General considerations on economic evaluation of satellite … 07... · 2020. 2. 10. · Dr. Guillermo Tricoci [email protected] [email protected]. General considerations on

Buenos Aires, 11 - 16 de November 2019

2nd International Academy of Astronautics Latin American

Symposium on Small Satellites:

Advanced Technologies and Distributed Systems.

Dr. Guillermo Tricoci

[email protected]

[email protected].

General considerations on economic evaluation of satellite missions

Application in small satellites projects.

mailto:[email protected]





Agenda

• Introduction.

• Financial evaluation tools.

• Cost-benefit evaluation.

• Let's talk about costs.

• Let's talk about Benefits.

• Assets management methods.

• Project Portfolios. Relationship between

value and risk in projects.

• Conclusions.





3

Introduction





4

Introduction

• The economic evaluation is a process that is used when there is a need to justify ex - ante that the economic resources that will be applied to the project will be recovered in its useful life.

• The financial productive process is the source of costs and benefits.

• The costs will be referred to those necessary for the production of goods and service object of the venture, during the entire time horizon of the project.

• The benefits arise from the valuation of the goods and services to be provided, made by the recipients to whom they are addressed.These "potential customers / users" will have a "utility" for which they will be willing to pay a price.





5

Can any project be evaluated economically?





6

Can any project be evaluated economically?

❑ The evaluation process requires costs for itsrealization.

❑ But in addition to availability of data to be ableto do it that in many cases are non-existent ordifficult to access.

❑ This leads to the formulation of assumptionsthat in case of lack of data make the evaluation

will be weaker and difficult to sustain.





7

Why should projects be evaluated economically?





8

Why should projects be evaluated economically?

• The ex ante evaluation allows us to reduce uncertainty aboutthe investment to be made

• Verify that the future net benefits will be greater (in terms offorecasts) than the initial investment and that its return(revenue) is greater than another alternative project.

• It allows to obtain a better forecast of the level the averageprofitability of the own capital of the firm that will carry out theproject.





9

Does the time factor impact the value of money?





10


➢ The concept of investment, in broad terms implies the placement of an amount of money in order to obtain a larger amount in the future.

➢ The investor hopes that after the term of his investment is fulfilled, the amount of money he will reimburse will be greater than what he initially had.

➢ The decision maker makes a change of the initial certainty for a set of expectations of future benefit.

➢ These expectations are related to uncertainty (risk) that he estimates will be more than compensated with the fulfillment of the project.

➢ When we mean that you expect a larger amount, the value of time is taken into account. This implies that $ 100 at time 1 is not equal to $ 100 at time 7. Time

has value and it is expressed at a discount rate.





Financial evaluation tools





How is future utility determined?.

VAN is the net present valueFF is the net cash flow of each period. The net cash flow arises from the difference in the flow of income and expenditure funds. The initial investment is an exit from the initial period.r is the discount ratet are the project periods

Thousands of dollars

1 2 3 4 5 6 7

Costs 100 75 75 10 10 10 10

Benefits 50 75 100 120

Net -100 -75 -75 40 65 90 110

NPV $ 1,12

NPV> 0; The investment would

produce profits above profitability

required.

NPV <0; The investment would

produce profits below profitability

required.

NPV = 0; The investment would

not produce profits or losses

Initial InvestmentOperation / maintenance





P.R : is the recovery period

f f : is the net cash flow of each period. The net cash

flow arises from the difference in the flow of income and

expenditure funds.

r : is the discount rate

t : are the project periods

Inv : is the initial investment.

Another method when the problem is the restriction of financial

resources : repayment period.





14

Cost-benefit evaluation





15

Cost-benefit evaluation

A cost benefit evaluation aims to compare two situations:

o The situation without a project with its associated costs and benefits.

o The situation with project with its associated costs and benefits.

The result of the project results from the difference between the quantification of both situations





16

Let's talk about costs.





17


The costs can be categorized into two main types.

• Mission development costs.planning,

planning of scientific requirements,

global and detailed design,

construction of engineering and flight models,

testing,

launching,

design of earth stations or the incremental costs to perform the operations of land,

planning and design of the applications, global design and detail, its implementation

• Operating and maintenance costs.

include costs from the start-up of the mission (commissioning) of the mission until it is deactivated or sold





18


➢ History is usually used.

➢ Forecasting techniques consider that the future will be a consequence of the past, but this scheme may be different in the case of the emergence of new technologies.

➢ You can appeal to the use of industry data.

➢ Analysis of similar situations in other organizations that serve as a reference point.

➢ Another more prospective scheme is scenario analysis.

➢ In general, the costs of maintaining the service properly tend to be underestimated.





19

Let's talk about costs

• The dilemma between being innovative or being a follower

• New technologies, today is the clear shortening of product life cycles and theshort time between its launch and its price drop stage, in order to allow rapidaccessibility to new players.

• The satellite technology industry has segments that have a rapid massificationof new products and the provision of central engineering components in thecharacteristic of commodities.

• Therefore, the first to enter, pay higher values, have greater risks because thetechnology is new and unknown. There are less trained personnel, lessalternatives of external services to be hired and available. Generally, for asupply issue, higher hourly values are required: These elements make theinvestment recovery terms generally longer.





20


➢ Estimates costs have a difficult prediction in cases of a new technology.

➢ Technological risk (that the product does not work properly or that the launch is defective) is another aspect that should be considered properly. It has impacts from the point of view of cost differentials but also of benefits differentials.

➢ Delays may have an impact on both parts of the equation, both on the side of the costs that are estimated to be lower than the real ones and also makes the delays in the availability of the projects delay the benefits that were estimated





21


Examples of possible errors in cost estimates (where the concept of attribution is violated ).

