Transcript Document

Lecture Notes
ECON 437/837: ECONOMIC
COST-BENEFIT ANALYSIS
Lecture Eleven
0
COST EFFECTIVENESS
ANALYSIS
1
Cost Effectiveness Analysis
• Cost effectiveness analysis (CEA) looks at a single quantified
effectiveness measure of the cost per unit. For example, the cost in
dollars of a life saved, the least cost way of supplying electricity or
water to a community.
• Used heavily in social programs and projects where identification and
quantification of benefits in money terms is not straightforward but, at
the same time, the desirability of the activity is not in question.
• For example, in the case of health care:
- What is the best way to prevent heart attacks?
- What drugs are most cost effective in the treatment of illness?
- What is the least cost way of providing nutrition to poor children?
- Which of the programs is most cost effective for AIDS
prevention?
2
Cost Effectiveness Analysis (cont’d)
• Examples of application to other areas:
– Choosing from two school systems that give same education
benefits
• Centralized schools that require bus transportation and more
expensive smaller schools to which students can walk.
– Two types of court systems
• More court rooms at the headquarters or mobile courts.
– Alternative ways of supplying potable water to communities.
– Alternative technologies to generate electricity
• Thermal vs hydro; single vs combined cycle plant
• The objective is to compare costs per unit of outcome of alternative
approaches or technologies that will provide the same service for
purposes of capital budgeting.
3
Cost Effectiveness Analysis (cont’d)
• The focus of a cost-effectiveness analysis is on evaluating the
costs of the alternatives.
• The analysis involves the measurement of benefits in some
kind of quantifiable manner (e.g., lives saved, schooling years
increased, additional water consumed) and then compare the
effectiveness of alternative options to deliver the project or
program:
– Computing the ratio of costs (Ci) to its benefit (Ei), for
example, dollars per school seat.
– Alternatively, measuring the effectiveness (Ei) in terms of its
cost (Ci).
4
Costs Assessment
• While computing cost-effectiveness ratio for a particular project,
attention should be paid to the treatment of costs, which include not
only financial but also social and economic costs.
• In the education sector, the enhancement of primary schooling is
sometimes viewed in terms of the additional number of schools
blocks and improvement of their physical condition. But any programs
of developing school systems must also take into account the cost of
additional teaching personnel, teaching materials and regular
maintenance costs.
• For health projects, analysts should identify capital costs
(expenditures for hospital/clinic, equipment, and training), recurrent
expenditures (costs for administrators, doctors, nurses, lab
technicians, unskilled support, and other staff), and indirect costs
(patients’ time and travel).
5
Discounting
• Although cost effectiveness analysis does not place a
monetary value on the benefits, the project’s benefits
(effectiveness) has to be discounted to the same year as
the discounted costs.
• Both the costs and units of effectiveness should be
discounted by the same rate.
CE i 
PV of Costsi
PV of Effectiveness i
• The cost-effectiveness ratios are computed for each of the
alternatives and then the analyst can rank the alternatives
and take a decision.
6
Discounting in Health Care Evaluation
• Currently a 3% discount rate used in both costs and benefits by
convention is far too low.
• As most health interventions need to be continued through time
(e.g. drugs), the discount rate is not too critical as most costs
and benefits occur in the same period.
• Discounting, however, is very important when capital
expenditures are involved such as construction of clinics,
hospital, or equipment of CAT scan, MRI machines.
• Failure to discount future health benefits and costs properly can
lead to paradoxical results.
7
CEA Can Be Used in Two Forms:
Method 1: Constant Effects
• Uses least-cost analysis to determine the lowest cost alternative for
meeting the same level of benefits, including intangible benefits.
• Selection criteria is “choose the alternative that has the lowest
present value of costs.”
– The outcome may be a function of the rate of discount and may
switch with change in discount rate.
• Example:
– Choosing from two types of water pipes of different diameters that yield
the same quantity and quality of water per day (smaller pipe has lower
investment cost but higher operating or pumping costs),
– Selecting from two alternatives for generating the same amount of
electricity (thermal and hydro generation units, the former with a lower
investment and higher operating cost compared to the latter).
8
Case 1
Least Cost Method
Drinking Water: Alternative Delivery Systems
Alternative A:
(All figures in '000)
Years
0
Installation cost
Operating cost
3000
Total cost
3000
PV of Total cost (at 6%)
Alternative B:
1
2
3
4
5
700
700
700
700
700
700
700
700
700
700
$5,949
$ 5,723
PV of Total cost (at 9%)
(All figures in '000)
Years
0
Installation cost
Operating cost
4200
Total cost
4200
PV of Total cost (at 6%)
$5,885
1
2
3
4
5
400
400
400
400
400
400
400
400
400
400
PV of Total cost (at 9%)
$ 5,756
The results switch with change in discount rate.
