Project Selection Based on Benefits and Costs

When funds are to be allocated for a program of works and finance is limited, there is a problem in choosing the most effective program. This general type of problem can occur, e.g., in the determination of works projects in the public sector, or in the selection of jobs by a developer or construction company. If the cost-benefit relationship for each project can be quantified, then for a given allocation of funds, the projects can be selected on the basis of a maximum ratio of benefits to costs, or maximum total difference between benefits and costs. Determination of the optimum program involves only a simple arithmetic procedure where benefits are proportional to cost. Problems involving either a continuous nonlinear or discrete cost-benefit relationship, or both, can be stated and solved as mathematical programming problems. Alternatively, a technique involving the use of Lagrangian multipliers can be used to solve certain classes of nonlinear problem.