Interpret Results

A simple and commonly used measure of effectiveness is the cost benefit ratio. However, the use of this ratio does not take into consideration the timing of the treatment and the time value of money. For example a cost benefit analysis realizing a benefit at the end of year 20 may appear to have the same value as the benefit realized at the end of year 5. Similarly, use of simple cost benefit ratios ignores the benefits of early treatment, e.g. risk cost avoidance, reduced O&M costs etc.

In a commercialized environment, the business objective of most organizations is to maximize profit (or benefit) and minimize costs. A rational decision making process will be to compare the net present value of the available options.

In the example illustrated in the previous tables, the cost benefit ratios based on total accrued values or discounted values are about the same for both options, which implies that the management will have no clear indication as to the preferred strategy as far as effectiveness is concerned at this date.

However, in terms of benefits maximization, the rehabilitation strategy will be the preferred option as it has a higher NPV at the time of implementation. As a decision has to be made now as to whether to maintain the asset in year 2 or to rehabilitate in year 5, the NPV as of today has to be used. The "maintain" strategy should now be the preferred option as the benefits, which can be derived from “rehabilitation”, have been further reduced due to its deferred effect.