Project Evaluation

Instructor(s): Prof. Joseph Sussman; Carl D. Martland

MIT Course Number: 1.011

As Taught In: Spring 2011

Level: Undergraduate

Course Description

1.011 Project Evaluation covers methodologies for evaluating civil engineering projects, which typically are large-scale and long-lived and involve many economic, financial, social and environmental factors. The course places an emphasis on dealing with uncertainty. Students learn basic techniques of engineering economics, including net present value analysis, life-cycle costing, benefit-cost analysis, and other approaches to project evaluation. Examples are drawn from both contemporary and historical projects in various fields, including transportation systems, urban development, energy and environmental projects, water resource management, telecommunications systems, and other elements of the public and private projects and programs.

Grading

ACTIVITIES PERCENTAGES
Problem sets 35%
Term project 30%
Exams 20%
Class participation 15%

Course Textbook

[Martland] = Amazon logo Martland, Carl D. Toward More Sustainable Infrastructure: Project Evaluation for Planners and Engineers. Wiley, 2011. ISBN: 9780470448762.

SES # TOPICS READINGS
L1 Introduction and motivation; Initial discussion of project Plotkin, Natasha. “To-do Maintenance: $2.1 Billion Required.” The Tech, January 19, 2011.
L2 Introduction to public and private projects, evaluation methods and project evaluation checklists “Public Perspective: Economic, Environmental, and Social Concerns.” Chapter 4 in [Martland].

Amazon logo Gawande, Atul. “The Checklist.” Chapter 2 in The Checklist Manifesto. Metropolitan Books, 2009. ISBN: 9780805091748.

Amazon logo Nakagawa, Manabu. “Macro-engineering: From the Grand Canal of China to the Colonization of the Moon.” Chapter 2 in Macro-Engineering Global Infrastructure Solutions. Edited by Frank P. Davidson, and C. Lawrence Meador. Ellis Horwood, 1993. ISBN: 9780135538760.

L3 Stakeholder analysis and multi-attribute analysis “Introduction.” Chapter 1 in [Martland].

“Comparing Strategies for Improving System Performance.” Chapter 5 in [Martland].

Amazon logo Gawande, Atul. “The End of the Master Builder.” Chapter 3 in The Checklist Manifesto. Metropolitan Books, 2009. ISBN: 9780805091748.

L4 Project costs and revenues; Stakeholder perspectives (public vs. private) “Systems Performance.” Sections 2.2.4, 2.4.2, and 2.8 in [Martland].

“Equivalence of Cash Flows.” Sections 7.1-7.3 in [Martland].

L5 Time value of money; Equivalence relationships “Equivalence of Cash Flows.” Sections 7.4-7.8 in [Martland].
L6 Discount rates, minimally acceptable rate of return (MARR), rate of return on investment (IRR) “Choosing a Discount Rate.” Chapter 8 in [Martland].

Stolberg, Sheryl Gay. “Obama Unveils Wireless Expansion Plan.” New York Times, February 10, 2011.

L7 Benefit cost analysis; Comparing alternatives; Financial and economic analysis “Financial Assessment.” Chapter 9 in [Martland].

“Rules of the Game: Taxes, Depreciation, and Regulation.” Chapter 10 in [Martland].

L8 Financing “Public-Private Partnerships.” Chapter 12 in [Martland].
L9 Case: Panama Canal “The Panama Canal.” Chapter 6 in [Martland].
L10 High speed rail (HSR) case Givoni, Moshe. “Development and Impact of the Modern High-speed Train: A Review.”Transport Reviews 26, no. 5 (2006): 593-611.

Albalate, Daniel, and Germa Bel. “High-Speed Rail: Lessons for Policy Makers from Experiences Abroad.” Research Institute of Applied Economics Working Paper, Universitat de Barcelona, March 2010.

