Resources, Conservation and Recycling 53 (2009) 535–543

Contents lists available at ScienceDirect

Resources, Conservation and Recycling

journal homepage: www.elsevier.com/locate/resconrec

Case study: Determination of the economic and operational feasibility of a

material recovery facility for municipal recycling in Lucas County, Ohio, USA
Matthew J. Franchetti ∗
The University of Toledo, College of Engineering, Mechanical, Industrial and Manufacturing Engineering Department, 2801 West Bancroft Street, Toledo, OH 43606, USA

a r t i c l e i n f o a b s t r a c t

Article history: Solid waste minimization and recycling goals for municipalities are achievable through the installation of
Received 6 March 2008 material recovery facilities (MRFs) and in certain solid waste management systems, government owned
Received in revised form 31 August 2008 and operated MRFs are feasible and cost justified. The aim of this paper is to demonstrate a structured
Accepted 5 April 2009
process to evaluate and determine the operational and economic feasibly of a government owned MRF
Available online 12 May 2009
that is based on financial engineering. As a companion, a case study from Lucas County, Ohio (USA) is
provided that demonstrated this analysis process. In addition, the paper explores the impact of uncer-
Keywords:
tainty in decision alternatives by placing a strong emphasis on economic efficiencies and a sensitivity
Material recovery facility
Municipality recycling
analysis of the results to changes in the data inputs, specifically inflation, recycling levels, and recycling
Economic analysis commodity market shifts. The key findings from the research indicate that the municipality will achieve a
payback period of approximately 4 years, and a 10 years internal rate of return of 20.5%, versus the current
system of out souring. The consequences of these findings, stemming from the economic and operational
justification, led to the actual purchase of a MRF site for Lucas County, Ohio (USA). This research may serve
as an example or model for other local governments considering the implementation of such a system.
Published by Elsevier B.V.

1. Introduction
In 2008, the Lucas County Solid Waste Management District
(District) purchased a material recovery facility (MRF) to sort and
sell nearly 10,000 tons recyclable materials that were collected per
year from its municipal recycling programs. This paper analyzes the
economic and operational feasibility of the MRF as an option for
processing recyclable materials and may serve as an example for
other local governments considering the implementation of such a
system. A strong emphasis is placed on economic efficiencies and
a sensitivity analysis of the results to changes in the data inputs is
explored. A breakeven analysis is also discussed to determine the
degree by which existing conditions would need to change in order
to allow such a facility to become feasible or infeasible.
In a literature review of previous research conducted in this
field, three relevant articles were found. The first was published
in 1995 and titled “The development of material recovery facili-
ties in the United States: status and cost structure analysis” (Chang
and Wang, 1995). This article examined fast track MRF develop-
ment in the US and the related operating and cost structures. The
purpose of the paper was to aid in creating solid waste manage-
ment strategies and to aid in future investment forecasting and
policy decisions. The second paper was published in 2005 and titled
“Sustainable pattern analysis of a publicly owned material recovery
facility in a fast-growing urban setting under uncertainty” (Davila
and Chang, 2005). This research applied grey integer programming
techniques to screen optimal shipping patterns and an ideal MRF
location and capacity. The final paper was a report published in
1994 by the Pennsylvania Department of Environmental Protection
and titled “Lycoming County Material Recovery Facility Evaluation”
(Beck, 2004). This research evaluated the operational efficiency and
cost/revenue of the Lycoming County MRF in order to identify ways
that the facility, and others like it, could be made more financially
sustainable over the long term. Key findings from these three papers
were included in the methodology of this analysis.
This paper includes relevant background information, including
a discussion of the previous system as well as the recycling levels,
cost, and revenue of operation. An overview of the methodology to
design the process is also provided. In addition, a complete financial
and performance comparison between the previous and modified
systems is discussed.
2. Background

2.1. History of the Lucas County solid waste management District

∗ Tel.: +1 419 530 8051; fax: +1 419 530 8206. The District was formed on March 6, 1989 by the Lucas County
E-mail address: matthew.franchetti@utoledo.edu. Board of Commissioners under the Ohio Solid Waste Disposal Act

0921-3449/$ – see front matter. Published by Elsevier B.V.

