cba illegal immigration

8/3/2019 CBA Illegal Immigration

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“ BERTEKAD CEMERLANG ”

UNIVERSITI MALAYSIA SABAH

PERANCANGAN DAN PENILAIAN PROJEK BC 30603

Lecturer Name: DR. JANICE NGA LAY HUI

Lecture Time & Day: THURSDAY (8AM-11AM)

Proposal Title: How to Minimize the IllegalImmigration that Affects the Development in Sabah?

Project Title: Greatly Increase Security Border inSabah

NAME NO MATRIK SIGNATURE

1. CHIN CHIAN VUN BB08110149

2. KONG WAI YEE BB08110356

3. TAY SHIN SHYAN BB08110384

2. VINIE BUJANG BB08110185

Issue: How to Minimize the Illegal Immigration in SabahProject Title: Greatly Increase Border SecurityUsing Cost and Benefit Analysis:



With regard to the problem of illegal immigration in Sabah, the only way

that Malaysian government can bring into effect is to reduce or minimize the

amount of illegal immigrants from other countries. Due to this problem is one

of the issues that cannot be avoided in every country so government should

take this problem very seriously. Therefore, we are rationally chosen one of

the suggestion solutions which increase the border security in Sabah

especially in Kota Kinabalu, Kudat, Sandakan, Kota Belud, Lahad Datu, and

Tawau. This solution is typically to reduce the amount of illegal immigrants

came to Sabah through sea route. According to the basic steps of cost and

benefit analysis (CBA), we break it down into nine basic steps, which are

listed below:

1) Specify the set of alternative projects.

There have two alternatives to analyze. The first one is to analyze the

benefits and costs before the Malaysian government take an action toward

this issue in year 2010. The second alternative is to analyze the benefits and

costs after Malaysian government has greatly increases border security in

order to reduce the amount of illegal immigrants from other countries in year

2011.

In project benefits, we take those relevant dimensions into account

such as social benefits and economy benefits. In detail, it includes criminal

rate, health care, and unemployment rate to the local workers, income per

capita, and social protection. Furthermore, we only take government

expenditure into consideration as a project costs which includes labor

allowance, equipment, and training.

In practice, individuals can only focus on approximately four to seven

numbers of alternatives, at best (G.A. Miller, 1956). There are often

difficulties even at this stage; many projects have a huge number of potential

alternatives including this one. The explanation below is regarding the project

could vary on many dimensions including the following:



Social Benefits:

Criminal Rate: It could be happen not only by illegal immigrants but also

local citizens.

Health Care: The diseases could be spread out due to the illegal

immigrants’ sanitation problem in their country or inability

to reveal their true identity to get a legal health care

treatment.

Economy Benefits:

Unemployment Rate: Either illegal immigrants or local workers will get

the job easily due to the presence of illegal

immigrants and the competitive labor market.

Income: It is depends on the wage rate of local workers. It could be

greatly influenced by the illegal immigrants due to the wage rate

is lower if compared to local workers.

Social Protection: It is depends on the total amount of illegal immigrants

whether it is higher or lower.

Government Expenditure:

Labor Allowance: It depends on the people that willing and interested to

become a marine.

Equipment: It could be either costly or cheap which depends on the

kind of weapon that we produce or buy from other countries.

Training: It could be either high-cost training or low-cost training which

depends on the quality of training.

Generally, we choose among alternative courses of action according to

whichever has the largest net benefits. In CBA we try to consider all of the

benefits and costs to society as a whole, which are social costs and the social



benefits. Supposedly, before starting the real project, the hypothetical project

should be undertaken into the evaluation process. This hypothetical project

will not be affecting the real government policy and sometimes called

counter-factual. However, a set of alternative projects has shown below.

Table 1.0: Increase Border Security in order to reduce the Amount of

Illegal Immigrant in Sabah (RM Million)

Year 2010 (before) Year 2011 (after)A

National

Perspectiv

e

B

Provincial

Perspectiv

e

C

National

Perspectiv

e

D

Provincial

Perspectiv

eProject Benefits:Social Benefits:

Criminal (in value)

Health Care (in value)

12.42

16.69

1.22

1.66

11.78

15

1.01

1.08Economy Benefits:

Unemployment (in value)

Income

Social Protection

580.87

750

850

45.27

50

65

560.27

800.25

800

40

60

57

Total Benefits: 2,209.98 163.15 2,187.30 159.09Project Costs:Government

expenditure:

Labor Allowance

Equipment

Training

40

80

1.8

3

6

0.12

60

120

2.4

4.5

9

0.18

Total Costs: 121.8 9.12 182.4 13.68Net Social Benefits (TB-

TC)

2,088.18 154.03 2,004.90 145.41

2) Decide whose benefits and costs count (standing).



This step is to determine who has standing: that is, whose benefits and

costs should be counted. Government will gain the benefits in terms of social

benefits and economy benefits after border security has been increased.

