Suggestions for Dawlish avoiding route(s)

[HowardGWR]

I've seen some hair-brained suggestions in this thread, but this is one of the worst. :roll:

A strategic reserve of quality coaches? Who's going to pay for this idle fleet? Oh, and who's paying for the strategic reserve of coach drivers that would also be needed? Along with the strategic reserve of maintenance staff, storage space, DVSA vehicle registration costs...

.

The coaches were drafted in last time with no trouble. These vehicles are less used in winter so in fact it is a good use of redundant resources.

There is no need to disagree, especially off the cuff like that, by insulting fellow contributors. I see your points but I believe it has been proven that the resources are there. I respect your views.

 

[SWTH]

The coaches were drafted in last time with no trouble. These vehicles are less used in winter so in fact it is a good use of redundant resources.

There is no need to disagree, especially off the cuff like that, by insulting fellow contributors. I see your points but I believe it has been proven that the resources are there. I respect your views.

Actually, you'll find coaches are well used in winter. For most coach operators it goes a bit like this:

September - December: Autumn Breaks, Day Tours, Turkey & Tinsel, Private Hire plus the usual school contracts (to/from school, swimming trips, outings, etc).
January - April: Winter Breaks, Day Tours, Pre-season Cheap Breaks, PH, Schools.
May/June/July: Spring Breaks/Tours/PH/Schools.
August: A few trips, generally very quiet - no schools.

During school holidays most coach companies have a reduction in workload of at least 50% - down here in Cornwall drivers go from an average 45hr week during term time to as little as 5hrs a week.

Operators will do whatever it takes to provide vehicles for Rail Replacement jobs - they pay very well. That can mean office staff and mechanics driving, vehicles having non-essential maintenance deferred, even sub-contracting or loaning another operators vehicles.

 

[HowardGWR]

Actually, you'll find coaches are well used in winter. For most coach operators it goes a bit like this:

September - December: Autumn Breaks, Day Tours, Turkey & Tinsel, Private Hire plus the usual school contracts (to/from school, swimming trips, outings, etc).
January - April: Winter Breaks, Day Tours, Pre-season Cheap Breaks, PH, Schools.
May/June/July: Spring Breaks/Tours/PH/Schools.
August: A few trips, generally very quiet - no schools.

During school holidays most coach companies have a reduction in workload of at least 50% - down here in Cornwall drivers go from an average 45hr week during term time to as little as 5hrs a week.

Operators will do whatever it takes to provide vehicles for Rail Replacement jobs - they pay very well. That can mean office staff and mechanics driving, vehicles having non-essential maintenance deferred, even sub-contracting or loaning another operators vehicles.

Thanks for that, they certainly came up trumps last winter. I think I expressed myself badly earlier, I just meant there should be a reserve capability to fall back on and one hopes the operators make a decent buck out of it when they have to pile in.

 

[HSTEd]

Cornwall DOES need more indigenous industry. Tax breaks, relocation/start up grants etc could all be used to persuade companies to invest in Cornwall. That way, more money would stay in the local economy

All of those things are available for far more useful positions in the North East, North West or even the more deprived parts of East Anglia.
Relocation grants almost never actually achieve anything in the long run.

People 'relocate' facilities, collect the grant and then quietly close the facility a few years later and move back to somewhere more useful, using the site they had before and probably most of the original equipment.

'Tax breaks' are rather difficult to arrange since businesses will use it to make it appear more business is in Cornwall than there actually is - it just turns into a general tax dodge.

Let's look at it this way:
Family A exists in your planned future. 2.4 kids, nice coastal property, well paid jobs in the smoke. Where do they spend their money?

• House: payments go to a lender. Money doesn't stay in Cornwall
• Electricity/Gas/Water: Money goes to energy firms, some owned by other countries. Doesn't stay in Cornwall.
• Education: Chances are, children would be in paid-for education, rather than state. Some very good public schools in Cornwall, but by no means certain the kids would be sent there. Money could go either way.
• Consumables: food, petrol, etc - all goes to places like Sainsburys, Tescos etc. Supports a few local jobs, but money ultimately leaves Cornwall.
• Disposable Income: May get spent in beachside cafés, but may just as easily be spent in other attractions anywhere along or near the route of the cheap, quick rail link. Money probably wouldn't stay in Cornwall.