doi:10.1016/j.resconrec.2009.04.004
536 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
(Amended House Ohio House Bill 592). The District includes all
incorporated and unincorporated territory in Lucas County, Ohio.
The Ohio Solid Waste Disposal Act established a system to plan for
the proper disposal of the solid waste generated in the State of Ohio
while reducing the reliance on landfills through increased waste
reduction activities, including recycling. The Ohio Solid Waste Dis-
posal Act mandates that all Ohio counties establish a Solid Waste
Policy Committee to prepare, adopt, and ratify initial plans (and
subsequent plans) and levy fees to fund mandated activities. The
two goals of the District are to:
• Ensure the availability of reduction, recycling and other waste
reduction methods that are alternatives to landfilling for residen-
tial and commercial solid waste.
• Reduce and/or recycle at least 50% of the total solid waste gener-
ated in Lucas County by achieving a 25% waste reduction rate for
the residential/commercial sector and a 50% waste reduction rate
for the industrial sector.
The District began to explore methods to achieve the waste
reduction goals stated above. Many creative solutions were devel-
oped and implemented to accomplish these goals, such as a District
Drop Off Collection Program, City of Toledo Residential Recycling
Program, Yard Waste Drop Off Program, Commercial/Industrial
Outreach Program, Outreach and Education Program, Household
Hazardous Waste Collection Program, and the Scrap Tire Manage-
ment Program.
2.2. Current recycling levels in Lucas County
Currently the county recycles two classes of materials, commin-
gled fiber and commingled used beverage containers. In 2006, the
District recycled 9755 tons of materials. 7280 tons were commin-
gled fiber (mixed office paper, newspaper, and OCC) and 2475 tons
were commingled used beverage containers (plastic bottles and
aluminum cans).
3. Methodology
The methodology used to conduct this research was based on
the principles outlined in the third edition of “Facilities Plan-
ning” (Tompkins et al., 2003). This book provides an industrial
engineering basis for defining facility requirements, identifying
equipment needs, developing layouts, and implementing facility
plans. This research examined the hypothesis that a county owned
MRF could be cost justified versus the current system of outsourc-
ing the processing of recyclable materials in Lucas County, Ohio.
The assumptions for this research included:
• The useful life of the MRF is 20 years (2007–2027).
• A minimum attractive rate of return (MARR) of 15% was fixed over
the 20-year project life for financial decisions.
• Recycling levels would increase at annual rates of 5% for fiber, 3%
for plastics, 2% for glass, and remain constant for metals over the
20-year project life.
• Recycling commodity prices would remain increase at a rate of
2.5% the 20-year project life.
• Utility costs would increase at a rate of 2.5% per year over the
20-year project life (inflation).
• Labor and benefit costs would increase at a rate of 3.5% per year
over the 20-year project life (inflation).
The following is a brief summary of this methodology used to
analyze the economic and operational feasibility of a municipality
owned MRF in Lucas County, Ohio, USA.
The first phase of the analysis process involved estimating the
current recycling levels in terms of materials compositions and
volumes (annual tonnages). These data were collected from Dis-
trict records from the 2006 fiscal year and included operating cost
and revenue data. Once combined, this information provided a
complete baseline of the operations of the current system utiliz-
ing outsourced processing. This baseline was used to compare the
cost structure of acquiring a county owned and operated MRF. The
baseline data all annualized costs and revenues associated with the
drop-off recycling program, specifically:
• Revenue paid from third party processors for recyclable materials.
• Third party processing fees.
• Labor costs.
• Administrative costs.
• Vehicle costs (fuel, maintenance, repair).
• Drop-off container and material costs.
The second phase involved identifying potential MRF sites. A
local business realtor was contacted for assistance. After a list of
potential MRF sites was identified, each site was ranked utilizing a
layout planning algorithm discussed in Section 5. Upon the identifi-
cation of the optimal MRF site, a complete annual cost and revenue
projection was conducted to operate the MRF over a 20-year period.
This analysis included the following annualized costs and revenues:
• Revenue paid from third party recycling material commodity bro-
kers.
• Building purchase cost (including realtor fees).
• Building modification and renovation costs.
• Equipment and inspection/repair costs.
