Perspectives: Plant InSites

Properly Assess Economics

Understand when common evaluation methods are most appropriate

By Andrew Sloley, Contributing Editor
Jun 24, 2015

Many engineering choices depend upon economics. You must select the path forward that will earn the most (or lose the least). The three most common methods for evaluating economic value of projects are simple payback, net present value (NPV) and internal rate of return (IRR). Each offers a different type of answer. Simple payback details a duration. NPV gives a total value. IRR yields a percent or fraction. All three have specific situations where they might be the right approach.

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