9
Method 2: Cost-Effectiveness Ratio
–
Calculates the cost per unit of benefit. Both
benefits and costs vary across alternatives.
–
Example:
Benefits are simply measured as the number of
Premature Deaths Prevented.
•
•
Two different health programs: DPT-BCG vaccination
campaign for children or AIDS treatment program for infected
patients.
The cost per child vaccination and per patient will be
computed in this case. Here the purpose is to see which
program yields more value per dollar of expenditure.
10
Case 2
Cost of Health Project: Immunization against DPT (diphtheria,
pertussis and tetanus) - Bacillus of Calmette and Guérin (BCGagainst tuberculosis)
(All figures in ' 000 of US$)
Year
Premature Deaths Prevented
2000
-
2001
8,000
2002
12,000
2003
18,000
2004
25,000
2005
30,000
24,000
10,000
15,000
500
2,000
3,300
30,800
16,000
24,000
800
3,200
5,500
49,500
25,000
37,500
1,250
4,500
8,200
76,450
36,000
55,000
1,800
7,200
12,000
112,000
42,500
64,000
2,100
8,000
14,500
131,100
6.0%
6.0%
75,560
347,980
Capital Costs
Facilities
Equipments
Vehicles
Training
Technical Assistance
2,500
8,500
5,000
2,000
6,000
Recurrent Costs
Personnel
Supplies
Training
Maintenance
Others
Total Costs
Present value of Total Benefits
Present Value of Total Costs
Cost per unit of Premature Deaths Prevented
Present value of Total Benefits
Present Value of Total Costs
4.61
9.0%
9.0%
68,547
317,503
4.63
11
Case 3
Cost of Health Project: AIDS Program
(All figures in ' 000 of US$)
Year
Deaths Prevented
2000
-
2001
500
2002
750
2003
1,000
2004
1,400
2005
1,750
3,500
2,000
40,000
100
250
300
42,650
2,500
65,000
100
300
500
68,400
4,000
90,000
100
450
800
95,350
5,000
120,000
100
600
1,250
126,950
6,000
150,000
100
800
1,500
158,400
6.0%
6.0%
4,395
403,591
Capital Costs
Facilities
Equipments
Vechicles
Training
Technical Assistance
200
1,000
300
500
1,500
Recurrent Costs
Personnel
Supplies
Training
Maintanance
Others
Total Costs
Present value of Total Benefits
Present Value of Total Costs
Cost per unit of Deaths Prevented
Present value of Total Benefits
Present Value of Total Costs
91.82
9.0%
9.0%
3,991
366,711
91.88
12
Incremental (or Marginal)
Cost-Effectiveness Ratio
• The decision makers need to compute incremental (or marginal) costeffectiveness ratios.
• This need arises when a new alternative is compared with the
existing situation.
• The numerator now contains the difference between the cost of the
new and old alternatives, and the denominator is also the difference
between the effectiveness of the new and old alternatives:
Ci  CO
MarginalCE i 
Ei  EO
• This ratio can be interpreted as the incremental cost per unit of
effectiveness. When there are several alternatives available, the
marginal cost-effectiveness ratio can be used to rank the new
measures versus the existing one.
13
Case 4
Marginal Cost-Effectiveness Ratios in Prevention of Traffic Fatalities
Policy
Measures
Total
lives
saved
Incremental
Effectiveness
(Deaths
Prevented
a Year)
Total
Cost
(Million $)
Incremental
A
Existing
500
500
20.00
B
Existing plus
Enforcement
600
100
C
Existing plus
Road safety
1000
D
Existing plus
Public
Campaign
585
Marginal
CE Ratios
($)
Ranking
_
_
_
25.50
5.50
55,000
2
500
31.50
11.50
23,000
1
85
25.00
5.00
58,824
3
Cost
(million $
per Year)
14
Limitations of CEA
1. Does not measure willingness to Pay
• CEAs are a poor measure of consumers’ willingness to pay as the
output or benefit is not priced in the market nor is the output
considered homogeneously.
• What is the willingness to pay for the additional “drug addicts
treated”?
• The number of addicts treated may not be the best approximation of
the value of the final outcome (i.e., consequential crime reduction may
also be important for the taxpayers).
• The link between the intermediate measure of effectiveness and final
output, such as reduction in crime, is not explicitly stated.