Welcome to the globalised economy.

Your High Speed link will therefore do almost nothing to change where people spend their money, and do so at great cost. Enticing businesses to move closer to Cornwall would be far cheaper and a better method for stimulating the local economy.

But it is essentially impossible to do this
Governments have been attempting to entice businesses to move to these places for decades and it has never worked.
Why do people keep attempting somethign that has proven to be entirely ineffective in the past?
Is it just people being unwilling to accept a reality they find unpalatable.

Also, travel costs will not be 'essentially zero'. Look at every major infrastructure project of the last 40-50 years and there has been a premium paid by users (Tamar Road Bridge, Severn Crossing, M6 Toll, etc). What are HS1 & the Channel Tunnel if not a high-speed transit system similar to what you propose? I don't hear of any cheap commuter tickets for sale from Paris to London.

The entire motorway network?
I wasn't aware it had a large scale toll system on it.
All the planning assumptions for high speed rail indicate zero price premium over conventional rail - HS rail is cheaper per passenger kilometre than conventional rail.

If anything the premium would be on conventional rail to attempt to stem the haemorrhaging of money from the network.

As for the 'simplistic' argument about living in the Home Counties, there aren't 'tens of thousands of perfectly serviceable housing units' here either. Cornwall has a chronic housing shortage.

And yet it has tens of thousands of housing units lying empty for almst the entire year.
Housing units that would have people living in them otherwise.

In short, Cornwall is Cornwall. It is not the Home Counties. There is no local will to change things (which, believe me, as a non-local beggars belief at times), and your plan would cause huge amounts of grief within the indigenous population. There is already a minority of lunatics who would prefer Cornwall to have full Independence, with all the issues that would cause.

So essentially the locals demand subsidies to maintain their economy in some sort of touristic aspic?
Unless something major changes Cornwall will be a basket case forever.
We cannot go on like this.

Get the Cornish economy supported by industry again, and things will improve. A HS rail link to use Cornwall as a commuter belt suburb is daft.

In other words - turn the clock back to the 19th Century?
I am afraid that is never going to happen.

 

[SWTH]

Fortunately, neither is a HS rail link to Cornwall any time soon.

Cornwall needs help. It doesn't need more people.

 

[HowardGWR]

Fortunately, neither is a HS rail link to Cornwall any time soon.

Cornwall needs help. It doesn't need more people.

These arguments apply equally well to Devon, Dorset and south west Somerset. I think a modern reasonably smart railway link via north west Devon to Plymouth and Cornwall is as justifiable as any other mainly rural inter-urban link elsewhere and is part of what governments have to do. it's like having the same cost of postage whether the letter or parcel is going from London to Manchester, or Yeovil to Okehampton.

It's called civilisation; the Romans understood it so why can't we?

 

[Bald Rick]

It's called civilisation; the Romans understood it so why can't we?

Indeed. That's why their road network stopped at Exeter.

 

[SWTH]

But the question has to be asked, what have the Romans ever done for us?

 

[HowardGWR]

But the question has to be asked, what have the Romans ever done for us?

According to Bald Rick, as you are in Cornwall, not much, if the road stopped at Exeter. On the other hand the roads were simply to bring soldiers to the front, so you were safer from becoming slaves.

