. destruction. suspension. and killing for contaminated sites. Measuring the cost of ROW acquisition can be complicated by the usage of eminent sphere every bit good as other unanticipated costs mentioned supra. The cost of Right-of-Way is necessary for all route betterments. Planing can assist to restrict or cut down these sorts of costs. Maintenance and other Costss
Another cost that should be considered in the benefit-cost analysis is the monetary value of keeping the undertaking after it has been completed. These care costs are referred to as repeating costs. Recuring costs can include the public-service corporations. forces. general care. fixs. preparation and the similar. These are costs that continue throughout the life of the undertaking. It can be hard to theorize precisely how much the care will be. In the Methodology chapter. a expression has been developed to gauge future care costs. The Wonder World flyover cost care will be handled by TxDOT. As stated. no important care is expected for the first 25 old ages of the undertaking as determined by its applied scientists. Texas Department of Transportation categorizes care into three countries: Routine. preventative and major. For constructions like the Wonder World Drive flyover these three countries are classified as follows Everyday Care: Repair of infrastructures. superstructures. decks. articulations. attack slabs. and inveighing and topographic point picture. fix and operate movable Bridgess. put in impermanent Bridgess. fix and install wing systems Preventive Care: Steel construction cleansing and repainting or Install Bridge deck protection. joint cleansing and waterproofing or replacing Major Care: Bridge rehabilitation. Reconstruction. or replacing. replacing of constructions merely as a consequence of major catastrophe when no other financess or plans are available. Some of one-year everyday care includes trash pick-up and de-icing in winter conditions. Other care that is performed less frequently is the re-painting of route markers and repaving.
The Texas Department of Transportation estimations that re-painting is needed every 3 old ages and the cost is about $ 1 a pes. The flyover has an expected utile life of 25 old ages. The Texas Department of Transportation does non expect any major care during this clip. The everyday and preventative care are repeating costs that will be factored into the cost watercourse. Other costs such as traffic visible radiations and marks besides need to be considered. Often the analyst needs to find if the route betterment will bring forth adequate traffic to justify the demand for more constabulary functionaries to police and modulate the country. If so. so extra forces are a possible external cost of the undertaking. Since it is an external cost it is non factored into the analysis. nevertheless it is of import for local budgets to be after for unexpected outgos. The costs that have been discussed are all included in the conceptual model for the Wonder World Drive flyover. In the methodological analysis
chapter. the costs are operationalized into dollar values to utilize in the NPV expression. Transportation Benefits
Benefits of a main road betterment undertaking are about ever non-tangible ; nevertheless they are of import qualitative grounds for including them in the analysis. With the exclusion of a toll route that is designed to pay for itself. there are few pecuniary benefits. For illustration one of the most normally stated grounds for prosecuting a main road betterment undertaking is to alleviate traffic congestion and salvage drivers travel clip during peak hours. The clip that automobilists save by non waiting is clip and money for the citizens of San Marcos. If betterments are made to heighten traffic flow. accident decrease can besides be seen as a benefit. The accidents reported for Wonder World thrust have been obtained from the San Marcos Police Department. The type. frequence and clip it took to unclutter the accidents are considered. There are two ways to look at accident decrease benefit. The first is to happen the most frequent sorts of accidents and gauge the fix costs. Another manner to operationalize accident decrease is to look at the clip constabulary and other functionaries spend at an accident. The clip that constabularies are present at the scene is an index of the earnestness of the accident and takes into history the clip that other automobilists were delayed because of this incident at the railway crossing. A more elaborate treatment is found in the accident decrease subdivision of the Methodology chapter. Conceptual Model
First measure in a cost-benefit analysis is to place the costs and benefits. The conceptual model for this research outlines the costs and benefits that will be involved in the analysis. These costs and benefits where identified through scholarly research. The variables within the model are designed to turn to costs and benefits of the Wonder World Drive flyover undertaking. A price reduction rate that takes into history the present value of future benefits will be utilized in this benefit-cost analysis. The conceptual model that is used for this research is a Net Present Value. PVC=IC+
Initial Undertaking Costss
Funding for the Wonder World Drive flyover comes jointly from the Texas Department of Transportation ( TxDOT ) and the City of San Marcos. The chief beginning of support for TxDOT undertakings is the revenue enhancement taken from gasolene gross revenues. The City of San Marcos has funded the right of manner costs for the flyover by publishing General Obligation Bonds and utilizing hard currency support. In 1998 San Marcos electors approved the $ 1. 5 million for the purchase the ROW costs ( San Marcos Press Release October 25. 2001 ) . The General Obligation bonds are voter approved and backed by the belongings revenue enhancement. The City issued $ 245. 000 in General Obligation bonds. This debt is financed at 4. 51 % involvement for 20 old ages. 5
