PROJECT EVALUATION AND MANAGEMENT Essay Example

  • Category:
    Business
  • Document type:
    Math Problem
  • Level:
    Undergraduate
  • Page:
    1
  • Words:
    615

Cost Benefit Analysis: Determining Values

Cost-Benefit Analysis of Free Wi-Fi for City Residents and Public Transport: Determining Values

Costs and benefits were identified in the Distributional Incidence Table (Planning Balance Sheet). The cost of buying smart phones and laptops or PCs rests with users. However, the company will incur ongoing costs of Wi-Fi networking.

  1. BENEFITS

  1. Mobility:

Users need real time information whether in offices, homes and travelling. Many LAN users apply wireless LAN systems to access this information[ CITATION Elv08 l 1033 ]. Mobility will be important given that users will enjoy service and productivity opportunities that could not be provided with wired networks.

Valuation technique: The number of people accessing the network multiplied by the work hours and flexibility factor. The work hours will be determined by the time saved. It will be estimated that each hour costs $10 and the flexibility factor will be 0.4. In 2014, the Free Wi-Fi project targets 18,000 users daily saving 4 hours per day.

Value: PV 2014 $ 48,750

  1. Speed and Simplicity

There is faster and easier installation of wireless LAN systems. When the delays resulting from the need to pull cables through ceilings and walls will be eliminated, much of installation costs will have been reduced.

Valuation technique: Cost savings will be the technique used to value speed and simplicity. The amount of money saved will include the cost of labour, installation equipment and wiring[ CITATION Cam07 l 1033 ]. The bill of quantities will be used to determine the costs saved.

Value: PV 2014 $ 115,000

  1. Cost of Ownership

The cost of wired LAN hardware is lower than the initial investment required for LAN hardware. This makes life-cycle costs and overall installation expenses lower[ CITATION Mas14 l 1033 ]. In dynamic environments demanding frequent changes and moves, long term benefits are greatest.

Valuation technique: NPV

The valuation technique of Net Present Value (NPV) is determined by establishing the Present Value on discounted rates for the next five years. The life-cycle costs and installation expenses are discounted and found to be lower than the initial investment[ CITATION Cam07 l 1033 ]. Negative NPV will be considered appropriate as the costs are reducing with time.

Value: PV 2014 $ 36,000

Free Wi-Fi impact in public transport and city residents $‘000’

Mobility 48.75

Speed and Simplicity 115

Cost of Ownership 36

Total 199.75

  1. Installation Costs and Upgrading

Networking hardware is required to meet the standards of Power-Over-Ethernet. To hook up access points, Ethernet cable will necessary.

Valuation technique: Market prices

The cost of procuring an Ethernet cable will be estimated including the cost of labour through hiring qualified installation specialists.

Estimates of costs of the Free Wi-Fi internet to city residents and public transport users ($ ‘000’ in June 2014 dollars)

Year of expense

Upgrading

More Bandwidth

Training

Personnel

In-house tech support

Cloud based offsite network

Consultation

Physical Installation (Ethernet cable)

Data security and protection

Server administration

Purchase of Routers

Contingency

Present value in 2014 dollars is $233 million.

Cost Benefit Analysis of Free Wi-Fi for city residents and commuters $’000’

Benefits

Mobility

Speed/simplicity

Cost of ownership

Total benefits

Upgrades

Physical Installations

Total Costs

Net Benefit

IRR=0.574

NB: Discounting rate is 10% for 10 years

Total NPV $ ‘000’

Net Benefit

Mobility

Speed/simplicity

Cost of ownership

Total Costs

Total benefits

An illustration of the figures is as shown in the figure below.

Financial vs economic table & linking impact to valuation technique

Figure 1: CBA of Free Wi-Fi for city residents and public transport

References

Campbell, H. F. (2007). Benefit-Cost Analysis: Financial and Economic Appraisal Using Spreadsheets. Cambridge University Press.

Florio, M. (2014). Applied Welfare Economics: Cost-Benefit Analysis of Projects and Policies. Routledge.

Haezendonck, E. (2008). Transport Project Evaluation: Extending the Social Cost-benefit Approach. Edward Elgar Publishing.