In social benefits which include criminal rate and health care. After

government has implement this policy, the number of criminal cases will be

decreasing due to the presence of illegal immigrants is less in Malaysia. In

the provincial perspective, this can result in the citizens living in peace with

each other. As we know, illegal immigrants will get access into other

countries without permit and physical examination. Government should

reduce or prohibit the number of illegal immigrants in order to prevent any

diseases bring in to our country. Then, the health care problem will be

decreased at the same time.

Unemployment rate, income per capita, and social protection are part

of economy benefits. In the scope of unemployment rate, the percentage of

unemployed local workers in the labor force will be decrease due to the

number of illegal immigrants are decreasing. In other words, the job

opportunities for local workers are increasing. Besides that, since number of

illegal immigrants has been reduced, every local worker has the job and

enjoys a middle or higher income. This can result in an individual purchase

more goods and services. In the end, this can lead to economic growth as

well. Furthermore, the social protection here is describing the expenses on

the illegal immigrants while sending them back to their country respectively

if they have got caught. This meaning to say that government should provide

the foods and beverages and shelter before sending them back. This will

burden government due to it requires a numerous amount of funds on it.

Since the number of illegal immigrants will be minimizing, so the government

expenditure will be decrease as well. In the end, this can bring benefits to the

country economy.

Even though greatly increased border security can bring benefits to

the country in term of society and economy but at the same time it is a

burden to government because it requires a big amount of funds in order to



make this policy successful and sometimes called disbursement. From the

table above, we found that the government expenditure is in the project

costs which include labor allowance, equipment, and training.

In the labor allowance, government will give them allowance for foods

and beverages, shelter, insurance, salary, medical, and vacation. Due to the

allowance is very attractive, for sure there will be a lot of people get interest

to it. So, all these items require a big amount of funds from the government if

the number of people willing or interested to join the group of marine is

increasing. Equipment is one of the costs of the project. Government will

produce their own weapons or import from other countries in order to protect

the country. Next will be training. In order to upgrade trainees personal skills,

definitely government has to build up training centre and give them

professional training such as mentally training, management training, and

physically training. All these training are very high costs for the government.

3) Catalogue the impacts and select measurement indicators



In generally, focus on the input and output that given in the criteria in

step one. The input can be a require resource and the output can be a

physical impact that came from the cost and benefit analyst. In the rational

expectation, as an analyst should explore or predict the two points of view in

a cost-and-benefit project. There would be some good impact and side effect

in each of the dimension evaluation. However, since the hypothetical project

is suggested to develop the economy in certain location, the good impact is

the first consideration then the side-effect is come after. For every impact in

each dimension, it has a specific way to measure by a measurement indicator

method. But there is no such formula to indicate the quantitative valuing. So,

to predict the quantitative value of each dimension has only using the

rational expectation theory.

The amount of illegal immigrant is expected to reduce after increasing

the border security in certain sea-route of Sabah in year 2011 compare to

2010 which before increase the border security. In-depth, the project benefit

in step one is concise showing that the social and economic growth is getting

mainly benefit from this action not only in Sabah state but also in Malaysia.

The hypothetical effects of social benefit from this controlling action to the

illegal immigrant are reducing the criminal rate and health care spending by

government. On the other hand, the hypothetical effects of economics

benefit are the changes of unemployment trend, income, and cost of social

protection.

Generally, in Sabah state, the criminal cases such as rape, robbery,

kidnapping and murder causes are mostly affected by the illegal immigrant.

Since the illegal immigrants are non-citizen of Malaysia, so even they act

crime but are difficult to get caught. Therefore, their criminal action was

become seriously from the history. However, the criminal rate was the third

lowest in Malaysia which recorded in end of 2009 (New Sabah Times: 31

December 2009). This phenomenon is greatly require the improvement of

social security even the criminal rate was become lower than the past. The

reason is because criminal cases have brought many disadvantages to the

Malaysia development growth.



For instance, criminal cases once occur, it needs a vital of human

resources such as police, lawyer and judge. They are the person who in

charge to search for the reality of the criminal happened and the cases would

transfer into courts’ case when it had been sued. Therefore, the cost of

searching and judging are paid by public finance. Since Malaysia was

targeted towards developed country, the allocation of the public finance into

development project is more reasonable.

Hence, to reduce the illegal immigrant that causing criminal cases

occur has directly increase the social security benefits by the way increase

the country development in terms of budget allocation. The summary of the

impact of social benefit from reducing illegal immigrant is saved the courts

fees charges with the number of criminal cases decline. The measurement

indicator of the social benefit in reducing criminal value is taken by the

amount of court charge for each criminal case in nation perspective and also

provincial perspective.

The second social benefit from reducing the illegal immigrant by

increase the security border in Sabah is reducing the health care spending.

Now, assume that there is no private sector to spend the precaution

expenditure but only the government. Meaning to say the main budget

resource that comes from the public finance should be allocated to the social

benefit in terms of precaution disease such as HIV, SARS and TB. Similarly,

the willingness-to-pay by government to the medical health care is depends

on the public finance. Most of the expenditure to the medical health care is

import from overseas.

