CASE STUDIES AND VALUE OF RESEARCH
Using the Benefit-Cost Analysis Tool
The Benefit Cost Analysis (BCA) Tool (order #91260/project #4127), provides a step-by-step guide for developing a
benefit cost analysis to determine the economic justification for a project, or the prioritization of a group of competing
projects. The tool has been structured to enable the user to follow a flow chart through the various sequential steps
of creating a benefit cost analysis. In some steps the user is able to conduct either a basic or a more detailed analysis,
which takes into account more complex economic theory.
The Portland Water Bureau (Bureau) was looking to make more informed investment decisions. It had a good handle
on estimating the life cycle costs of its project alternatives but needed the tools to help analyze the benefits of its
decisions. Specifically, the Bureau wanted to know how many benefits, in dollar terms, a project would yield for every
dollar spent on that project.
The BCA tool uses a “triple bottom line” (TBL) approach that views the perspective of an entire society. All impacts
are identified then monetized, however “distant” from the utility, including direct, indirect, tangible, and intangible
benefits and costs. This distinction is what separates benefit cost analysis from fiscal impact analysis — fiscal impact
analysis looks at the much narrower impacts of a potential decision on the flow of revenues in and expenses/
expenditures out of the utility.
The Bureau used the BCA tool, and the spreadsheets provided on the Website, to develop its own approach. It has a
guidance document on BCA and expanded it to include guidelines on how to monetize the benefits to its customers
in areas such as water outages (reliability), fire flow, pressure, safety, water quality, and some community and
The majority of the Bureau’s decision making now uses a systematic and quantifiable way to measure whether a dollar
spent on a project would yield a greater amount of benefits over the life of the project. The largest impacts are often
on its service levels. Benefit cost analysis provides for the systematic identification and subsequent projection of the
streams of benefits and costs associated with a management option; the option can take the form of a specific capital
project (build a new treatment plant), a change in the level of service (higher reliability of service in a particular service
area), or a program option (require low flow toilets).
The BCA also helps the Bureau manage risk. Often, project or program benefits minimize the risk costs to its
customers. The BCA has created a methodology for quantifying the changes in risk cost (likelihood of an event times
the consequence of that event, valued in dollar terms) and comparing them to the cost of a project to determine the
economic soundness of a project.
The BCA tool is a valuable resource to help a utility make more informed decisions. Applying this tool has directed the
Bureau’s scarce resources to those projects providing the greatest returns for its customers.
The BCA tool is available to Foundation subscribers as order #91260/project #4127. In 2009, the electronic tool
was integrated into the SIMPLE: Sustainable Infrastructure Management Learning Environment (order/
project #4013) Website under SAM TOOLS.
The tool was funded by a group of members of the Global Water Research Coalition. The lead was the Water
Environment Research Foundation and the other funders were the United Kingdom Water Industry Research and
the Water Research Foundation.