Probabilistic benefit cost ratio: a case study

In this paper, a Monte Carlo approach to arriving at a probabilistic distribution of Benefit Cost Ratio (BCR) is presented and discussed. BCR is the ratio of the benefits of a project relative to costs and is generally seen as an indicator of the overall value for money of a project. A BCR calculation generally forms an integral part of a project proposal and used by governments to assist them in making investment decisions on projects. Project costs are increasingly being prepared by using a Monte Carlo approach whereby cost items and attendant risks are represented as probability distributions and then multiple simulations are computed to generate a probability distribution of the total cost of the project. However, the BCR is usually presented as a single number instead of a distribution, often because project benefits are still calculated as a single number. In this paper, probabilistic estimation (Monte Carlo) method is presented and then probabilistic distributions of total costs and total benefits are used to generate a probabilistic distribution of the BCR using the Monte Carlo approach. Finally the application and implications of the BCR probabilistic distribution are discussed via a case study.

• Record URL:
  http://atrf.info/papers/2015/index.aspx
• Authors:
  • Prakash, S
  • Mitchell, D
• Conference:
  • Australasian Transport Research Forum (ATRF), 37th, 2015, Sydney, New South Wales, Australia
• Publication Date: 2015-9

Language

• English

Media Info

• Pagination: 14p
• Monograph Title: Informing transport's future through practical research: 37th Australasian Transport Research Forum, 30 September to 2 October 2015, Sydney, New South Wales

Subject/Index Terms

• TRT Terms: Benefit cost analysis; Case studies; Economics; Evaluation; Financing; Investments; Probability; Project management; Risk; Risk management
• ATRI Terms: Case study; Cost benefit analysis; Investment; Probability; Project evaluation; Risk; Transport economics
• ITRD Terms: 8531: Case study; 263: Economics of transport
• Subject Areas: Economics; I10: Economics and Administration;

Filing Info

• Accession Number: 01586983
• Record Type: Publication
• Source Agency: ARRB
• Files: ITRD, ATRI
• Created Date: Jan 14 2016 11:46AM