--- title: "Project proposal; cost benefit analysis for road" subject: "Project Engineering" chapter: 2 key: "semester_7/project_engineering:proposal-cba-road-project" source: https://www.bctengineer.com/q/semester_7/project_engineering/proposal-cba-road-project site: BCT Engineering --- # Project proposal; cost benefit analysis for road Project Engineering · Chapter 2: Project Appraisal and Project Formulation - Asked in: 2072 Chaitra, 2+4 marks - Video: [Cost Benefit Analysis: Detailed explanation with Examples | Project Management Glossary by Jexo](https://www.youtube.com/watch?v=6nwEf9GGdDA) — Monday Coffee by Appfire - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_7/project_engineering/proposal-cba-road-project - Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-2 ## Question Define project proposal. Discuss cost benefit analysis for a road project. ## Short answer A project proposal presents the idea, objectives, plan, cost, and benefits to secure approval. CBA for a road compares discounted present values of costs (construction, maintenance) and benefits (VOC savings, time savings, accident reduction). With capital NRs500M, annual benefits NRs90M, maintenance NRs10M, 20-year life, 10% discount rate, NPV is NRs181.08 million and B/C=1.31, making the road economically justified. ## Answer A **project proposal** is a written document that presents the idea, objectives, plan, cost and expected benefits of a proposed project to convince the client, funder or approving authority to accept and finance it. #### Cost benefit analysis for a road project Cost benefit analysis (CBA) compares the money value of all costs and benefits of the road, discounted to present value, to decide whether the road is worth building. **Costs:** construction (earthwork, pavement, structures), land acquisition and compensation, utility shifting, supervision, environmental mitigation, and periodic and routine maintenance. **Benefits:** - Saving in vehicle operating cost (fuel, tyres, repair). - Saving in travel time of passengers and goods. - Reduction in accidents. - Benefit to induced and generated traffic. - Wider benefits: access to markets, schools and health services, rise in land value, employment. **Steps:** (1) forecast traffic with and without the road; (2) find unit costs and benefits; (3) work out yearly costs and benefits over the design life (say 20 years); (4) discount at the opportunity cost of capital; (5) compute NPV, B/C and EIRR; (6) carry out sensitivity analysis. #### Illustrative calculation Capital cost NRs 500 million (year 0); maintenance NRs 10 million per year; benefits NRs 90 million per year for 20 years; discount rate 10%. $$ \text{Annuity factor} = \frac{1-(1.10)^{-20}}{0.10} = 8.5136 $$ $$ \begin{aligned} PV_{benefit} &= 90 \times 8.5136 = 766.22 \\ PV_{cost} &= 500 + 10 \times 8.5136 = 585.14 \\ B/C &= \frac{766.22}{585.14} = 1.31 \\ NPV &= 766.22 - 585.14 = 181.08 \end{aligned} $$ **Answer:** $B/C = 1.31 > 1$ and $NPV = $ NRs 181.08 million, so the road is economically justified. The IRR on the net benefit of NRs 80 million per year is about 15.03%, above 10%. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. What is the purpose of a project proposal? A. To record project accounts after completion B. To present idea, objectives, plan, cost and benefits to convince the client or funder to accept and finance it C. To list only the construction drawings D. To replace the contract Answer: B. A proposal is a written document that persuades the approving authority to accept and finance the project. (Key point: Definition) 2. Which is a benefit counted in road CBA? A. Land acquisition cost B. Pavement construction cost C. Saving in vehicle operating cost and travel time D. Periodic maintenance cost Answer: C. Vehicle operating cost and travel time savings, fewer accidents and induced traffic are benefits; the others are costs. (Key point: Road benefits) 3. Why are yearly costs and benefits discounted in the CBA? A. To reflect the time value of money by converting to present value B. To increase benefits C. To remove maintenance costs D. To ignore inflation completely Answer: A. Discounting at the opportunity cost of capital brings flows from different years to a comparable present value. (Key point: Method) 4. In the illustration, PV of benefit is 90 x 8.5136 = 766.22 and PV of cost is 585.14. What are B/C and NPV? A. B/C = 1.31, NPV = 181.09 million B. B/C = 0.76, NPV = -181.09 million C. B/C = 1.31, NPV = 766.22 million D. B/C = 1.53, NPV = 90 million Answer: A. B/C = 766.22/585.14 = 1.31 and NPV = 766.22 - 585.14 = 181.09, so the road is justified. 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