• Labor costs (including driver and processors).
• Administrative costs.
• Utility costs.
• Vehicle costs (fuel, maintenance, repair).
• Drop-off container and material costs.
This financial projection of the proposed MRF was compared
with the current system baseline. In essence, the analysis answered
the question whether the additional revenue earned from the sale
of the processed recyclable materials will outweigh the additional
capital and operating costs over the projected 20-year life of the
project at a 15% minimum attractive rate of return. To accomplish
this analysis, a net present worth (NPW) was conducted. The NPW
is the difference between the present worth of all cash inflows and
outflows of a project. Since all cash flows are discounted to the
present the NPW method is also known as the discounted cash
flow technique. This method not only allows the selection of a single
project based on the NPW value but also a selection of the most eco-
nomical project from a list of more than one alternative projects, in
the case of this research, the existing system of outsourcing versus
purchasing and operating a government owned MRF.
To find the NPW of a project an interest rate is needed to discount
future cash flows. The most appropriate value to use for this interest
rate is the rate of return that one can obtain from investing the
money somewhere. Alternatively, it can also be the rate that you
will be charged if you had to borrow the money. The selection of
this rate is a policy decision.
The NPW analysis procedure is used to determine the NPW of
an investment project we need to know the net cash flow in each
period over the service life of the project. Knowing the MARR, each
of these net cash flows can be discounted back to the present. The
present worth of all the cash flow transactions in the analysis period
is the net present worth.
The magnitude of NPW determines whether the project is
accepted or rejected. If NPW is positive, the decision is to accept the
 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
Fig. 1. Lucas County recycling streams.
project. If it is negative, then the investment is not worthwhile eco-
nomically. If it is zero, then the project does not make a difference
economically.
It is also possible to conduct a breakeven interest rate analysis by
varying the value of the interest rate while computing the present
worth (PW) of a project. The breakeven interest rate is the rate at
which (PW) is zero. The breakeven interest rate is also known as
the internal rate of return. The formula for NPW is
Ct
(1 + r)t
where t is the time of the cash flow; r is the discount rate (the rate
of return that could be earned on an investment in the financial
markets with similar risk); Ct is the net cash flow (the amount of
cash, inflow minus outflow) at time t (for educational purposes; C0
is commonly placed to the left of the sum to emphasize its role as
the initial investment).
The calculations using the NPW equation are provided in Section
7.
4. Overview of the current recycling process
4.1. Process overview
Recycling services provided by the District to the local commu-
nity are accomplished via a drop-off program. In Lucas County, the
District collects two recycling streams from over 60 drop-off sites
throughout the community. These two material streams are com-
mingled paper products and commingled containers, as shown in
Fig. 1.
The drop-off sites are located at grocery stores, schools, metro
parks, township offices, and large apartment complexes. Each drop-
off site has at least two five-cubic yard dumpsters, one for each
recycling stream. At high volume sites, multiple containers are uti-
lized for the two recycling streams. Below is a summary of the total
tons of each waste collected in 2006 at the drop-off sites:
• 4368 tons of ONP and MOP.1
• 2912 tons of OCC.
• 1493 tons of glass bottles.
• 677 tons of plastic bottles.
• 235 tons of steel cans.
• 70 tons of aluminum cans.
The drop-off dumpsters are owned and maintained by the Dis-
trict. The recyclable materials at these drop-off sites are collected
by three District owned trucks. Daily, one truck is dedicated to the
1
The current process reports ONP and MOP as one combined item and provides
one unit price per ton.
537
Fig. 2. Current recycling system costs (annual).
commingled paper stream and one truck is dedicated to the com-
mingled container stream. The third truck is reserved as a spare for
schedules repairs and breakdowns. Each site is collected on a daily
or weekly cycle based on volumes. Annually, these trucks drive over
180,000 combined miles throughout Lucas County.
At the end of the day or once a truck has reached capacity, the
materials are transported to one of three privately owned com-
panies in Lucas County for processing and sale. The trucks are
unloaded at these facilities and the materials are weighed and
