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Module18 - Making the Decision for a Single Project...

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Making the Decision for a Single Project Considering Non- Economic Factors and Multi-attributes Part I
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Key Concepts Last Module: Considering Risk in our Decision This Module: Non-Economic Factors and Multiattribute Analysis Learn how to make decisions in light of multiple measures of worth and risk.
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Non-Economic Factors Factors that can influence a capital investment decision but are not easily quantified monetarily for economic analysis. Often referred to as irreducibles or intangibles. These further complicate our decision.
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Examples Political Stability Worker Morale/Quality of Life Worker Stability Prestige Exceeding Specifications Infrastructure Future Considerations Safety/Environmental Considerations
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Non-Economic Factors in Analysis For any engineering project, complete a rigorous economic analysis first. We are only interested in the analysis of non-economic factors if : 1. Economic analysis is positive but non- economic impacts are negative. 2. Economic analysis is negative but non- economic impacts are positive.
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Example A coal gasification plant, which will generate enough electricity for 500,000 homes has been proposed in Eastern Idaho. Union Pacific would transport an estimated 7,000 tons of coal a day to the $850 million facility. Construction was Sources: “Gasification plant gets final OK,” Associated Press , February 12, 2009; “Coal Gasification Plant Proposed for Eastern Idaho,” Dow Jones Newswires , March 9, 2005.
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Example Continued Assume that annual revenues will total $150 per home per month, with a profit margin of 15%, and fixed operating and maintenance costs of $12 million per year. Gasification will generate $2 million per year (fertilizer).
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Non-Economic Factors Technology eliminates coal waste and reduces emissions significantly. In fact, the waste is converted to other fuel or fertilizer. Relies on coal, a stable commodity found in abundance locally. Conclusion : the non-economic factors are overwhelmingly positive .
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Should we consider non-economic factors?
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