Topic - Cost Benefit Analysis (CBA)

Discussion: Benefits and Shortcomings of Cost Benefit Analysis

As mentioned in the Weekly Introduction, cost benefit analysis is one of the most widely used of all public-sector management techniques. Cost benefit analysis is frequently used with capital facilities planning but has a range of applications. When decisions are being made about whether to build a new highway, the first question often asked is whether the benefits derived from the new highway outweigh the cost of building the highway. Because the construction cost of the highway is incurred in the present and the benefits are spread over the life of the highway, tools like cost benefit analysis to compare cost and benefits over time are useful tools in decision making.

For this Discussion, you will evaluate the benefits and shortcomings of cost benefit analysis as a public management technique.

To prepare: Review the Learning Resources for the week. As you review your Learning Resources, you should focus on the basic concepts of cost benefit analysis in your readings.

Post your analysis of the benefits and shortcomings of cost benefit analysis as a public management technique. Provide an example that you have used or could use in your area of professional interest. Support your analysis with scholarly resources and readings from this week.

ASSIGMENT - Short Paper: Using Cost Benefit Analysis to Evaluate Water/Wastewater Treatment Capacity

The challenges of cost benefit analysis (CBA) are often misunderstood as a viable decision-making tool. For this Assignment, you examine the value of CBA.

Using the Resources provided this week, and after reading the scenario, it is your responsibility to convince others of the value of using cost benefit analysis.

To prepare: Read the following scenario:

You are the city manager of a municipality of 250,000 citizens located in a county with 250,000 more residents living in unincorporated areas surrounding the city. Recently, a large automaker announced its plans to locate an assembly plant in the unincorporated area of the county. The new facility is expected to bring new growth to the city and county.

Through a joint service agreement with the county, the city furnishes water to all county residents and is expecting to provide service to the new auto plant. Historically, the user rates charged to county residents residing outside the city have been substantially higher than those charged to city residents. As a result of the higher user fees, the provision of water to unincorporated areas has been a source of revenue for the city.

The city's main water treatment plant is over 40 years old and is operating near capacity. Also, the maintenance costs of the plant are starting to increase at an alarming rate. With the anticipated new demand of more water, the city needs to make a decision about expanding its water treatment capacity.

The mayor and council are looking for guidance on how to determine the best way to increase the city's water treatment capacity. The mayor is a former military officer and is familiar with the U.S. Army's approach to cost benefit analysis. The mayor is trying to convince her fellow council members that the city needs to develop a cost benefit analysis to determine the best course of action. You agree with the mayor's approach to decision making; however, some older members of the council have some doubts about the use of cost benefit analysis as a decision-making tool. The cost benefit doubters claim that they are elected to make decisions for the city, and they do not want to relinquish their decision-making responsibilities to some opaque operations research technique that the average citizen could not possibly understand. In order to convince the council of the value of cost benefit analysis, the mayor has asked you to:

Write a 5-page memorandum addressing the first four steps in the U.S. Army Cost Benefit Analysis Guide as they relate to the city's need to increase its water treatment capacity.

Note: For Step 4, you do not need to actually develop cost estimates, but please provide guidance on how you might go about deriving estimates.

Reading - A Primer for Understanding Benefit-Cost Analysis by Richard O. Zerbe, Tyler Scott.