Cost-price pattern

Figure 8.1 Typical experience curves showing a stable cost-price pattern.

Typical experience curve showing unstable cost-price pattern. 

Questions five and six address the actual identification, quantification and valuation of resources and costs. Resources previously identified as being relevant to the analysis have to be collected, measured and reported in appropriate units. For example, if blood tests are determined to be a resource that is important to the analysis, the actual number of each specific test performed must be recorded (e.g. five CBCs). Because of differing treatment regimens across regions or countries, it is extremely important that there is full disclosure of each resource identified, along with the frequency of use. Such resource dictionaries allow the person critically evaluating the analysis to determine whether the treatment patterns in the analysis accurately reflect treatment patterns in their area. In addition, the unit cost/price for each resource should be provided, along with the source of each value. The provision of unit prices/costs allows the reader to determine whether the relative costs shown in the analysis are similar to those foimd in his or her area. 

Utility costs can vary enormously between different processing sites. This is especially true of fuel and power costs. Not only do fuel costs vary considerably between different fuels (coal, oil, natural gas) but costs also tend to be sensitive to market fluctuations. Contractual relationships also have a significant effect on fuel costs. The price paid for fuel depends very much on how much is purchased and the pattern of usage. 

Figure 2.2 shows the cash flow pattern for a typical project. The cash flow is a cumulative cash flow. Consider Curve 1 in Figure 2.2. From the start of the project at Point A, cash is spent without any immediate return. The early stages of the project consist of development, design and other preliminary work, which causes the cumulative curve to dip to Point B. This is followed by the main phase of capital investment in buildings, plant and equipment, and the curve drops more steeply to Point C. Working capital is spent to commission the plant between Points C and D. Production starts at D, where revenue from sales begins. Initially, the rate of production is likely to be below design conditions until full production is achieved at E. At F, the cumulative cash flow is again zero. This is the project breakeven point. Toward the end of the projects life at G, the net rate of cash flow may decrease owing to, for example, increasing maintenance costs, a fall in the market price for the product, and so on.

The primary results of economic evaluations usually is a comparison of average, or pooled, differences in costs and differences in effects among patients who received the therapies under study. It is an open question, however, whether pooled results are representative of the results that would be observed in the individual centers or countries that participated in the study. In some, the therapy may provide good value for the costs, whereas in others it may provide poor value. Three reasons commonly cited for these differences are differences in practice patterns (i.e., medical service use), differences in absolute and relative prices for medical service use (i.e., unit costs), and differences in underlying morbidity/mortality patterns in different centers and countries. 

In the context of chemical production, a process innovation may be defined as an addition to knowledge which allows some quantity of output to be produced by an input combination that could not previously be used to produce that output. For an innovation to be economically interesting, the innovation should result in a lower cost of production than other techniques at some combination of input prices. Whether the Innovation is actually used in production will depend on a host of factors, including the patterns of input prices which producers face and the desirability of adding to capacity at the time that input prices favor the innovative technology. This last point assumes —often realistically, for chemical processes—that innovations frequently require changes in plant and equipment that would be undertaken only if justified by expected demand growth. 

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