L11 Term projects from previous years
L12 Quiz review
L13 Quiz (open-book, open-note)
L14 HSR Case (cont.) Eilperin, Juliet. “Great Plains Oil Pipeline Plan Sparks Grass-roots Activism, High-stakes Lobbying.” Washington Post, January 23, 2011.
L15 Introduction to uncertainty, stakeholder analysis and Mitchell framework Mitchell, Ronald K., Bradley R. Agle, and Donna J. Wood. “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts.”Academy of Management Review 22, no. 4 (1997): 853-886.
L16 Dealing with uncertainty Sussman, Joe. “The Tsunami That Wasn’t.” Teaching Note, March 7, 2010. (PDF)

———. “How Little Mistakes Can Lead to Big Differences in Outcomes: The Weather.” Teaching Note, February 25, 2010. (PDF)

L17 Dealing with uncertainty: Decision trees Sussman, Joe. “Did Belichick Make the Right Call?” Teaching Note, February 19, 2010. (PDF)
L18 Dealing with uncertainty: Real options Sussman, Joe. “Real Options — A Simple Illustration.” Teaching Note, April 28, 2010. (PDF)
L19 Case: Spent nuclear fuel, transportation to Yucca Mountain, Nevada
L20 Project evaluation in developing countries, Case: Pure Home Water in Africa Nelson, Theresa, Cynthia Ingols, Jennifer Christian-Murtie, and Paul Myers. “Susan Murcott and Pure Home Water: Building a Sustainable Mission-Driven Enterprise in Northern Ghana.” Entrepreneurship Theory and Practice (2011).
L21 Public private partnerships “Public-Private Partnerships.” Chapter 12 in [Martland].

“Towards More Sustainable Infrastructure.” Sections 15.1-15.2 in [Martland].

L22 Infrastructure banks
L23 Project presentations
L24 Project presentations (cont.)
L25 Project presentations (cont.)
L26 Wrap-up and summary

Textbook Resources:

A complete set of supplementary slides is included below to complement the course textbook.

CHAPTER TITLE SLIDES
1 Introduction (PDF – 1.3MB)
2 System Performance (PDF – 1.5MB)
3 Basic Economic Concepts (PDF – 4.0MB)
4 Public Perspective: Economic, Environmental and Social Concerns (PDF – 1.6MB)
5 Comparing Strategies for Improving System Performance (PDF)
6 The Panama Canal (PDF – 2.1MB)
7 Equivalence of Cash Flows (PDF)
8 Choosing a Discount Rate (PDF)
9 Comparing Costs and Benefits (PDF)
10 Rules of the Game: Taxes, Depreciation and Regulation (PDF – 2.2MB)
11 Developing a Strategy to Deal with a Problem (PDF)
12 Public-Private Partnerships (PDF – 4.9MB)
13 Dealing with Risks and Uncertainties (PDF)
14 Managing Projects and Programs (PDF)

(PDF – 2.1MB)

15 Toward More Sustainable Infrastructure (PDF – 4.9MB)
16 Final Thoughts (PDF – 1.3MB)

Lecture Notes:

Selected lecture slides are available below.

SES # TOPICS LECTURE NOTES
L1 Introduction and motivation; Initial discussion of project (PDF)
L2 Introduction to public and private projects, evaluation methods and project evaluation checklists (PDF)
L3 Stakeholder analysis and multi-attribute analysis
L4 Project costs and revenues; Stakeholder perspectives (public vs. private) (PDF)
L5 Time value of money; Equivalence relationships (PDF)
L6 Discount rates, minimally acceptable rate of return (MARR), rate of return on investment (IRR) (PDF)
L7 Benefit cost analysis; Comparing alternatives; Financial and economic analysis
L8 Financing
L9 Case: Panama Canal
L10 High speed rail (HSR) case (PDF)
L11 Term projects from previous years
L12 Quiz review
L13 Quiz (open-book, open-note)
L14 HSR Case (cont.) (PDF)
L15 Introduction to uncertainty, stakeholder analysis and Mitchell framework
L16 Dealing with uncertainty (PDF)
L17 Dealing with uncertainty: Decision trees
L18 Dealing with uncertainty: Real options
L19 Case: Spent nuclear fuel, transportation to Yucca Mountain, Nevada
L20 Project evaluation in developing countries, Case: Pure Home Water in Africa

Guest lecturer: Susan Murcott

(PDF – 8.7MB)
L21 Public private partnerships
L22 Infrastructure banks
L23 Project presentations
L24 Project presentations (cont.)
L25 Project presentations (cont.)
L26 Wrap-up and summary

Assignments:

ASSN # ASSIGNMENTS
1.1 (PDF) (Courtesy of John Wiley & Sons. Used with permission.)

