An applied model for evaluating and ranking engineering investment proposals
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1967
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Abstract
Industrial managers and engineers are faced with responsibilities of planning and selecting activities which assure the continued growth of their firm, and which provide the most effective use of capital. These responsibilities require reliable economic decision making which may often be influenced by an atmosphere of complexity. The major goals of this research have been to contribute to the reliability of a particular class of economic decisions, and to provide an aid which helps decrease the complexity of applying old, as well as new, methods. Special objectives were to develop and implement a general mathematical model and a corresponding computer application package for use in evaluating and ranking mutually exclusive engineering investment proposals. STRIVED-pREest is the name given to the mathematical model developed and presented here. The model is of general use in quantifying the potential profitability of proposed engineering investments, and in ranking competing proposals based on potential value. As indicated by the model name, there are seven financial elements and five influencing factors which may be given concurrent consideration. The financial elements are salvage value, taxes, revenue, investment requirements, recovery, expenses, and depreciation. The influencing factors are probability of success or risk, revenuer pattern, expense pattern, tax rate, and time. Significant aspects of the model include general applicability, generality with regard to quantification of evaluation components, concurrent consideration of any or all of the elements and factors, and ability to estimate the value of a proposed investment by several different criteria. ...