Therefore, when the amount of illegal immigrant reduces, the chances

of disease infection to the nation especially in Sabah state could be reduce.

By the way, it does indirectly induce the surplus of balance of payment in

Malaysia increase from reducing the imported medicine and health care

equipment. However, it also have a disadvantage of reducing the imported of



medicine and equipment which is lack of security measure when the diseases

infection suddenly spread out without preparing enough. But this is a small

impact instead of the social benefit is much more important. Hence, the

bigger benefit impact from reducing the illegal immigrant is minimizing the

risk of disease infection and secures the society health. The measurement

indicator will be using in this part is the amount of payment for each patient

who infected by disease.

Based on the unemployment rate in Malaysia from the past decades

until now, more or less the illegal immigrant has influenced the amount of

unemployed in Sabah instead of financial crisis. The reason is because the

wage rate of the illegal workers was lower than the local workers who have

holding the identity card of Malaysia citizens. Since the local wage rate is

higher than the illegal worker, the demand of labor force in Sabah has taken

the opportunity to hire the low wage worker for cost saved in a company. This

issue was typically to the construction field.

Therefore, one of the solutions is reduce the illegal workers by increase

the border security in Sabah state. So, the economic benefits in this project

are reducing the unemployment in Sabah. The impact of the unemployment

rate decline is brought to the country growth by increase the total factor

productivity based of Kuznet’s hypothetical theory (Todaro, 8th Edition, 2003).

Moreover, the wage rate of the local employee will be adjusted to the rational

level. Therefore, the purchasing power of the household will be increase and

this will lead to economic growth.

However, the decline of unemployment rate will lead to the wage rate

become lower. At the same time, the demand of labor force decline. So, the

adjusted to the employment wage rate have to control by government policy.

But this range is only a small part of it and can be under control. Thus, the

economic benefits are much more important in this project impact prediction.

The measurement indicator on this impact is the unemployment rate per

year and the wage rate per labor in the population.



The consequence of unemployment rate decline is indirectly due to

increase the border security in Sabah which to minimize the amount of illegal

workers come in. Therefore, the local workers have the high opportunity to

get the job so each of them will obtain a high income. So, the good impact

from higher wage rate from the labor demand market is to attract more

supply labor from the labor force. In-depth, the income of the employed labor

increase will lead to economic growth because they have the ability to spend

other than work earning. They also have their own leisure time instead of

working. Therefore, the economic growth is causing by the willing-to-pay

from the society.

By contrast, there is one side-effect from the greater saving in the

economy markets which can induce the inflation occur. This is because the

money of the households becomes much and increases the purchasing

power. The ability of the household to consume will cause the value of money

decline. So, the inflation will be happen. So, government will encourage the

household to buy bond and save their money into the bank. The households’

savings are the perfect condition to attract the investor to invest in Malaysia.

Since the savings is greater, the investment model also becomes greater.

Therefore, the foreign direct investment into Malaysia would be increase all

the time assume there is no financial crisis obstacle. So, back to the point,

the measurements of the income in the market which typically in this Sabah

development project can be abstract from the total income of the Sabah’s

per unemployed worker and similarly abstract the whole Malaysia population

for the nation perspective.

According to the impact of social protection which is the government

responsible to send back the illegal immigrant to their origin nations in terms

of transport, foods and shelter provision. All these provisions are the cost of

government expenditure. However, the government supposes to reduce the

expenditure after implementing the security border in Sabah state. Since the

amount of illegal immigrant reduces in Sabah, Malaysia government has the

opportunity to allocate more budgets into Sabah’s development. The impact



of this dimension is very clear and concise. On the other hand, the

measurement indicator of the social protection is using total social cost of

protection which including the transportation fees, food and shelter provision

per illegal immigrant .

In this project cost which target to reduce the illegal immigrant in

Sabah has focus to the government expenditure. In overall, government

expenditure increases which mean that the budget of government may be

deficit if the income still remains the same. However, as an analyst who

suggested the project to reduce the illegal immigrant come to Sabah,

supposing look into the advantage first. Here, we are suggested government

to distribute the budget cost of labor allowance, training and equipment into

the project cost analysis.

In deep, we suppose to focus on the labor allowance or marine

allowance by inject an allowance such as food, lodging, insurance, medical,

salary and vacation as an input to the Sabah’s marine. The physical impact of

giving a better allowance to the marine worker is to increase the spirit and

motivation for them. They can enjoy the food and lodging allowance since

they are work in a remote area which is lack of infrastructure benefit. Other

than that, the government will spend the budget to buy insurance to each of

the marine workers so that they can feel secure especially to their family.

The next impact of the increase labor allowance from government

expenditure is focus to the medical health care. The marine can take the

opportunity to get a complete health care treatment pay by government

similarly when getting illness due to work injury. Nowadays, marine has

become more important to the country security. Therefore, the salary of

them supposes to get higher and instead of working, they must have a

leisure time. Hence, the government expenditure to the salary and vacation

allowance will also lead to the economic growth by higher purchasing power

of consumer. The measurement indicator that will be taken is based on the

total allowance per marine annually .



