Economic Evaluation Tools Research Articles

The Management of Transport Construction Projects: A Survey of Public Sector Organisations in Queensland Australia

Construction procurement organisations in the Australian framework provide broad guidelines on project management in setting benchmark performance measurements and processes for evaluating their projects. Despite this, little has been known in the project management practise in transport construction projects in Australia, in particular Queensland. Questionnaire data from 53 project management practitioners employed in State and City public sector organisations in Queensland,suggested that many practitioners in the public sector have little or a lack of understanding of government regulatory policies, which are used as economic evaluation tools for project options. Public sector project managers perceive socio-economic evaluation tools as inappropriate for public sector projects. The survey results also found conducting risk management analysis, developing a risk register and mitigation of risks were most effective way of managing risk. This study provides an opportunity for the public sector to review and provide training on project management practices and government regulatory policies governing public projects. This will improve project management practitioners’ understanding and interpretation of government regulatory policies.

Real Options: Applications in Public Economics

This paper illustrates the use of real options principles to value prototypical resource and industryinvestment projects. It captures important competitive/strategic dimensions in a step-by-stepanalysis of investment decisions (options) under uncertainty. It compares and contrasts staticdiscounted cash flow analysis (DCF) with real options analysis using three case studies. The initialexample values a resource extraction process using static DCF and then compares the projectvaluation when future information is valued and acted upon. The second example considers a coaldevelopment and uses the binomial valuation approach to capture the option value associated withhaving the right but not the obligation to exit the development. It contrasts this valuation approachagainst static DCF and highlights that future royalty payments could be underestimated if based onthe standard DCF valuation. The third example analyses the impact of providing a subsidy forhybrid vehicle production to accelerate potential uncertain environmental benefits. Lastly, thesuitability of the standard financial and economic evaluation tools used by treasury agencies isconsidered when projects contain real options.

Rethinking the economist’s evaluation toolkit in light of sustainability policy

The dominant economic evaluation technique is benefit-cost analysis (BCA). However, sustainability policy must handle outcomes that cannot easily be quantified in monetary units. Multiple criteria analysis (MCA) is emerging as an alternative, and/or complementary, economic evaluation tool. The economics profession has been slow to adopt MCA. This paper first explores the role of MCA within the economist’s evaluation toolkit alongside BCA, costeffectiveness analysis (CEA), and cost-utility analysis (CUA) and then proposes a process for selecting an appropriate evaluation method. The choice of technique will depend on the extent to which environmental goods can be valued in monetary units. The paper argues that MCA has an expanded role to play alongside BCA (and the other methods) to ensure that sustainability policies are realized.

Risk analysis for CHP decision making within the conditions of an open electricity market

Decision making under uncertainty is a difficult task in most areas. Investment decisions for combined heat and power production (CHP) are certainly one of the areas where it is difficult to find an optimal solution since the payback period is several years and parameters change due to different perturbing factors of economic and mostly political nature. CHP is one of the most effective measures for saving primary energy and reduction of greenhouse gas emissions. The implementation of EU directives on the promotion of cogeneration based on useful heat demand in the internal energy market will accelerate CHP installation. The expected number of small CHP installations will be very high in the near future. A quick, reliable and simple tool for economic evaluation of small CHP systems is required. Since evaluation is normally made by sophisticated economic computer models which are rather expensive, a simple point estimate economic model was developed which was later upgraded by risk methodology to give more informative results for better decision making. This paper presents a reliable computer model entitled “Computer program for economic evaluation analysis of CHP” as a tool for analysis and economic evaluation of small CHP systems with the aim of helping the decision maker. The paper describes two methods for calculation of the sensitivity of the economic results to changes of input parameters and the uncertainty of the results: the classic/static method and the risk method. The computer program uses risk methodology by applying @RISK software on an existing conventional economic model. The use of risk methodology for economic evaluation can improve decisions by incorporating all possible information (knowledge), which cannot be done in the conventional economic model due to its limitations. The methodology was tested on the case of a CHP used in a smaller hospital.

Economic evaluation: what does a nurse manager need to know?

