Toward More Sustainable Infrastructure: Project Evaluation for Planners and Engineers
February 2011, ©2012
Based on a course designed developed by the author over ten years at M.I.T., this text demonstrates how to apply the basic methods of engineering economics in evaluating major infrastructure projects and also demonstrates how these same techniques can be useful with many routine business and personal decisions. It introduces students to project management, system performance, concepts of sustainability, methods of engineering economics, and provides numerous case studies, examples, and exercises based upon real world problems. This text fills a void in the education of many planners and engineering students, namely an understanding of why major infrastructure projects are undertaken, how they are structured and evaluated, and how they are financed.
Toward More Sustainable Infrastructure: Project Evaluation for Planners and Engineers prepares readers to evaluate projects based upon an appreciation of the needs of society, the potential for sustainable development, and recognition of the problems that may result from poorly conceived or poorly implemented projects and programs.
Chapter 1 Introduction.
1.1 Toward More Sustainable Infrastructure: Better Projects and Better Programs.
1.2 Infrastructure Projects and Programs.
1.3 Evaluating Infrastructure Projects.
1.4 Infrastructure, Cities, and Civilization.
1.5 Overview of Project Evaluation.
1.6 Structure of the Textbook.
PART I BUILDING INFRASTRUCTURE TO SERVE THE NEEDS OF SOCIETY.
Chapter 2 System Performance.
2.1 Introduction to Performance of Infrastructure-Based Systems.
2.2 System Cost.
2.3 Profitability, Break-Even Volume, and Return on Investment.
2.6 Safety, Security, and Risk.
2.7 Cost Effectiveness.
2.8 Developing Cost and Revenue Functions for a 19th-Century Canal.
Chapter 3 Basic Economic Concepts.
3.2 Supply and Demand.
3.5 Measuring and Improving the Economy.
3.7 Making Decisions.
Chapter 4 Public Perspective: Economic, Environmental, and Social Concerns.
4.1 General Overview.
4.2 Benefit-Cost Analysis.
4.3 Economic Impacts: Measures Related to the Regional or National Economy.
4.4 Environmental Impacts.
4.5 Social Impacts.
Chapter 5 Comparing Strategies for Improving System Performance.
5.2 Presenting All Results in Monetary Terms.
5.3 Net Present Value: Comparing Current and Future Costs and Benefits.
5.4 Measuring Cost Effectiveness.
5.5 Using Weighting Schemes in Multi-Criteria Decision Making.
5.6 Seeking Public Input.
Chapter 6 The Panama Canal.
6.2 Early Routes Across the Isthmus.
6.3 The Panama Railroad.
6.4 The French Effort.
6.5 The U.S. Effort.
6.6 The Panama Canal in the 21st Century.
PART II COMPARING ECONOMIC AND FINANCIAL IMPACTS OVER THE LIFE OF PROPOSED PROJECTS.
Chapter 7 Equivalence of Cash Flows.
7.2 Time Value of Money.
7.3 Equivalence Relationships.
7.4 Continuous Compounding: Nominal versus Effective Interest Rates.
7.5 Financing Mechanisms.
7.6 The Use of Equivalence in Costing.
7.7 Case Study: Building an Office Tower in Manhattan.
Chapter 8 Choosing A Discount Rate.
8.2 Related Financial Concepts.
8.3 Factors Affecting the Discount Rate.
8.4 Choosing a Discount Rate: Examples.
8.5 Dividing Up the Cash Flows of a Major Project.
Chapter 9 Financial Assessment.
9.2 Maximizing Net Present Value.
9.3 Importance of the Project Life.
9.4 Does Discounting Ignore Future Catastrophes?
9.5 Internal Rate of Return.
9.6 External Rate of Return.
9.7 Constant Dollar versus Current Dollar Analysis.
9.8 Choosing among Independent Investment Options.
9.9 Choosing among Mutually Exclusive Projects.
9.10 Dealing with Unequal Lives of Competing Projects.
9.11 Splitting a Project into Pieces for Different Parties.
Chapter 10 Rules of the Game: Taxes, Depreciation, and Regulation.
10.2 Depreciation and Taxes.
10.3 Land Use Regulations.
10.4 Building Codes and Other Safety Standards.
10.5 Environmental Regulations and Restrictions.
PART III DEVELOPING PROJECTS AND PROGRAMS TO DEAL WITH PROBLEMS AND OPPORTUNITIES.
Chapter 11 Developing a Strategy to Deal with a Problem.
11.2 Identifying Needs and Objectives.
11.3 Identifying Alternatives.
11.4 Dealing with Uncertainty When Assessing Alternatives.
11.5 Evaluating the Alternatives.
11.6 Pearl River Delta Case Study.
Chapter 12 Public-Private Partnerships.
12.2 Principles of Public-Private Partnerships.
12.3 Creating a Framework for a Partnership.
12.4 Determining How Much to Invest.
12.5 Complementary Strengths of Public and Private Partners: Tempe Town Lake.
12.6 Public and Private Benefits: The Sheffield Flyover, Kansas City, Missouri.
12.7 Maximize Ability to Undertake Projects: Toronto’s Highway 407.
12.8 Public Investment to Stimulate the Economy: Province of Newfoundland and Labrador's Investment in Offshore Oil Exploration.