On the other hand, the government expenditure to the training

program of the marine also has to consider. The input of the training program

is the human resource (coach), training centre and the training equipment to

train the marine trainee. Since the suggestion target is to minimize the

amount of illegal immigrant for the whole social benefit, the side-effect of

each factor should be look at the other way round and the benefits come

first. For example, to hire a higher qualification coach must pay a higher

salary to them. Moreover, to establish a training centre will polluting the

environment such as sound pollution and air pollution during construction

period.

Other than that, the government fund a lot in the new technology

training equipment is a great burden to the budget allocation. By contrast,

the benefits of government spending to training program must look at the

first. Government can improve the marine professional standard by recruit

the higher education and qualification trainer to educate and transfer a clear

mind set to the trainee. This is because the issue that becomes crowded is

the corruption cases become higher. So, a professional and justified marine is

the most require. The output of the training program expenditure is increase

the professional skill of the marine worker in terms of physical and mentality

after training.

Besides that, before the training started, it must have a training centre

which located in a suitable place like build in non-residential area and full of

facilities condition. The impact of a high quality environment training centre

is a basic requirement to establish a team of professional marine. The other

advantage to build up the training centre in non-residential area is to prevent

the sound pollution to residential area. In this case, the training equipment

especially the new weapons must be provided to improve the knowledge of

using them in the real world. The measurement indicator of this training

program is the total cost of training.

Next, the government should allocate the expenses to the equipment

in the real border security which located in Sabah. This equipment is



including the amount of maintenance, ship-repair, buy a new ship and inject

the new weapons to fulfill the requirement of the new batch marine coming.

Therefore, all these equipment expenses will bring out some impacts to the

new marine in two way of point of view. The consequence of the new

equipment expenses will burden the government in terms of importing new

equipment.

However, the advantages of buying new equipment such as improve

the knowledge of security and increase the quality of marine security. Thus,

the Sabah’s marine will getting improve to utilize the new equipment.

Besides the weapons, shipping maintenance and buy the new ships to help to

increase the border security is highly recommended. The action to increase

the equipment would bring up the capability efficiency. For instance, the

marine can work efficiency by controlling the ships movement based on the

training before. The measurement indicator for equipment is the total cost of

equipment .



4) Predict the impacts quantitatively over the life of the project

This task is to quantify all impacts for each alternative in each time

period. After government has implemented this policy, we estimated it will

bring benefits to national perspective and provincial perspective. As we can

see, the amount that we estimated is RM1205.07 million in the net social

benefits for national perspective in year 2011. For the provincial perspective,

we estimated that it will get RM85.446 million in year 2011. Since both of net

social benefits are positive, so government should take it into account

because this project is acceptable and reasonable. Now we will explain in

detail regarding the calculation of each dimension that we obtained.

We estimated that the criminal (in value) will be decrease to RM11.78 million

and RM1.01 million in national perspective and provincial perspective

respectively after government has greatly increase border security.

a) Criminal:

i) National Perspective: Criminal (in value) = Price of Court X Number of

Crimin

al

Cases

= RM10, 000 X 1,178 cases

= RM11, 780, 000



ii) Provincial Perspective: Criminal (in value) = Price of Court X Number

of

Crimin

al

Cases

= RM10, 000 X 101 cases

= RM1, 010, 000

We estimated that the Health Care (in value) will be decrease to RM15 million

and RM1.08 million in national perspective and provincial perspective


b) Health Care:

i) National Perspective: Health Care (in value) = Medicine Fees X Number

of Patients

= RM15, 000 X 1000 patients

= RM15, 000, 000

ii) Provincial Perspective: Health Care (in value) = Medicine Fees X

Number of Patients

= RM15, 000 X 72 patients

= RM1, 080, 000

We estimated that the Unemployment (in value) will be decrease to

RM560.18 million and RM40 million in national perspective and provincial

perspective respectively after government has greatly increase border

security.

c) Unemployment:



i) National Perspective: Unemployment (in value) = (Percentage of

Unemployed Workers /

100%) X Population X Wage

Rate

= (3.3% / 100%) X 24,250,000

X RM700

= RM560, 175, 000

ii) Provincial Perspective: Unemployment (in value) = (Percentage of

Unemployed Workers

/ 100%) X Population

X Wage Rate

= (3.3% / 100%) X

1,731,602 X RM700

= RM40, 000, 006

We estimated that the Income will be increase to RM800.25 million and RM60

million in national perspectives and provincial perspective respectively after

government has greatly increase border security.

d) Income:

i) National Perspective: Income = (Total Income X Number of unemployed

workers)

= (RM1, 000 X 800,250)

= RM800, 250, 000

ii) Provincial Perspective: Income = (Total Income X Number of

unemployed workers)

= (RM1, 000 X 60,000)