recorded for payment and/or billing to the District based upon
agreed terms in a signed contract. The contracts are negotiated
annually and the District receives a portion of the revenue for the
sale of the recyclable materials to brokers.
4.2. Current system cost and revenue analysis
Under the current system the District’s drop-off program is
operating at a $425,462 loss per year considering revenue minus
expenses. The loss is offset by additional revenue generated by the
District. The additional revenue is primarily generated from a $3
per ton surcharge on all solid waste generated in Lucas County. This
surcharge is collected by the landfills that serve Lucas County and
amounts to approximately $1.5 million per year.
Under the current contract the District has entered with a third
party processor, the District generates the following revenue per ton
of material (please note the District is paid based on commingled
materials that require additional sorts):
• $37.08 per ton of commingled fiber (OCC, MOP, ONP).
• $23.35 per ton of commingled containers (aluminum/steel can
and plastic).
Per year, the District generates $327,734 from the sale of recy-
clables to the third party processor. This revenue is offset by the
following annual costs:
• $350,196 for truck diesel fuel costs.
• $5500 for annual maintenance costs.
• $7500 for drop-off site container costs and maintenance.
• $240,000 for truck driver salaries and benefits for the four drivers
employed by the District (one drive is a team leader that operates
a vehicle as needed).
• $150,000 for administrative costs which include the Solid Waste
District Manager’s and administrative assistant’s salary and ben-
efits in addition to supply costs.
The following table summaries the current system costs (Fig. 2).
538 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
Fig. 3. MRF photograph (exterior).
5. Identification of potential MRF sites
Potential MRF sites were identified with a local commercial
realty company. Several sites were visited and analyzed by a cross
functional team consisting of the District Manager, an industrial
engineer, appraiser, and an equipment specialist. One site had been
previously used as a processing site for recyclable materials and
contained several pieces of useful equipment including a baler and
sort line.
During the identification and analysis process the sites were
ranked on size (in square footage), asking price, condition/age, loca-
tion, access to freeways, existing equipment, dock space, office
space, projected utility costs, expected upgrade costs, maintenance
costs, and safety. A spreadsheet was developed to rate each site
based upon the criteria. The site that had been previously used as
a recycling site was identified at the top choice based on size, cost,
location, and the availability of a baler, sort line, scale and fork lift
truck (Figs. 3 and 4).
6. Overview of the proposed recycling process
6.1. Methodology to create the new process
To establish the proposed recycling process extensive data were
collected and analyzed. The data included volumes, costs, and pro-
cess parameters. To assist in calculation and analysis of the data, the
Industrial Engineering (IE) Department at The University of Toledo
was contacted for support the District. Based on several meetings
Fig. 4. MRF photograph (interior).
Fig. 5. Historical recycling collection amounts.
between the District and the IE Department, the following process
was developed to estimate the costs:
• Forecast the annual amounts of recyclable materials collected by
the District for the commingled paper and commingled contain-
ers streams.
• Estimate the annual amounts of the separated waste streams to be
sorted at the MRF under the new process (MOP, OCC, newspapers,
glass, plastic, and metals).
• Develop a process flow chart for the MRF.
• Calculate the machine requirements to process these materials
for a baler system.
• Calculate labor requirements by performing a time study
on the processing of the recyclable materials based on the
annual material amounts, process flow chart, and machine
requirements.
• Gather labor quotes from local contractors.
6.2. Forecasts of the District’s recycling levels
Before developing the process plan, the machine requirements,
and the labor requirements for the MRF, forecasts were made to
estimate the compositions and weights of recyclable materials that
the facility would process each year. The forecasts were developed
based on the amounts of materials collected at the drop-off sites
in 2006 and 2007. Trends were also determined from the histor-
ical data to estimate increases for decreases from the previous
year (Fig. 5). In addition, a 1-week sampling of the commingled
MOP and OCC stream was conducted to estimate the percent-
age of each. In the current system, these two materials are not
