Probabilistic benefit cost ratio – a case study

Prakash, Surya and Mitchell, David (2015) Probabilistic benefit cost ratio – a case study. [Conference Proceedings]

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Abstract

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.

Item Type:	Conference Proceedings
Additional Information:	This is an A-ranked conference in ERA2010 conference list
Subjects:	Q Science > QA Mathematics T Technology > T Technology (General)
Divisions:	Faculty of Science, Technology and Environment (FSTE) > School of Computing, Information and Mathematical Sciences
Depositing User:	Surya Prakash
Date Deposited:	08 Dec 2015 03:00
Last Modified:	02 Jun 2016 02:10
URI:	http://repository.usp.ac.fj/id/eprint/8617

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