 

[Grumpy]

Whilst the NR report is well presented it gives the impression of having been written to justify not doing anything, rather than justifying doing something.
I am surprised no-one (apologies if I’ve missed) has picked up on the assumption that a new build line has to have a maximum gradient of 1 in 150 to benefit freight. Why is this-if the existing route is being kept then freight can remain on that? Or be banked/double headed. Not that there is much freight.
My understanding is that new routes being built for passenger railways are built with much steeper gradients in order to cut capital cost, avoiding expensive tunnels etc. The logic being that modern passenger rolling stock can handle the gradients.
So the new build route options C1-C5 need re-examining. We need a route that can be built at the minimum cost, compatible with giving a 5/6 minute journey time reduction.
The 66% contingency also needs slashing. We all know the history but surely NR has a better understanding of costs now. And this is a project that will take place away from, and with the minimum disruption to, the existing railway.
It is interesting to compare with the Borders railway project. Thus option C3 is costed at £2250m for 17 km-say 11 miles. The Borders railway is costing £350m for 30 miles. I accept the latter is using much old trackbed, but that is needing considerable refurbishment and the requirement of other items such as track and signalling are multiples of what should be needed in Devon.
NR need to be told to sharpen the pencil.

 

[yorksrob]

Whilst the NR report is well presented it gives the impression of having been written to justify not doing anything, rather than justifying doing something.
I am surprised no-one (apologies if I’ve missed) has picked up on the assumption that a new build line has to have a maximum gradient of 1 in 150 to benefit freight. Why is this-if the existing route is being kept then freight can remain on that? Or be banked/double headed. Not that there is much freight.
My understanding is that new routes being built for passenger railways are built with much steeper gradients in order to cut capital cost, avoiding expensive tunnels etc. The logic being that modern passenger rolling stock can handle the gradients.
So the new build route options C1-C5 need re-examining. We need a route that can be built at the minimum cost, compatible with giving a 5/6 minute journey time reduction.
The 66% contingency also needs slashing. We all know the history but surely NR has a better understanding of costs now. And this is a project that will take place away from, and with the minimum disruption to, the existing railway.
It is interesting to compare with the Borders railway project. Thus option C3 is costed at £2250m for 17 km-say 11 miles. The Borders railway is costing £350m for 30 miles. I accept the latter is using much old trackbed, but that is needing considerable refurbishment and the requirement of other items such as track and signalling are multiples of what should be needed in Devon.
NR need to be told to sharpen the pencil.

Some fair points raised, but why is a 5/6 minute minute journey time reduction the be all and end all ? This seems a fairly minor benefit in the great scheme of things.

 

[infobleep]

Some fair points raised, but why is a 5/6 minute minute journey time reduction the be all and end all ? This seems a fairly minor benefit in the great scheme of things.

Well the government thought saving 20 minutes to Wales was was worth mentioning to promote the case for electrifying the aourhwest mainline from Paddington. Then there is HS2, which heavily promoted savings. Admittedly 6 minutes isn't much but then nor is 20 minutes that much more of a saving.

 

[Bald Rick]

Well the government thought saving 20 minutes to Wales was was worth mentioning to promote the case for electrifying the aourhwest mainline from Paddington. Then there is HS2, which heavily promoted savings. Admittedly 6 minutes isn't much but then nor is 20 minutes that much more of a saving.

It is though isn't it. 20 mins off a 2 hour trip to Cardiff is a sixth of the journey time.

 

[The Ham]

It is though isn't it. 20 mins off a 2 hour trip to Cardiff is a sixth of the journey time.

Whilst 6 minutes on a 3 hour journey from London to Plymouth is neither here nor there (bearing in mind a better journey time saving could be achived by replacing the HST's with 22x's as they would be able to acelerate faster and not need such lengthy dwell times incase a door is left open).

 

[yorksrob]

Quite. There are better ways of getting additional value from a billion pounds worth of spending on resilience.

 

[The Ham]

Whilst the NR report is well presented it gives the impression of having been written to justify not doing anything, rather than justifying doing something.
I am surprised no-one (apologies if I’ve missed) has picked up on the assumption that a new build line has to have a maximum gradient of 1 in 150 to benefit freight. Why is this-if the existing route is being kept then freight can remain on that? Or be banked/double headed. Not that there is much freight.
My understanding is that new routes being built for passenger railways are built with much steeper gradients in order to cut capital cost, avoiding expensive tunnels etc. The logic being that modern passenger rolling stock can handle the gradients.
So the new build route options C1-C5 need re-examining. We need a route that can be built at the minimum cost, compatible with giving a 5/6 minute journey time reduction.
The 66% contingency also needs slashing. We all know the history but surely NR has a better understanding of costs now. And this is a project that will take place away from, and with the minimum disruption to, the existing railway.
It is interesting to compare with the Borders railway project. Thus option C3 is costed at £2250m for 17 km-say 11 miles. The Borders railway is costing £350m for 30 miles. I accept the latter is using much old trackbed, but that is needing considerable refurbishment and the requirement of other items such as track and signalling are multiples of what should be needed in Devon.
NR need to be told to sharpen the pencil.

