Cost Benefit Analysis – Cost Benefit Analysis – Hybrid CarsHybrid Cars

Presented by Presented by

Mukesh KakkarMukesh KakkarJeff GraebnerJeff GraebnerJames LeppJames Lepp

AgendaAgenda

What is Cost Benefit Analysis (CBA)What is Cost Benefit Analysis (CBA) Costs and BenefitsCosts and Benefits Applications of CBAApplications of CBA

Steps involvedSteps involved Process FlowProcess Flow

HybridsHybrids FunctioningFunctioning

Consumer opinionConsumer opinion

Cost & BenefitsCost & Benefits

Benefits are Benefits are primary positive primary positive outcomes or outcomes or consequencesconsequences

Costs are value Costs are value of the resources of the resources that must be that must be used to develop, used to develop, implement, and implement, and operate the operate the program being program being analyzed analyzed

Application of CBAApplication of CBA Whether or not project should be Whether or not project should be

undertakenundertaken Could the project be viable in Could the project be viable in

futurefuture Which among many competing Which among many competing

alternatives and projects should alternatives and projects should be funded given a limited be funded given a limited budget.budget.

CBA Drill-down treeCBA Drill-down treeCost Benefit

Analysis

Costs Benefits

Direct Costs ( resources budgeted)

Tangible BenefitsIndirect Costs (not budgeted)

Intangible Benefits Positive benefits Negative benefits

Personnel

Facilities, equipment, and materials

Other

Lost time

litigation

Health/Pension benefits

revenue Goodwill

Knowledge gained

Attitude Changed

Process improvements

Benefits to society and environment

Opportunity Cost

Establish Objectives

Identify Constraints Identify Assumptions

Define Base case

Set Analysis period

Define Alternatives

Define level of effort

Estimate benefits and cost relative to base case

Evaluate risks

Compare net benefitsand establish ranks

Recommendations

CBA Process FlowchartCBA Process Flowchart

Hybrid VehiclesHybrid Vehicles

FunctioningFunctioning

A hybrid car

Stored in petrol

From the battery

The car moving has The car braking generates

Stored in the battery

Chemical energy Kinetic energy Electrical energy

Chemical energyElectrical energy

Opinions- facts or fictionOpinions- facts or fiction

Gas PricesGas Prices

Gas Price

0

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1.5

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2.5

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2000

-1

2000

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2001

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2005

-3

Year - Quarter

Gas

Pri

ce (

$)

RegressionsRegressions

Moving AverageMoving Average Simple RegressionSimple Regression Holt-WintersHolt-Winters Multiple Regression (3)Multiple Regression (3) Time Series DecompositionTime Series Decomposition ARIMAARIMA

Multiple RegressionMultiple Regression Dependent VariableDependent Variable

Gas PriceGas Price Independent VariablesIndependent Variables

SignificantSignificant Consumer Price Index (CPI)Consumer Price Index (CPI) Average number of miles traveled per vehicleAverage number of miles traveled per vehicle 9/11 – dummy variable9/11 – dummy variable Hurricane Katrina – dummy variableHurricane Katrina – dummy variable War in Iraq – dummy variableWar in Iraq – dummy variable Quarters – dummy variablesQuarters – dummy variables

InsignificantInsignificant Total number of hybrids on the roadTotal number of hybrids on the road Total number of light vehicles on the roadTotal number of light vehicles on the road Personal IncomePersonal Income Motor Vehicle OutputMotor Vehicle Output

StatisticsStatisticsAudit Trail -- Coefficient Table (Multiple Regression Audit Trail -- Coefficient Table (Multiple Regression

Selected)Selected)   

SeriesSeries IncludedIncludedStandarStandar

dd

DescriptionDescription in Modelin ModelCoefficienCoefficien

tt ErrorError T-testT-test

Gas PriceGas PriceDependenDependen

tt -13.76-13.76 1.631.63 -8.44-8.44

CPICPI YesYes 0.050.05 0.010.01 9.889.88

Miles Vehicles Miles Vehicles TraveledTraveled YesYes 0.000.00 0.000.00 6.896.89

9/119/11 YesYes -0.16-0.16 0.040.04 -3.74-3.74

KatrinaKatrina YesYes 0.250.25 0.070.07 3.573.57

Iraq WarIraq War YesYes 6.236.23 0.920.92 6.796.79

Q1Q1 YesYes -0.01-0.01 0.040.04 -0.27-0.27

Q2Q2 YesYes 0.110.11 0.040.04 3.003.00

Q3Q3 YesYes 0.040.04 0.040.04 1.001.00

Accuracy MeasuresAccuracy Measures    ValueValue

AICAIC -73.65-73.65

BICBIC -72.47-72.47

Mean Absolute Percentage Error Mean Absolute Percentage Error (MAPE)(MAPE) 2.38%2.38%

