UCLA Extension

Economic Evaluation for Project Managers and Decision Makers

A 2-Day Short Course

Managers and their staffs need to understand how to economically evaluate project ideas and alternatives. This course helps those in research, development, design, operations, manufacturing, marketing, finance, and management make these evaluations and understand those made by others. No longer can intuition alone be used to select the best economic alternatives; modern investment-evaluation techniques are needed. This course presents methods for producing and managing accurate economic evaluations for large and small projects.

The course covers project evaluation methods: net present worth and annual worth, rate of return, payback period, cost-benefit analysis, cost effectiveness, break-even, life cycle cost, and total ownership cost. Also included is time value of money, interest and inflation rates, cost indexes, actual and constant dollar analysis, OMB guidelines for comparing and evaluating alternatives, and how to avoid common errors and pitfalls. Through individual and team exercises, participants gain hands-on practice with these techniques.

Workshop Focuses

  • Understanding how economic evaluation fits into the life cycle of a project, process, product, or service from conception to definition through design and construction to implementation, operation, and disposal
  • Gaining an appreciation for the advantages and disadvantages of different economic evaluation methods, including net present value, annual worth, internal rate of return, payback period, cost-benefit analysis, cost effectiveness, break-even, life cycle cost, initial cost minimization, and design-to-cost evaluations
  • Describing how to use time value of money, compound interest formulas, interest rates, inflation rates, and cost indexes (domestic and international), special-purpose indexes, and actual versus constant dollars in economic evaluations
  • Learning how to include depreciation, depletion, and tax considerations in investment evaluations
  • Understanding how to avoid common errors and pitfalls in economic evaluations
  • Gaining insight into economic evaluations by using sensitivity and risk analysis and risk management
  • Dealing with emerging cost factors, such as new environmental, safety, and other government regulations; improved quality, international projects, reengineering, and outsourcing
  • Providing insight into the economic evaluation process through the presentation of case studies from a cross-section of the corporate and governmental sectors
  • Comparing and contrasting economic evaluations in the public sector, such as at national laboratories, with economic evaluations done at corporations
  • Learning how to manage the economic evaluation process
  • Providing rules of thumb and reference sources

Please bring a calculator.

Course Materials

Lecture notes are distributed on the first day of the course. These notes are for participants only and are not for sale.

Coordinator and Lecturer

Donald S. Remer, PhD, PE, Partner, Claremont Consulting Group, Claremont, California; and Oliver C. Field Professor of Engineering, Harvey Mudd College of Engineering and Science, Claremont, California. Dr. Remer has been performing and managing cost estimation and project feasibility studies and technical and economic evaluations for more than 25 years. His industrial and consulting experience includes aerospace, automotive, biotechnology, chemical, computer software and hardware, electronics, medical products, oil shale, paper and pulp, and petroleum companies; design, construction, and legal firms; local, regional, and federal agencies; utilities and railroads; research laboratories; and energy and environmental projects. His clients range from small entrepreneurs to Fortune 500 companies and government agencies, including such recent clients as Beckman-Coulter, Boeing, Booz-Allen & Hamilton, eCivis, GEC Marconi, Lear Astronics, Hewlett-Packard, TRW, Disney, the FAA, Sequent Computer, JPL, 20th Century Fox, Amgen, QAD, Raytheon, St. Jude Medical, Lawrence Livermore and Lawrence Berkeley National Laboratories, Los Alamos National Laboratory, Sandia National Laboratories, U.S. Coast Guard, U.S. Air Force, County of San Bernardino, and the City of Tucson, Arizona. He also has served as a task force manager and division coordinator for Exxon, and director of the Energy Institute at Harvey Mudd College.

Dr. Remer is a registered Professional Engineer in California, Michigan, and Louisiana. He has produced more than 50 publications on cost estimation, capital investment evaluation, and engineering management. The International Society of Parametric Analysts named his paper on cost modeling the outstanding paper of the year in the Journal of Parametrics. Dr. Remer was case study editor of The Engineering Economist for more than a decade and has been on the editorial board of Engineering and Process Economics and Engineering Costs and Production Economics. He is currently on the editorial board of the International Journal of Production Economics.

Course Program

Time Value of Money and Interest Rates

  • Compound interest formulas
  • Capital recovery and sinking fund factors
  • Present and future values

Methods for Comparing and Evaluating Alternatives

  • Present value methods
  • Annual worth evaluations
  • Rate of return methods
  • Payback period methods
  • Benefit-cost analysis
  • Cost effectiveness analysis
  • Advantages, disadvantages, and potential pitfalls of each method
  • Common applications and techniques
    — Break-even analysis
    — Life cycle cost analysis
    — Initial cost minimization
    — Design-to-cost evaluations
    — Public sector versus private sector evaluations

Depreciation, Depletion, and Tax Considerations in Project Evaluations

  • Physical, functional, book, and tax depreciation
  • How to calculate depreciation
  • Two common depreciation errors
  • Different taxes that should be included in capital investment analysis
  • How to estimate taxes, including federal, state, and local
  • Corporate tax definitions and equations
  • Capitalizing versus expensing costs
  • Personal and organizational economic and investment decisions based on tax considerations

Inflation and Cost Indexes

  • How to include inflation in economic evaluations
  • Government and industrial cost indexes
  • Domestic and international indexes
  • Actual versus constant dollars

Managing Economic Evaluations

  • Investment yardsticks
  • Current corporate and government practice
  • Life Cycle Costs: The Iceberg Phenomenon
  • Project evaluations under capital budgeting constraints
  • Independent, mutually exclusive, and contingent alternatives
  • Cost of money and minimum acceptable rate of return
  • Sensitivity and risk analysis
  • Working capital

Case Studies on Economic Evaluation from a Broad Cross-Section of the Public and Private Sectors

Common Errors and Rules of Thumb in Economic Evaluation

  • Negotiating economic evaluations versus requirements
  • Gold plating
  • Sunk costs
  • Improving project definition and preventing requirements escalation
  • Use of contingency
  • Accurately accessing productivity improvements from high-technology advancements

Emerging Factors in Economic Evaluation

  • Environmental, health, safety, and security and other governmental regulations
  • Litigation
  • International projects and global competition
  • Moving software development projects abroad
  • Quality considerations (TQM, ISO 9000, SEI Capability Maturity Model)
  • Risk assessment
  • Training
  • Reengineering
  • Outsourcing

Sources for Economic Evaluation Information

Wrap-Up

  • Key ideas to take back to your job
  • Tips for applying what you have learned

For more information contact the Short Course Program Office:
shortcourses@uclaextension.edu | (310) 825-3344 | fax (310) 206-2815

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