Read: Moore, Malcolm, and Peter Foster. “China to Create Largest Mega City in the World with 42 Million People.” The Telegraph, January 24, 2011.

1.2 (PDF) (Courtesy of John Wiley & Sons. Used with permission.)
2 (PDF) (Courtesy of John Wiley & Sons. Used with permission.)
3.1 (PDF)
3.2 (PDF)
4 (PDF)

Exams:

1.011 Midterm

This exam has three questions of unequal weight. We suggest you read the entire exam before you start work.

OPEN BOOK, OPEN NOTES

No computers or phones. Calculators and interest tables are allowed.

Good luck!

Question 1 (30 points)

    1. We have discussed the concepts of environmental justice and evaluative complexity in class. Define both terms in two to three sentences each. For each concept, give an example to illustrate how it applies (or might apply) to your term project topic. (We guarantee you there are examples!)

(12 points)

    1. Explain what a decommissioning cost is. Why is it often of little importance in a project evaluation? When may it matter? (Hint: The answer we are looking for is not “when the decommissioning costs are very large”.)

(8 points)

    1. You are a profitable, private sector firm. You invest $1 million to build some infrastructure. Your infrastructure is a long-lived asset and you are depreciating it in a straight-line manner. You have a choice between depreciating it over 10 years or over 20 years. Explain the advantages and disadvantages of each choice.

(10 points)

Question 2 (30 points)

You have inherited an apartment building in Cambridge. Annual rents total $200,000 and annual operating expenses total $100,000. So your profits are $100,000. The building is in reasonable condition, and your real estate agent expects that identical profits will be earned for another 20 years.

You will need to choose discount rates in a) and b). Be sure to provide a brief justification of your choices. Also, assume no inflation and ignore taxes.

    1. You receive an offer from MIT to buy the building for $1.5 million; Explain why you should or should not accept the offer.

(15 points)

    1. Your best friend advises you to drop out of MIT, live off the profits for 20 years, and then sell the building to cover your retirement. What do you think you could sell the building for in 20 years, assuming MIT is no longer bidding and that the asking price will be what entrepreneurs will be willing to pay for the cash flows? Would you follow your friend’s recommendation?

(15 points)

Question 3 (40 points)

Please carefully read the following article:

Cheney, Kyle. “Decaying Dams Pose Risk, Engineers Say.” Boston Globe, March 15, 2011.

This article discusses the condition of dams across the state of Massachusetts and highlights the various impacts of decay and the subsequent need for action. Senator Marc Pacheco has proposed a bill establishing a loan program to provide funding to cities and towns for repair or decommissioning of deteriorating dams.

    1. Identify 5 important stakeholders. Describe their interests and whether they would favor the legislation or not. You should be able to do this in <1/3-page per stakeholder.

(15 points)

    1. Assume the bill fails to pass. Give one example each of the following impacts:
      1. social,
      2. environmental,
      3. economic

A sentence or two for each type of impact should suffice.

(9 points)

  1. Assume that the bill has passed and you have the task of developing a prioritized list of dams to receive funding. Explain in <1 page how you would go about this task.

Project Deliverables

DELIVERABLES DUE DATES OBJECTIVES
P1: Project description Lec #10
  1. Provide a brief project description.
  2. Why is the project interesting?
  3. What are the key uncertainties involved in the project?
P2: Progress report I Lec #17
  1. Identification of stakeholders.
  2. Identification of benefits and costs.
  3. Data sources you are using and any data problems you are encountering.
P3: Progress report II Recitation 10
  1. Project finance.
  2. Major barriers to a successful completion of your written project.
P4: Powerpoint presentation Lec #23
P5: Final report Lec #26

Examples of the final report are available below. All work is courtesy of MIT Students and is used with permission.

Sydney Opera House (PDF – 1.8MB)

Atlanta BeltLine (PDF)

Download Course Materials:

This package contains the same content as the online version of the course, except for any audio/video materials and other interactive file types.

Download here.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s