This paper considers how health economists can assist nurse managers, using the concepts and tools of economic evaluation. We aim to clarify these and also explode some of the myths about economic evaluation and its role in health care decision-making. Economic evaluation techniques compare alternative courses of action in terms of their costs and consequences. There are four principal methods; cost-minimization, cost-effectiveness, cost-utility and cost-benefit analysis, all of which synthesize costs and outcomes, at different levels of outcome. Economic evaluation is an intrinsic part of national decision-making about the efficient provision of effective treatments and services, and increasingly, organizational matters. In the UK, such technology evaluation is disseminated in guidelines from the National Institute for Clinical Effectiveness (NICE), having a top-down impact on the nurse manager. But economic evaluation is increasingly relevant to the nurse manager at local level, through newer techniques such as Programme Budgeting Marginal Analysis (PBMA), which facilitates explicit, transparent decisions, from the bottom-up. Nurse managers need to weigh up competing demands on resources and decide in ways which maximize health gain. Economic evaluation can help here because it presents evidence to challenge or support existing allocations, and provides a systematic framework to analyse health care decisions. In the current context of competition for scarce resources, we suggest that nurse managers need to embrace these techniques, or be marginalized from the resource allocation process.

The potential-method—an economic evaluation tool

Introduction: Measuring the effect of safety and health on production is a difficult value to gauge. Method: This article introduces the Potential, which is an instrument for economic analysis that incorporates different changes in conditions. Results: While there are a number of problems associated with methods to determine these calculations, this method is a good indicator of the effects of safety and health and produces more than 300 variables with much less input. Impact on Industry: Organizations can use this method effectively to determine how safety and health measure can improve their bottom line. A positive business case is highlighted.

Impact on indigenous species biodiversity caused by the globalisation of alien recreational freshwater fisheries

One of the most insidious threats to fish conservation around the world is deliberate or accidental introduction of fish species. The impact of alien invasive sport fish is for the most part unpredictable in time and space, with the introduction of relatively few species having resulted in many extirpations of indigenous fish species worldwide. More nations need to quantify biodiversity loss caused by alien sport fishes. The spread of alien invasive fishes does not respect political boundaries. Therefore total global costs to aquatic biodiversity and ecosystem functioning resulting from these introductions need to be assessed. The global invasive species database of the Global Invasive Species Programme, highlights eight fish species among the one hundred ‘World’s Worst Invasive Alien Species’. Three of these fish species (two trout and one bass species) were introduced solely for sport. Historically the social value of recreational fishing was usually more important than conserving biodiversity. Globalisation of alien fish species for sport is best illustrated by rainbow trout — now in 82 countries, and still spreading, along with the associated expensive angling gear, magazines and accommodation infrastructure. Such sport species have become part of the global consumer society. The nature and extent of the globalisation phenomenon is addressed with regard to how introduction of alien fish for recreational angling has impacted on biodiversity; trophic cascades at a local level and the unassessed total cumulative global trophic cascades; and some of the motives that underlie promotion of this sport within the complexity of globalisation as we know it today. Alien invasive recreational fish species are now recognised as a global environmental degradation problem resulting in loss of biodiversity and therefore require a global solution. Parallel trends such as globalisation of environmental education and the internet must be encouraged to counteract the damage caused and reverse the trend. This globally concerted campaign requires utilizing environmental education forums aimed at the angling community, general public and policy makers; networking with existing alien invasive groups; legislation; better understanding of processes; development of environmental economic evaluation tools; international bio-invasion control; wider use of the precautionary approach and utilization of the present globalisation of ecological thought.

Maximizing PV peak shaving with solar load control: validation of a web-based economic evaluation tool

We present an evaluation of a new version of the web-based clean power estimator (CPE) capable of evaluating the effectiveness and value of solar load control (SLC) for commercial applications in the US. Three experimental building case studies are used as a validation benchmark. The selected buildings include a large office building near New York City, a department store in Long Island, and another department store in Hawaii. The results of the CPE calculations are compared against results obtained using actual building load and colocated hourly actual solar radiation data.

An introduction to economic evaluation for pediatric surgeons.

In the last decade, the field of medicine has undergone irreversible changes in the relationship between the financing and delivery of health care. Because health care resources no longer can be treated as limitless, all providers are being forced to set priorities on services and are being held more accountable for quality of care. These changes have had a particular impact on surgical specialities. Because the discipline of economics is the study of the optimal allocation of scarce resources, it is not surprising that many of the methods of economic analysis now are being applied to outcomes research in surgery. Economic evaluation serves as the core methodology for the establishment of best practice guidelines through the growing field of evidenced-based medicine. The primary tools of economic evaluation include cost analysis, cost of illness analysis, cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis. This report provides an introduction of these methods to enable pediatric surgeons to understand and critically evaluate these investigations as applied in pediatric surgery.

Managing Operating Costs With a Risk- and Economic-Evaluation Tool

This article is a synopsis of paper SPE 64448, "A Risk- and Economic-Evaluation Tool for Management of Operating Costs," by Helen E. Harvey, SPE, and Dale P. Gration, Woodside Energy Ltd., and Stephen Martin, IGL Engineering Pty. Ltd., originally presented at the 2000 SPE Asia Pacific Oil and Gas Conference and Exhibition, Brisbane, Australia, 16-18 October.

