Economic Analysis

Inevitably there will be more than one design that fulfills the function of a proposed system. In order to select one, there must be some criterion with which the alternatives can be compared. An important aspect is the economics of the design. Design decisions result in several economic effects. If the design is selected, some investment is required to install the system. After installation, the system will operate over a period of time while revenues are generated and operation costs are expended. If alternative designs are to be compared it is necessary to integrate the various costs and revenues associated with the design. The economic criterion compares alternative designs by estimating the cash flows they generate and describing them with one economic measure. Common measures are the present worth, annual worth, and internal rate of return.

The pages of this section illustrate cash flow analysis for a single project, project evaluation with the Economics add-in, comparing several alternative designs and project comparisons with the Economics add-in. More detailed discussions of the Economics add-in are included in the Computation section.


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tree roots

Operations Management / Industrial Engineering
by Paul A. Jensen
Copyright 2004 - All rights reserved