Cost-Benefit Analysis of the New Bridge - Case Study Example

Bridge Design Student’s Name School of xxxxxx Customer Inserts Tutor’s Name 30th October, 2013 Financial management The construction of a bridge should be done after carrying out cost-benefit analysis of subject a project. In this particular scrutiny; the total costs to be incurred on a given potential project are compared against the potential realizable revenues and benefits in general. The difference between the costs and benefits is accordingly utilized in the making of the choice on whether to carry on with the project or not. It is always advisable that all the costs be included and be duly deducted from all the potential benefits. The consideration and possibility of getting an extra person for the new project embracing is also adequately put to thought. This section will discuss the cost-benefit of constructing the bridge that was estimated to cost AUS $38,324,000 and create over 200 jobs. Analyst had estimated the impact of such a bridge on economic growth, job creation, increasing income tax revenues, growth of businesses and other benefits. However, this will be done by relating to a comparison of the growth rates in other regions without a bridge. The presence of it will have significant impact upon the growth in per capita income on the neighborhood. Costs- benefit analysis The new Bridge will cost AUD $35million to construction thereby creating 200 jobs and enable the constructions of 2000 homes, growth of 200 businesses and other infrastructures. The bridge will have direct employment of 200 workers during the construction and after completion; it will have a capacity of 5 vehicles per minutes. The drainage of the area will improve thereby alleviating hazards. This will lead reduced maintenance costs for existing surrounding infrastructure by diverting runoff to nearby catchments. There will be reduced cost of managing disaster and financial losses due to floods. This process can determine the financial viability of a project as well as lay a foundation on which future projections can be made. This exercise helps the stakeholders beforehand to assess the financial benefits that accrue from the implementation of the project. Financial Summary To determine a least cost design all of the possible design configurations must be analysed first in terms of cost of implementation. The data that will be required for the construction of the unit cost for the project will be: the width of the trenches to be excavated, the cost of back filling the bottom slab in m3, the amount of concrete that will be used in the foundation, the cost of anti-termites and the m3 to be used. There will be also the cost of steel that will reinforce the columns that will form the frame of the buildings. Once this is achieved the lowest cost implementations can be tested to ensure meet technical specifications are met. Estimated Cost To determine an estimated least cost design the total construction costs are compared for each possible scenario without taking into consideration potential cost savings or increase associated with the bridge. AUD$ Total Concrete costs 5,200,000 Total Steel Costs 16,000,000 Total Cable Costs 5,600,000 Labour costs 8,040,000 Miscellaneous 3,484,000 Total Costs of the bridge is around 38,324,000 The Miscellaneous costs include the following: Verification and certification of the works professionals; RTA inspection and certification fees; and Staff capitalisation for the certification process described in the above points Qualitative economic benefit of the bridge Constructing of bridge has economic benefits of such developments within surrounding area. Benefits related to the building of the bridge have now become close to and synonymous with the advantages associated with quick movement from one side of river to the other. Metropolitan areas have grown significantly during the last three decades thus business owners and developers can always threaten to shift to another area if the communication becomes poor. Financing the construction of Bridge Bridges are mostly constructed with combined private and public participation. Municipal corporations generate funds by issuing bonds that increase in value in the coming future, by imposing property taxes on redevelopment agencies, by imposing temporary room taxes and by generating general fund revenues through different varieties of taxes. Redevelopment agencies usually make use of future property tax collections in serving as collateral against the bonds that they issue. In developing new projects, agencies can generate added property tax revenues. In some circumstances, the redevelopment agencies can tap the additional financing and utilize them in serving as collateral to issue bonds to fund the development of infrastructures. Such financing is also termed increment funding whereby future revenue is used in building projects that are expected to create the same streams of revenue. Over and above the special taxes that are collected to provide for the repayment of bonds issued for bridge projects, the state can also make use of general funds revenues in paying back against bonds. The general fund of the government is generated through different varieties of taxes that can be utilized at its own discretion. This is referred to as discretionary spending whereby the general funds are the typical sources of funding for most of the government services. The money that is invested in bridge is quite substantial in view of the combined contribution of revenues to the economy. Economists hold that bridge do generate substantial tax revenues but the biggest question pertains to whether the revenues they generate exceed over and above what could have been generated if the same amounts would have been invested in the same region in other sectors. In addressing such questions, the proposals of using taxpayer’s money are regularly made to undergo economic impact studies. A number of assumptions are made in such studies such as the income that will probably be generated and the number of jobs that will result from the new projects. However, these data cannot in most cases be substantiated and explained by economic theory. The strongest argument as to why public funds should be used to build bridge is that the social values are high hence they have a basis in rewarding them. Locals need bridge and they do not have sufficient capital to build them. Additionally a new bridge implies that it would be a better place to live and may eventually become a strong reason for more businesses and institution come to the area in the future. The financial burden of the bridge cannot be borne by the private and hence some other entities have to build them or else the adverse impacts will start to emerge. Even if the new bridge is constructed, there is no assurance that more investors will be attracted to the area nor is there any guarantee that the area will become more competent. Eventually there are more gains in the bridge being built with public funding because a number of things will change. Economic Analysis and Associated Risk Cost risk analysis and schedule risk analysis are carried out for the given risks. Data is simulated to perform the risk analysis. Simple spreadsheet models have been developed that can be used as platforms to develop risk analysis systems after carrying out the applicable schedule computations. Spread sheet models are known to provide opportunities for achieving the range of project cost and project duration in terms of percentage after the simulation exercise is completed by considering the recognized risks and their impact on the activity costs and duration. Spreadsheet models are characterized with being schedule risk models and cost risk models. Schedule risk models comprise of project actions, their inter-relationships as well as their maximum and minimum duration. Cost risk model comprises of elements of price and their components constituting the total price. This allows users to make use of the maximum, minimum and probable production amounts and per unit cost of each price element. It thus becomes evident that the cost risk analysis model is best implemented on the basis of information that is sketched by estimators for management to understand during scope clarification meetings. The probable maximum and minimum financial values are determined by using estimators’ experiences as well as past records and patterns relative to other projects. The prices are depicted by adopting varied models of probability distribution. It is required to identify, classify and analyse risk management properly before considering the implementation of any responses. It has to be kept in mind that once the risks are identified they are no longer risks. They become management issues that do not rely on intuitive approaches for management. The process of risk analysis has to be a constant process from the beginning of the commencement of the project and should continue till the time the project is completed. Management has to ensure that risk reporting and sources of risk flow in the right ways upwards in the management framework. A risk structure that is not defined efficiently will create more risks, which is why there is need to adopt a proactive approach towards identifying and analysing risks in construction. Creative as well as negative brain storming helps in finding new ways of mitigating risks with the given resources at any given time. Construction projects require a contingency plain that should be ready to implement in the event of coping with any eventuality. Moreover, risk management procedures in the construction project should not be complex or cumbersome because they have to be completely integrated into the company’s daily functioning. All problem areas and possibilities of project failure should be checked and addressed at the earliest in order to avoid huge losses in terms of finance and credibility. References M,Troitsky, M., 1994. Planning and Design of Bridges. New York: John Wiley & Sons. Richard, L., 2007. Bridges Design and Construction. New York: Norton. Read More