Roadside Safety Analysis Program as a Tool for Economic Evaluation of Roadside Safety Projects

Highway agencies are continually called upon to make decisions about roadside safety projects by considering their relative benefits and costs. ROADSIDE software is a tool developed in the late 1980s for costeffectiveness analysis of safety features and has been used by different highway agencies. As a part of the continuing effort to improve such costeffectiveness procedures, the Roadside Safety Analysis Program (RSAP) has recently been developed at the Texas Transportation Institute. RSAP uses a simulation technique to replicate single-vehicle accidents on a highway facility and can test the effectiveness of the various countermeasures that are used to reduce the severities of these accidents. The application of RSAP to actual case study sites and the outcome of a study recently conducted at Wayne State University are described. Various median treatments on freeways were tested, and their respective benefit-cost ratios, as estimated by RSAP output, were examined. A set of sensitivity analyses of the RSAP output to various input parameters was also conducted. It is found that RSAP is user-friendly software and is fully operational on a personal computer with a Pentium processor in the Windows 95 environment. RSAP provides a summary of the accidents predicted for each scenario tested, and those are segregated by each feature coded along with its respective severity and cost. The economic analysis procedure is based on strong analytic principles, and the results are sensitive to accident cost, cost of construction, and interest rate. The software output is generally sensitive to the input parameters, and the trends appear to be logical. Additional research to calibrate the accident prediction model with historic accident data at the project site will be highly desirable.

An integrated approach to investment appraisal for advanced manufacturing technology

This article presents an integrated approach combining the strategic, economic, and analytic justification methodologies to evaluate the tangible and intangible benefits for the selection of advanced manufacturing technology (AMT). A strategic approach called the manufacturing map is applied to determine the consistency among the proposed technology, the company objectives, and the manufacturing strategies. An analytic evaluation technique called the analytic hierarchy process (AHP) is also introduced. During the AHP analysis, an economic evaluation tool called the state-price net present value (SP-NPV) is applied to provide financial data. Finally, a budget/network chart is employed to monitor and outline the project in greater detail. © 1999 John Wiley & Sons, Inc.

An integrated approach to investment appraisal for advanced manufacturing technology

This article presents an integrated approach combining the strategic, economic, and analytic justification methodologies to evaluate the tangible and intangible benefits for the selection of advanced manufacturing technology (AMT). A strategic approach called the manufacturing map is applied to determine the consistency among the proposed technology, the company objectives, and the manufacturing strategies. An analytic evaluation technique called the analytic hierarchy process (AHP) is also introduced. During the AHP analysis, an economic evaluation tool called the state-price net present value (SP-NPV) is applied to provide financial data. Finally, a budget/network chart is employed to monitor and outline the project in greater detail. © 1999 John Wiley & Sons, Inc.

A new method of accurately identifying costs of individual patients in intensive care: the initial results.

To analyse the patient-related and non-patient-related costs of intensive care using an activity-based costing methodology. A retrospective cost analysis of 68 patients admitted sequentially over a 10-week period. The Adult General Intensive Care Unit of the Royal Hallamshire Hospital, Sheffield. The results showed large variations in the costs obtained for individual patients. The calculation of the costs for the initial period of stay showed a wide variation depending on whether the costs were determined per calendar day or per first 24-h period. Significant correlations of costs between the first 24 h of stay and the admitting Acute Physiology and Chronic Health II score (p < 0.004) and daily costs with the Therapeutic Intervention Scoring System scores (p < 0.0001) were found. The average daily patient-related cost of care was Pounds 592. Overhead costs were calculated at Pounds 560 per patient day, which made the total cost of a day's treatment in intensive care Pounds 1152. The use of average costs or scoring systems to cost intensive care is limited, as these methods cannot determine actual resource usage in individual patients. The methodology described here allows all the resources used by an individual patient or group of patients to be identified and thus provides a valuable tool for economic evaluations of different treatment modalities.

Quo vadis - sustainability?

There is a developing concern that the world water resource will prove to be inadequate to meet the ever-increasing demands by humankind. An integrated river basin management approach is essential for land and water use planning due to the complexity of land/water interactions. This paper provides a selective overview of some of the issues affecting sustainability in river basin management. These include the need to: develop methodologies for integrated river basin management which include land-use management and planning; improve the volume and accuracy of national and global assessment of water resources; develop, promulgate and implement waste minimisation and recovery techniques, preferably pollution prevention; develop low-tech, low cost treatment options; increase application of use-related receiving water standards; develop and apply economic evaluation tools to both environmental costs and benefits; and inform, educate and train professionals and the public. Any solution arrived at must be acceptable to the local community; two-way communication is vital to the success of a project, which may well require changes in the behaviour of the community served.