The hard currency support for the ROW was $ 985. 0003. In add-on to ROW cost. the City is put ining motorcycle lanes for the flyover. This cost is estimated for the motorcycle lane is $ 100. 0004. Texas DOT is paying for bulk of the cost for the flyover. TxDOT estimates their cost for the undertaking to be $ 7. 182. 934 million plus $ 629. 300 for Planing. appraising and estimations ( PSE ) . The PSE costs were incurred prior to the support of the flyover. To happen the initial cost of the undertaking the two entities spendings are added together. The City of San Marcos financed $ 245. 000. The money that has been financed by the City is financed at a rate of 4. 51 % ; this is the median of the involvement rates of 3 % and 7 % . Finding the present value of the $ 245. 000 at three and seven per centum would call off each other out. This makes the present value of the bonds issued $ 245. 000. Care Costss
The expected care for the Wonder World flyover is everyday and preventive as discussed in the Setting Chapter. Lowell Choate. Director of Maintenance for the Texas Department of Transportation provinces that it is hard to gauge what the care of a undertaking will be. Choate says that TxDOT estimates care as a per centum of the initial undertaking cost. The initial undertaking cost for care does non include the land acquisition ROW or the Planning Surveying and Estimates. PSE. These are a erstwhile disbursal and have no repeating cost in the undertaking that need to be maintained. In the early old ages of the undertaking. the care is less. The cost of care additions as the construction ages. For the first five old ages of the undertaking. 1 % of the initial cost is used to gauge care ( 2007 through 2011 ) . Old ages 2012 through 2016 care cost is expected to increase to 1. 5 % of the initial cost. This tendency is expected to go on throughout the life of the undertaking increasing one-half a per centum over 5 old ages. Benefits
Time nest eggs is one of the most of import benefits for the citizens of San Marcos. The clip nest eggs that is expected from this flyover is the clip that automobilists will non be stopped waiting for a train. To operationalize this benefit the entire day-to-day vehicle hold is used. This benefit is measured by happening the mean figure of trains that pass daily and the mean clip it takes for them to go through. The roadway is considered out of use when the safety bars start the descent. barricading automobilists. and passable when the safety bars return to full unsloped place. Accident Decrease
Accidents that occur at railway crossings can be clip devouring and unsafe. This is no exclusion for San Marcos. Between 2003 and 2005 there were 35 accidents that police responded to at or near railway crossings. Of those 35 accidents. eight were at the Wonder World Drive railway traversing. Two of the accidents were recorded as major. One of these was a train prosaic hit and resulted in the decease of a 60 twelvemonth old Hispanic male. Accidents happening at or near railroad crossings take a important sum of clip to clear and can barricade traffic for extended periods. To operationalize the decrease of accidents that occur at railway traversing accident studies were obtained from the San Marcos Police Department. The mean clip in a twelvemonth spent at the scene of a railway traversing accident in San Marcos is 7 hours 21 proceedingss. The mean clip spent at Wonder World Dr in a twelvemonth is 2 hours 3 proceedingss. This causes a hold to automobilists. The more serious the accident. the longer the hold motorists experience. In some instances the accident is serious plenty to coerce the train to halt. This can do multiple railway crossings to be blocked for drawn-out periods of clip. In the past three old ages at that place have been 2 walkers hit by trains. Both incidents caused the trains to halt. and multiple route closings.
The first individual survived but with serious hurts. the 2nd individual died at the scene. The hurts and harm experienced during these accidents are hard to mensurate. In some instances the inside informations are limited. An ideal manner to operationalize would be to cognize the extent of harm to each auto and individual. With this information. estimations from insurance companies could be used to operationalize this variable. Unfortunately. elaborate information is limited about the incidents. What is available is the clip that officers spend at the scene of an accident. This is clip that automobilists are delayed. Because there are no flyovers in San Marcos. when an accident occurs it can impact the city’s full traffic flow. Again. the Time Savings expression is used to cipher a benefit of accident decrease. The expression nevertheless is modified to take into history the constabulary officer clip and the cost of the accident to the parties involved. This figure is multiplied by the clip that is spent by constabulary functionaries at the scene of the accident.
To set for one-year growing and jutting addition of accidents at Wonder World Drive. an one-year addition of 1 % is used. It is non appropriate to utilize the one-year vehicle growing rate or the population growing rate to gauge the addition in accidents. Accidents are opportunity happenings while the population of a metropolis and the figure of vehicles on the route do play a important function in the figure of accidents that occur. the addition of accidents is non needfully equal to the addition of population. In add-on. accidents may be major or minor. Major accidents have more extended harm to the vehicles than minor accidents. Because there are no inside informations of the extent of harm to the vehicles. a value of $ 1. 000 is assigned to major accidents and $ 500 to minor accidents.