= RM60, 000, 000

We estimated that the Social Protection will be decrease to RM800 million

and RM57 million in national perspective and provincial perspective


e) Social Protection:



i) National Perspective: Social Protection = Number of Illegal Immigrants X

Total Costs

= 800,000 Illegal Immigrants X RM1,

000

= RM800, 000, 000

ii) Provincial Perspective: Social Protection = Number of Illegal

Immigrants X Total Costs

= 57,000 Illegal Immigrants X RM1,

000

= RM57, 000, 000

We estimated that the Labor allowance will be increase to RM60 million and

RM4.5 million in national perspective and provincial perspective respectively

after government has greatly increase border security.

f) Labor Allowance:

i) National Perspective: Labor Allowance = Total allowance X Number of

Marine

= RM5, 000 X 12,000 Marine

= RM60, 000, 000

ii) Provincial Perspective: Labor Allowance = Total Allowance X Number of

Marine

= RM5, 000 X 900 Marine

= RM4, 500, 000

We estimated that the Equipment will be increase to RM120 million and RM9

million in national perspective and provincial perspective respectively after

government has greatly increase border security.

g) Equipment:

i) National Perspective: Equipment = Total Costs of Equipment X Number

of Marine

= RM10, 000 X 12,000 Marine



= RM120, 000, 000

ii) Provincial Perspective: Equipment = Total Costs of Equipment X

Number of Marine

= RM10, 000 X 900 Marine

= RM9, 000, 000

We estimated that the Costs of Training will be increase to RM2.4 million and

RM0.18 million in national perspective and provincial perspective respectively

after government has greatly increase border security.

h) Training:

i) National Perspective: Training = Duration of Training X Costs of Training

= 24 Months X RM100, 000

= RM2, 400, 000

ii) Provincial Perspective: Training = Duration of Training X Costs of

Training

= 24 Months X RM7500

= RM180, 000

5) Monetize (attach RM Ringgit Malaysia values to) all impacts

Sometimes, the most intuitively important impacts are difficult to value

in monetary terms. However, we will like to monetize each of the impacts. To

monetize means to value in RM Ringgit Malaysia. These are the RM Ringgit

Malaysia used in this CBA:

Price of Court = RM10, 000 per case

Medicine Fees = RM15, 000 per patient

Wage Rate = RM700 per worker

Percentage of Unemployed Worker = 3.3%

Total Income = RM1, 000 per unemployed worker



Total Costs of Social Protection = RM1, 000 per illegal immigrant

Labor Allowance = RM5, 000 per Marine

Total Costs of Equipment = RM10, 000 per Marine

Duration of Training = 24 Months

Costs of Training = RM7, 500 per Marine

6) Discount Benefits and Costs to obtain present values

In CBA, future benefits and costs are discounted relative to present

benefits and costs in order to obtain their present values, PV. The need to

discount arises due to most people’s preference to consume now rather than

later and, if we consume now, we usually give up resources means there is

an opportunity cost. The present value of the benefits, PV(B), and the present

value of the costs, PV(C), of the project are respectively:

PV (B) = Bt / (1 + s) t

PV(C) = Ct / (1 + s) t

• Before government increase border security in year 2010:



t = 1 year, s = 3%

In National Perspective (in millions): In Provincial Perspective

(in millions):

PV (B) = Bt / (1 + s)t PV(B) = Bt / (1 + s)t

= RM2, 209.98 / (1 + 0.03)1 = RM163.15 / (1 +

0.03)1

= RM2, 145.61 = RM158.40

PV(C) = Ct / (1 + s)t PV(C) = Ct / (1 + s)t

= RM121.8 / (1 + 0.03)1 = RM9.12 / (1 + 0.03)1

= RM118.25 = RM8.85

• After government has greatly increased border security in year 2011:

t = 1 year, s = 3%


(in millions):

PV (B) = Bt / (1 + s) t PV (B) = Bt / (1 + s) t

= RM2, 187.30 / (1 + 0.03)1 = RM159.09 / (1 +

0.03)1

= RM2, 123.59 = RM154.46

PV(C) = Ct / (1 + s) t PV(C) = Ct / (1 + s) t

= RM182.40 / (1 + 0.03)1 = RM13.68 / (1 + 0.03)1

= RM177.09 = RM13.28

In national perspective, the present value of the benefits is 2,145.61

million in year 2010 before government increase border security but

we estimated that it will be decreased to 2,123.59 million in year 2011.



In provincial perspective, the present value of the benefits is 158.40

million in year 2010 before government increase border security but

we estimated that it will be decreased to 154.46 million in year 2011.

In national perspective, the present value of the costs is 118.25 million

in year 2010 before government increase border security but we

estimated that it will be increased to 177.09 million in year 2011.

In provincial perspective, the present value of the costs is 8.85 million

in year 2010 before government increase border security but we

estimated that it will be increased to 13.28 million in year 2011.