Quo vadis - sustainability?

There is a developing concern that the world water resource will prove to be inadequate to meet the ever-increasing demands by humankind. An integrated river basin management approach is essential for land and water use planning due to the complexity of land/water interactions.This paper provides a selective overview of some of the issues affecting sustainability in river basin management. These include the need to: develop methodologies for integrated river basin management which include land-use management and planning: improve the volume and accuracy of national and global assessment of water resources; develop, promulgate and implement waste minimisation and recovery techniques, preferably pollution prevention: develop low-tech, low cost treatment options; increase application of use-related receiving water standards: develop and apply economic evaluation tools to both environmental costs and benefits; and inform, educate and train professionals and the public.Any solution arrived at must be acceptable to the local community; two-way communication is vital to the success of a project, which may well require changes in the behaviour of the community served.

A Probabilistic Approach to Landslide Hazard Mapping in Cincinnati, Ohio, with Applications for Economic Evaluation

The economic value of geologic hazards research and data can be estimated only if the information is used in ways that are associated with specific economic consequences, such as a decision whether or not to mitigate against a potential landslide hazard at a specific location. The economic benefits of a decision to mitigate are measured by the expected losses that can be avoided if mitigation is undertaken, after the costs of mitigation activities are subtracted. To evaluate the spatial distribution of expected losses in a Cincinnati, Ohio, study area, we used regional geologic and topographic information to establish a regression equation that estimates the probability of landslide occurrence in 100-m square units. The distribution of different landslide probabilities can be mapped. Probability estimates provide a numerical measure of the relative hazard potential for each subunit of a community and permit systematic estimation of expected losses where property values are known. By postulating a sequence of community decisions about where to impose regulations that require individuals to incur the expense of mitigation activities, a forecast of the economic consequences of decisions made with and without specific kinds of regional information can be quantitatively estimated. The probabilistic assessment of landslide susceptibility provides an essential tool for economic evaluation of community-imposed requirements for landslide hazard mitigation. A set of hypothetical strategies for community mitigation that impose the provisions of the Uniform Building Code (UBC) Chapter 70 (International Conference of Building Officials, 1979), were applied to a study area in Hamilton County (Cincinnati), Ohio. One strategy requires mitigation throughout the entire area. This strategy would yield annualized gross benefits (losses avoided) of $4.9 million at a cost of $5.0 million for mitigation activities—an annualized negative net benefit (net loss) of $0.1 million. In other words, the uncritical application of the UBC Chapter 70, grading code provisions to the entire study area would probably not be cost-effective. Cost-effective alternative strategies might require mitigation only in selected parts of the area. For example, if the areas that require mitigation are selected by using regional topographic information (i.e., slope), the best strategy requires mitigation where slopes are steeper than 8° and provides annualized gross benefits of $3.1 million at a cost of $1.7 million—an annualized positive net benefit of $1.4 million. If the areas are selected by using both slope and regional geologic information (i.e., the regional distribution of surficial materials having different shear strengths), the optimum strategy requires mitigation where slopes are steeper than 14° or where materials have shear strengths (tan ϕ r ′ ) less than 0.49. This strategy provides annualized gross benefits of $3.1 million at a cost of $1.4 million—an annualized positive net benefit of $ 1.7 million. The use of regional geologic information in addition to the slope data, therefore, yields to the community an incremental improvement (annualized marginal net benefit) of $0.3 million annually, an annual return that is greater than the one-time cost of acquiring the information.

Economic evaluation of the environmental effects of erosion

Erosion of the soil is an important aspect of the environment, more so in the Third World where major environmental problems may stem mainly from low land productivity and are directly related to poverty, poor nutrition and paucity of employment opportunities. However, the allocation of resources for preventing and combating erosion does not usually receive its due priority. This is because of the insidious nature of the wide-ranging baneful consequences of erosion. Explicit ex-ante evaluation of investment options is obligatory in reaching rational land-use decisions, including optimal soil conservation and watershed management practices. Various tools of economic evaluation have been considered; benefit-cost analysis in a systems context could provide an appropriate approach. Methodological principles are postulated whereby it appears possible to rank options commensurably as well as to get around the difficulty of quantifying the intagible effects of erosion in terms of market value which, otherwise, can only be imputed at the risk of inaccurate measurements, heuristic trade-offs, subjective value judgements and socio-economically untenable assumptions. Attempts at improving the methodology and making case studies would be warranted for convincing the decision maker to consider anti-erosion and allied measures among gainful economic activities, especially for improving the earth's environment from a social standpoint.