PLEASE HELP!!!: Scenario: The City of Ocelot has received three proposals for th

Question

PLEASE HELP!!!: Scenario: The City of Ocelot has received three proposals for the development of currently vacant land near a freeway exit and about a mile from the nearest residential neighborhood. One is the proposal for a night club by the Funtime Corporation, another is the construction of a private health club, and the third is for the construction of a gated condominium complex. Your advice has been requested in considering these proposals. The City of Ocelot was established several years ago and has grown rapidly to a population of 40,000 with a range of incomes from very wealthy to about 10% below the poverty level. Housing ranges from high-end houses and condominiums to publicly subsidized apartments. The ethnic distribution of the population is 60% Anglo-American, 20% Hispanic-American, 12% African-American, 5% Asian-American, and 3% Native American. Ocelot is located on an Interstate Highway about 30 miles from a major city. QUESTION:Discuss the role of statistical analysis in making the final decision regarding development of the currently vacant land. In particular, what are some matters suitable for quantitative analysis that can make a compelling case for your preferred option? For one of your rejected options, what are some possibly misleading statistics or analyses that may be presented by promoters that policymakers should view skeptically?

Explanation / Answer

Answer:

Role of Statistical analysis in decision-making:
The decision-making process invovles a lot of uncertainities and complexities. With the help of statistical analysis, a level of certainity can be achieved and decisions can be taken in a timely manner. However, statistical analysis takes into consideration the quantitative aspects of a project and overlooks the qualitative factors.
In the given scenario, the three stated options can be analyzed with the help of cost-benefit analysis. Cost-Benefit Analysis requires the present value estimated cost of individual proposals to be subtracted from the respective present value of benefits to arrive at the Net Present Value benefit of the each proposals (i.e., PV of Benefit - PV of Cost). The proposal with highest NPV is selected. Thus, the final decision regarding the development of the currently vacant land can be taken on the basis of the financial viability of the project using cost-benefit analysis.

Matters suitable for quantitative analysis:
The Cost-Benefit analysis quantitatively assesses the three proposals, however it overlooks the qualitative aspects involved. The financial analysis of the proposal does not take into consideration the intangible costs and benefits involved. Matters like population strength of the city and the respective division between the very wealthy to below poverty line helps in estimating the benefits that can arise from the proposals. Similarly, the ethnic distribution of population helps in ascertaining the preferance of the people towards the proposals. These intangible factors can be quantified or reated to the existing data to arrive at the final decision. On the basis of the provided information, 10% of the population is below poverty line which means 90% of the population consist of lower and upper middle class and very wealthy people. Also, majority of the population consist of Anglo-Americans. Therefore, it should consider the proposal of a night club by the Funtime Corportion as a source of entertainment for 90% of the population. Because the city already has high-end houses and condominiums to publicly subsidized apartments, ruling out gated condominium complex. Moreover, most of the high-end houses and condominiums have the facility of a health club inside the premise, hence the same should also be rejected.

Private Health Club - Possible misleading statistics:
The promoters of the private health club can provide the following misleading statistical data which the policymakers should view skeptically-
1. The number of high-end houses and condominiums,
2. The number of housing ranges containing private health club,
3. The population strenght of very wealthy people in the city having large income at their disposal,
4. Preference of the ethinic distribution on the basis of any survey conducted.

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