In terms of comparing the options the costs all use the same assumption. All that would happen is if you totally removed the 66% contingency is that the difference between the options would become smaller.

When I undertake costs estimates at work for clients they are always told a figure higher than it would actully cost to do, why, becuase when they work out their budget they want to make sure they have enough money to do the works. Otherwise if it turns out to cost 20% more they would be a bit miffed, whilst if they find that is costs 20% less then they are fine with that.

 

[Grumpy]

Some fair points raised, but why is a 5/6 minute minute journey time reduction the be all and end all ? This seems a fairly minor benefit in the great scheme of things.

I just used the 6 minutes as that was quoted in the NR report. Seems reasonable gain in view of the relatively short distance.
--- old post above --- --- new post below ---

Whilst 6 minutes on a 3 hour journey from London to Plymouth is neither here nor there (bearing in mind a better journey time saving could be achived by replacing the HST's with 22x's as they would be able to acelerate faster and not need such lengthy dwell times incase a door is left open).

Well there is clearly some benefit by saving 6 minutes and that will have a positive financial value. If you can make additional savings by different rolling stock then fine, it all adds up
--- old post above --- --- new post below ---

Quite. There are better ways of getting additional value from a billion pounds worth of spending on resilience.

I think the point is it shouldn't cost anywhere near a billion pounds.

 

[yorksrob]

I just used the 6 minutes as that was quoted in the NR report. Seems reasonable gain in view of the relatively short distance.

The length maybe, but the cost ?

I think the point is it shouldn't cost anywhere near a billion pounds.

We're still looking at the high millions, although I agree, the contingency added to all of the options seems extremely large.

 

[Grumpy]

In terms of comparing the options the costs all use the same assumption. All that would happen is if you totally removed the 66% contingency is that the difference between the options would become smaller.

When I undertake costs estimates at work for clients they are always told a figure higher than it would actully cost to do, why, becuase when they work out their budget they want to make sure they have enough money to do the works. Otherwise if it turns out to cost 20% more they would be a bit miffed, whilst if they find that is costs 20% less then they are fine with that.

I suggested the 66% was too high. Not that you don't need any contingency. Whilst I agree it affects all options, it only applies to capital outlays as opposed to other cost changes thus penalising the high capital options.
Sticking 66% on is simply daft. This isn't Railtrack naïve new managers trying to upgrade the WCML whilst keeping the service going. It's much less risky.
By over-egging costs we simply stop projects progressing.

I understand that the Highway agency quote new motorways at £30m/mile on average. Yet NR are saying a new railway, taking up half the width, should cost nearly 10 times that. Bonkers

 

[Cliveblackpool]

It is though isn't it. 20 mins off a 2 hour trip to Cardiff is a sixth of the journey time.

That is a significant time saving, and enabling a train to do an extra round trip per day!
I think reopening the LSWR between Isca Dumnoniorum and Plymouth would make a significant difference to Plymouth & Devon, and even North Cornwall.
Would I travel by bus to Tavistock & Okehampton when on holiday in Devon - NO!! Rail - yes.
More people are now relying on rail for transport.
I don't think relaying double track as per the original course as per NR costed report is value for money, but single track with passing loops would cut the cost considerably, embankment needing lees work too. (Double track between Crediton and Exeter), because that would also improve the Barnstaple service. Retain the cycleway. Imo the best affordable option.
If they reopened a double track railway based on the old course and new alinements with the A30 that would be excellent, but it ain't going to happen because of cost in the near future.