Chapter 13 Dealing with Risks and Uncertainties.
13.2 Modeling Performance: Simulation and Analytical Models.
13.3 How Best to Improve System Safety: Probabilistic Risk Assessment.
13.4 Performance-Based Technology Scanning.
Chapter 14 Managing Projects and Programs.
14.2 Stages in Project Management.
14.3 Project Management Techniques.
14.4 Organizational Structure.
14.5 Managing Very Large Projects.
14.6 The Big Dig: Managing a Very Large, Politically Charged Project.
14.7 Managing Programs.
14.8 The Interstate Highway System.
Chapter 15 Toward More Sustainable Infrastructure.
15.2 Stages in the Evolution of Infrastructure-Based Systems.
15.3 Skyscrapers and Building Booms.
15.4 Case Study: Evolution of the U.S. Rail System.
15.5 Twenty-First-Century Challenges: Sustainable Infrastructure.
15.6 Upgrading Infrastructure: A Costing Framework.
Chapter 16 Final Thoughts and Further Reading.
16.2 Key Lessons in Part I: Building Infrastructure to Serve the Needs of Society.
16.3 Key Lessons for Part II: Comparing Economic and Financial Impacts over the Life of Proposed Projects.
16.4 Key Lessons for Part III: Developing Projects and Programs to Deal with Problems and Opportunities.
16.5 Further Reading.
Appendix A Equivalence Tables.
Appendix B Equivalence Relationships for Uniform Gradients and Geometric Sequences.
B.1 The Role of Equivalence Factors in Evaluating Infrastructure Proposals: Review.
B.2 Additional Equivalence Relationships: Uniform Gradients and Geometric Sequences.
B.3 Spreadsheets versus Tables.
- Based on MIT course on Project Evaluation: This textbook is based upon Project Evaluation, a subject that the author designed and taught for ten years as one of the required subjects in the civil engineering undergraduate curriculum at M.I.T. Like the class, this text is structured not only for civil engineering undergraduates, but also for students in other departments, including economics, urban studies and planning, and management as well as the other engineering disciplines.
- Structured in Three Parts: The first part is an overview of project evaluation as a multi-dimensional process aimed at creating projects that meet the needs of society, emphasizing the need to consider economic, environmental and social factors along with the technological and financial matters that are crucial to the success of a project. The second part provides in-depth coverage of the engineering economic methodologies that can be used to compare cash flows or economic costs and benefits over the life of a project, presenting the techniques that are used by investors, bankers, and entrepreneurs in deciding whether or not to finance projects, and how public policy can use taxes and other regulations to encourage projects that have public benefits. The third part presents sensitivity analysis, the use of scenarios, probabilistic analysis, and other methodologies that are useful in developing and evaluating projects to deal with problems and opportunities. This part provides an introduction to project and program management and ends with a discussion of some of the challenges that must be faced to create more sustainable infrastructure-based systems in the 21st century.
- A Broad View of the Planning Process: To implement successful projects, the planning process involves much more than a well-defined, logical series of analytical steps, although there are methodologies that must be learned it involves identification of needs and opportunities, development of alternative ways to address these needs, and creativity in finding ways to take advantage of opportunities. It requires consideration of economic, social and environmental factors, and a way to deal with conflicts and to reach consensus about what should or should not be done. This text provides many examples of infrastructure projects, the problems they encountered, political issues that had to be addressed, and qualitative approaches that have helped people to refine problem statements or find better solutions.
- Micro-Economics Plus Space and Time: Should a project be built? If so, where and when should it be built? Can it be developed in phases, so that capacity can be added only when and where it is needed? What options should be preserved for the future? For engineers, planners, and entrepreneurs, these are critical questions. Those who want to be engineers, planners or entrepreneurs must learn how to balance current vs. future costs and benefits, and they must be able to understand and respond to the many factors that influence the pace and location of development. In particular, they must understand the time value of money, the equivalence of cash flows, and the effects of risk and inflation on discount rates and the attractiveness of projects. These are all central topics in engineering economics, and they form the basis for a major portion of this textbook.
- Case Studies, Examples and Realistic Exercises: To encourage independent thought, creativity and judgment, this text includes case studies, references to projects in the news, examples, open-ended problem sets, and discussion questions that will provide a sense for the context within which projects are evaluated, revised, and eventually implemented. Detailed exercises based upon realistic situations require creativity in analysis and judgment in reaching conclusions and making recommendations. Examples and case studies convey the breadth and excitement of project evaluation as applied to major infrastructure projects. This text provides tools and concepts that can be used throughout one s career in understanding the need for projects, the options that are available, and the kinds of methods will help society move toward more sustainable infrastructure systems.
- Overview of Project Management: This text introduces critical path, budgeting, and other fundamental concepts of project management, for readers who have not taken a class on project management.
- The Art of Estimation: Getting a precise answer is seldom as important as asking the right question or making a justifiable recommendation based upon sufficient analysis. Computational technology makes it possible to produce results at a totally unwarranted level of precision. It is essential to retain some skepticism in interpreting results and recognize when to stop crunching numbers and start interpreting the results and formulating conclusions. The art of estimation will be essential for successful completion of the open-ended problems and case studies in this text, including the Canal Case Study (Chapter 2), Skyscraper (Chapter 8) and Cammitibridge A & B (Chapters 5 and 11).