Engineering Project Appraisal
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Preface xiii
Introduction xv
PART 1 ECONOMICS-BASED PROJECT APPRAISAL TECHNIQUES 1
1 Decision Making and Project Appraisal 3
1.1 Decision making context 3
1.2 Techniques for decision making 4
1.3 Primacy of the rational model 13
1.4 Decision-making conditions 14
1.5 Project planning process 16
1.6 Example of a decision process 22
1.7 Summary 25
1.8 Review of succeeding chapters 26
2 Basic Tools for Economic Appraisal 29
2.1 Introduction 29
2.2 The time value of money 29
2.3 The estimation of interest 30
2.4 Simple and compound interest 31
2.5 Nominal and effective interest rates 33
2.6 Continuous compounding 34
2.7 Time equivalence 35
2.8 Economic computation 37
2.9 Summary 50
3 Present Worth Evaluation 51
3.1 Introduction 51
3.2 Present worth - the comparison process 52
3.3 Summary 65
4 Equivalent Annual Worth Computations 67
4.1 Introduction 67
4.2 The pattern of capital recovery 67
4.3 Modifying annual payments to include salvage value 69
4.4 Evaluating a single project 71
4.5 The comparison process 72
4.6 Summary 77
5 Rate of Return Computation 79
5.1 Introduction 79
5.2 Minimum Acceptable Rate of Return (MARR) 79
5.3 Internal Rate of Return (IRR) 80
5.4 IRR for a single project 80
5.5 Incremental analysis 87
5.6 Summary 94
6 Benefit/Cost Ratio Depreciation and Taxation 96
6.1 Introduction 96
6.2 Costs, benefits and disbenefits 96
6.3 Estimating the benefit/cost ratio for a single project 97
6.4 Comparing mutually exclusive options using incremental benefit/cost ratios 98
6.5 Depreciation 99
6.6 Taxation 102
6.7 Summary 104
7 Cost-Benefit Analysis of Public Projects 107
7.1 Introduction 107
7.2 Historical background to cost-benefit analysis 108
7.3 Theoretical basis for cost-benefit analysis 110
7.4 The procedure of cost-benefit analysis 111
7.5 Identifying the main project options 111
7.6 Identifying costs and benefits 111
7.7 Placing valuations on all costs and benefits/disbenefits 112
7.8 Assessing and comparing the cost-benefit performance of options 115
7.9 Sensitivity analysis 117
7.10 Final decision 119
7.11 Case study: the cost-benefit analysis of a highway improvement project 119
7.12 Case study: water supply scheme in a developing country 128
7.13 Case study: cost-benefit analysis of sewer flooding alleviation 135
7.14 Advantages and disadvantages of traditional cost-benefit analysis 137
7.15 Techniques for valuing non-economic impacts 138
7.16 Using cost-benefit analysis within different areas of engineering 148
7.17 Summary 151
8 Economic Analysis of Renewable Energy Supply and Energy Efficient Projects 154
8.1 Introduction 154
8.2 Policy context 154
8.3 Renewable energy supply and energy efficient technologies 157
8.4 Economic measures for renewable energy and energy efficient projects 163
8.5 Estimating GHG emissions 179
8.6 Uncertainty 183
8.7 Case studies 186
9 Value for Money in Construction 193
9.1 Definition of Value for Money 193
9.2 Defining Value for Money in the context of a construction project 194
9.3 Achieving Value for Money during construction 194
9.4 Whole-life costing 195
9.5 The concept of 'milestones' 196
9.6 Detailed description of the Value for Money framework 197
9.7 Value for Money and design 206
9.8 Is there a conflict between Sustainability and Value for Money 211
9.9 The role of better managed construction in delivering projects on time and within budget 213
10 Other Economic Analysis Techniques 216
10.1 Introduction 216
10.2 Cost effectiveness 216
10.3 The Planned Balance Sheet 220
10.4 Hill's Goal Achievement Matrix 227
10.5 Summary 239
PART 2 NON-ECONOMIC-BASED PROJECT APPRAISAL TECHNIQUES 241
11 Multicriteria Analysis 243
11.1 Introduction 243
11.2 Multicriteria evaluation models 244
11.3 Simple non-compensatory methods 246
11.4 Summary 255
12 The Simple Additive Model 257
12.1 Background 257
12.2 Introduction to the Simple Additive Weighting (SAW) Method 259
12.3 Sensitivity testing 261
12.4 Probabilistic Additive Weighting 264
12.5 Assigning weights to the decision criteria 270
12.6 Checklists 282
12.7 Case Study: Using the Simple Additive Weighting Model to choose the best transport strategy for a major urban centre 292
12.8 Summary 298
13 Analytic Hierarchy Process (AHP) 300
13.1 Introduction 300
3.2 Hierarchies 301
13.3 Establishing priorities within hierarchies 301
13.4 Establishing and calculating priorities 303
13.5 Relationship between AHP and the Simple Additive Weighting (SAW) model 316
13.6 Summary 316
14 Concordance Techniques 318
14.1 Introduction 318
14.2 Concordance Analysis 319
14.3 PROMETHEE I and II 321
14.4 ELECTRE I 328
14.5 Other Concordance Models 331
14.6 Summary 339
15 Concluding Comments 343
15.1 Introduction 343
15.2 Which project appraisal technique should one use? 343
15.3 Future challenges 344
References 345
Interest Factor Tables 346
Index 368