R-SquareR-Square 97.78%97.78%

Adjusted R-SquareAdjusted R-Square 96.60%96.60%

OverallOverall

F-testF-test

82.6882.68

ForecastForecast

YearYear Gas PriceGas Price

20062006 $2.73$2.73

20072007 $2.91$2.91

20082008 $3.19$3.19

20092009 $3.47$3.47

20102010 $3.75$3.75

Gas Price

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1.5

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2.5

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4.5

Jul-0

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Jan-

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Jul-0

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10

Jul-1

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Jan-

11

Gas Price Forecast of Gas Price Fitted Values

Vehicles Used in StudyVehicles Used in StudyFord Escape HybridFord Escape Hybrid Ford EscapeFord Escape

Honda Accord Honda Accord HybridHybrid

Honda AccordHonda Accord

Honda Civic HybridHonda Civic Hybrid Honda Civic EXHonda Civic EX

Lexus 400 HybridLexus 400 Hybrid Lexus RX 330Lexus RX 330

Toyota Highlander Toyota Highlander Hybrid LtdHybrid Ltd

Toyota Highlander Toyota Highlander LtdLtd

Toyota PriusToyota Prius Toyota Corolla LEToyota Corolla LE

Benefits of a HybridBenefits of a Hybrid Savings at the Pump Savings at the Pump

All Hybrids get a better fuel economy than their All Hybrids get a better fuel economy than their counterpartscounterparts

Lower Insurance RatesLower Insurance Rates Drop of 5 to 10%Drop of 5 to 10%

Government AssistanceGovernment Assistance Federal Tax creditFederal Tax credit Coase TheoremCoase Theorem

Take a decentralized approach to environmental pollutionTake a decentralized approach to environmental pollution Lower EmissionsLower Emissions

Less Carbon Monoxide adding to Global WarmingLess Carbon Monoxide adding to Global Warming Self-Powering EnginesSelf-Powering Engines

No hassle in finding a plugNo hassle in finding a plug Special Car-Pool LanesSpecial Car-Pool Lanes

No matter how many people are in the carNo matter how many people are in the car

Costs of a HybridCosts of a Hybrid General Maintenance and RepairGeneral Maintenance and Repair

Even though it does have an electric engine it is still Even though it does have an electric engine it is still neededneeded

New BatteriesNew Batteries Need to be changed out every 8 to 10 yearsNeed to be changed out every 8 to 10 years

Higher Depreciation RateHigher Depreciation Rate Expected as 1 to 4% higherExpected as 1 to 4% higher

Higher Initial CostHigher Initial Cost Between $4,000 and $9,000Between $4,000 and $9,000

Inside the NumbersInside the Numbers5 years5 years Honda Civic Honda Civic

Hybrid (50)Hybrid (50)Honda Civic Honda Civic

EX (28)EX (28)Hybrid extra Hybrid extra

cost or cost or savingssavings

Purchase price Purchase price (Automatic)(Automatic) $22,400 $22,400 $18,444 $18,444 $3,956$3,956

Sales tax (7%)Sales tax (7%) 1,5681,568 1,2911,291 $277$277

Tax creditTax credit 2,1002,100 00 $2,100$2,100

Fuel cost (5 yrs)Fuel cost (5 yrs) 4,4684,468 7,9797,979 $3,511$3,511

Insurance (5% Insurance (5% savings)savings) 4,6704,670 4,9164,916 $246$246

Maintenance & Maintenance & repairrepair 4,1634,163 4,1634,163 $0$0

Financing (3%)Financing (3%) 3,5683,568 2,9382,938 $630$630

Five-year Five-year depreciation depreciation raterate 56.10%56.10% 53.00%53.00%   

Projected resale Projected resale priceprice 9,8329,832 8,6698,669 $1,163$1,163

with federal tax with federal tax creditscredits       $2,156$2,156

w/o federal tax w/o federal tax creditscredits       $56$56

Inside the Numbers (Continued)Inside the Numbers (Continued)

