several of the multiple-criteria decision-making approach used for strategic capital investment are

summarized. Factor commonly present in the evaluation very, often including the risult of a PW study
(which is also called a net present a net present value, or NPV, study), or a return-on-investment study.
the wise use of sensitivity analysis discused earlier in this next offers assistance in the understanding of
what costs and benefits may results from the introduction of new technology into an existing plant.

The chapter is the last in this book, but it is one of the more important in subject matter. Due to the
rapidly changing scene of manufacturing and information system technology in the world, most,
corporate decision makers are faced with vitally important questions of how to maintain or regain
nationally and internationally competitive positions for their corporations.

Section objectives

After completing this chapter, you should be able to do following

1. State the different roles of economic analysis tools for stand-alone project and large programs
of intergrated project which require major investment and managemen commitment.
2. State how the result of an economic analysis may be interpretated differently for tactical-level
and strategic-level projets.
3. List sample tangible and intangible benefits which may be relized from integrated systems, and
explain why evaluation studies on large, long horizon programs must consider both of these
categories
4. List factors which may be used to perform multiple-criteria evaluation studies, and use the
weight evaluation criteria and their result. Also, describe the evaluation approach taken by the
analytic hierarchy process
5. Perform a sensitivitay analysis for a large investment program using percentage variation on
selected economic factors, given the factors and the economic measure.

Study guide

Role of economich evaluation in capital- investment studies

There are three levels of management decision making in most coporate environtment. These levels can
be used to examines the role of economic analysis in decision making. The levels are:

Strategic- formulation of goals and policy by upper management of the corporation tactical-
development of guedelines which set the direction by the for implementation of strategic decision in the
operating devisions.

As an illustration, a strategic corporate policy to compete with international firms in product quality
level may result in a tactical decision by the general manager of the consumer product devision to
develop a total quality system for a specific line of products. The operational unit managers and
employees of these line may then formulate sthe structure and procedures of quality improvement
programs and project.
There will be an effect upon CAD/CAM CAPP (computer aided design, computer aided manufacturing
computer aided process planning) and other system in the corporation as they are impacted by the
strategic decision to improve product quality.

Much of the application of engineering has been directed to tactical and operational level project
through the use of PW (NPV). Rate of return EUAW, and payback analysis of stand alone project . in fact,
the incorrect use of payback analysis and simplistic. Incorrect uses of rate of return analysis are oftenin
contradiction to the correct application of discounted cash flow (DFC) method you have leraned in
either chapters.