Option B
Question 1
Cost-benefit analysis helps establish if a company’s operations are cost-effective. According to the Project Management Institute (2017), a cost-benefit analysis is a financial analysis tool used to estimate alternatives’ strengths and weaknesses to determine the best alternative in terms of benefits provided. Administrative costs are expenses due to overall business administration. These costs include salaries and other employee benefits, costs due to the purchase of equipment and space used in administration, and costs due to supplies and utilities.
In program XYZ, administrative costs include equipment purchases, real estate acquisition, real estate upgrade/maintenance costs, staff costs/shared with the city, and costs due to legal services. They are calculated as below.
Delegate your assignment to our experts and they will do the rest.
For the Large Business Loan program:
$10000 + $50000 + $16600 = $76600
For the Micro-loan program:
$10000 + $50000 + $16700 = $76700
For the Small business incubator program:
$10000 + $40000 + $60000 + $75000 + $50000 + $16700 = $251700
The program costs for XYZ are the total funds disbursed/rent deferral and Value of delinquent/un-recovered loans or defaulted rents. They are calculated as below.
For the Large Business Loan program:
$230000 + $100000 = $330000
For the Micro-loan program:
$75000 + $10000 = $85000
For the Small business incubator program:
$60000 + $20000 = $80000
The above results show the figures generated from each program as calculated from the table.
Question 2
It is known that the EDC-X leadership sees new business starts, job creation, and employment as key desirable outcomes. The New/Net employment opportunities generated for the Large Business Loan program, Micro-loan Program, and Small business incubator program are 55, 30, and 28, respectively. It means that the Large Business Loan program generated the most employment opportunities and, as such, produced the most desirable outcome. However, the program cost for the Large Business Loan program is the highest at $330000. The number of loans made is 1, and out of these, the number of delinquent loans/in legal recovery is 1. Therefore, the loans made versus the number of delinquent loans/in legal recovery cancel each other, meaning no gain is made on the loanee. We, however, have 55 New/Net employment opportunities generated as a result of the loans made. It is a significant gain, and we will therefore establish the program cost each of these New employment opportunities generated as below:
$330000 ÷ 55 = $6000
$6000 is thus assumed to be the program cost for each employment opportunity generated due to the Large Business Loan program.
On the other hand, the program cost of the Micro-loan Program is $85000. The total number of loans made is 35, and out of these, 5 make up the number of delinquent loans/in legal recovery. The New/Net employment opportunities generated is 30, which implies a negative trend in terms of the number of loans made versus the number of gains. If 5 out of the 35 loans made are delinquent loans/in legal recovery and the New/Net employment opportunities generated is 30, then the loans generated no new employment opportunities. It can be explained by as below:
35 loans – 5 delinquent loans/in legal recovery
= 30 employment opportunities generated as a result of loans disbursed
The New/Net employment generated is also 30. Therefore, no new employment was generated outside of the loans made. The program cost per employment generated is calculated as below:
$85000 ÷ 30 = $2833.33
$2833.33 is assumed to be the program cost for each employment opportunity generated due to the Micro-loan Program.
Finally, the program cost of the Small business incubator program is $80000. The total number of renters/small business is 36, and out of these, 12 are delinquent loans/in legal recovery. The New/Net employment opportunities generated is 28, which like the Micro-loan Program, implies a negative trend in terms of the number of loans made versus the number of gains. If 12 out of the 36 loans made are delinquent loans/in legal recovery and the New/Net employment generated is 28, then the loans made generated four new employment opportunities as seen below:
36 loans – 12 delinquent loans/in legal recovery
= 24 employment opportunities generated as a result of loans disbursed.
The New/Net employment generated is also 28, which is four more than the employment opportunities generated due to loans disbursed. The program cost per employment generated is calculated as below:
$80000 ÷ 28 = $2857.14
$2857.14 is assumed to be the program cost for each employment opportunity generated due to the Small business incubator program.
The program cost for each employment opportunity generated is least for the Micro-loan program and most for the Large Business Loan program. Therefore, the Micro-loans program seems to create the highest return on investment as it utilizes the least program cost for each employment opportunity generated, which is the desirable outcome.
Question 3
It is only the Micro-loans program that does not generate new employment opportunities outside those developed as a result of loans disbursed. Out of the 35 loans disbursed for the Micro-loans program, 30 employment opportunities were created. Five of the loans disbursed were delinquent loans/in legal recovery. It means the 30 opportunities realized from the program were purely from the loans disbursed, and no new employment opportunities were created. It utilizes the least program cost for each employment generated. However, considering no new employment opportunities were generated, it reduces the effectiveness of the program since generating new opportunities is a priority for the Economic Development Corporation of City X. It should not be expanded since it does not generate any new employment outside the number of loans disbursed. It should therefore be sustained because of its low program cost. It will be the most economical, but at the same time, it would mean that the number of delinquent loans/in legal recovery will be tamed.
The Large Business Loan program generates 55 New/Net employment. The EDC-X leadership sees new business starts, job creation, and employment as key desirable outcomes. It would mean that the Large Business Loan program would be the most favorable as it generates the most significant number of New/Net employment generated. However, the program cost of the Large Business Loan program means that very few loans can be granted on top of the fact that the program cost of each employment generated is more than double the program costs of the other two programs. According to Pearce (2016), the program with the highest operational cost should be dropped. Therefore, discontinuing this program would make sense since it will generate less employment with a specific budget because it costs more per employment generated.
The Small business incubator program costs $2857.14 for each employment generated, and this is not far from that of the Micro-loans program at $2833.33. Out of the 36 loans disbursed, 12 were delinquent loans/in legal recovery. It means that the program generated 24 job opportunities from the loans disbursed. The recorded opportunities were 28, four more than the opportunities created from the loan disbursement. This makes the program way more useful because it creates new opportunities, an objective of the Economic Development Corporation of City X. It should be expanded as it generated new employment outside the number of loans disbursed while at the same time utilizing a cost half that of the Large Business Loan program and almost equal to that of Micro-loans program.
References
Pearce, D. W. (2016). Cost-benefit analysis . Macmillan International Higher Education.
Project Management Institute. (2017). A guide to the project management body of knowledge (PMBOK® guide) (6th ed.).