reported separately by the current processor. The 1-week sam-
pling indicated that 70% of the commingled stream was OCC and
the remaining 30% was MOP. The following table provides the find-
ings of the analysis based on 2006 and 2007 data (in tons per year)
(Fig. 6).
As shown in the preceding table, overall collections are expected
to increase by 4.2% from 9755 tons per year to 10,169 tons per year
in 2008. The largest growths are expected in ONP, OCC, and MOP
based on the historical data. These increases are results of increased
community awareness and participation.
Fig. 6. 2008 recycling collection forecast.
 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
Fig. 7. MRF flow chart.
6.3. Development of the process flow chart
Recycling services provided by the District to the local commu-
nity would continue to be accomplished via a drop-off program as
in the current process. The District would continue to collect the
two recycling streams (commingled paper and commingled con-
tainers) from the same 60 drop-off sites throughout the community
as specified in the overview of the current process section.
The material collection phase of the process would not be
altered. The recyclable materials at these drop-off sites is collected
by three District owned trucks. The modification to the transporta-
tion process would occur only at the end point. At the end of the
day or once a truck has reached capacity, the materials will be
transported to the County owned MRF.
Upon arrival at the MRF, the trucks will be unloaded at desig-
nated areas for the commingled paper and commingled containers.
A team of four contract employees will sort and bale the materials
into eight streams:
• Mixed office paper
• White ledger
• Newspaper
• Cardboard
• Aluminum cans
• Steel cans
• Plastic bottles
• Glass bottles
Following is a flow chart depicting the MRF processes. Materials
will arrive at the incoming dock on the East side of the building. The
commingled paper truck will deposit its load in a staging area where
contract employees will remove all OCC and stage it in a holding
area and the MOP in a separate holding area near the baler. Next
the OCC or MOP will be loaded into the baler and processed into
1500 pound (0.75 ton) bales. These bales will then be transported
to the outgoing dock on the West site of the building and loaded
into trailers provided by the recycling commodity brokers.
Commingled containers will be processed differently. These
containers will arrive at the incoming dock and be deposited into
four cubic feet wire cages. These wire cages will be transported to a
539
sort line system. The sort line system is comprised of a 2 ft wide con-
veyor belt that will transport the containers to a raised mezzanine
sorting platform. On the sorting platform three contract employees
will sort the plastic, metal, glass and rubbish and drop them down
chutes at each workstation. These chutes will lead to four cubic feet
wire containers where the materials will be deposited. The wire
containers storing the plastics and metals will be transported to
the baler for processing and then dispatched to the outgoing dock.
The wire container storing the glass will be transported directly to
the outgoing dock (Fig. 7).
After the materials have been sorted and baled they will be
loaded onto 50-ft trailers provided by contracted commodity bro-
kers. Once the trucks have reached capacity the commodity brokers
will replace the trailers and pay the District the current market
value of the materials based on the current Chicago material prices.
6.4. Equipment requirements
Once the expected annual processing volumes were determined,
the equipment requirements were analyzed and determined. The
equipment currently at the proposed MRF site was analyzed and
its capability was determined for the baler, sort line, and fork lift.
The baler was analyzed first. A team of contract engineers and
maintenance technicians studied the machine performance and
determined if it was adequate the meet the processing needs of
the county. In general, equipment requirements are a function of
the quantity processed, standardized cycle times, equipment effi-
ciency rating to the standard, equipment reliability, and the time
available for processing (below is a summary of the equation) [4].
SQ
F=
EHR
where S = standard processing time per cycle (min); Q = annual
quantity to be processed (tons); E = machine efficiency rating to the
standard time (%); H = annual time available for processing per year
(min); R = machine reliability (%).
This concept was applied and the above statistics were collected
for the current baler. Cycle times were measured to determine the
times needed to bale each of the components collected as well on
the baler reliability and how efficient it was in regards to the stan-
540 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543