YearYear MilesMilesDrivenDriven

CarbonCarbonMonoxideMonoxideEmittedEmitted

HondaHondaCivicCivic

HybridHybrid

HondaHondaCivic EXCivic EX

         5050 2828

20062006 15,00015,000 274,950274,950 5,4995,499 9,8209,820

20072007 14,50014,500 265,785265,785 5,3165,316 9,4929,492

20082008 14,00014,000 256,620256,620 5,1325,132 9,1659,165

20092009 13,50013,500 247,455247,455 4,9494,949 8,8388,838

20102010 13,00013,000 238,290238,290 4,7664,766 8,5108,510

Total Carbon Monoxide ReleasedTotal Carbon Monoxide Released 25,66225,662 45,82545,825

The ResultsThe Results

ManufacturerManufacturer Model (mpg)Model (mpg) Costs/Savings Costs/Savings PointsPoints

FordFord Escape Hybrid Escape Hybrid (33)(33)

Escape (23)Escape (23) with taxeswith taxes $3,871.42$3,871.42 44

without taxeswithout taxes $2,450.58$2,450.58 -2-2

HondaHonda Accord Hybrid Accord Hybrid (28)(28)

Accord (25)Accord (25) with taxeswith taxes $3,251.84$3,251.84 -3-3

without taxeswithout taxes $3,901.84$3,901.84 -4-4

HondaHonda Civic Hybrid (50)Civic Hybrid (50) Civic EX (28)Civic EX (28) with taxeswith taxes $2,156.36$2,156.36 22

without taxeswithout taxes $56.36$56.36 00

LexusLexus RX400h (30)RX400h (30) Rx330 (25)Rx330 (25) with taxeswith taxes $4,296.78$4,296.78 -4-4

without taxeswithout taxes $6,496.78$6,496.78 -6-6

ToyotaToyota Highlander Highlander Hybrid Ltd Hybrid Ltd (30)(30)

Highlander Highlander Ltd (25)Ltd (25)

with taxeswith taxes $2,953.00$2,953.00 -3-3

without taxeswithout taxes$6,074.62$6,074.62 -6-6

ToyotaToyota Prius (55)Prius (55) Corolla LE Corolla LE (34)(34)

with taxeswith taxes $1,493.43$1,493.43 11

without taxeswithout taxes $4,141.38$4,141.38 -4-4

The Results (Continued)The Results (Continued)

ManufacturerManufacturer

Model (mpg)Model (mpg)

Carbon Monoxide Carbon Monoxide Saved Saved

AmountAmount PointsPoints

FordFord Escape Hybrid (33)Escape Hybrid (33) Escape (23)Escape (23)   

38,88238,882 55,78755,787 16,90516,905 33

HondaHonda Accord Hybrid (28)Accord Hybrid (28) Accord (25)Accord (25)   

45,82545,825 51,32451,324 5,4995,499 11

HondaHonda Civic Hybrid (50)Civic Hybrid (50) Civic EX (28)Civic EX (28)   

25,66225,662 45,82545,825 20,16320,163 44

LexusLexus RX400h (30)RX400h (30) Rx330 (25)Rx330 (25)   

42,77042,770 51,32451,324 8,5548,554 22

ToyotaToyota Highlander Hybrid Ltd Highlander Hybrid Ltd (30)(30)

Highlander Ltd (25)Highlander Ltd (25)  

42,77042,770 51,32451,324 8,5548,554 22

ToyotaToyota Pirus (55)Pirus (55) Corolla LE (34)Corolla LE (34)   

23,32923,329 37,73837,738 14,40914,409 33

The Results (Continued)The Results (Continued)

ManufacturerManufacturer

Model (mpg)Model (mpg)

Costs/Savings Costs/Savings

With Tax With Tax Savings Savings

Included Included

Without Without Tax Tax

Savings Savings IncludedIncluded

FordFord Escape Hybrid Escape Hybrid (33) (33)

Escape (23)Escape (23)99 33

HondaHonda Accord Hybrid Accord Hybrid (28)(28)

Accord (25)Accord (25)00 -1-1

HondaHonda Civic Hybrid Civic Hybrid (50)(50)

Civic EX Civic EX (28)(28) 88 66

LexusLexus RX400h (30)RX400h (30) Rx330 (25)Rx330 (25) 00 -4-4

ToyotaToyota Highlander Highlander Hybrid Ltd (30)Hybrid Ltd (30)

Highlander Highlander Ltd (25)Ltd (25) 11 -4-4

ToyotaToyota Pirus (55)Pirus (55) Corolla LE Corolla LE (34)(34) 66 33

QuestionsQuestions

"An unsophisticated forecaster uses statistics as a drunken man uses lamp-posts - for support rather than for illumination."—Andrew Lang