DETERMINATION OF ECONOMIC VALUE ADDED FOR A PROPOSED INVESTMENT IN NEW MANUFACTURING

This paper discusses a measure for estimating the wealth creation potential of capital investments in manufacturing. The measure, called “Economic Value Added,” has recently become popular in the United States and can be derived from an after-tax analysis of cash flows generated by a capital investment. A proposed investment in manufacturing capacity is analyzed to illustrate the after-tax cash flow calculations required to determine its EVA potential.     

CASE STUDY: ECONOMIC VIABILITY OF COMPONENT MANAGEMENT FOR A NEW DESIGN

This paper explores the viability of standardization of design and manufacturing techniques to expedite product development and control design proliferation using an example of a leading transport refrigeration unit manufacturer. As an incremental approach to implementing standardization in a product development environment, a conceptual framework for component management decision support system is presented to build a case for its technical feasibility. The primary objective of this research case study is to provide an economic justification for implementing the proposed system. A three level decision making hierarchy is proposed with economic optimization for levels 1 and 2 representing standardization of system modules and capacity decisions for a product line respectively and thermodynamic optimization for level 3 representing control systems to keep the system dynamically balanced in changing environments. Other potential applications amenable to classification are identified.     

CASE STUDY: US ARMY UTILITY HELICOPTER FLEET MODERNIZATION ANALYSIS

The US Army has relied heavily on helicopter support for more than 30 years. These aircraft have been used for a variety of purposes, with the most widely identified category being the utility, or general-purpose transport, mission area. Currently, the US Army is confronting the problem of managing an aging equipment fleet (its helicopters) in the face of significant budgetary constraints, a very large-scale fleet replacement problem. By the nature of its business, the US Army is not working toward a desired profit margin, but it must maintain a level of military capability to meet its national defense obligations. The US Army recently commissioned the Utility Helicopter Fleet Modernization Analysis to determine the most cost and operationally effective strategy for fleet replacement or modernization. This case study presents a synopsis of how multi-criteria decision analysis techniques were integrated with total cost of ownership considerations to develop a multi-billion dollar equipment modernization strategy, a strategy that is being implemented by the US Army today.     

CASE STUDY: BUS FLEET REPLACEMENT

Parallel replacement analysis is concerned with determining minimum cost replacement schedules for a group of assets that are economically interdependent and operate in parallel. That is, keep and replace decisions are required for each asset among a group of assets over a specified horizon. The assets are economically linked through economies of scale or budgeting constraints. One application of parallel replacement analysis is fleet replacement. We recently studied the operations, including fleet replacement policies, for a city transit bus operator in Europe. Key factors in their replacement decisions included the ability to choose from multiple manufacturers, purchase price, and government regulations. We explore these and other factors, by solving a heterogeneous replacement problem with fixed costs, budgeting constraints, and demand constraints. Through extensive sensitivity analysis we analyze the impact of various parameters on decisions, in terms of the choice of replacement assets, as well as the optimal time to retain assets. Additionally, we provide motivation for future research in this application area, which is important for many cities.     

THE INFLUENCE OF EXPERT REVIEWS ON CONSUMER DEMAND FOR EXPERIENCE GOODS: A CASE STUDY OF MOVIE CRITICS*

An inherent problem in measuring the influence of expert reviews on the demand for experience goods is that a correlation between good reviews and high demand may be spurious, induced by an underlying correlation with unobservable quality signals. Using the timing of the reviews by two popular movie critics, Siskel and Ebert, relative to opening weekend box office revenue, we apply a difference‐in‐differences approach to circumvent the problem of spurious correlation. After purging the spurious correlation, the measured influence effect is smaller though still detectable. Positive reviews have a particularly large influence on the demand for dramas and narrowly‐released movies.     

THE IMPACT OF POLITICAL RISK ON THE FOREIGN DIRECT INVESTMENT DECISION: A CAPITAL BUDGETING ANALYSIS

Using a capital budgeting framework, we examine the impact of political risk on the foreign direct investment decision. Political risk may alter operating cash flows via discriminatory regulations as well as the investment via expropriation. We model the impact of political operating costs and expropriation costs on the NPV of a project under the assumption that the parameters that affect the NPV are constant over the life of the project. Next, we provide an illustration for the case in which the relevant parameters are variable over the life of the project. The paper concludes with an example of political risk in the 1990s, the case of Black Sea Energy Ltd.'s investment in Russia.     

A COMPARISON BETWEEN TWO MULTIATTRIBUTE DECISION METHODOLOGIES USED IN CAPITAL INVESTMENT DECISION ANALYSIS

Two multicriteria decision methodologies applied to evaluating capital investments are the Analytic Hierarchy Process (AHP) and the Non-Traditional Capital Investment Criteria (NCIC) model. In this paper we demonstrate that a mathematical relationship exists between these two models. In-particular, a data set obtained by one method can be mapped into an equivalent data set obtained using the other method. It is suggested that this offers an opportunity of empirically assessing decision makers judgmental capabilities under varying data collection methods. An example problem illustrates the manner in which such comparisons can be made.     

CASE STUDY NO. 1 Modernization Project - A Dynamic Evaluation

This is our first case study It is “off the shelf” of a contributor who prefers to remain unidentified. The presentation should stimulate research in other trends, as they impinge upon predicted profits.     

INVESTMENT OPTIONS AND BARGAINING POWER: THE EURASIAN SUPPLY CHAIN FOR NATURAL GAS*

We use cooperative game theory to analyze the power structure in the pipeline network for Russian gas. If the assessment is narrowly focused on the abilities to obstruct flows in the existing system, the main transit countries, Belarus and Ukraine, appear to be strong. Once investment options are accounted for, Russia achieves clear dominance. Competition between transit countries is of little strategic relevance compared to Russia's direct access to its customers. Comparing our theoretical results with empirical evidence, we find that the Shapley value explains the power of major transit countries better than the core and the nucleolus.