The goal of this case study assignment is to utilize what you've learned about the six-steps of policy analysis and impress me with your techniques for thinking critically. You have been asked to perform a full-cycle policy analysis, from verifying that a problem exist to conducting the evaluation of the alternatives and selecting the most reasonable choice. This time, there is no page limit to your analysis.But you will need to include quantitative materials as support for your recommendation.There are factual information and data given with the case so there should NOT be any need to locate more data or information. You will need to organize and use the data given in the case to conduct the quantitative analysis, and demonstrate to me that you've comprehend the assigned readings and know how to apply what you've learned to this case (see tips at end of this page).The challenge is to analyze the quantitative data and use it to support your conclusion. Again, this case study is not a "research" or "issue" paper on the subject. As a precaution against plagiarism, I will review all papers submitted using "Turn it in" to gauge the portion of the assignment that is "original" work. Term paper format is expected to meet the standards described by APA. If you use graphics to convey your quantitative analysis, remember to title and cite your figures and tables using APA format. Spelling, punctuation, grammar, organization and presentation will be considered in assigning the grade. If you have any questions about this assignment, post your question on the threaded discussion under "Q&A" and use "Case Study #2" as the topic so other students may benefit from our question and answer session.

TIPS and TRICKS for Quantitative Analysis to help you with assessment and evaluation of the alternatives

There are many models of analysis that are applicable to use for the case study.

Economic Analysis:

This is onef the most widely used economic analysis tools is to look at the long term costs and the long term benefits of a proposed alternative. You can calculate the Net Present Value (NPV), the Cost-Benefit Ratio, or the Internal Rate of Return (IRR) of each alternative to help you decide which is best for the situation.To calculate the long term costs and long term benefits of a proposed policy alternative, you must have all the estimates of the initial or implementation year costs and benefits of each of the alternative, and the subsequent costs and values for each additional year the project will be in effect.

Discounting-The next step is to decide on a discount rate. The discount rate assumes that money spent in the future will not cost as much as money spent today. Similarly, money gained in the future will not be worth as much as money gained today. This is based on the human preference for wanting to put off costs (or payments) as long as possible, and wanting to receive benefits (or pay) as soon as possible. The discount rate is usually obtained from economists, from agency policy, or from the nature of the project being considered (i.e., whether a large infrastructure project, a revenue-bond based project, or a general obligation bond based project). Another source is the discount rate charged by the Federal Bank, or the interest rate paid on government bonds, which I believe you should use for this case since interest rate is at an all time low these days.At times, the choice of which discount rate to use has been highly politicized. Because many government projects have high initial costs but a long stream of benefits, a low discount rate will make a project look more favorable, and a high discount rate will make a project look less favorable.Make sure you take this into consideration after your calculations so that you are not in essence discounting or inflating benefits and costs.The same discount rate is generally applied to both the project costs and the project benefits. If inflation is going to be factored in, it should be applied to both the costs and benefits separately, before the discount factor is applied.To calculate the discounted costs, multiply each year's costs by that year's discount factor (the discountfactor can be obtained from a table of discount rates in your text book on pages 330-331). To calculate the discounted benefits, multiply each year's benefits by that year's discount factor (the discount rate factor can be obtained from the table of discount rates).

Net Present Value -The Net Present Value is the value of the project if all the costs were paid today and all the benefits were gained today. To find NPV, subtract discounted costs from discounted benefits: Discounted Benefits $17,807 - Discounted Costs $16,087 = $1,720. The Net Present Value of each policy alternative must be calculated separately, and then it can be compared to the NPV of each other policy alternative, to find the one with the highest NPV.

Cost-Benefit Ratios-The costs and the benefits of any policy alternative can be compared in a number of ways. Cost-benefit ratios are obtained by dividing discounted benefits by discounted costs: Discounted benefits =$17,807; Discounted costs =$16,087; Benefit/Cost ratio =1.1

Note that the highest benefit-cost ratio may not have the highest NPV. These are two different types of analysis. The most efficient projects have the highest benefits-to-costs ratio, but many policy analysts prefer to maximize NPV. In any case, NPV should be a positive number, and the benefit-cost ratio should be greater than 1.0

Internal Rate of Return-The internal rate of return is an expression of the discount rate at which discounted benefits would equal discounted costs. For the example above, at an 8% discount rate, discounted benefits would equal $15,971 and discounted costs would also equal $15,971. If the calculated IRR is greater than the discount rate being used for the project, then that is an indication that the project should be carried out. Generally, IRR is not comparable to either NPV or the benefits-to-costs ratio. The IRR from one project, however, can be directly compared to the IRR from an alternative project.

Sensitivity Analysis-Often there is not a clear distinction on which alternative is best, as one alternative may be better on the criterion of efficiency, while another is better on costs, and a third on political acceptability. A policy analyst will usually try to see how sensitive the analysis is to changes in assumptions. Things that the policy analyst will test include:

• the length of the project (how long will benefits continue)
• the discount rate
• the value placed on various quantities (costs, benefits, probabilities, etc.)

For example, a city wants to replace old garbage trucks with newer models, and it assumes the new trucks will last 20 years. What if the benefits only last 10 years? Or if the annual maintenance costs are 50% higher than what was budgeted? Or does a project still have a positive NPV if the discount rate is raised from 4% to 6%? Is the IRR still greater than the discount rate? Is the benefit-to-cost ratio still greater than 1.0?

In another example, the city assumes that building a new parking garage will raise an additional $2,000 per parking space per year in sales taxes, as well as the revenues from parking. What if only $1,000 is raised? Or say a university wants to get more students to park on campus instead of on nearby neighborhood streets. It thinks that if it reduces the parking permit fee by $10, then 25% more students will buy one and park on campus. What if only 5% more students buy one? A city has vacant land that it can sell, lease, or keep. The city wants to sell. It assumes that someone will buy the land and develop it, increasing the city's property tax revenues. But what if the office building remains mostly vacant? Would this change the city's decision on selling? What are the probabilities of the different outcomes? What if the probabilities for the favored outcome decrease?

Another type of sensitivity analysis is to identify the break-even point. This can vary according to:

• the length of the project (how many years are needed to break even?)
• the discount rate (how low before benefits equal costs?)
• the value of other quantities (e.g., amount of extra parking permits sold?)

Contingency analysis identifies what will happen if one of the basic assumptions about the project is altered. For example, what if there are large cost over-runs? What if people do not behave as predicted (e.g., buy more parking permits?) Some decision-makers are risk averse. They want to minimize any possible losses, rather than to pursue the (riskier) maximum possible gains. They will want to go for the sure thing (the alternative with the highest probability--in this case, do nothing--especially if limits their possible losses (for this alternative, the worst case scenario is to break even at 0).

The steps in constructing a quick decision analysis are:

1.identify the dimensions of the analysis (problem, alternatives, outcomes) 2.construct a diagram 3.forecast the likely outcome for each alternative 4.assess how likely each outcome is in terms of probability

5.calculate the expected value of each alternative