Fig. 8. Baler processing analysis summary.

dard cycle time. The data indicated the machine was 85% reliable,
in other words, 15% of the available time the machine was down
due to unscheduled maintenance, repairs, or to dislodge jammed
materials. Overall throughput on the machine also indicated that is
was 90% efficient in terms of the standard cycle time measured. In
other words, the machine was processing 10% less than its potential
due to process delays. Fig. 8 states the summary for the baler.
As shown from the analysis above, the baler will be used to pro-
cess at total of 11,470 bales per year. Based on the standard cycle
times and assuming an 8-h work day and 250 days per year the Fig. 9. Annual staffing requirements.

baler will be 89.3% utilized. In conclusion, the current baler will be

sufficient to handle the anticipated annual workload.
The sort line was analyzed next. The current sort line consists of a
conveyor belt and six sorting stations. The sort line will be used to
separate plastic, metal, glass and rubbish. A time study indicated
that an average employee could sort approximately 5 pound of
material per minute. For the purpose of the analysis, this value was
reduced to 4 pounds per hour to compensate for employee delays
(restroom and water) and fatigue. Based on a work rate of 4 pound
per minute, an average worker could sort 240 pounds or 0.12 tons
per hour. Assuming an 8-h work day and 250 working days per year,
one employee could sort 240 tons per year. The annual workload of
materials to be sorted on the line is 1002 tons (1162 tons of plas-
tic bottles, 362 tons of steel cans, and 70 tons of aluminum cans).
Based on these factors, five of the six workstations would need to
be staffed per day to process the materials. This would allow for
processing capability of 1200 tons per year which is 198 tons above
the annual workload requirements of 1002. This indicates the five
workers hired to sort the materials will be utilized or 83.5% based
on the determined time standards.
Finally, the forklifts were analyzed. Time studies were taken to
determine the time required for a forklift to:
• Load materials into the baler.
• Transport materials to the sort line.
• Transport materials from the sort line.
• Unload bales from the baler.
• Transport bales to the broker trailer.
The table below summarizes the findings:
Forklift task Quantity per Time require Time required
year (bales) per move per year (min)
(min)
As shown in the analysis above, 1409 forklift hours will be
required for material handling within the MRF. Assuming an 8-h
work day and 250 working days per year 2000 forklift hours will be
available. This indicates that one forklift will be adequate to handle
the annual workload and the one forklift will be utilized 70.4% of
the work day.
6.5. Labor requirements
Labor requirements were determined based on the annual vol-
umes to be processed and the machine requirements. A total of 10
employees plus one supervisor would be required to operate the
MRF. A breakdown is provided in Fig. 9.
Several local companies were contracted to tour the proposed
MRF site and provide bids to staff the MRF. A local company that
employs individuals with mental or physical disabilities provided
a very cost effective bid and has been involved with similar sorting
operations. The company also provided a supervisor for the employ-
ees at no cost to the District due to financial support from the Lucas
County Board of Mental Retardation. Fig. 10 shows the summary of
the annual labor costs to operate the MRF.
6.6. Proposed system cost and revenue analysis
Under the proposed system the District’s drop-off program will
operate at a $189,327 loss per year considering revenue minus
expenses. The revenue generated from the sale of the sorted recy-
clable materials was calculated using the current values of the
Chicago material prices listed below (current as of 2/2008):
Hours
required
per year

Bales loaded 11,470 2.0 22,940 382

Bales transported to 1,660 3.0 4,980 83
the sort line
Baled transported to 1,660 3.0 4,980 83
the sort line
Baled unloaded 11,470 2.0 22,940 382
Bales transported to 11,470 2.5 28,675 478
the broker trailer
Totals 37,730 84,515 1,409
Fig. 10. Annual staffing requirements with wages.
 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543 541

Fig. 11. Monthly facility operating costs.

• Mixed office paper—$82/baled ton.
• White ledger—$102/baled ton.
• Newspaper—$55/baled ton.
• Cardboard—$110/baled ton.
• Aluminum cans—$180/crushed and baled ton.
• Steel cans—$180/crushed and baled ton.
• Plastic bottles—$180/crushed and baled ton.
• Glass bottles—$25/ton.
Based on the forecasted volumes and commodity prices the Dis-
trict will generate $844,197 annually from the sale of the recyclable
materials to commodity brokers.
From an expense standpoint, the new system will require addi-
tional money to operate and maintain the MRF. Specifically, the cost
of the building, labor costs, utility, costs, maintenance costs, and
management/administrative costs. The cost of the building will be
addressed in the comparison and justification portion of this paper.
Specifically, the costs for the proposed system are:
• $365,100 for truck diesel fuel costs (this is up slightly from the
current system due to the location of the proposed MRF and the
additional required miles for the trucks to deposit material there).
• $5500 for annual maintenance costs (no change from the current
system).
• $7500 for drop-off site container costs and maintenance (no
change from the current system).
• $240,000 for truck driver salaries and benefits for the four drivers
employed by the District (no change from the current system).
• $186,400 in labor costs for employees to operate the MRF (these
were discussed in the previous section).
• $190,000 for administrative costs which include the Solid Waste
District Manager’s and administrative assistant’s salary and ben-
efits in addition to supply costs (the proposed system includes
$40,000 for a District employee to supervise the MRF).
• $39,024 in utility and building maintenance costs for the MRF.
7.1. Performance and customer service analysis
From a customer service standpoint, the residents of Lucas
County that utilize the drop-off sites will not be impacted or see
a degradation in service level with the new system. The portion of
the collection and processing system that has direct contact with
the residents is not being modified. The additional revenue gener-
ated by the District will be used to reduce the surcharge per ton of
solid waste generated in Lucas County, hence reducing the trickle
down costs to consumers.
7.2. Financial analysis
To complete the financial analysis the Full Cost Accounting for
Municipal Solid Waste, published the US Environmental Protection
Agency, was used as a guide (US EPA, 2006). The proposed system
will result in an annual cost savings of $236,135 versus the existing
system of outsourcing. This was calculated by taking the projected
annual net revenue (cost) of the proposed system minus the annual
net revenue (cost) of the current system. Both system will result in a
net cost for the District (−$189,327 for the proposed system minus
−$425,462 of the current system).
The initial investment for the proposed system, which includes
the cost of the building and renovations, is $973,050. The break-
down for this amount is $900,000 for the building and equipment
and an additional $73,050 to refurbish the building and equipment.
The $73,050 is the total amount provided by contactors based on
inspection of the building and equipment.

