Design Capacities to Accommodate Forecast Uncertainties

Abstract

Economic safety factors have been developed to provide a hedge against errors inherent in using population forecasts. Optimal treatment plant expansions were calculated by minimizing the expected value of long-term investment costs. Factors considered were growth rate, forecast uncertainty interest rate, inflation, and learning-curve effect, and construction cost economy-of-scale. When a linear growth rate is anticipated, the interest rate and the economy of scale factor M determine the design period, the growth rate does not. However, when the growth rate is uncertain, it is possible to hedge against the possible cost of selecting the wrong period of design by reducing the design capacity 5 to 10%. Exponential growth always yields a shorter design life than the linear growth pattern. Therefore, even when a linear growth in demand is not expected, it may be helpful to use the linear growth expansion criterion to establish an upper bound on the design capacity.