Benefit-Cost Analysis & Value Engineering
Benefit Cost Analysis
A Benefit-Cost Analysis (BCA) is a quantitative technique that measures the cost-effectiveness of various design alternatives (e.g., safety systems, facility siting, installation of standby pumps, etc.). The performance of the analysis allows decision-makers to systematically evaluate design alternatives taking into account the benefits, as well as the potential costs. In order to perform the analysis, the following numerical factors are identified:
- Direct Project Savings
- Increased Efficiency (shortened project maintenance, start-up/shut-down, etc.)
- Hazard Severity (potential worst-case scenario risks – monetary, reputation, personnel, business)
- Hazard Frequency (annual probability of reaching consequence with associates economic impact)
Using these values, the annualized hazard probability is determined to calculate the Benefit-Cost Ratio for each project alternative. When comparing the project alternatives side-by-side, the project with the highest Benefit-Cost Ratio is typically the best alternative.
The Value Engineering technique is a proven, effective management tool for achieving improved design, construction and cost-effectiveness in various project design elements. In order to facilitate a Value Engineering session, a multi-disciplined team is assembled to identify the function of a design element, establish a value for that function, generate design alternatives through the use of creative thinking, and provide the needed functions reliably and at the lowest cost.
Value Engineering assessments at the early stages of the design cycle provides more improvement opportunities regarding engineering, operations, cost, safety, schedule, reliability, and environmental issues. Additionally, the assessments can yield measurable savings in cost (capital, operating and construction) and schedule (engineering and construction).