The utility and building maintenance costs were estimated from

the current costs of the proposed site as determined from records
shown in Fig. 11.
The following table summaries the proposed revenues gener-
ated and cost to operate the MRF (Fig. 12).

7. Process comparison and justification analysis

This section discusses a comparison between the existing and

the proposed system in terms of:

• Customer service impacts.

• Financial impacts including payback period and internal rate of
return (IRR).
• A 5-year financial performance projection.
• Benefits and drawbacks of the proposed system.
• A discussion of the decision process. Fig. 12. Proposed system costs and revenues.
542 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
Fig. 13. Cost comparison.
The payback period for the proposed system is 4.12 years (or
4 years and 1.5 months) and the internal rate of return for the
first 5 years of operation is 6.8% and 20.5% for the first 10 years
of operation.
Working with the Lucas County Commissioners a $1,000,000
bond at 6% interest will be established with a 20-year payback
period to acquire the fund for the initial investment of $973,050.
The following table provides a summary of the financial comparison
between the two systems (Fig. 13).
7.3. Benefit and drawback comparison
The primary benefit of the proposed system is the cost savings.
The money saved can be used to reduce the tax burden or fund other
Fig. 14. Sensitivity analysis.
meaningful projects to increase recycling and reduce solid waste
from entering the landfills. Other benefits include more control for
the District in terms of the materials collected and the ability to
employ local employees at the MRF.
The primary drawback of the new system involves increased
managerial complexity. The District will now have to devote
resources to the MRF to monitor and manage the processes and
personnel as well as the commodity brokers. Additionally, the Dis-
trict will be subject to the fluctuations in the recycling commodity
market, this in turn could impact operational revenues and the rate
of return.
7.4. Breakeven and sensitivity analysis
From a financially standpoint, the proposed system has a pay-
back period 4.12 years and an internal rate of return of 20.5% over
10 years based on the market assumptions stated in Section 6.6. A
critical question involves determining the breakeven point sensitiv-
ity of the proposed system based on changes in market conditions.
From a breakeven standpoint, two market changes were analyzed:
• The lowest level that the amounts of material recycled (in tons)
by the District could fall and still achieve a 10-year IRR of 6.5%.
• The lowest level that the dollar values of the waste commodities
could fall and still achieve a 10-year IRR of 6.5%.
The breakeven point for the amount of materials collected by
the District and the dollar values for the waste commodities was
analyzed. An analysis of the data indicated that the amount of
materials collected by the District could drop by 13% or 1300 tons
from the estimate to achieve an IRR of 6.5%. This would amount
to an $110,000 reduction in revenue per year for the District. On
average, the amount of materials collected by the District has
increase by 3–5%, so this is not a large concern. Similarly, the
dollar values provided by the commodity brokers based on the
market rates could drop and average of 13% for each material type
from the current conditions to achieve an IRR of 6.5%. This would
also amount to an $110,000 reduction in revenue per year for the
District.
A sensitivity analysis was also conducted to determine which
variables would have the largest impact on the revenue target,
hence meeting the IRR, if they were reduced. To accomplish this,
each variable was reduced by 5% while all other variables were
held constant and the percent change in revenue was measured.
The variables analyzed were:
• Amounts of materials collected (measured in tons).
• Dollar value per ton of recycling material.
As displayed in the following table, OCC amounts and price are
most sensitive to changes and therefore have the largest impact
 M.J. Franchetti / Resources, Conservation and Recycling 53 (2009) 535–543
on total revenue and IRR. A 5% reduction in the amount collected
annually or the dollar value per ton of OCC reduces total revenue
by 2%. Likewise, a 5% reduction in ONP reduced total revenue and
IRR by 1%. All other variables did not indicate level a high level of
sensitivity (Fig. 14).
7.5. Decision
Based on the financial benefits of the proposed system and the
minimal impact to customer service the decision was made to move
forward with the system.
8. Business plan development and approval
A formal business plan was developed with the aid of The Uni-
versity of Toledo, College of Engineering that provided the following
key sections:
• Executive summary.
• Organization summary.
• Services.
• Market analysis summary.
• Strategy and implementation summary.
