Audience

This guide is written for individuals interested in learning about the economic evaluation of projects and business costs or who wish to enhance their understanding of economic evaluation concepts and methodologies. There are four audience groups in particular who will benefit from reading this guide. These are:

• Project economists
• Corporate managers
• Business students
• Contract lawyers

Project economists: A supervisor would be well advised to assign this guide as required reading to an entry level project economist starting a new job. Reading this guide will eliminate months of training by the supervisor and will reduce the risk of errors being made by the project economist. Practicing project economists are also encouraged to read this guide to enhance their understanding of key financial concepts and evaluation methodologies. They will be pleasantly surprised at the creative insights and explanations provided which they have likely not seen before.

Corporate managers: Corporate managers are the investment decision makers for a company. Decision makers rely on several economic measures to portray the economic profitability of investing capital in a project. These economic measures of profitability are relied on extensively to make investment decisions. Unfortunately, some of these measures will occasionally provide false and misleading information, oftentimes inconspicuously. It is imperative that the investment decision maker understands the underlying meanings, strengths, weaknesses and characteristics of all economic measures in order to ensure that project profitability is fairly addressed. Corporate managers who have a reasonable understanding of economic evaluation concepts, methodologies and economic profitability measures have the advantage of knowing the appropriate questions to ask to ensure that project profitability is being fairly evaluated.

Business students: Business students are assigned financial textbooks in business schools that appropriately cover a wide spectrum of financial concepts and theories that are written by experts in these fields. This guide is intended to supplement these readings by focusing on the practical side of financial theory. This guide specifically addresses the economic evaluations of projects and other business applications commonly encountered in the business community. It introduces business students to the practical side of these applications and the issues typically encountered. Even so, the discussion never loses sight of the financial theories that drive economic evaluations by referring to these theories in the explanations of concepts and methodologies. For business schools considering offering the equivalent of an economic evaluations 101 course, this guide provides excellent course material.

Contract lawyers: Corporate contract lawyers are tasked with writing legal agreements that cover a wide variety of financial applications. For example, a tariff agreement describes the individual cost parameters and calculations employed in determining the tariff. A royalty contract describes the different royalty rate tiers and the economic profitability triggers that activate higher royalty rate tiers. A lease contract describes the timing and size of lease payments, termination penalties, and renewal and purchase options. While contract lawyers are wise to rely on project economists to assist them in these matters, a base level of understanding by the contract lawyer of economic evaluation fundamentals will enhance communication between the lawyer and project economist and expedite the legal drafting process.

This guide is written in a manner to encourage anyone with the slightest interest in learning about the economic evaluation of projects, leases, tariffs and acquisitions to read its contents. No prior knowledge of this subject matter is required.