In short, Cornwall is Cornwall. It is not the Home Counties. There is no local will to change things (which, believe me, as a non-local beggars belief at times), and your plan would cause huge amounts of grief within the indigenous population. There is already a minority of lunatics who would prefer Cornwall to have full Independence, with all the issues that would cause.

Get the Cornish economy supported by industry again, and things will improve. A HS rail link to use Cornwall as a commuter belt suburb is daft.

Cornish can be a bit ‘laid back’
Westminster do not understand the needs of Cornwall, or probably any other region outside the Home Counties!

There is an element against change in Cornwall, that is hostile to new development and even tourists/ locals, and is more likely come from people who have retired or have a second home in the County. They have money to back it too.

 

[Bald Rick]

I understand that the Highway agency quote new motorways at £30m/mile on average. Yet NR are saying a new railway, taking up half the width, should cost nearly 10 times that. Bonkers

But there's motorways and motorways, railways and railways.

The most recent major motorway in this country was £140m a mile.

http://www.bbc.co.uk/news/uk-scotland-glasgow-west-13931242

The most expensive of the new alignment options is £263m a mile. And that is almost entirely in tunnel. The cheapest is £159m a mile, with over 40% in tunnel. Using the old LSWR is not directly comparable on a per mile basis with the info provided - there is 20miles+ of new build plus about the same again of complete upgrade of existing. (No matter what is said up thread, the Okehampton branch is not in any condition to take even an hourly service without major work). But the new build bit will be in the region of £30m a mile.

This study isn't a comprehensive final answer. It can't have been - it was done in a couple of months. It is merely the start of a process. And it doesn't matter how much anyone says it is bonkers or otherwise, 66% contingency is applied to all projects at this very early stage. And as said elsewhere, there are plenty of very good rail projects (and some bad ones!) that started with 66% contingency at this stage, had a case worth developing, and have now been built.

 

[Class 170101]

six minutes depends on its value psychologically.

Paddington to Plymouth takes 3hrs 15 minutes now deduct 6 minutes....

Paddington to Plymouth takes 3hrs 5 minutes now deduct 6 minutes...
--- old post above --- --- new post below ---

but surely NR has a better understanding of costs now.

Quite simply. No!

GW Electrification I understand is already over budget.

And its not the only major scheme over budget, in a mess, or both.

 

[Grumpy]

But there's motorways and motorways, railways and railways.

The most recent major motorway in this country was £140m a mile.

http://www.bbc.co.uk/news/uk-scotland-glasgow-west-13931242

The most expensive of the new alignment options is £263m a mile. And that is almost entirely in tunnel. The cheapest is £159m a mile, with over 40% in tunnel. Using the old LSWR is not directly comparable on a per mile basis with the info provided - there is 20miles+ of new build plus about the same again of complete upgrade of existing. (No matter what is said up thread, the Okehampton branch is not in any condition to take even an hourly service without major work). But the new build bit will be in the region of £30m a mile.

This study isn't a comprehensive final answer. It can't have been - it was done in a couple of months. It is merely the start of a process. And it doesn't matter how much anyone says it is bonkers or otherwise, 66% contingency is applied to all projects at this very early stage. And as said elsewhere, there are plenty of very good rail projects (and some bad ones!) that started with 66% contingency at this stage, had a case worth developing, and have now been built.

Why do you try to muddy matters by bringing the Glasgow motorway into the thread? The cost of the new Glasgow motorway is totally unrepresentative. That's an elevated motorway round the centre of Glasgow with high land acquisition costs, and some major structures. An elevated motorway costs ten times the normal cost. It bears no relationship to a motorway through countryside. As you say yourself new build on the Okehampton option is only costed at £30m/mile.

You didn't need to point out that the new build options included the cost of tunnels. That was my point-they should have been designed without tunnels but with steeper gradients. Why penalise the project with costs for freight unnecessarily?

You say the study isn't a comprehensive final answer. Good. So perhaps you can tell us what is being done to refine it
--- old post above --- --- new post below ---

Quite simply. No!