7) Compute the Net Present Value of Each Alternative

The net present value of an alternative, NPV, equals the difference

between the present value of the benefits and the present value of the costs:

NPV = PV (B) – PV(C)

The basic decision rule for a single alternative is simple: adopt the

project if its NPV is positive. In short, the analyst should recommend

proceeding with the project if its NPV = PV(B) – PV(C) > 0, that is, if PV(B) >

PV(C), its benefits exceed its costs.

• Before government increase border security in year 2010:




(in millions):

NPV = PV (B) – PV(C) NPV = PV (B) – PV(C)

= RM2, 209.98 – RM121.80 = RM163.15 – RM9.12

= RM2, 088.18 = RM154.03

• After government has greatly increased border security in year 2011:


(in millions):

NPV = PV (B) – PV(C) NPV = PV (B) – PV(C)

= RM2, 187.30 – RM182.40 = RM159.09 – RM13.68

= RM2, 004.90 = RM145.41

Since PV(B) – PV(C) is greater than zero but we refuse to proceed with

the project due to the net present value comparison between year

2010 and year 2011, it was a decreasing trend in national perspective

which from RM2,088.18 to RM2004.90.

Since PV(B) – PV(C) is greater than zero but we refuse to proceed with

the project due to the net present value comparison between year

2010 and year 2011, it was a decreasing trend in provincial

perspective which from RM154.03 to RM145.41.



8) Perform Sensitivity Analysis

Sensitivity analysis is a way of acknowledging uncertainty about the

values of important parameters in our prediction. Sensitivity analysis also a

technique used to determine how different values of an independent variable

will impact a particular dependent variable under a given set of assumption.

Sensitivity analysis is very useful when attempting to determine the impact

the actual outcome of particular variable will have if it differs from what was

previously assumed. So now we will set up our uncertainty (Inverstopedia:

Dictionary).

In economy benefit, the uncertainty in this case is the number of

criminal cases, because we cannot predict the actual amount of the

criminal cases. So, if the national perspective’s number of criminal cases

increase to 1200 cases, and the provincial perspective’s number of criminal

cases increase to 135 cases, the criminal ( in value) will be change.



(a) Criminal (in value) = Price of Court X Number of Criminal Cases

NATIONAL PERSPECTIVE:

CRIMINAL RM 10, 000 1 178 = RM 11, 780,

000

if number of criminal cases is decrease to 1000 cases

CRIMINAL RM 10, 000 1000 = RM 10, 000,

000

if number of criminal cases is increase to 1200 cases

CRIMINAL RM 10, 000 1200 = RM 12, 000,

000

PROVINCIAL PERSPECTIVE:

CRIMINAL RM 10, 000 101 = RM 1, 010, 000

if number of criminal cases is decrease to 80 cases

CRIMINAL RM 10, 000 80 = RM 800, 000

if number of criminal cases is increase to 135 cases

CRIMINAL RM 10, 000 135 = RM 1, 350,

000Next is health care, the uncertainty is the number of patients,

because we cannot predict the actual amount of patients. So, if the nationalperspective’s number of patients increase to 1500 and the provincial

perspective’s number of patients increase to 100, the health care (in value)

will be change:

(b) Health Care (in value) = Medicine Fees X Number of Patients


HEALTH CARE RM15, 000 1000 = RM15, 000, 000 if number of patients is decrease to 800 patients

HEALTH CARE RM 15, 000 800 =RM 12, 000, 000

if number of patients is increase to 1200 patients

HEALTH CARE RM 15, 000 1200 =RM 18, 000, 000




HEALTH CARE RM15, 000 72 = RM1, 080, 000

if number of patients is decrease to 60 patients

HEALTH CARE RM 15, 000 60 =RM 900, 000

if number of patients is increase to 100 patients

HEALTH CARE RM 15, 000 100 =RM 1, 500,000

In unemployment, we analyze the uncertain in this aspect is the

percentage of unemployed workers. The changes in percentage of

unemployed will affect the unemployment either in national perspective or

provincial perspective. The table has been show below:

(c) Unemployment= Percentage of Unemployed / 100% X

Population X Wage Rate


UNEMPLOTME

NT

3.3% 24, 250, 000 RM 700 = RM 560, 175,

000

If percentage of unemployed decrease to 1.5%

UNEMPLOYME

NT

1.5% 24, 250, 000 RM 700 = RM 254, 625,

000

if percentage of unemployed increase to 5%

UNEMPLOYME

NT

5% 24, 250, 000 RM 700 = RM 848, 750,

000



PROVINCIAL PERSPETIVE:

UNEMPLOYME

NT

3.3% 1, 731, 602 RM 700 = RM 40, 000,

000

If percentage of unemployed decrease to 1.5%

UNEMPLOYME

NT

1.5% 1, 731, 602 RM 700 = RM 18, 181,

821

if percentage of unemployed increase to 5%

UNEMPLOYME

NT

5% 1, 731, 602 RM 700 = RM 60, 606,

070

Then in income aspect, we analyze the uncertain is the total income

per worker. Due to most of the employees’ income will be paid based on

their skills, level of education, and time of work. So, the changes in total

income per worker have been show below:

