Donald S. Remer

A Compendium and Comparison of 25 Project Evaluation Techniques. Part 1: Net Present Value and Rate of Return Methods

This two-part paper presents 25 different methods and techniques used to evaluate the economic desirability of projects. We categorized these 25 methods into 5 types: net present value methods, rate of return methods, ratio methods, payback methods, and accounting methods. We provide insight into the advantages and limitations of these project evaluation methods by comparing and contrasting them. Many examples are included to illustrate the use of these methods. In Part 1, we examine net present value and rate of return methods. In Part 2, we examine ratio, payback, and accounting methods. A recap, comparison, and full summary of all 25 methods is included at the end of Part 2.

A compendium and comparison of 25 project evaluation techniques. Part 2: Ratio, payback, and accounting methods

Abstract This two-part paper presents 25 different methods and techniques used to evaluate the economic desirability of projects. We categorized these 25 methods into 5 types: net present value methods, rate of return methods, ratio methods, payback methods, and accounting methods. We provide insight into the advantages and limitations of these project evaluation methods by comparing and contrasting them. Many examples are included to illustrate the use of these methods. In Part 1, we examine net present value and rate of return methods. In Part 2, we examine ratio, payback, and accounting methods. A recap, comparison, and full summary of all 25 methods is included at the end of Part 2.

Survey of project evaluation techniques currently used in industry

Abstract Companies use various project evaluation techniques to determine the feasibility and profitability of a project. We surveyed some of the largest “Fortune 500” Industrial and Service corporations in December 1991 about their use of these techniques. The survey was compared to a similar 1978 study by the American Association of Cost Engineers (AACE). Thirty-three (33) companies replied to the 1991 survey. These replies show a change in the use of corporate project evaluation techniques since 1978. There has been a shift from the use of Internal Rate of Return (IRR) to Net Present Value (NPV) and a decrease in the use of the Payback Period (PBP). The 1991 survey showed 97% of the surveyed companies use NPV, as opposed to only 52% in the 1978 AACE survey. The percentage of surveyed companies using IRR dropped from 100% in 1978 to 90% in 1991. Also, the percentage of surveyed companies using PBP dropped from 78% in 1978 to 64% in 1991.

The State of the Art of Present Worth Analysis of Cash Flow Distributions

Abstract A summary is presented of state of the art techniques for evaluating the present worth of cash flow distributions for project comparisons. Included is the treatment of discrete and continuous cash flow profiles with both discrete and continuous compounding of interest. Conventional finite summation, integration, numerical analysis, Laplace transform, and Zeta transform techniques are all illustrated performing present worth analysis. Recent developments on the effects of timing uncertainty, the learning curve, and the inflation rate on present worth analysis are also described.

Cost and scale-up factors, international inflation indexes and location factors

Abstract This paper updates and expands upon a previous study (Int. J. Prod. Econom. 54 (1998) 41) on cost and location factors used in the US and internationally. The current study includes 43 US cost and location factors and 30 international cost and location factors for 12 countries. In addition, cost scale-up factors for a wide variety of equipment, plants and processes from air pollution abatement to waste-to-energy facilities are presented. This study reviews the use of these indexes and scale-up factors, and presents caveats for their use.

Project and Engineering Management Certification

This paper summarizes the requirements for eight major project management (PM) certificates—including new program management, risk assessment, and scheduling management certificates—and two major engineering management certificates that are offered in the United States by professional societies. We provide information on the number of people holding the certification, eligibility to obtain the certification, exam format, cost for the certification, and contact information for the organization offering the certification. We also include information about societies outside the United States that offer PM certifications in 83 countries. Finally, we discuss international PM certifications offered by a U.S.-based organization. Many organizations are starting to require certifications for their project and program managers. This paper will help readers decide what certifications are applicable and the requirements for obtaining a specific certificate.

The Role of Interest and Inflation Rates in Present Worth Analysis for Eleven Industrialized Countries of the Free World

Abstract The role of forecasting interest and inflation rates in present worth analysis is discussed and a method proposed in which these rates are combined into a single parameter. We analyzed historical data between 1970 and 1978 for various countries to show that this parameter is stable; thereby allowing past data to be used as a forecast for future values and eliminating the need to estimate future inflation and interest rates in present worth analysis. Also, using this simple parameter we show that inflation and interest rates tend effectively to cancel each other in present worth analysis, thereby greatly simplifying present worth calculations.

Present worth analysis of capital projects using a polynomial cash flow model

Abstract An economic model for present worth analysis of capital expenditures is developed, assuming discrete compounding of interest. Closed-form solutions are presented for computing the present worth of projects with periodic cash flow profiles that can be approximated by polynomial functions. Simplified solutions for the present worth are presented for two limiting cases: extended project lifetime and negligible interest rate. Also, a simplified expression providing an accurate present worth estimate can be used for many U.S. Government projects. These results are especially convenient for comparisons of economic alternatives, and risk and sensitivity analyses. In addition, a sensitivity analysis of the model based on graphical results and an industrial example illustrating the use of the model are presented.

Depreciation and Tax Policies in the Seven Countries with the Highest Direct Investment from the U.S.

ABSTRACT This paper compares the United States depreciation rules, corporate income tax rates, and investment tax credits with the seven countries that have the highest direct investment from the U.S. These countries are Australia, Canada. France, Germany, Japan, the Netherlands, and the United Kingdom. For illustrative purposes, two comparative examples for computer systems and manufacturing equipment are included.

Comparison of depreciation and corporate tax policies between the countries of the North American free trade area (NAFTA) and the European Community (EC)

Abstract This paper compares the depreciation rules, corporate income tax rates and investment tax credits of Canada, Mexico and the United States (North American Free Trade Area) with the twelve countries of the European Community: Belgium, Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain and the United Kingdom. For illustrative purposes, a comparative example of computer systems is included.