Technology Evaluation - Technology Evaluation and Assessment Methodologies

As technology has evolved, it has become more complex, seemingly at an increasing pace. Decision makers are left with the awkward problem of evaluating potential outcomes and choosing technologies to achieve these outcomes in the presence of this intense complexity. Decisions that are well intended can lead to losses in results as unexpected outcomes develop, or as outcomes have unexpected consequences. Decision makers therefore have a great need for a framework which structures information in a way, which makes the complexity more tractable, but still takes into account the implications of the complexity. Cost-benefit analysis is an analytical tool, which has the potential to significantly advance this process.

Cost-benefit analysis (CBA) provides a means for systematically comparing the value of outcomes with the value of resources achieving the outcomes required. It measures the economic efficiency of the proposed technology or project. When all else is equal more efficient projects should be chosen over less efficient ones. When there are many options to consider during a decision-making task, it is useful to evaluate the options with a common metric. Cost-benefit analysis refers to any type of structured method for evaluating decision options.

CBA has become widely accepted among business and governmental organizations. Although CBA has definite limitations, especially in the non-standard way that the payoff function is derived and calculated, its potential for making decisions more rational is comforting to those who must make the decisions. In situations in which large amounts of money are at stake, the presentation of a cost-benefit analysis is the preferred way to demonstrate the reasoning behind investments.

For the application of CBA, inputs may be divided into parameter values and benefit and cost values. Parameters include the discount rate, the future rates of economic growth, the future rates of inflation, the estimations about the future rates of technological change. Benefit and costs include monetary values for marketed goods, monetary values for non-marketed directly used goods, monetary values for non-marketed passively used goods, goods for which monetary values cannot be measured.

An example of cost-benefit analysis is given by the comparison between three technologies for setting-up a workshop for mechanical construction in the plant of Citroen at Meudon, France . The technologies, which were compared, were: (1) a flexible workshop based on high-level automation, (2) a flexible workshop based on the re-engineering of existing machinery, and (3) a traditional workshop. The question was to analyse which solution was the most profitable for the company, in terms of investment and profitability. A cost-benefit analysis was adopted, which systematically investigated both sides of the problem: the costs for setting-up each type of workshop, and the benefits from its operation.

For the estimation of the costs of each of the three solutions, a series of assumptions were adopted:

These assumptions permitted to calculate the costs for setting-up each workshop. The costs included the purchase of machinery, studies, materials for the production, costs of personnel, and financial expenses.

The calculation of costs gave the input for the second step of the method, which included the estimation of the benefits from each solution. This estimation was based on the annual cash-flow for a period of 10 years, pay-back time, rate of internal return, and realised benefits.

It appears that the flexible workshop is the solution with the better performance and profitability. This evaluation is meaningful for any industrialist wishing to invest and looking forward at the modernisation of the tools of production.

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Cost-benefit analysis

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