Economic evaluation methods

The project cashflow forms the basis of the economic evaluation methods which will be described. From the cashflow a number of economic indicators can be derived and used to judge the attractiveness of the project. Some of the techniques to be introduced allow the economic performance of proposed projects to be tested against investment criteria and also to be compared with alternative investments. 

A shortcut economic evaluation method to quickly screen the better options. 

Application of economic evaluation methods to health care products and services, especially pharmaceuticals, may increase their acceptance by health care professionals and society. The methods used most commonly by health care practitioners are discussed in the next sections and summarized briefly in Table 1-2. 

With the statistics-based economic evaluation method mentioned previously, improved operation can be quantified with economic values based on statistical distribution of operating data. The current operation with large variance (Figure 4.9a) is improved by more consistent operation and better control strategy to reduce variability (Figure 4.9b), while optimized operation (Figure 4.9c) utilizes the potential capability available in the process and equipment, and pushes the economic value even higher. 

One economic evaluation method that is used is based on the internal return rate (IRR), which is considered suitable for an initial estimate of economic feasibility of industrial processes (Di Lucdo et al, 2002). This method is based on evaluating the discount rate that causes the present value of the cash flow, projected for the plant life, to be equal to the invested capital. The basic idea for the IRR evaluation is to obtain a single value that synthesizes the merits of the project for its lifetime. This value is not determined by market interest rates, and hence it is labelled internal return rate. The IRR is intrinsic to the project and does not depend on anything but the project cash flow. 

Economic evaluation is an assessment of the probable benefit or reward of a proposed course of action, relative to other choices. Although the benefit usually takes the form of a financial return, in environmental management, transportation (qv), health care, and other social areas, the benefit may be a social gain instead. Some method is then developed to translate the social gain into a monetary equivalent. The discussion herein is limited to the financial return expected from some type of production or service activity. 

The selection of the evaluation method(s) depends on the specific type of plastic, the environment of the evaluation, the effectiveness of the evaluation method, the size of the structure, the fabricating process to be used, and the economic consequences of structural failure. Conventional evaluation methods are often adequate for baseline and acceptance inspections. However, there are increasing demands for more accurate characterization of the size and shape of defects that may... 

Outcome measurement is not discussed further in this chapter, hut it should he emphasized that some distinctive contributions could be made by economics. These include the development of summary unidimensional measures (discussed in the cost-utility section earlier), and benefit valuation in monetary terms (with its attendant difficulties, even though valuation methods are breaking new ground). However, acceptable (and potentially insightful) economic evaluations can be conducted without resorting to utility or benefit measurement. Cost-effectiveness and cost-consequences approaches have a lot to offer, building on outcome measures which will be more familiar to non-economist researchers in the field. It is for this reason that cost-effectiveness and cost-consequences analyses, linked to drug trials, are the most likely to be used over the next few years. 

Drummond MR, O Brien B, Sroddarr GL, Torrance GW (1997). Methods for the Economic Evaluation of Health Care Programmes, 2nd edn. Oxford Oxford Medical Publications. 

The objective of economic evaluations of health and social care interventions is to inform decision-makers about the relative costs and benefits to society of two or more methods of providing care. In the context of dementia these may be comparisons of different drug therapies (pharmacoeconomic... 

Once values have been assigned for the costs and benefits of each proposed risk-reduction modification, a variety of economic evaluation techniques may be used to choose the most attractive option. These techniques include net present value, discounted cash flow rate of return and cost-benefit ratio analyses. Most companies have a preferred method for evaluating project economics, which can be used with little or no modification. Chapter 8 of... 

There is no one best criterion on which to judge an investment opportunity. A company will develop its own methods of economic evaluation, using the techniques discussed in this section, and will have a target figure of what to expect for the criterion used, based on their experience with previous successful, and unsuccessful, projects. 

Frangopoulos, C.A. and Caralis Y.C., 1997, A method for taking into account environmental impacts in the economic evaluation of energy systems, Energy Comers. Mgmt. 38 1751-1763. 

There is some controversy regarding which method to use in economic evaluation studies to estimate costs and benefits, which has led to attempts at standardization in the field of the economic evaluation of pharmaceuticals. 

Esperancini MST, De Souza NL, Baldini EM (2003) Economic evaluation of solarization method for weed control. Cientifica 31 123-130... 

Direction of innovation t6al To what extent did certainty of direction exist or the market actors in assessing possible solutions (assessment of possible and predominant solutions in accordance with environment- and health-related as well as economic criteria) What information and evaluation methods were available and for which actors What was the relation between the available knowledge and the remaining uncertainty ... 

In the United Kingdom, the Department of Health asks NICE to evaluate health technologies that have a major impact on the National Health Service. Although not formally based on efficiency considerations, this approach is more consistent with obtaining the best value for money from the use of resources on economic evaluation. More recently, methods involving the estimation of the expected value of perfect information have been used in a pilot study to inform research priorities in the United Kingdom (Claxton et al. 2004). 

These methods have been well developed in medical technology assessment as well as in other fields of economic research. However, there remain a number of methodological issues that confront investigators in economic evaluations of pharmaceutical therapies. This section reviews some of these issues as they arise in the design, analysis, and interpretation of pharmacoeconomic evaluations. 

Reed SD, Friedman JY, Gnanasakthy A, Schuhnan KA. Comparison of hospital costing methods in an economic evaluation of a multinational chnical trial. Int J Technol Assess Health Care 2003 19 396-406. 

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