These values capture the cost of fixs to a vehicle and a part of any resulting future medical disbursals. This is a really conservative estimation given the possible costs that occur in accidents. The clip nest eggs and harm value are added to operationalize accident decrease. Based on the San Marcos Police Department records. in 2003 and 2004 there were 3 minor accidents and 1 major accident each twelvemonth. In 2005 there were no accidents reported at the Wonder World Drive train crossing. This three twelvemonth norm shows that 2 minor accidents occur and 1 major accident occur yearly. Discount Rate
The price reduction rate that is used in the cost-benefit analysis significantly influences the result of the present value. In the literature reappraisal at that place was much treatment about whether a private or public rate should be used for public undertakings. For this cost-benefit analysis both rates are applied as a sensitiveness analysis to demo the net present value under different conditions. As mentioned the Office of Management and Budget mandates that all executive bureaus and constitutions conduct a regulative analysis for any new proposal. and more specifically a cost-benefit analysis. at the rates of both 3 % and 7 % . Thus the present value of the Wonder World Drive flyover is found at a private price reduction rate of 7 % and a societal price reduction rate of 3 % . Standard
The standard that is used in the cost-benefit analysis besides plays a major function in the consequences. Fuguitt and Wilcox. provinces that if merely one undertaking is considered the best determination standard is net present value. Since the Wonder World driver flyover is non being weighed against any other undertaking. the net present value of the undertaking is the best determination standard. Result
The consequences discuss the result of each present value of the benefits and costs. As discussed in the Literature Review Chapter. multiple price reduction rates were applied. The societal rate of 3 % and private rate of 7 % are used. The City of San Marcos estimates the population growing is 5 % yearly. but for a more conservative estimation a 3 % one-year growing rate is used. The Texas Department of Transportation studies that the addition in motor vehicles is 3 % yearly. This rate is used to demo the expected addition of vehicles utilizing Wonder World Drive. The average household income is reported to hold a growing rate of 3 % yearly. Finally. the estimated figure of families in San Marcos has a 2 % growing rate8. These one-year growing rates for population. motor vehicles and average household income are used in the Present Value expression for the benefits of the Wonder World Drive flyover. Maintenance Present Value
The cost of care is found by utilizing the care per centums. The initial cost of the undertaking is estimated at $ 9. 142. 234. The cost is used to happen the expected care cost of the undertaking. The ROW and PSE ( be aftering. appraising and gauging ) are non used in the undertaking cost to happen care. The undertaking cost that is used for care is found in the tabular array below.
Table ; shows the present value of the cost of care of 3 % and 7 % utilizing the new modified undertaking cost from Table 7
The consequences of this cost-benefit analysis are important. This analysis can be duplicated on other proposed flyovers in the City. Multiple cost-benefit analyses can be done to choose which flyover should be constructed foremost to supply the highest benefit for citizens. For the Wonder World Drive over pass the Willingness to pay theoretical account was used to happen what citizens would be willing to pay for exigency entree. In other analysis. a benefit unique to that country can be used. For illustration. Aquarena Springs Drive is a to a great extent used route particularly for Texas State University pupils. This route runs right following to the Bobcat Football bowl. Benefits could be identified for holding an flyover on this route. In add-on. important costs could ensue from the bing football bowl. This would be a worthy benefit-cost analysis. Another suggestion for research is to execute a cost-benefit analysis on the Wonder World Drive extension.
Much of the same information that has been used in this analysis can be used to happen the estimated worth of the extension to Ranch Road 12. If the extension undertaking was to be joined with the flyover undertaking the entire Net Present Value may be positive. Hays County is the fastest turning county in the State of Texas. San Marcos is the county place and has a flourishing population. Because of its location between San Antonio and Austin it is turn uping in the center of a turning corridor. It is of import for the metropolis functionaries to be after for increased traffic and population in the hereafter. In order for San Marcos to possess an equal transit system the costs and benefits of new proposals need to be established. Having cognition of the costs and benefits of a undertaking will let determination shapers to construct new substructure where it is needed most. Performing benefit-cost analyses is a good manner to happen what. where and when undertakings should be built. Benefit-cost analysis may be criticized by some. but the qualitative and quantitative informations that it can supply is priceless.
Fuguitt. Diana and Shanton J. Wilcox. 1999. Cost-benefit analysis for public sector determination shapers. Quorum Books. Connecticut. Davisson. William. 1964. Public investing standard. Land Economics. 40 ( 2 ) : 153-162 Markovits. Richard. 1984. Duncan’s do nots: cost-benefit analysis and the finding of legal entitlements. ” Stanford Law Review. 36 ( 5 ) : 1169- 1198