Engineering economy in water resources planning:
All Water Resources projects have to be cost evaluated. This is an essential part of planning.
Since, generally, such projects would be funded by the respective State Governments, in which the project would be coming up it would be helpful for the State planners to collect the desired amount of money, like by issuing bonds to the public, taking loans from a bank, etc.
Since a project involves money, it is essential that the minimum amount is spent, under the given constraints of project construction.
Hence, a few feasible alternatives for a project are usually worked out. For example, a project involving a storage dam has to be located on a map of the river valley at more than one possible location, if the terrain permits.
In this instance, the dam would generally be located at the narrowest part of the river valley to reduce cost of dam construction, but also a couple of more alternatives would be selected since there would be other features of a dam whose cost would dictate the total cost of the project.
For example, the foundation could be weak for the first alternative and consequently require costly found treatment, raising thereby the total project cost.
At times, a economically lucrative project site may be causing submergence of a costly property, say an industry, whose relocation cost would offset the benefit of the alternative.
On the other hand, the beneficial returns may also vary.
For example, the volume of water stored behind a dam for one alternative of layout may not be the same as that behind another.
Hence, what is required is to evaluate the so-called Benefit-Cost Ratio defined as below:
The annual cost and benefits are worked out as under.
The investment for a project is done in the initial years during construction and then on operation and maintenance during the project's lifetime. The initial cost may be met by certain sources like borrowing, etc. but has to be repaid over a certain number of years, usually with an interest, to the lender. This is called the Annual Recovery Cost, which, together with the yearly maintenance cost would give the total Annual Costs. It must be noted that there are many non - tangible costs, which arise due to the effect of the project on the environment that has to be quantified properly and included in the annual costs.