Enhanced benefit–cost analysis for infrastructure fund allocation

Abstract

Benefit–cost analysis (BCA) is a common approach used by public agencies to decide among a set of alternative investments. Such analysis, however, is not structured to handle complex problems with multi-level decisions, such as distributing a limited rehabilitation fund among a large number of infrastructure assets, considering alternative rehabilitation strategies and life cycle analysis over multiple years. This paper, therefore, extends the current BCA to the complex infrastructure fund allocation problem. It first reviews the origins of BCA and then proposes a microeconomic-based heuristic approach that optimizes decisions by achieving an equilibrium state in which fair and equitable allocations are made where the marginal benefit per dollar is equalized for all asset categories. Using a case study of 800 building components, the enhanced BCA proved to be able to arrive at optimum solutions, supported with credible economic basis, and as such, can efficiently justify the spending of public money.