Cost Benefit Analysis of Wonder World Drive Overpass, in San Mrcos Texas

Topics: Cost-benefit analysis, Net present value, Cost Pages: 19 (6829 words) Published: February 17, 2013

ESM 206


January, 2013

The purpose of this paper is to two fold. First is to hold a detailed discussion about cost-benefit analysis and how it is used. The second is to apply the theory of cost-benefit analysis to a real project: the Wonder World Drive overpass in San Marcos, Texas. The discussion about cost-benefit analysis looks at how to identify costs and benefits that are involved in a project and then how to measure these costs and benefits in dollar amounts. The importance of time and discount rate is discussed and an appropriate discount rate established. Finally the types of decision criterion are identified and correlated with the appropriate policy type. The City of San Marcos has approved funding to build an overpass on Wonder World Drive in order to bypass the frequent trains that plague the City. This will be the first train overpass in the city. Because this is the first overpass, there were many benefits to be considered. The costs and benefits of the project are identified and utilized in a conceptual framework table. This conceptual framework table is then operationalized to measure the costs and benefits in dollar amounts. The Wonder World Drive overpass is a single decision model, meaning that there are no competing policies decisions. The best decision criterion is to find the Net Present Value of the project. The Discount rate that has been used is the same that is mandated by the Office of Management and Budget. Private and social rates are used to show what the project is worth using varying rates. The costs and benefits are considered over the life of the project (25 years) and discounted accordingly to find the present value. Once the present value of each cost and benefit is known, the net present value of the project is established.

The paper that follows takes an in-depth look at cost-benefit analysis and how it is useful in the public sector. The first section of the paper looks at a review of literature about cost-benefit analysis. The second section sets the stage for a cost-benefit analysis on a highway improvement project that is underway in San Marcos, Texas. In chapter four of this paper a discussion about the methodology of how the operationalization of the costs and benefits of the highway improvement project is done. After a cost-benefit analysis has been performed the results are discussed and a conclusion is derived from these results. Cost-benefit analysis is one of the most widely accepted methods for deciding whether a public investment is a good use of public resources. Here, the benefit-cost analysis technique is being applied to the Wonder World Drive overpass in San Marcos Texas to determine if the project is a good use of funds. By implementing the analysis, city officials and residents can gain a better understanding about worth of the Wonder World Drive overpass. Cost-benefit analysis is a technique used in both the private and public sectors. It has been formally used in the public sector since the 1930’s. In 1936, the Flood Control Act mandated a new criterion for public investment to ensure that measured benefits exceed measured costs. Cost-benefit analysis is particularly useful when considering costly projects like the Wonder World overpass. Financial resources are scarce in the public sector and therefore an organization needs to seek out the best return on their investment. Many organizations in the public sector mandate that a cost-benefit analysis be performed prior to funding any projects. Cost-benefit analysis can be used to set the priorities for an...
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