GW Electrification I understand is already over budget.

And its not the only major scheme over budget, in a mess, or both.

And can you enlighten us on the overall performance of all NR's projects and what percentage are over budget or in a mess? Is it a significant problem or just a few?

No point mentioning one project out of hundreds. Why not mention NW electrification or Reading? Are they over budget or in a mess?

 

[The Ham]

I suggested the 66% was too high. Not that you don't need any contingency. Whilst I agree it affects all options, it only applies to capital outlays as opposed to other cost changes thus penalising the high capital options.
Sticking 66% on is simply daft. This isn't Railtrack naïve new managers trying to upgrade the WCML whilst keeping the service going. It's much less risky.
By over-egging costs we simply stop projects progressing.

I understand that the Highway agency quote new motorways at £30m/mile on average. Yet NR are saying a new railway, taking up half the width, should cost nearly 10 times that. Bonkers

One of the points I was making was even if you took out all the contingency the difference between the projects wouldn't be that far adrift £2bn would be £1.2bn, and £1bn would be £0.6bn. The first project would now only cost £0.6bn more than the latter rather than £1bn (a perceved saving of £0.4bn), however the latter would still be half the cost. THerefore when you are using it to compare the benefits between the two projects it makes fairly little difference.

The other poitn I made was about over budget by 20% or under budget by 20% compared to esitmates. Now if we apply real money to demonstrate the differnce you would see the following:

Estimate which comes in at 20% under actual build cost £800 (i.e. only costing for know variables and/or best case assumptions)

Actual build cost of £1,000

Estimate which results in build cost of 20% less £1,250 (note we are reducing this figure by 20% to get to £1,000)

The higher figure then provides a 56% contingency fund over the estimate which assumes the best case. Problem is very rarely do you get on site and find that everything goes acording to plan.

As explained a client would rather budget £1,250 and find it cost £1,000 rather than budget £800 and have to find the extra money.

Of course with railways we could have added sevral 0's after those figures, however I used them to keep things simple (for me).

 

[Xavi]

The 66% contingency is a DfT figure to avoid any remote possibility of being accused of incompetence over cost control. Any consultant would be laughed out of town if they told DfT, NR or any other client that such a ridiculous figure was required. "Why the hell am I paying this bunch to tell me I need a 66% contingency?", they'd ask themselves. Problem is marginal projects have no chance and I'm not talking Okehampton, that's needed for reasons BCR will not capture.

 

[Grumpy]

One of the points I was making was even if you took out all the contingency the difference between the projects wouldn't be that far adrift £2bn would be £1.2bn, and £1bn would be £0.6bn. The first project would now only cost £0.6bn more than the latter rather than £1bn (a perceved saving of £0.4bn), however the latter would still be half the cost. THerefore when you are using it to compare the benefits between the two projects it makes fairly little difference.

The other poitn I made was about over budget by 20% or under budget by 20% compared to esitmates. Now if we apply real money to demonstrate the differnce you would see the following:

Estimate which comes in at 20% under actual build cost £800 (i.e. only costing for know variables and/or best case assumptions)

Actual build cost of £1,000

Estimate which results in build cost of 20% less £1,250 (note we are reducing this figure by 20% to get to £1,000)

The higher figure then provides a 56% contingency fund over the estimate which assumes the best case. Problem is very rarely do you get on site and find that everything goes acording to plan.

As explained a client would rather budget £1,250 and find it cost £1,000 rather than budget £800 and have to find the extra money.

Of course with railways we could have added sevral 0's after those figures, however I used them to keep things simple (for me).

Lets imagine 2 alternative projects that will solve a problem.
Project 1 has a forecast capital cost of 1000 but brings benefits of 250pa over a six year life.
Project 2 has a forecast capital cost of 200 but brings benefits of 60 pa over a six year life
Assuming other things are equal and finance is available, which one would you choose? Ignore discounting.
Then some administrative idiot imposes a rule change that you have to add 60% contingency to the capital costs (purely because a decade ago on a totally different and considerably more complex type of project a new naïve project manager messed up).
Now which project gets chosen?
And when it turns out after the event that Project 1 could easily have been delivered for 1000 what happens to the Administrative idiot?

