Answer to Question #248043 in Economics for ingrid

Question

Your consulting firm has been asked to carry out a valuation exercise to determine the willingness to pay for the restoration of a degraded and polluted length of beach at a small coastal town that is a popular holiday destination and day visits. a. Using a case study, explain what valuation method you would use, and why? (10)

Answer 1

Different types of cost estimates are applied depending on the stage of the project, the degree of accuracy required, the possible costs and labor input.

Top-down evaluation is applied early on in the context of insufficient information about the project. There is only one cost estimate for the entire project at the highest level. This assessment does not require much effort, but it has low accuracy.

The peer rating is a top-down view of the rating. This uses the actual cost of previously completed projects to evaluate the current project. If you have a very similar project, the estimate can be quite accurate. This type of assessment is applied at any stage of the project life cycle. Evaluation by analogs does not require much effort with guaranteed accuracy, but it is not always possible to find and identify similar projects. The accuracy of the estimate by analogy ranges from -30% to + 50%. The cost of preparing such an assessment is 0.04% -0.15% of the total project cost.

Bottom-up evaluation is applied during the preparation of the project baseline and the formation of the control score. The process begins by evaluating the details of the project and then summarizing the details at the final levels. The degree of accuracy of the estimate depends on the level of detail in the WBS. Bottom-up evaluation provides an accuracy of + 0.15 / -10% to +5% / - 5%, but has a high cost (from 0.45% to 2% of the total project cost) and duration.

Parametric estimation is applied early in the project. The parametric evaluation process consists in determining the parameters of the evaluated project, which vary in proportion to the cost of the project. A mathematical model is created based on one or more parameters. For example, the cost of developing a line of code can be selected as a software development parameter. To estimate the cost of the survey, the number of business processes to be automated can be selected. The advantage of this method: to estimate the cost of the project, it is enough to know the "rates" of the resources involved: the disadvantage is low accuracy (-30% - + 50%). The cost of preparing a parametric estimate is 0.04% -0.45% of the total project cost.

Control grades are a kind of bottom-up assessment. Control assessment is based on the principle of more detailed bottom-up assessment. When assessing the costs of project work, as a rule, they determine the most probable value of costs, costs under favorable and unfavorable circumstances, that is, an optimistic, pessimistic and most probable estimate.