SECTION 260:65-11-3. Evaluation steps

  The recommended steps in the economic evaluation are:

(1)   Objective. Every economic evaluation should have a statement clearly defining the specific objective to be accomplished by the evaluation. Examples of objectives are: To determine which design or equipment of what size is economically preferable.

(2)   Constraints. There could be technical, physical, budgetary or code constraints. Any of these can reduce the number of candidate strategies for which an economic evaluation must be performed.

(3)   Data, estimates and assumptions.

(A)   Data. The types of data that are needed are: investments costs (I), energy costs (E), maintenance and nonfuel operating costs (M), replacement costs (R), salvage value (S), interest rate (i) and escalating rates (j)

(B)   Estimates. The economic life of the project has to be estimated. Appendix C of this Chapter includes the suggested economic life for a number of equipment.

(C)   Assumptions. To simplify the cash flow calculations, the investment costs are assumed to occur in a lump sum at the beginning of the base year. All other costs occur in lump sums at the end of the respective years in which they occur.

(4)   Evaluation. The general equation for calculating the total life cycle cost is set forth in Appendix D.

(5)   Sensitivity analysis. Sensitivity analysis technique is performed by repeating an evaluation using different input values. By testing the percentage change in the output corresponding to specified percentage changes in input values, the most critical parameters can be identified. The technique is also used to produce an upper and lower boundaries for the output based on maximum and minimum estimated values for the input parameters. In some cases, expressing the answer in terms of upper and lower boundaries gives a clearer picture than a single point estimate. Although performing sensitivity analysis is not required under the TLCC rule, it is a useful technique especially where there is uncertainty about the data and estimates.

(6)   Non-quantified factors. In many projects, some parameters with significant consequences are not adequately captured in the numerical evaluation. These parameters should be presented in descriptive terms during the decision making process. For example, replacing a window with an insulted wall will save energy, however, the effect of a windowless room on the occupants should be taken into consideration.

[Source: Added at 31 Ok Reg 1423, eff 9-12-14]