 

[po8crg]

Lets imagine 2 alternative projects that will solve a problem.
Project 1 has a forecast capital cost of 1000 but brings benefits of 250pa over a six year life.
Project 2 has a forecast capital cost of 200 but brings benefits of 60 pa over a six year life
Assuming other things are equal and finance is available, which one would you choose? Ignore discounting.
Then some administrative idiot imposes a rule change that you have to add 60% contingency to the capital costs (purely because a decade ago on a totally different and considerably more complex type of project a new naïve project manager messed up).
Now which project gets chosen?
And when it turns out after the event that Project 1 could easily have been delivered for 1000 what happens to the Administrative idiot?

So project 1 has an ROI of 12.98% pa
while Project 2 has 19.91% pa

After the increased contingency, project one has ROI of -1.81% pa, and project two has 3.47% pa.

Either way, project two is better.

Now, you might still choose project one in the first scenario because the effective ROI on the other £800 is 11.16% pa and you can't find another investment for that £800 that gets a better ROI than that.

But that's mostly because 10% ROIs don't grow on trees. If those were a choice between a small 5% ROI and a large 3% ROI investment, you take the small 5% ROI every time.

 

[Grumpy]

So project 1 has an ROI of 12.98% pa
while Project 2 has 19.91% pa

After the increased contingency, project one has ROI of -1.81% pa, and project two has 3.47% pa.

Either way, project two is better.

Now, you might still choose project one in the first scenario because the effective ROI on the other £800 is 11.16% pa and you can't find another investment for that £800 that gets a better ROI than that.

But that's mostly because 10% ROIs don't grow on trees. If those were a choice between a small 5% ROI and a large 3% ROI investment, you take the small 5% ROI every time.

Which is the wrong answer.

If you don't include the 60% then Project 1 will leave you with 500 in the bank i.e. (6*250)-1000

Project 2 will leave you with 160 i.e. (6*60)-200

The difference between the two is 340 (i.e. 500-160). If you chose option 2 you would have 340 less in the bank.

Why would you choose option 2 and forego 340? Don’t forget I said assume finance is available, other things are equal and ignore discounting.

I think we agree that Project 2 looks better if you have to include the 60%. Which is really my point-the 60% can result in the wrong projects being chosen. It was only meant to be a simple illustration, let's not get into cost of capital, risk beta's etc.

 

[po8crg]

Which is the wrong answer.

If you don't include the 60% then Project 1 will leave you with 500 in the bank i.e. (6*250)-1000

Project 2 will leave you with 160 i.e. (6*60)-200

The difference between the two is 340 (i.e. 500-160). If you chose option 2 you would have 340 less in the bank.

Why would you choose option 2 and forego 340? Don’t forget I said assume finance is available, other things are equal and ignore discounting.

I think we agree that Project 2 looks better if you have to include the 60%. Which is really my point-the 60% can result in the wrong projects being chosen. It was only meant to be a simple illustration, let's not get into cost of capital, risk beta's etc.

No, you're missing opportunity cost.

Project 1 puts you 500 profit, sure.

Project 2 puts you at 160 profit, plus 800 to invest in something else. The question is whether that 800 can make you 340 or not.

If you could find four other project 2s, then you'd make another 480 profit, for a total of 640. So doing project 2 five times would be a better use of that money than project 1 once.

This is why you work on an ROI basis and not an absolute profit basis.

The problem is that no-one has unlimited finance available, so you can't just take the highest absolute profit opportunities - you can't say "well, I could pay a million quid to make a tenner, or five quid to make a fiver; a tenner is more than a fiver, to let's do that".

 

[Grumpy]

No, you're missing opportunity cost.

".

No, I said there were 2 projects. I didn't say there were any other investment opportunities.
Also "It was only meant to be a simple illustration, let's not get into cost of capital, risk beta's etc." If we get into capital rationing/budgeting theory we will bore everyone to death and detract from the main points of the thread.