Economic analysis

In this introductory economic analysis we cover two main subjects:

• Economic analysis at one point in time

  This “instantaneous” analysis is the most common since it entails the least difficulty and requires the least amount of information. This is the type of analysis seen in Chem Systems’ PERP reports and in SRI’s PEP reports. If properly done and properly used, the results derived from this analysis are excellent. In this write-up we devote most of the attention to this analysis; in particular, we try to analyze each of the terms in detail. Although this analysis requires the least information, in order to do a proper job the amount of information required is usually still beyond what is commonly available in the initial screening stages of a project. However, the insight provided by examining the various entries is of great value as it helps to identify missing data. Also, even with incomplete information, this type of analysis is especially useful to determine the sensitivity of a project relative to a number of parameters.

• Economic analysis over an extended period of time

  This analysis, usually known as “cash flow analysis,” is performed by analyzing the (expected) performance of a project over an extended period of time, usually a number of years at least equal to the capital depreciation or amortization period. The value of this type of analysis is that it recognizes the “time value of money.”