• Faced with this kind of situation, the analyst must make sure that this
link is properly established. Even with this link, it is hard to know the
value of the final outcome if no market value is placed.
15
Limitations of CEA (cont’d)
2. Excludes some external benefits
• The concept of CEA excludes most externalities on the benefits
side.
• On the benefit side, the CEA looks only at a single benefit and all
other benefits are essentially ignored.
- An improvement in education will not only increase life-time
earnings of the students but also contribute to a reduction in
the rates of unemployment and crime.
- In healthcare, there are external benefits due to such
treatments as the vaccination of children, i.e. other people do
not catch the infection diseases.
• The above issue will not occur for a complete CBA. The analyst
doing the CEA should be careful not to exclude important benefits
arising from a particular project.
16
Limitations of CEA (cont’d)
3. Excludes some external costs
• While computing the cost-effectiveness ratio for a particular project,
attention is paid to the treatment of costs, which should include not
only financial but also social costs.
• In the education sector, the enhancement of primary schooling is
sometimes viewed in terms of the additional number of school
blocks and improvement of their physical conditions. Many other
costs must be included to get the desired outcome.
• Different types of projects often have some of the costs in nonmonetary terms, such as waiting time, coping costs, enforcement
costs, regulatory costs, compliance costs, etc.
• The economic CEA carried out for such projects must account for all
costs based on the economic instead of financial prices of goods
and services.
17
Limitations of CEA (cont’d)
4. Does not account for scale of project
• Scale differences may distort the choice of an “optimal”
decision.
• A project with smaller size but higher efficiency level may get
accepted, while another project may provide more quantity of
output at a reasonable cost.
• A strict CEA fails to overcome this problem.
• A complete CBA does not have this problem because the net
present value already accounts for the differences in size
among alternative projects.
18
Scale Problem in CEA
Effectiveness
(Patients a Month)
Cost
(Rand)
CE Ratio
EC Ratio
Ranking
Alternative A
200
50,000
250
0.0040
1
Alternative B
1,150
300,000
261
0.0038
2
Method
•
Let’s say there are two mutually exclusive options in the choice of medical diagnostic
equipment for a clinic.
•
The first type of machine (A) costs R 50,000 and it can diagnose 200 patients a month.
•
The second option involves more expensive equipment (B), which will cost R 300,000 but
could serve up to 1,150 people a month.
•
The CEA results in the selection of the least costly alternative, option A, which costs R 250
per diagnosis.
•
Option B allows to process almost a six-fold higher number of medical tests a month, at cost
of R 261 per patient.
•
Unless there is a severe budget constraint for implementation of alternative B, this
alternative could be justified even if its average costs are higher than costs of alternative A.
This is because the total benefits that alternative B generates are very much larger than the
benefits of alternative A.
19
Cost-Utility Analysis
• The estimation of benefit in CEA is limited to a single measure of
effectiveness such as reduction of mortality. This simplification
ignores benefits stemming from reduced morbidity and, hence, a
cost utility analysis (CUA) is employed.
• In principle, CUA could be used with multiple outcomes but as the
number of dimensions grows, the complexity of analysis also
increases.
• Practically, CUA has been traditionally utilized in healthcare,
measuring improvement in health as measured by both quantity
(years of life) and quality of healthcare improvement (health status).
• Each type of benefit (Bj) would be assigned its relative importance,
or weight (wj), in the utility:
CU i 
Ci
 n

  B j * w j 


 j1
i
20
Types of Economic Evaluation in
Health Sector
• Economic evaluation: compare the resources consumed
with the health consequence.
• The benefit of an intervention is better described as
extending the life span of individuals, rather than
preventing deaths alone.
• Disability-Adjusted Life Years (DALY)
- Overall measure of disease burden by combining
years of life lost and years lived with disability
• Quality-Adjusted Life Years (QALY)
- Measure of quality of life
21
Disability Adjusted Life Years (DALY)
• The DALY index calculates the productive years lost
from the ideal lifespan due to morbidity or premature
mortality – a measure of the combined quantity and
quality of life.
• Reduction of productivity due to morbidity is a function
of the years lived with the disability, and an assigned
weighting.
• It allows both morbidity and mortality to be considered
in a single measure. Nevertheless, it is to some extent
subjective and controversial.
22
Quality Adjusted Life Year (QALY)
• QALY is a measure of combining the quantity and quality
of life. It takes one year of perfect health-life expectancy to be
worth 1, but regards one year of less than perfect life
expectancy as less than 1.
• An intervention results in a patient living for four years rather
than dying within one year. Hence, the treatments add 3 years
to the person’s life. However, if the quality of life falls from 1
to 0.5, the treatment generates 1.5 QALY.