(d) Income= Total Income per Worker X Number of Unemployed


INCOME RM 1, 000 800, 250 =RM 800, 250,

000

if total income per workers is decrease to RM 500

INCOME RM 500 800, 250 =RM 400, 125,

000

if total income per workers is increase to RM 1, 500

INCOME RM 1, 500 800, 250 =RM 1, 200, 375,

000




INCOME RM 1, 000 60, 000 =RM 60, 000, 000

if total income per workers is decrease to RM 500

INCOME RM 500 60, 000 =RM 30, 000, 000 if total income per workers is increase to RM 1, 500

INCOME RM 1, 500 60, 000 =RM 90, 000, 000

Next aspect is in social protection, the expenditure for social

protection is because government wants to protect they citizen from the

disease, pollution and also from illegal immigration to take over the

opportunity on job, goods and services. So, the changes in number of illegal

immigration will affect the social protection have been shows below:

(e) Social Protection= Number of Illegal Immigration X Total Cost

per Illegal


SOCIAL

PROTECTION

800, 000 RM 1, 000 =RM 800, 000,

000

if number of illegal immigration is decrease to 700, 000

SOCIAL

PROTECTION

700, 000 RM1, 000 =RM 700, 000,

000

if number of illegal immigration is increase to 900, 000

SOCIAL 900, 000 RM 1, 000 =RM 900, 000,



PROTECTION 000


SOCIAL

PROTECTION

57, 000 RM 1, 000 =RM 57, 000,

000 if number of illegal immigration is decrease to 55, 000

SOCIAL

PROTECTION

55, 000 RM1, 000 =RM 55, 000,

000

if number of illegal immigration is increase to 59, 000

SOCIAL

PROTECTION

59, 000 RM 1, 000 =RM 59, 000,

000

Next, in the project costs, firstly by government expenditure on labor

allowance, the uncertainty for this aspect is uncertain about the number of

marine was involved in this project. It is hard for us to make an exact amount

of the marine so we estimated it, any changes in number of marine will

change the amount of government expenditure for labor allowance.

(f) Labor Allowance = Total Allowance X Number of Marine


LABOR

ALLOWANCE

RM 5, 000 12, 000 = RM 60, 000,

000

if number of marine is decrease to 10 000

LABOR

ALLOWANCE

RM 5, 000 10, 000 =RM 50, 000,

000

if number marine is increase to 14 000

LABOR

ALLOWANCE

RM 5, 000 14, 000 =RM 70, 000,

000


LABOR RM 5, 000 900 =RM 4, 500, 000



ALLOWANCE

if number of marine is decrease to 800

LABOR

ALLOWANCE

RM5, 000 800 = RM 4, 000,

000

if number of marine is increase to 1, 000LABOR

ALLOWANCE

RM 5, 000 1, 000 =RM 5, 000, 000

In addition, for the government expenditure for equipment, the

uncertainty for this aspect is uncertain about the number of marine. It same

with labor allowance.

(g) Equipment = Total Cost of Equipment X Number of Marine


EQUIPMENT RM 10, 000 12, 000 = RM 120, 000,

000

if number of marine is decrease to 10, 000

EQUIPMENT RM 10, 000 10, 000 =RM 100, 000,

000

if number of marine is increase to 14, 000

EQUIPMENT RM 10, 000 14, 000 =RM 140, 000,

000


EQUIPMENT RM 10, 000 900 =RM 9, 000, 000



if number of marine is decrease to 800

EQUIPMENT RM10, 000 800 = RM 8, 000,

000

if number of marine is increase to 1, 000

EQUIPMENT RM 10, 000 1, 000 =RM 10, 000,

000

Finally, in the aspect of training, the uncertainty in this case is about

the duration of training, because the duration of training for each level of organization is different. The duration of training will change the total costs

for training. So, there will be difficult to have the exact duration of training,

and then we estimated the duration such as in the table below:

(h) Training = Duration of Training X Costs of Training


TRAINING 24 MONTHS RM 100, 000 = RM 24, 000,000

if duration of training is decrease to 12 months

TRAINING 12 MONTHS RM100, 000 =RM 12, 000,

000

if duration of training is increase to 36 MONTHS



TRAINING 36 MONTHS RM 100, 000 =RM 36, 000,

000


TRAINING 24 MONTHS RM 7, 500 =RM 180, 000 if duration of training is decrease to 12 months

TRAINING 12 MONTHS RM 7, 500 = RM 90, 000

if duration of training is increase to 36 months

TRAINING 36 MONTHS RM 7, 500 =RM 270, 000

In addition, the uncertainty in this case is the discount rate, we hard

to estimate the correct discount rate because the training wages might rise

or fall in the future. So, here if the discount rate is increase to 4%, the PV (B)

and PV(C) will be change.

