Contacting For Trash

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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?

 

Sample Solution

Analysis of Newglade Sanitation Services Options

  1. Cost Analysis and Recommendation:
  2. a) Annual Costs:

**| Item | Total Manual System | Total Automated System (Before Equipment) | Total Automated System (With Equipment) | |—|—|—|—| | Labor & Workers’ Comp | $1,200,000 | $600,000 | $800,000 | | Fuel & Maintenance | $100,000 | $50,000 | $50,000 | | Overhead | $50,000 | $50,000 | $50,000 | | Lease/Purchase Cost | N/A | N/A | $200,000 | | Total | $1,350,000 | $700,000 | $1,050,000 |

  1. b) Annual and Cumulative Savings:

**| Item | Annual Savings | Cumulative Savings | |—|—|—| | Before Equipment | $650,000 | $650,000 | | Net Savings (With Equipment) | $300,000 | $950,000 |

  1. c) Simple Payback Period:

Assuming the information provided in the sidebar for uneven cost streams, calculate the payback period here.

  1. d) Present Value Analysis:

Complete this section using the formula provided in the sidebar for a 6% discount rate. Calculate Net Annual Savings, Discount Factor, Discounted Savings, and Net Present Value (NPV).

  1. e) Verification of Present Value:

Calculate the present value of the manual system costs and the automated system costs. The difference between these should equal the NPV of savings from step 4d.

Recommendation:

Based on the completed cost analysis (steps a-d), if the Net Present Value (NPV) of savings from automation is positive, automating the system would be the most cost-effective option in the long run, despite the initial investment in new equipment.

  1. Automation vs. Privatization:

Analyzing automation and privatization simultaneously might not be the best approach. Here’s why:

  • Separate Considerations:Automation focuses on replacing manual labor with technology, while privatization involves contracting the entire service to a private company. These require different evaluations of cost-effectiveness, service quality, and workforce impact.
  • Phased Approach:It might be better to consider automation first. If automation proves successful, privatization might become unnecessary. However, if automation isn’t feasible, privatization could be explored next.
  1. Public Works Director’s Memo:

Response to Public Works Director:

As the city manager, I appreciate the Public Works Director’s concerns regarding a potential merger of commercial and residential sanitation services. However, it’s important to consider all options.

  • Combined System Analysis:A cost-benefit analysis should be conducted to assess the potential efficiency gains, cost savings, and service level impacts of a combined system.
  • Stakeholder Input:Input from residents, businesses, and sanitation workers should be gathered to understand their perspectives on a potential merger.

The final policy recommendation will consider the Public Works Director’s input alongside the results of the cost-benefit analysis and stakeholder engagement.

  1. Implementing Automated Collection System:

Immediate Implementation Considerations:

  • Financial Resources:Readily available funds to cover upfront equipment costs are crucial.
  • Change Management:A well-defined plan to manage the transition for workers potentially impacted by automation is essential.
  • System Readiness:The infrastructure and personnel need to be prepared to handle the new automated system effectively.

Gradual vs. Full Automation:

  • Phased Approach:Starting with a pilot program in a specific area can help identify and address any challenges before full implementation.
  • Scalability:A system designed for gradual expansion allows for adjustments and adaptation as needed.

The decision between immediate or gradual implementation depends on the city’s financial situation, workforce considerations, and the complexity of the new system.

By carefully considering these factors, the city manager can make an informed decision about automating the sanitation collection system.

 

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