• The weights/index are generally obtained through survey or
medical experts in the field.
• QALYs provide an indication of the benefits gained from a
variety of medical procedures in terms of quality, life, and
survival for the patient.
23
Economic Evaluation of
Education Projects
24
Economic Evaluation of
Education Projects
• Educational projects may have many types of
components, with benefits measurable in both monetary
and non-monetary terms.
• Investment in education generates various in-school and
out-of-school benefits.
• In-school benefits include gains in the efficiency of the
education system.
• Out-of-school benefits include improvement of the
income-earning skills of the students and externalities
(benefits) that accrue to society at large beyond the
project beneficiaries.
25
Evaluating Investments with
In-School Benefits
• In-school benefits include gains in the efficiency of the
education system (e.g., enhance learning, reduce student’s
repeat, reduce crime).
• As in any other enterprise, the production of education
services involves decisions how it combines inputs to
produce the desired objectives.
• Alternative ways to enhance the educational system:
–
–
–
–
Invest in writing and textbook;
Invest in educational software;
Invest in hardware facilities/furniture;
Upgrade teachers.
26
Evaluating Investments with
Out-of-School Benefits
• Out-of school benefits arise after the project’s beneficiaries
finish a course of study or leave a training program.
• The most obvious of such benefits is the gain in the
beneficiaries’ work productivity, as reflected in differences in
pay (or in farm output).
– The difference in outputs between the two groups of
farmers, valued in market prices, can be used to estimate
the economic benefits of investing in primary education.
• In evaluating a project from society’s point of view, the benefits
include gross-of-tax earnings and fringe benefits in the wage
package such as retirement benefits.
• Most of the social benefits are difficult to quantify including
crime reduction, social cohesion, income distribution, possibly
fertility reduction.
27
Figure 1. Age-Earnings Profiles of High School and University Graduates
in Venezuela, 1989
300,000
250,000
University
Graduates
200,000
150,000
100,000
50,000
High School
Graduates
12 16 20 24 28 32 36 40 44 48 52 56 60
Age
Source: Pedro Belli (2001)
The calculation typically involves two steps:
1) estimating the relevant age earnings profiles to obtain the increment
in earnings at each age;
2) discounting the stream of incremental earnings using an appropriate
discount rate.
28
If the returns to university education interest us,
the profiles would refer to earnings for university
and high school graduates.
Earning/Cost
Age earnings profile
of university graduates
Benefits
Forgone Earnings
18
0
22
65
Direct Costs
Age earnings profile
of school graduates
secondary
Age
47
4
Time (Years)
Source: Pedro Belli (2001)
29
The standard formula in cost-benefit analysis can be
modified to the specific problem here:
( EU  ES ) t 4
t
NPV  

(
E

C
)
(
1

i
)

S
u t
(1  i)t
t 4
t 1
t  43
Es , Eu - refer to the earnings of secondary
and university graduates
Cu
- refers to annual unit cost of university education
i
t
- refers to the discount rate
- refers to the time periods
30
Table 2. Returns to Investment in Education by Level,
Latest Available Year (percent)
Country
Argentina
Bolivia
Botswana
Brazil
Chile
Colombia
Costa Rica
Ecuador
El Salvador
Ethiopia
Ghana
Mexico
South Africa
Philippines
Zimbabwe
Primary
Secondary
Higher
8.4
9.3
42
35.6
8.1
20
11.2
14.7
16.4
20.3
18
19
22.1
13.3
11.2
7.1
7.3
41
5.1
11.1
11.4
14.4
12.7
13.3
18.7
13
9.6
17.7
8.9
47.6
7.6
13.1
15
21.4
14
14
9
9.9
8
9.7
16.5
12.9
11.8
10.5
-4.3
31
Cost Effectiveness Analysis of
Investment in Education
32
Investment in Education
• In many developing countries the budget that is allocated
to educational sector is a significant proportion of total
public sector expenditure.
• Allocating the budget efficiently within the Department of
Education is important for both public sector efficiency
and the effectiveness of the delivery of education
services.
33
CEA in Education
• Efficiency in education is affected by many different factors such as:
– Number of available classrooms
– Number of learners in each class
– Level of knowledge and expertise of teachers
– Availability of text books and other facilities
• A serious shortage of classrooms may prevent students from
entering school. It may result in overcrowding, thereby decreasing
the efficiency in learning of students and discouraging them from
attending school.
• A CEA is to find the most efficient use of the given budget allocation
using the limited information available such as the number of
classrooms available in each school district relative to the number of
students in that district.
