Management Decisions

Abstract

Decision makers use a cost benefit analysis to evaluate the total anticipated cost of a project compared to the total expected benefits. This helps them determine if the overall benefits outweigh the incurred costs of a new implemented proposal. There are generally three parts that are applied to a cost-benefit analysis from the viewpoint of implementing the proposed action; potential cost that will be incurred, anticipated benefits, and lastly the difference between identified and expected costs (Plowman, 2013). In this paper I will discuss various viewpoints from other operating constituents: New Orleans residence, surrounding residence, Mayor of New Orleans, and the Federal Government.

Keywords: Decision makers, New Orleans, cost, benefit, implement, potential, anticipated

Management Decisions

The effects of Hurricane Katrina took the lives of over 1,200 people and left millions of people homeless and billions of dollars’ worth of damage. In order to accurately represent a cost benefit analysis we must look at the utility lost if no upgrade protection system was implemented and compare it to the utility lost due to the reduction of consumption (Hallegate, 2006). Basically, is it going to save the government money and reduce utility costs if we invest in the building of a protection system, by the same amount than investing more money into hurricane flood protection.

After reading A Cost Benefit Analysis of the New Orleans Flood Protection System, by Stephane Hallegatte, and article from the Washington Post by Biran Vastag and Lisa Rein, I believe it is most beneficial to take all precautionary actions towards hurricane flood protection. The direct costs of Katrina were estimated at about $81 billion; but according to Edward Glaeser, of Harvard University, actual federal spending pushed a near $200 billion (Glaeser, 2005).

I support Hallegatte; cost benefit analysis must take into consideration risk aversion, premiums, insurance, and casualties. However, what they also need to take into consideration are the post-storm effects; for example, the costs and labor not just from rebuilding but from clean-up and disposal of wastes. Moreover, if they are making decisions on human life such as the “amount the public is willing to devote to reducing the risk in order to save an additional life,” they should also look at the difference in economic growth of an individual. It has proven to be more cost efficient for companies to have lower employee turnover ratios because they do not have to spend money on hiring and training. These costs are not taken into account. Aside from monetary value/costs, no cost can be attributed to a human life; therefore regardless of what numbers a cost analysis can conjure, anything