Engineering Project Appraisal

Martin Rogers, Aidan Duffy

• Publisher: Wiley-Blackwell
• Year: 2012
• ISBN:
  9781118378113
• Edition: 2
• Topic: Technology & Engineering
• Subtopic: Civil Engineering
• Index: Technology & Engineering

In most cases of civil engineering development, a range of alternative schemes meeting project goals are feasible, so some form of evaluation must be carried out to select the most appropriate to take forward. Evaluation criteria usually include the economic, environmental and social contexts of a project as well as the engineering challenges, so engineers must be familiar with the processes and tools used.

The second edition of Engineering Project Appraisal equips students with the understanding and analytical tools to carry out effective appraisals of alternative development schemes, using both economic and non-economic criteria. The building blocks of economic appraisal are covered early, leading to techniques such as net present worth, internal rate of return and annual worth. Cost Benefit Analysis is dealt with in detail, together with related methods such as Cost Effectiveness and the Goal Achievement Matrix. The text also details three multi-criteria models which have proved useful in the evaluation of proposals in the transportation, solid waste, energy and water resources fields: the Simple Additive Weighting (SAW) Model, the Analytic Hierarchy Process (AHP) technique and Concordance Analysis. There is a full discussion dealing with risk and uncertainty in these models.

With many worked examples and case studies, Engineering Project Appraisal is an essential text for both undergraduate and postgraduate students on professional civil engineering courses, and it is expected that students on planning and construction management courses will find it a valuable addition to their reading.

PART 1

ECONOMICS-BASED PROJECT APPRAISAL TECHNIQUES

Chapter 1

Decision Making and Project Appraisal

1.1 Decision making context

Let us firstly discuss the identity of the decision maker. In answer to the question as to whether individuals or organisations make decisions, it is a widely held view that managerial decision making is essentially an individual process, but one which takes place within an organisational context. Therefore, while the decision maker is central to the process, any given decision made may influence other individuals and groups both within and outside the organisation, as well as having the potential to influence the surrounding economic, social and technical environment within which they all operate.

In the particular context of engineering project appraisal, complex decisions may need to be resolved involving not only the definition and evaluation of alternative actions, but also the resolution of how the chosen project should be physically undertaken. Such complex decisions, often involving the expenditure of vast amounts of money, are rarely taken by one single individual decision maker, such as a government minister, a technical expert or an administrator. Even if the final legal responsibility does lie with one specific individual, the decision will only be taken after consultation between this designated individual and other interested parties. For example, the final decision regarding whether a major highway project will proceed is the responsibility of the relevant government minister. However, his or her decision is made only after a consultation process with interested parties has been completed, usually by means of a formal public inquiry at which all affected parties are represented. Such a decision could in some cases be the ultimate responsibility of a collection of individual decision makers, such as a cabinet of government ministers or an elected or appointed body. Groups seeking to directly influence the decision maker, such as professional representative institutions or local community groups, could be directly affected by the decision. All these ‘actors’ are what Banville et al. (1993) call primary stakeholders in the decision process. They have a pre-eminent interest in the outcome of the process and will intercede to directly influence it. Also, there are third parties to the decision, such as environmental and economic pressure groups that are affected only in general terms by the decision. Termed secondary stakeholders, they do not actively participate in making the decision. Their preferences, however, must be considered.

In such complex cases, it is usual for one of the primary stakeholders central to the decision process to be identified and designated as the decision maker. In the context of the appraisal, therefore, the decision is, in effect, reduced to an individual process. The diverse backgrounds and differing perspectives of the various stakeholders may mean that not all can benefit directly from the decision-making procedure. This chosen stakeholder, as the designated decision maker, then plays a critical part in the process. In some circumstances, however, he or she may only be a spokesperson for all the stakeholders, both primary and secondary. Whatever the relative influence of the various actors, the process requires that a decision maker be identified, even if the objectives specified by the chosen party are those commonly held or assumed to be commonly held by the entire group of stakeholders.

Although the actual process of decision making is generally carried out by the designated decision maker, in certain complex and/or problematic situations it is more usual for it to be undertaken by a separate party who is expert in the field of decision theory. This person, called the facilitator or the analyst, can work alone or as leader of a team. The function of the analyst is to explain the mechanics of the decision process to the decision maker, obtain all required input information and interpret the results, possibly with the use of decision models, in an easily understandable way.

For the purposes of this book, it will be assumed that the decision maker is an individual, responsible for each step in the decision process, with the ability to directly influence the decision-making procedure.

1.2 Techniques for decision making

A decision is only needed when there is a choice between different options. Such a choice can be made using either a non-analytic or an analytic technique. The first type is used for less important, relatively trivial decisions. The second type is required for more complex decisions involving the irreversible allocation of significant resources. These techniques justify greater input in terms of time and expense on the part of the decision maker.

1.2.1 Non-analytical decision making

Some decisions are made without conscious consideration, on the basis that they are perceived by the decision maker as being ‘right’. These are intuitive in nature and reflect an ingrained belief held by the decision maker in relation to the situation under examination. There is, however, the danger that the decision environment may have changed and that new conditions could now prevail, resulting in the decision maker’s intuition being misplaced and incorrect. For this reason, decisions based on intuition should only be used with extreme care, in matters where the outcome is of small consequence.

The other type of decision in this category – judgemental decisions – are more ‘rational’ or reasoned in their approach than the first type. They are appropriate only for those decisions that recur. The decision maker consciously reasons out the probable outcomes of the possible alternatives using his or her judgement, which has been developed from past experience and general knowledge. He or she selects the alternative that he or she believes will deliver the most desirable outcome. For a large organisation where the same types of decision tend to recur very frequently, these types of decision can be very useful. The similarity between these frequently occurring decision situations allows the effective use of ‘programmed’ decisions where, like a computer-based algorithm, the selection of options is highly structured and consists of an ordered sequence of clearly defined steps. An example of such a programmed decision is the use of a code of practice by a structural engineer to design a reinforced concrete building. Because the set of design decisions is standard for such a process, the code of practice provides a guide for the designer regarding the major decisions that should be made and the sequence in which they should be addressed. Professional judgement alone is inadequate for this decision process, as such a problem can be very complicated. Because the code of practice is used successfully by structural engineers on a daily basis to design reinforced concrete structures, they have the confidence that using this ‘programme’ as a framework for their design decision will result in a properly designed building. Such codes of practice are not static, unchanging documents, but are amended as technological advances dictate. In general terms, within this type of decision, the ‘programme’ must be altered to take account of situational changes, be they alterations in the economic, social or technological environment.

It is important, therefore, to distinguish between a programmed decision and a non-programmed decision. As previously defined, a programmed decision is applied to structured or routine problems, inv...

Table of contents

• Cover
• Title page
• Copyright page
• Preface
• Introduction
• PART 1: ECONOMICS-BASED PROJECT APPRAISAL TECHNIQUES
• PART 2: NON-ECONOMIC-BASED PROJECT APPRAISAL TECHNIQUES
• Interest Factor Tables
• Index