34
An Example:
Province of Limpopo in South Africa
• In some provinces of South Africa as well as elsewhere in Africa, the
most urgent problem with the primary and secondary school system
is a shortage of classrooms.
• For example, the education system in Limpopo of South Africa has
been suffered from shortage of classroom space. Since 1997 great
efforts have been made to deal with problem. Between 1995-2002,
7,800 classrooms were built. It was expected to take about 10-15
years to overcome the backlog of schools that are needed.
• The issue is how to prioritize the areas where the school classrooms
should be built until the budget is exhausted.
– It is difficult to place monetary value on the annual benefits of an
investment in new classrooms.
– Benefits are related to reduction in students/classrooms ratio
and the number of students affected by the reduction.
35
Calculation of Incremental Benefit-Cost Ratios
Next Year’s
(N/C) w/o
Project
Next Year’s
(N/C) w/
Project
Reduction
in (N/C)
[(3)-(4)]
(1)
Existing No.
of
Classroom
C
(2)
(3)
(4)
1. School A
685
1
685
2. School B
567
1
3. School C
876
4. School D
School
Name
Next Year’s
Enrolment
N
Project
Investment
Cost
(R 000)
(7)
First Year
B/C
Ratio
(5)
First Year
Benefits of
Project
[(5)*(1)
(6)
137
548
375,380
420
0.8938
567
113
454
257,418
420
0.6129
9
97
67
30
26,280
420
0.0626
531
1
531
106
425
225,675
420
0.5373
5. School E
1,028
5
206
114
92
94,576
420
0.2252
6. School F
439
1
439
88
351
154,089
420
0.3669
7. School G
396
2
198
66
132
52,272
420
0.1245
8. School H
780
12
65
49
16
12,480
420
0.0297
9. School I
347
5
69
39
30
10,410
420
0.0248
10. School J
772
16
48
39
9
6,948
420
0.0165
11. School K
333
1
333
67
266
88,578
420
0.2109
12. School L
450
3
150
64
86
38,700
420
0.0921
(8)
36
Schools with the Highest Incremental B/C Ratios
Next Year’s
(N/C) w/o
Project
Next Year’s
(N/C) w/
Project
Reduction in
(N/C)
[(3)-(4)]
(1)
Existing No.
of
Classroom
C
(2)
(3)
(4)
1. School A
685
1
685
2. School B
567
1
3. School D
531
4. School F
School
Name
In
Ranking
Next Year’s
Enrolment
N
Incremental
B/C
Ratio
(5)
First Year
Benefits of
Project
[(5)*(1)
(6)
(7)
Accumulative
Project
Costs
(R 000)
(8)
137
548
375,380
0.8938
420
567
113
454
257,418
0.6129
840
1
531
106
425
225,675
0.5373
1,260
439
1
439
88
351
154,089
0.3669
1,680
5. School E
1,028
5
206
114
92
94,576
0.2252
2,100
6. School K
333
1
333
67
266
88,578
0.2109
2,520
7. School G
396
2
198
66
132
52,272
0.1245
2,940
8. School P
474
3
158
68
90
42,660
0.1016
3,360
9. School A*
685
5
137
76
61
41,785
0.0995
3,780
10. School L
450
3
150
64
86
38,700
0.0921
4,200
11. School E*
1,028
9
114
79
35
35,980
0.0857
4,620
12. School B*
567
5
113
63
50
28,350
0.0675
5,040
37
Cost-Utility Analysis
• A cost-utility analysis (CUA) is maximizing the overall effectiveness of
public expenditure on school infrastructure by taking into account
important factors.
• Information on key factors available for each school area:
– Number of available classrooms
– Number of learners in the school area and a projection of future
growth of number of learners in the area
– Type of school (Primary or Secondary)
– Location of school (Urban or Rural)
– Support facilities of the existing school
• A CUA approach is to measure a “priority index”, including a
weighted average of all the key factors affecting the project
selection.
38
Calculation of Priority Index
• A “priority index” (PI) can be constructed to include
infrastructure adequacy and other important factors such as
facilities available at school.
PI =  Infrastructure Adequacy Factors *  Augmenting Adjustment 
 Backlog of Class-Blocks * weight Backlog 
Infrastructure Adequacy Factors = 

Excess
Class
Attendance
*
weight
Excess


Augmenting Adjustment = 1 +   Augmenting Factorj* weight j 
n
j=1
39
Infrastructure Adequacy
• There are two aspects of infrastructure adequacy: class-block
backlog and the learner-to-classroom ratio.
