Economic analysis involves evaluating costs and benefits to check viability for a project, investment opportunity, or event. Its principles include opportunity cost, cost-benefit analysis, and marginal analysis to help professionals assess trade-offs and prioritize decisions that deliver the highest net benefit.
These types of analyses are based on the study of existing economic data and information, but can also be performed while natural or man-made situations occur (prospective studies). They’re important for identifying problems and developing solutions that will have the most impact.
As a tool for PMSD, economic analysis supports the deeper understanding of market structures and incentives that influence market actor behaviour. It’s often used to ground subsequent participatory mapping sessions and to support consulting assignments that require more complex thinking.
Whether it’s looking at the location of an industrial plant or the feasibility of new product lines, economic analysis can help decision makers understand the pros and cons of specific projects. It can also assist with assessing the local economy and its current strengths and weaknesses, which is especially helpful for rural communities.
When performing economic analysis, it’s critical to use accurate and detailed data. This will ensure that your results are credible, unbiased, and useful. For example, using outdated multipliers or ignoring the displacement of economic activity are common mistakes that can significantly overstate a project’s impact. The rigour of your research will also be enhanced by clear, precise diagrams. Make sure you clearly label all axes and curves, and that they are labelled with their relevant variables.
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