Benefit-Cost Ratio for Public Projects

This article discusses the economic analysis of public projects in terms of benefit-cost ratio (BCR). BCR is a ratio of the equivalent worth of benefits to the equivalent worth of costs. The higher the BCR, the more beneficial the project is considered to be.

Here are some of the key points from the article:

• Private sector economic analysis is typically based on profitability, while public sector economic analysis is based on the general welfare of the public.
• The challenges of evaluating public projects include the difficulty of measuring efficiency, the impact of politics, and the conflict of purposes and interests.
• The two most commonly used BCRs are conventional BCR and modified BCR. Conventional BCR is the ratio of the AW of benefits to the AW of costs, while modified BCR is the ratio of the AW of benefits minus the AW of operating and maintenance costs to the AW of costs minus the AW of sunk costs.
• BCR is calculated using AW, PW, and FW by dividing the AW, PW, or FW of benefits by the AW, PW, or FW of costs.

For more information on benefit-cost ratio for public projects, please see the following resources:

• The Manual of Engineering Economy by Nanda Shakya
• The ASCE Manual on Economic Analysis of Public Investment Projects
• The US Department of Transportation’s Economic Analysis Primer