• (A) Class-block Backlog. The class-room backlog is estimated as
a number of additional buildings, measured by a standard 4-class
block, required at a particular school in order to maintain the
maximum acceptable class size. Weight in PI Index = 0.70.
• (B) Learner-to-Classroom / Target Class Size Ratio. The
overcrowding of classes is measured by the excess of actual class
attendance to the maximum target class size, i.e. by the learner-to-
classroom / target class size ratio. Weight in PI Index = 0.30.
40
Weights for Augmenting Factors
1. Type of School.
Primary (P=0.25) or Secondary (S=0)
2. Support Facilities.
Water (N=0.08) or (Yes=0)
Toilets (N=0.08) or (Yes=0)
Electricity (N=0.04) or (Yes=0)
Fences (N=0.02) or (Yes=0)
Library (N=0.01) or (Yes=0)
Labs
Primary (N=0.01) or (Yes=0)
Secondary (N=0.02) or (Yes=0)
3. Location of School.
Rural (R=0.20) or Urban (U=0)
4. Development Factors.
Expected Population Decline (N=0) or (Yes: -0.40 to 0)
Other Factors (N=0) or (Yes: 0 to 0.05)
Maximum Weight of Augmenting Factors
Maximum Possible Augmenting Adjustment
0 or 0.25
Max = 0.25
0 or 0.08
0 or 0.08
0 or 0.04
0 or 0.02
0 or 0.01
0 or 0.01
0 or 0.02
0 or 0.20
Min = -0.40
0.00 to 0.05
0.75
1.75
41
Example
• A mixed sample of both primary and secondary (S3, S4,
and S6) schools in urban and rural areas. All 8 schools
have infrastructure backlogs.
• Different sizes of schools, and different number of
classrooms are currently available.
• The availability of basic facilities varies from location to
location.
• Question: How to rank these schools in terms of their
priority for additional infrastructure?
42
Estimating School PI Index
Weight
Total Number of Learners
Available Classrooms
Learner-to-Classroom Ratio
A. Class-blocks Backlog
B. Learner-to-Classroom Ratio/Target Size
Total Weight of Section
0.70
0.30
1.00
S.1
280
3
93
1.0
2.3
S.2
1,000
17
59
2.0
1.5
S.3
550
6
92
2.4
2.6
INFRASTRUCTURE ADEQUACY
S.4
S.5 S.6 S.7 S.8
1,400 800 450 600 950
21
11
6
8
9
67
73
75
75 106
4.8
2.3 1.7 1.8 3.7
1.9
1.8 2.1 1.9 2.6
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
0.70
0.70
1.40
8
1.40
0.44
1.84
6
1.70
0.79
2.49
3
3.33
0.57
3.90
1
1.58
0.55
2.12
4
1.20
0.64
1.84
5
1.23
0.56
1.79
7
2.58
0.79
3.37
2
81
Score A:
Score B:
Total Section Score:
Section Ranking:
AUGMENTING FACTORS
1. Type of School.
Primary (P) or Secondary (S)
0.25
2. Support Facilities.
Water
Toilets
Electricity
Fences
Library
Labs
Primary
Secondary
0.25
0.08
0.08
0.04
0.02
0.01
P
P
S
S
P
S
P
P
0.25
0.25
0.00
0.00
0.25
0.00
0.25
0.25
N
N
N
N
N
N
N
Y
Y
Y
N
Y
N
N
N
N
N
N
Y
Y
Y
Y
Y
N
N
N
N
Y
N
N
Y
N
N
N
Y
N
N
N
Y
N
N
N
Y
N
N
N
N
N
0.08
0.08
0.04
0.02
0.01
0.01
0.08
0.00
0.00
0.00
0.01
0.00
0.08
0.08
0.04
0.02
0.01
0.02
0.00
0.00
0.00
0.00
0.00
0.02
0.08
0.08
0.04
0.00
0.01
0.01
0.00
0.08
0.04
0.02
0.00
0.02
0.08
0.08
0.00
0.02
0.01
0.01
0.00
0.08
0.04
0.02
0.01
0.01
0.24
0.09
0.25
0.02
0.22
0.16
0.20
0.16
0.01
0.02
Total Section Score:
