What Is Economic Evaluation?

Malcolm Tatum

An economic evaluation is a type of assessment that seeks to project the anticipated outcome of taking a specific action, in terms of how that activity will impact the well-being of a business, a municipality, or even the economy of a nation. Typically, the process will require careful consideration of all known factors related to the proposed action, including any variables that could affect the outcome. The idea is to identify activities that are highly likely to result in creating a beneficial impact on the economic well-being of the company, city, or general economy.

Woman posing
Woman posing

One example of how an economic evaluation can be extremely helpful in planning future projects and activities can be seen in the creation of some sort of public health program. If the leaders of a local municipality are thinking in terms of opening health clinics in the area, taking the time to analyze the impact of those clinics on the local economy would be a good idea. As part of the evaluation, factors such as the number of people who would be employed by the clinics would be taken into consideration, the impact of the clinics on the business volume of local doctors and existing health care facilities, and what the operation of the clinics would mean for local suppliers of basic healthcare products. Assuming that the clinics are viewed as being a positive move for the local economy, there is a good chance the municipality will move forward with the project.

Part of the process of an economic evaluation has to do with identifying how available resources are being used, and if the allocation of those resources is actually creating the best possible return, given the current circumstances. This particular application of the evaluation process can be very helpful for institutions that are already functioning and simply want to make sure they are operating at the highest level of efficiency possible. By looking closely at how each resource is used within the operation, and considering possible alternative ways to allocate those resources, it is possible to make changes that over time will have a beneficial impact on the financial well-being of that organization.

The whole purpose of economic evaluation is to ensure that resources are used to best effect. When this approach is utilized before a project actually commences, the evaluation can help minimize the changes of wasting time and other resources with strategies and applications that are highly unlikely to yield a reasonable return. As a tool to assess the operation of an ongoing enterprise, the economic evaluation can often make it possible to identify alternative methods and approaches that actually enhance the overall operation, allowing the business or other entity to accomplish more with the resources on hand.

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