After government has greatly increased border security in year 2011:

t = 1 year, s = 3%

Perspective Benefit (in millions) Cost (in millions)National PV(B) = Bt / (1 + s)t

= RM2, 187.30 / (1 +

0.03)1

= RM2, 123.59

PV(C) = Ct / (1 + s)t

= RM182.40 / (1 +

0.03)1

= RM177.09Provincial PV(B) = Bt / (1 + s)t

= RM159.09 / (1 +

0.03)1

= RM154.46

PV(C) = Ct / (1 + s)t

= RM13.68 / (1 + 0.03)1

= RM13.28



if the discount rate increase to 4%

t = 1 year, s = 4%

Perspective Benefit (in millions) Cost (in millions)

National PV(B) = Bt / (1 + s)t

= RM2, 187.30 / (1 +

0.04)1

= RM2, 103.17

PV(C) = Ct / (1 + s)t

= RM182.40 / (1 +

0.04)1


= RM159.09 / (1 +

0.04)1

= RM152.97

PV(C) = Ct / (1 + s)t

= RM13.68 / (1 + 0.04)1

= RM13.15

When we predict that the discount rate will fall to 2%, the PV (B) and

PV(C) will be change.

t = 1 year, s = 2%

Perspective Benefit (in millions) Cost (in millions)National PV(B) = Bt / (1 + s)t

= RM2, 187.30 / (1 +

0.02)1

= RM2, 144.41

PV(C) = Ct / (1 + s)t

= RM182.40 / (1 +

0.02)1


= RM159.09 / (1 +

0.02)1

= RM155.97

PV(C) = Ct / (1 + s)t

= RM13.68 / (1 + 0.02)1

= RM13.41

Thus, when the PV for both benefit and cost is change, the net present

value (NPV) will change relatively.

t = 1 year, s = 3%

Perspective Benefit (in

millions)

Cost (in millions) NPV = PV(B) – PV(C)

National RM 2, 187.30 RM182.40 = RM2, 187.30 –

RM182.40



=RM2, 004.90Provincial RM159.09 RM13.68 = RM159.09 –

RM13.68

= RM145.41

t = 1 year, s = 4%


millions)


National RM2, 103.17 RM175.38 = RM2, 103.17 –

RM175.38

= RM1,927.79Provincial RM152.97 RM13.15 = RM152.97 – RM13.15

= RM139.82

t = 1 year, s = 2%


millions)


National RM2, 144.41 RM178.82 = RM2, 144.41 –

RM178.82

= RM1, 965.59Provincial RM155.97 RM13.41 = RM155.97 – RM13.41

= RM142.56

9) Make a Recommendation

The final phase of benefit- cost analysis involves comparing the

project’s net present value (NPV) and find out the highest NPV among

alternatives in the project. Where in this step, we should analyze and make

recommend adoption of our project with the largest Net Present Value. In our

project, there are four alternative projects which are all of alternative havingpositive NPV. Before government increase the border security in year 2010,

the NPV for national perspective is RM 2,088.18 million and the NPV for

provincial perspective is RM 154.03 million. We predicted that after the

government has greatly increased border security in year 2011, the NPV for



national perspective is RM 2,004.90 million and NPV for provincial

perspective is RM145.41 million.

National Perspective Provincial Perspective

Before ( Year 2010)NPV = RM 2,088.18 million

Before (Year 2010)NPV= RM 154.03 million

After ( Year 2011-predict)

NPV= RM 2,004.90 million

After ( Year 2011- predict)

NPV= RM 145.41 millionTherefore:

NPV Before > NPV After ;

RM2,088.18 million > RM2,004.90

million

Therefore:

NPV Before> NPV After

RM154.03 million > RM145.41

million

Based on the table above, we recommend that it will be more better

before government greatly increase border security due to the NPV for

national perspective before is higher than after and same case with NPV for

provincial perspective which is before is higher than after. So, the before

greatly increase border security alternatives is superior. Even though, all of

the alternatives are having positive NPV or more than 1, but the alternative

before that is higher if compared to after government has increase border

security. So, the alternative have higher NPV is the best alternative for our

project.

Reference:

G.A.Miller. 1956. The Magical Number Seven, Plus or Minus Two: Some Limits

on Our Capacity for Processing Information. Psychological Review 65

(1), 81-97.

Investopedia: Dictionary. Sensitivity Analysis. [Online] [Accessed 17 October

2010] Available from World Wide Web from:

<http://www.investopedia.com/terms/s/sensitivityanalysis.asp>

New Sabah Times. 2009. SABAH CRIME THIRD LOWEST IN MALAYSIA. 31

December 2009 [Online]. [Accessed 16 October 2010] Available from

http://www.investopedia.com/terms/s/sensitivityanalysis.asp

http://www.investopedia.com/terms/s/sensitivityanalysis.asp



World Wide Web:

http://www.newsabahtimes.com.my/nstweb/fullstory/34933

Todaro, M.P and Smith, S. C. 2003. Economic Development 8th Edition. United

Kingdom. Published: Pearson Education Limited.



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