Conducting Technical & Economic Evaluations

What a technical & economic evaluation is

This is the natural partner to profitability methods (Lesson 26). Where those measure one option's economics, this lesson is the broader process of evaluating and choosing among several — bringing the engineering and the economics together rather than deciding on cost alone. It's how option selection (recall FEL "select" gates in Lesson 6) is actually done.

How an evaluation is conducted

A sound evaluation follows a repeatable sequence:

1. Define objectives & criteria — what the project must achieve, and the technical and economic criteria options will be judged against.
2. Identify alternatives — develop a realistic set of options to compare — including, often, the "do nothing" base case.
3. Evaluate technically — assess each option's feasibility, performance, and risk against the technical criteria.
4. Evaluate economically — estimate each option's cost and apply profitability methods (NPV, IRR…) on a consistent basis.
5. Compare & test — rank options, run sensitivity analysis, and check robustness to changed assumptions.
6. Recommend & document — recommend the best-balanced option with the reasoning recorded for the decision-makers.

Sensitivity analysis

Because evaluations rest on uncertain inputs (costs, prices, demand, discount rate), a robust evaluation tests how the answer changes when those inputs move. This is sensitivity analysis:

Using evaluations well

For any option-selection decision, run the full sequence: define criteria, build a fair set of alternatives, evaluate each technically and economically on a consistent basis, test sensitivity, and recommend the best-balanced option with the reasoning documented. Resist the pull to decide on lowest capital cost alone — the disciplined evaluation is what protects against picking the cheap option that underperforms or the elegant one that never pays back.

Nine things to remember

1. A technical & economic evaluation compares alternatives on both merit and economics.
2. It's the partner to profitability methods — choosing among options, not scoring one.
3. Two lenses, one decision — evaluate technical and economic together.
4. The process: define criteria, identify options, evaluate, compare/test, recommend.
5. Include a "do nothing" base case as a reference alternative.
6. Compare on a consistent basis — same scope, assumptions, and estimate class.
7. Sensitivity analysis finds what the decision hinges on — focus effort there.
8. Don't decide on capital cost alone — the best option balances both axes.
9. Estimates feed evaluations feed decisions — this is where estimating earns its value.