3. Location of School.
Rural (R) or Urban (U)
4. Development Factors
Expected Population Decline
Other Factors
Maximum Weight of Augmenting Factors
Maximum Possible Augmenting Adjustment
ALLOCATION OF BLOCK #1
0.20
-0.40
0.05
0.75
1.75
R
U
R
R
U
R
U
R
0.20
0.00
0.20
0.20
0.00
0.20
0.00
0.20
N
N
N
N
N
N
N
N
N
N
Y
N
N
N
N
N
0.00
0.00
0.00
0.69
1.69
0.00
0.00
0.00
0.34
1.34
0.00
0.00
0.00
0.45
1.45
0.00
0.00
0.00
0.22
1.22
0.00
0.00
0.00
0.47
1.47
-0.20
0.00
-0.20
0.16
1.16
0.00
0.00
0.00
0.45
1.45
0.00
0.00
0.00
0.61
1.61
2.37
7
2.47
6
3.60
3
4.75
2
3.12
4
2.14
8
2.59
5
5.43
1
Total Section Score:
Total Augmenting Factors:
Augmenting Adjustment:
PRIORITY INDEX AND RANKING
Priority Index:
Ranking:
43
Efficiency Maximization Rule
• RULE: Because the priority index reflects a number of objectives,
the overall effectiveness of budget spending is maximized when the
funds are forwarded to schools with the highest ranking.
• Since each additional building will alter the current priority index and
ranking of schools, the ranking is recalculated after each new
addition of class-rooms or changes in support facilities and the type
of school.
• It is a multi-stage selection process until the budget is exhausted.
44
Allocation of Funds for Construction of
New Blocks #2 and #3
ALLOCATION OF BLOCK #2
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
Total Number of Learners
280
1,000
550
1,400
800
450
600
950
New Class-Blocks
0
0
0
0
0
0
0
1
Available Classrooms
3
17
6
21
11
6
8
13
Learner-to-Classroom Ratio
93
59
92
67
73
75
75
73
S.1
S.2
S.3
S.4
1
2
S.5
S.6
S.7
S.8
2
85
Resulting Class-blocks Backlog
0.70
1.0
2.0
2.4
4.8
2.3
1.7
1.8
2.7
0.70
1.40
1.70
3.33
1.58
1.20
1.23
1.88
Learner-to-Classroom Ratio/Target Size
0.30
2.3
1.5
2.6
1.9
1.8
2.1
1.9
1.8
0.70
0.44
0.79
0.57
0.55
0.64
0.56
0.55
Total Section Score:
1.40
1.84
2.49
3.90
2.12
1.84
1.79
2.43
Augmenting Adjustment:
1.69
1.34
1.45
1.22
1.47
1.16
1.45
1.61
Priority Index:
2.37
2.47
3.60
4.75
3.12
2.14
2.59
3.91
7
6
3
1
4
8
5
2
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
Ranking:
ALLOCATION OF BLOCK #3
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
Total Number of Learners
280
1,000
550
1,400
800
450
600
950
New Class-Blocks
0
0
0
1
0
0
0
0
Available Classrooms
3
17
6
25
11
6
8
13
Learner-to-Classroom Ratio
93
59
92
56
73
75
75
73
89
Resulting Class-blocks Backlog
0.70
1.0
2.0
2.4
3.8
2.3
1.7
1.8
2.7
0.70
1.40
1.70
2.63
1.58
1.20
1.23
1.88
Learner-to-Classroom Ratio/Target Size
0.30
2.3
1.5
2.6
1.6
1.8
2.1
1.9
1.8
0.70
0.44
0.79
0.48
0.55
0.64
0.56
0.55
Total Section Score:
1.40
1.84
2.49
3.11
2.12
1.84
1.79
2.43
Augmenting Adjustment:
1.69
1.34
1.45
1.22
1.47
1.16
1.45
1.61
Priority Index:
2.37
2.47
3.60
3.79
3.12
2.14
2.59
3.91
7
6
3
2
4
8
5
1
Ranking:
45
Allocation of Funds for Construction of
New Blocks #4 and #5
ALLOCATION OF BLOCK #4
S.1
Total Number of Learners
S.2
S.3
S.4
S.5
S.6
S.7
S.8
280
1,000
550
1,400
800
450
600
950
New Class-Blocks
0
0
0
0
0
0
0
1
Available Classrooms
3
17
6
25
11
6
8
17
Learner-to-Classroom Ratio
93
59
92
56
73
75
75
56
S.1
S.2
S.3
S.4
1
2
S.5
S.6
S.7
S.8
2
93
Resulting Class-blocks Backlog
0.70
1.0