• Planned workflow.
• Management summary.
• Financial plan.
• Five-year proforma financial plan.
• Facility equipment list.
• Additional calculations.
The contents of the sections in the business plan were discussed
in the pervious sections of this paper. The business plan was created
as a formal document to present to the Lucas County Commission-
ers for review and approval. The approval would also secure the
initial investment to purchase and upgrade the facility. During the
weekly open-chamber meeting (open to the public), the business
plan was presented and discussed with the Commissioners and
their advisors.
The Commissioners requested clarification on a few items, such
expected growth in the amount of recyclable materials collected
annually and whether the facility could handle the increased work-
load. After deliberation, the Commissions unanimously approved
the business plan and purchase of the building.
9. Implementation
The Implementation of this business plan began on February 4,
2008 and began with approval from the Lucas County Commission-
ers. Below is a summary of the implementation process:
• Prepare business plan and presentation for Lucas County Com-
missioners: 4 weeks.
• Approval by Lucas County Commissioners: 1 day.
• Purchase of building and equipment: 1 week.
• Hire of contractors to renovate and repair the building and equip-
ment: 2 weeks.
• Hiring of workers to sort materials: 4 weeks.
• Contract with recycling commodity brokers: 3 weeks.
• Adjust collection truck routes: 1 week.
• Start operations: 1 week.
543
10. Conclusions
This article demonstrated the process for municipalities to eco-
nomically justify the purchase and operation of a government
owned MRF. Key findings from this research revolve around a case
study from the 2007 purchase of a government owned MRF in
Toledo, Ohio, USA. The key findings were demonstrated through
a complete financial analysis. Specifically, the financial analysis
indicated that the municipality will achieve a payback period of
approximately 4 years, and a 10-year internal rate of return of 20.5%.
The consequences of these findings, stemming from the economic
and operational justification, led to the actual purchase of the MRF
site and subsequent operation in 2007 through early 2008. This
research may serve as an example or model for other local govern-
ments considering the implementation of such a system.
A strong emphasis was placed on economic efficiencies and a
sensitivity analysis of the results to changes in the data inputs,
specifically inflation, recycling levels, and recycling commodity
market shifts. A breakeven analysis of the data indicates that the
amount of materials collected by the District or the commodity
prices could drop by 13% ($110,000) from the estimate to achieve
an IRR of 6.5%. On average, the amount of materials collected by
the District has increase by 3–5%, so this is not a large concern. The
sensitivity analysis indicated that OCC amounts and price are most
sensitive to changes and therefore have the largest impact on total
revenue and IRR. A 5% reduction in the amount collected annually
or the dollar value per ton of OCC reduces total revenue by 2%. All
other variables did not indicate level a high level of sensitivity.
Reservations of limitations of this research include:
• Location and the cost of business in various geographical areas.
• Inflation.
• Recycling commodity market shifts.
• Competition.
This research and MRF analysis was conducted in the Midwest,
which has a relatively lower business and real estate costs versus
the East or West Cost. Conducting a similar study in these areas
may not be economically justified based on these higher costs.
Major changes in inflation (labor and operating costs) or com-
modity market shifts may alter the economics of the 10-year cost
structure. Finally, unforeseen competition arising in the area could
reduce material collection amounts, hence reducing revenues. This
competition could present itself as a new private sector recycling
collector/processor or as modified fee structures from existing com-
panies. The likelihood of these events over the 10-year time frame
is relatively low due to these companies current cost structures and
taxation rates.
References
Beck, R.W. Lycoming County material recovery facility evaluation. Pennsylvania
Department of Environmental Protection. Final report; 2004.
Chang N, Wang SF. The development of material recovery facilities in the United
States: status and cost structure analysis. Resources, Conservation and Recycling
1995;13:115–28.
Davila E, Chang N. Sustainable pattern analysis of a publicly owned material recovery
facility in a fast-growing urban setting under uncertainty. Journal of Environ-
mental Management 2005;75:337–51.
Tompkins, White, Bozer, Tanchoco. Facilities planning. Hoboken, NJ, USA: John Wiley
and Sons, Inc; 2003.
US Environmental Protection Agency. Full cost accounting for municipal solid waste
management; 2006.