Nalytical Techniques in Public Administration
Benefit-Cost Analysis Memo, Instructions
Study the spreadsheet for this assignment on Sakai. Assume that you are an adviser to the Mayor of Baltimore, trying to make sense of the two analyses (Analyses A & B; provided by two advocacy groups, leti??s call them the Baltimore Chamber of Business and the Committee for a Better Baltimore) of the net present value of i??Building a new Light Rail line in Baltimore.i?? The mayor needs to make a decision, and these two analyses offer very different conclusions of the value of this potential project.
To be clear: The point is NOT to pick which analysis provides results that better fit your beliefs or preferences but RATHER to i??make sensei?? of two fairly different estimates that (1) overlap for some components but (2) conflict in others. How do you make use of these two analysis to provide coherent advice to the mayor?
As such, to help the mayor with this decision you need to, first, explain what a benefit-cost analysis involves and then explain WHY these two analyses come to different conclusions (go through the spreadsheet and offer a sentence or two on each discrepancy; better yet, include a table that highlights all of the differences in estimating benefits and costs). Be sure to address the time value of money and the discount rate as they relate to the NPV.
Then, after explaining what the differences are in the two analyses, help the mayor make sense of these differences. Do this by first offering your judgments on the proper assumptions to make (consider a mix of assumptions from Analyses A & B) for Baltimore. Then, show some caution about your views on the proper assumptions by conducting sensitivity analyses. This will require you to conduct at least two sensitivity analyses (more sensitivity analyses lead to better grades) showing the changes in the NPV that results from changes in the driving/parking/repair assumptions (e.g., varying the value of time saved driving from $4 an hour to $15 an hour). You also must conduct a sensitivity analysis of the Discount Rate being used in the analysis (e.g., from 0.0% to 10.0%).
To receive credit for these sensitivity analyses, you need to provide explanations of what is in the tables and graphs that you provide for your results.
After presenting the quantitative results of your benefit-cost analysis, include a section that discusses other impacts of the light rail addition. Some of these other impacts may be similar to the economic ones listed in the spreadsheet (e.g., increased business revenue as people come into the city to shop); however, others may be more i??qualitativei?? impacts, like the increased sense of community from more people feeling connected to downtown, or disruptions to those forced to move to accommodate the new light rail line. You get the idea; elaborate as you wish.
End the memo with a summary and some recommendations. Make it something you would be proud to have the Mayor read.
A. Background (some comments on adding the light rail line and stating the purpose of your work on this memo)
B. Analysis of Prior Estimates (explain what a benefit-cost analysis is and what the time-value-of-money is for the NPV; then analyze the differences in the assumptions of the two prior estimates, Analysis A by the Baltimore Chamber of Business and Analysis B by the Committee for a Better Baltimore; highlight the strengths & limitations of each of the two estimates)
C. Reconciliation Analysis (your assessment of the assumptions made by the two advocacy groups and then, based on your judgment of the right assumptions, combining and revising of the two analyses to yield what you view as a better benefit-cost analysis; you also need to include a couple sensitivity analyses, though more is better)
1. Assessment of Assumptions of Prior Analyses
2. Revised Model (including what you view as most appropriate and, hence, your best estimate of the net present value)
3. Sensitivity Analyses (vary several of the assumptions, such as discount rate and the life of the light rail line after it is built; make sure you address how changes in assumptions change the final NPV)
D. Additional Factors for Consideration (other impacts that should be considered before making a decision; there are usually a whole host of these factors)
E. Conclusions and Recommendations
Remember, TurnItIn software will be used (submit only a single Word document on Sakai) and any obvious similarities to the submissions of others will result in both students being asked to admit that information was shared and used inappropriately.
Added on 12.05.2015 10:10
IM not sure how many pegs this paper needs