Table of Contents

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

About the Author

Martin Rogers BE, MEngSc, PhD, BA(Public Ad), CEng, MICE, MRTPI, Chartered Engineer and Chartered Town Planner is currently an Assistant Head of School in the School of Civil and Building Services Engineering. Aidan Duffy BA, BAI, MBA, PhD is a lecturer at the Dublin Institute of Technology where he specialises in the financial, economic and policy assessment of renewable energy technologies and energy efficient systems.

Reviews

Aslib Book Guide, Nov 2001:
"Case studies and worked examples are given throughout."
'Engineering Project Appraisal provides practising engineers, construction managers, and students with a clear understanding of the variety of approaches that can be effectively used to evaluate alternative project development schemes in the built environment. I highly recommend this book.' Construction Management and Economics Vol 20 /4 May 2002.