Publication: Projects with a Very Long Life
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2005-01
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2012-08-13
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This note address issues considering: what types of project typically have a very long life? Section 1: discusses the choice of appraisal period; Section 2: analyses the use of residual values; Section 3: discusses the pitfalls to avoid; Section 4: looks at the sensitivity of these matters to the discount rate.
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“Mackie, Peter; Nellthorp, John; Laird, James. 2005. Projects with a Very Long Life. Transport Notes Series; No. TRN 18. © World Bank. http://hdl.handle.net/10986/11803 License: CC BY 3.0 IGO.”
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Publication Treatment of Maintenance(World Bank, Washington, DC, 2005-01)Maintenance is an often overlooked aspect of appraisal. The effective treatment of maintenance within an appraisal is, however, fundamental to informing the decision regarding the optimum investment strategy. This is because the nature of the maintenance strategy can have direct implications on operating costs and other benefits (e.g. travel time savings). As such the impact of maintenance within an appraisal extends far beyond a simple consideration of its financial cost. The first Section of this Note introduces the importance the correct treatment of maintenance has with respect to an economic appraisal. Following Sections present the primary components of maintenance costs, and introduce the notion of whole life costing and the fact that there is a risk that maintenance may not occur. 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The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. Economic evaluation involves the assessment of the net value of projects and policies. In the transport sector we value projects in terms of their net worth, the difference between the value of their benefits and their costs, both measured so far as is possible in terms of monetary units. This disarmingly simple statement leads to many questions; evaluation by whom, for whom, from what perspective, at what stage. 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