Bigstate's highway department must select projects to be built during the coming year. Eleven projects have passed the preliminary screening (see Table 47-1). Five projects have mutually exclusive alternatives (for example A1, A2, and A3 are mutually exclusive alternatives for Project A). Each project and its alternatives must be evaluated at a 10% discount rate. The best set must be selected within a budget constraint of $36 million for the first year's construction cost. For this analysis all projects and alternatives can be assumed to have a life of 20 years. Political considerations require that at most one project of A and C be selected. Similar considerations require that at least three projects be selected from projects A, B, D, F, H, and J. One of the biggest problems you have is that the Commissioner has identified the value for saving a human life with a range of $100,000 to $500,000, rather than a single value. Similarly, the department has determined that preventing a serious injury has a value between one-quarter and two-thirds of the value of a saved life.1 What projects do you recommend?
Case 47 Bigstate Highway Department Bigstate's highway department must select projects to be built during the coming year. Eleven projects have passed the preliminary screening (see Table 47-1). Five projects have mutually exclusive alternatives (for example A1, A2, and A3 are mutually exclusive altematives for Project A). Each project and its altematives must be evaluated at a 10% discount rate. The best set must be selected within a budget constraint of $36 million for the first year's construction cost. For this analysis all projects and alternatives can be assumed to have a life of 20 years. Political considerations require that at most one project of A and C be selected. Similar considerations require that at least three projects be selected from projects A, B, D, F, H, and J. One of the biggest problems you have is that the Commissioner has identified the value for saving a human life with a range of $100,000 to $500,000, rather than a single value. Similarly, the department has determined that preventing a serious injury has a value between one-quarter and two-thirds of the value of a saved life. What projects do you recommend? Liability lawsuits often result in higher awards for serious permanent disabilities than for deaths. The basis is not the "value" of the injury, but the cost of care and compensatory damages. 201 Cases in Engineering Economy 2 by Peterson & Eschenbach Table 47-1 Bigstate's Possible Highway Projects First Cost (SM) 8.0 10.5 14.2 Al A2 A3 Annual Operating Cost ($1000s) 350 550 950 400 500 150 Annual Benefits Time and Distance ($1000s) Lives 950 2 1300 2 1350 2 500 4 1600 6 1100 0 Injuries 11 11 11 B1 B2 12.0 14.5 8 9 4.3 0 D1 D2 7.5 11.0 500 800 1950 1950 700 1 4 8 10 E 9.4 3 5 FI F2 1100 0 100 150 6.6 9.3 0 0 6 8 1500 7.5 1150 0 0 H 5.6 200 300 1500 1500 1 0 I 7.9 2800 1 1 J1 J2 K 8.3 11.4 16.0 275 475 850 950 950 2500 0 2 1 3 3 8 Option How do your recommendations change over the range of possibilities for the values of lives and injuries? This can be presented graphically or in statements similar to the following: "For values of hunan life between $175,000 and $238,000, do projects A3, Di..." 202 Case 47 Bigstate Highway Department Bigstate's highway department must select projects to be built during the coming year. Eleven projects have passed the preliminary screening (see Table 47-1). Five projects have mutually exclusive alternatives (for example A1, A2, and A3 are mutually exclusive altematives for Project A). Each project and its altematives must be evaluated at a 10% discount rate. The best set must be selected within a budget constraint of $36 million for the first year's construction cost. For this analysis all projects and alternatives can be assumed to have a life of 20 years. Political considerations require that at most one project of A and C be selected. Similar considerations require that at least three projects be selected from projects A, B, D, F, H, and J. One of the biggest problems you have is that the Commissioner has identified the value for saving a human life with a range of $100,000 to $500,000, rather than a single value. Similarly, the department has determined that preventing a serious injury has a value between one-quarter and two-thirds of the value of a saved life. What projects do you recommend? Liability lawsuits often result in higher awards for serious permanent disabilities than for deaths. The basis is not the "value" of the injury, but the cost of care and compensatory damages. 201 Cases in Engineering Economy 2 by Peterson & Eschenbach Table 47-1 Bigstate's Possible Highway Projects First Cost (SM) 8.0 10.5 14.2 Al A2 A3 Annual Operating Cost ($1000s) 350 550 950 400 500 150 Annual Benefits Time and Distance ($1000s) Lives 950 2 1300 2 1350 2 500 4 1600 6 1100 0 Injuries 11 11 11 B1 B2 12.0 14.5 8 9 4.3 0 D1 D2 7.5 11.0 500 800 1950 1950 700 1 4 8 10 E 9.4 3 5 FI F2 1100 0 100 150 6.6 9.3 0 0 6 8 1500 7.5 1150 0 0 H 5.6 200 300 1500 1500 1 0 I 7.9 2800 1 1 J1 J2 K 8.3 11.4 16.0 275 475 850 950 950 2500 0 2 1 3 3 8 Option How do your recommendations change over the range of possibilities for the values of lives and injuries? This can be presented graphically or in statements similar to the following: "For values of hunan life between $175,000 and $238,000, do projects A3, Di..." 202
