cba illegal immigration
TRANSCRIPT
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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:
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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:
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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
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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).
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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
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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
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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.
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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
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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.
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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
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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 .
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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
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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 .
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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
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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
respectively after government has greatly increase border security.
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:
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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
respectively after government has greatly increase border security.
e) Social Protection:
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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
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= 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
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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:
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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 National Perspective (in millions): In Provincial Perspective
(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.
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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:
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In National Perspective (in millions): In Provincial Perspective
(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 National Perspective (in millions): In Provincial Perspective
(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.
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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.
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(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
NATIONAL PERSPECTIVE:
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
PROVINCIAL PERSPECTIVE:
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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
NATIONAL PERSPECTIVE:
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
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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
NATIONAL PERSPECTIVE:
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
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PROVINCIAL PERSPECTIVE:
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
NATIONAL PERSPECTIVE:
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,
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PROTECTION 000
PROVINCIAL PERSPECTIVE:
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
NATIONAL PERSPECTIVE:
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
PROVINCIAL PERSPECTIVE:
LABOR RM 5, 000 900 =RM 4, 500, 000
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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
NATIONAL PERSPECTIVE:
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
PROVINCIAL PERSPECTIVE:
EQUIPMENT RM 10, 000 900 =RM 9, 000, 000
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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
NATIONAL PERSPECTIVE:
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
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TRAINING 36 MONTHS RM 100, 000 =RM 36, 000,
000
PROVINCIAL PERSPECTIVE:
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
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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
= RM175.38Provincial PV(B) = Bt / (1 + s)t
= 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
= RM178.82Provincial PV(B) = Bt / (1 + s)t
= 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
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=RM2, 004.90Provincial RM159.09 RM13.68 = RM159.09 –
RM13.68
= RM145.41
t = 1 year, s = 4%
Perspective Benefit (in
millions)
Cost (in millions) NPV = PV(B) – PV(C)
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%
Perspective Benefit (in
millions)
Cost (in millions) NPV = PV(B) – PV(C)
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
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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
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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.