1. What should Assistant City Manager Chris Smith recommend to the city manager? Use the attached work sheet (Table 1) and the analytical methods described in the sidebar in this chapter to formulate a recommendation for the city manager. Here are steps to analyzing the cost of the two options. (You may find that entering the table into an Excel spreadsheet simplifies the computational tasks.)
a. Step 1. Complete the annual costs for the row labeled Total Manual System. Do the same for the row labeled Total Automated System before equipment. Then compute the total annual costs for the row labeled Total Automated System with new equipment. (Note that net equipment cost is computed. Add the annual lease/ purchase cost to the labor and workers’ comp cost to arrive at amounts for Total Automated System with new equipment.)
b. Step 2. Compute the row labeled Annual savings. Note this is the cost before investment in new equipment. Then compute the next row, Cumulative savings, which is a running total of the cost savings from automation.
c. Step 3. Compute the Simple payback period using the formula for uneven cost streams described in the sidebar.
d. Step 4. The next section involves computing the present value of the two options, the manual collection system, and the automated collection system. Begin by completing the row labeled Net annual savings. This is the net savings from automation including the cost of the new equipment, both leased and purchased. Then compute the discount factor using the formula described in the sidebar. Assume a 6 percent discount rate for this problem. Then compute the row labeled Discounted savings by multiplying each of the net annual savings by the discount factor for that year. Sum the row to get net present value (NPV) of savings.
e. Step 5. An alternative approach is to compute the present value of the manual system costs, compute the present value of the automated system costs, sum the two rows, and compute the difference in the sums. This value should be the same as the NPV of savings found in step 4. In the event the city manager asks about the present value of the two options, you will have those figures readily available.
2. City staff in Newglade analyzed the questions of automation and privatization simultaneously. Was this the best way to proceed, or should these issues have been addressed separately? Give reasons for your answer.
4. As the city manager, how would you have responded to the memo of July 10 in which the public works director opposed consideration of a merger of commercial and residential sanitation services? Would you include a combined system in your policy recommendation?
5. Under what circumstances would it be desirable to implement an automated collection system immediately? If such a change should be made, should the entire system be automated at once or gradually? What considerations factor into such a decision?
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