Inclusion of Risk in Public Works Projects: An Example with Waste Recycling Options
Public Works Management and Policy
Often public works are made with little if any concern for risk. Analysis of public works investments especially during the 1990s and 2000s assumed rapid employment growth would continue into the future. However, with the “Great Recession,” the assumption of continued high employment growth, and the absence of risk considerations in public works investments, a number of local government bankruptcies occurred. Public works decision makers must aim to identify public works investments that not only have the highest positive net returns under average conditions but also yield highest net returns under unfavorable conditions. This article discusses the incorporation of risk into public works investments and the use of Monte Carlo simulation to complete a standard investment or public works appraisal. The article completes an investment appraisal of a material recovery facility (MRF) system and discusses how risk could be addressed and analyzed by public decision makers.
Harris, T. R.; Kim, M-K.; Dick, R. M.; Oliver, A.; and Richardson, J. W., "Inclusion of Risk in Public Works Projects: An Example with Waste Recycling Options" (2015). Applied Economics Faculty Publications. Paper 1258.