2.0
2.4
3.8
2.3
1.7
1.8
1.7
0.70
1.40
1.70
2.63
1.58
1.20
1.23
1.18
Learner-to-Classroom Ratio/Target Size
0.30
2.3
1.5
2.6
1.6
1.8
2.1
1.9
1.4
0.70
0.44
0.79
0.48
0.55
0.64
0.56
0.42
Total Section Score:
1.40
1.84
2.49
3.11
2.12
1.84
1.79
1.60
Augmenting Adjustment:
1.69
1.34
1.45
1.22
1.47
1.16
1.45
1.61
Priority Index:
2.37
2.47
3.60
3.79
3.12
2.14
2.59
2.58
7
6
2
1
3
8
4
5
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
Ranking:
ALLOCATION OF BLOCK #5
S.1
S.2
S.3
S.4
S.5
S.6
S.7
S.8
Total Number of Learners
280
1,000
550
1,400
800
450
600
950
New Class-Blocks
0
0
0
1
0
0
0
0
Available Classrooms
3
17
6
29
11
6
8
17
Learner-to-Classroom Ratio
93
59
92
48
73
75
75
56
0.70
1.0
2.0
2.4
2.8
2.3
1.7
1.8
1.7
0.70
1.40
1.70
1.93
1.58
1.20
1.23
1.18
0.30
2.3
1.5
2.6
1.4
1.8
2.1
1.9
1.4
0.70
0.44
0.79
0.41
0.55
0.64
0.56
0.42
Total Section Score:
1.40
1.84
2.49
2.34
2.12
1.84
1.79
1.60
Augmenting Adjustment:
1.69
1.34
1.45
1.22
1.47
1.16
1.45
1.61
Priority Index:
2.37
2.47
3.60
2.85
3.12
2.14
2.59
2.58
7
6
1
3
2
8
4
5
Resulting Class-blocks Backlog
Learner-to-Classroom Ratio/Target Size
97
Ranking:
46
Budget Allocation Results
• The objective is to ensure that the benefits are maximized from
the allocation of capital budget for the construction of new
class-blocks.
Allocated To:
School 8 *
1st Block
School 4 **
2nd Block
School 8
3rd Block
School 4
4th Block
School 3 ***
5th Block
Total New Blocks Allocated:
•
Max PI
Observed
S.1
S.2
5.43
4.75
3.91
3.79
3.60
S.3
S.4
S.5
S.6
S.7
S.8
1
1
1
1
0
0
1
1
2
0
0
0
2
Notes: * Ranked first before allocation.
** Ranked second before allocation.
*** Ranked third before allocation.
47
CEA: Power Projects
Levelized Economic Cost of Energy with
Alternative Technologies
Single
Combined
Cycle Plant
Cycle Plant
PV of Economic Cost (M Rupees):
Investment Costs
146.83
205.57
68.95
68.95
Fuel Paid by the Utility
388.72
207.32
Total
604.51
481.84
3,297,471
3,297,471
0.183
0.146
O&M Costs
PV of Energy Generated (MWhs)
Levelized Cost of Energy:
Cost Expressed in Rupees/kWh
48
CEA for Water Projects:
Present Value of Water Shortages
under Alternative Development Strategies
and Project Schedule
(million M3, 2002)
Rooipoort Site
Height of
Rooipoort Wall
Upstream
Downstream
FSL
724
FSL
728
FSL
731
FSL
720
FSL
725
FSL
731
A
Flag Boshielo+5m
85.7
85.7
85.7
85.7
85.7
85.7
B
Rooipoort
56.4
31.9
19.7
56.4
28.7
15.6
C
Rooipoort + Flag+5m
12.2
3.6
1.7
12.2
2.8
1.7
49
CEA for Water Projects:
Marginal Financial Unit Cost of Water
Delivered to Bulk Users
(R/M3, in 2002 Prices)
Rooipoort Site
Height of
Rooipoort Wall
Upstream
Downstream
FSL
724
FSL
728
FSL
731
FSL
720
FSL
725
FSL
731
A
Flag Boshielo+5m
1.47
1.47
1.47
1.47
1.47
1.47
B
Rooipoort
3.00
2.49
2.29
3.15
2.50
2.20
C
Rooipoort + Flag+5m
2.17
2.06
2.05
2.26
2.10
2.04
50
CEA for Water Projects:
Marginal Economic Unit Cost of Water
Delivered to Bulk Users
(R/M3, in 2002 Prices)
Rooipoort Site
Height of
Rooipoort Wall
Upstream
Downstream
FSL
724
FSL
728
FSL
731
FSL
720
FSL
725
FSL
731
A
Flag Boshielo+5m
2.19
2.19
2.19
2.19
2.19
2.19
B
Rooipoort
3.40
2.43
2.07
3.53
2.39
1.95
C
Rooipoort + Flag+5m
2.12
1.91
1.87
2.21
1.94
1.86
51