A creative approach to benefit/cost analysis comes from the Chicago Deep Tunnel Project, conceived in the 1970s and now scheduled for completion in 2015 at a cost of $3–4 billion.
The project consists of 110 miles of 300-foot underground tunnels, plus reservoirs and pollution-control systems for holding both sewage and excess rainwater.
However, escalating costs over the years have reduced the benefit-cost ratio to less than 3 and the federal government was forced to reconsider their spending on it.
With the threat of a loss in funding, the project was redesigned to improve the benefits while reducing the costs by $100 million, thereby boosting the benefit-cost ratio to above four, thus meeting federal standards.
Source:Project Management Institute. “Digging Deep,”PM Network,May 2006, p. 1.
a) What do you think about the total duration of this project and the impact on financial scheduling?
b) How do you think Chicago improved the benefit-cost ratio of the project?
(A Benefit-Cost ratio below 1 generates losses and become profitable when over 1)