❑ Inclusion of the total cost of an integration and testing laboratory against the use of these facilities.

❑ Cost of modifications to a property launcher regarding a launch service.

❑ New buildings for earth stations against the services of earth operations





22

Let´s talk about benefits .





23


❑ The ex - ante determination of the benefits (income) of an investment project constitutes the least controllable aspects and in many cases after its clear identification, difficulties may arise for its adequate quantification.

❑ We have to connect the uses of the mission's payloads with user requirements and through the generation of new applications that allow converting these new data collected into information that modifies decisions with the consequent impact of improvement.





24


Examples of benefits - mission of earth observation:

❖ The benefits of a mission are data for obtaining information that is useful to users.

❖ Improve the accurately the weather forecasts, we can improve the efficiency of the flights of the airplanes.

❖ Help the producers that are weather dependent to make better fertilization or irrigation decisions with the consequent better use of energy,

❖ Help reduce the risk of disease in crops by the most efficient application of remedies.

❖ Anticipate flooding with lower evacuation costs and in the possible morbidity of material and human losses.

❖ Detect failures in fluid transport by ducts .

❖ Detection of potential fire conditions.

❖ Use it for educational purposes





25

Let´s talk About benefits ..

A classification of the type of benefits can be made based on the variables that the organization controls and the degree of difficulty in its quantification. We find at least three types of benefits:

• Controllable quantifiable benefits.

• Quantifiable benefits not fully controllable.

• Benefits of difficult quantification





26

Assets management methods.





27

Assets management methods.

Total Cost of Ownership ( TCO).

The axiom "the cheapest is the most appropriate", can be extremely harmful. It

has limitations such as:

- Absence of calculation of benefits.

- Absence of consideration of strategic aspects.

- Absence of the idea of value.

- Difficulties to be used for comparison of alternatives.

Total Ownership Value (TOV)





28

Project Portfolios. Relationship between value and risk in projects.





29

Project Portfolios. Relationship between value and risk in projects.





30

Conclusions





31

Conclusions

• Asset life cycle management is a strategic process of firms.

• The economic evaluation process allows the determination of the value of these assets.

• Although, as we have seen, the determination of benefits is a complicated task, this should not prevent the determination of the value of the projects.

• The use of costs (TCO) can be useful when looking for more efficient projects and not looking for more value but an improvement in the existing situation.

• In the case of strategic projects that are difficult to quantify, the evaluation process, although it is difficult to complete and reach a final result due to lack of data or lack of certainty, is a valuable help for the final decisions of the project managers.

• It tends to enrich the knowledge about the projects and the ex-ante appreciation of a reasonable use of financial resources and obtaining the best benefits





¿Questions?





33

Thank you !!!

For adicional information :

Guillermo Tricoci [email protected]

[email protected].







34

Bibliography.

34

o Bryan, Lowell L y Zanini , Michele ¨Strategy in an era of global giants¨The Mc Kinsey 2005 N 4 pages 46-59.

o Bryan, Lowell L. ¨The New Metrics of Corporate Performance: Profit per employee¨ . The McKinsey Quarterly , The 21st century corporation . 2007.

o Brynjolfson, Erik y Lorin M Hitt. ¨Beyond the Productivity Paradox¨Comunication oh the ACM 41, num8 ( 8-1998).

o Brynjolfson, Erik y Lorin M Hitt. ¨Information Technology and Organization Design: Evidence from Micro Data.¨ ( 1-1998).

o Chain, Nassir Sapag y Chain, Reinaldo Sapag (2000) “Preparación y Evaluación de Proyectos” McGraw-Hill Interamericana 4th edicion.

o Demsey Jed, Dvorak Robert E. , Holen Endre, Mark David y Meehan III William F. ̈ A Hard and Soft Look al IT Investments”. The McKinsey Quartely 1998 Number I.

o Collison Chris y Parcell Geoff “La gestión del conocimiento. Lecciones prácticas de una empresa líder” Editorial Paidós 2003.

o Fontaine , Ernesto R. (1993) . Evaluación Social de Proyectos .Santiago,Chile: Economics Institute . Editions Universidad Católica de Chile.

o Ginestar, Alberto (2001) “Pautas para identificar formular y evaluar proyectos”. Evaluation Argentine Asociation.

o Laudon ,Kenneth C. y Laudon ,Jane P. (2002) Sistemas de Información Gerencial México Prentice Hall.

o Levina, Natalia y Jeanna W. Ross ¨From the Vendor´s Perspective Exploring the value Porposition in Information Techology Outsourcing ¨ MIS Quartely 27 Nro 3 ( septiembre de 2003) .





35

Bibliography.

35

o O´Brien, James A y Marakas, George M ¨Sistemas de Información Gerencial¨ 7th edition Mc Graw Hill 2006.Chater 14

o Porter , Michel ( 1980 ) “ Competitive Strategy” , New York ,E.E.U.U., Free Press.o Porter , Michel ( 1985 ) “ Competitive Adventage” , New York ,E.E.U.U., Free Press.o Porter, Michael (agosto - septiembre 1985a) “How Information Can Help you Compete “

Harvard Business Review.o Sapag Chain , Nassir y Sapag Chain, Reinaldo (2000)“ Preparación y Evaluación de Proyectos

“( 4th edition) Chile, Mc Graw Hill.o Slywotzky, A.J., Webr, K. and Morrison, D.J. (2000) “How Digital is Your Business?” Crown

Publishing, New York.o Schoderbek, C.G., Schoderbek, P.P. y Kefalas, A.G., “Management Systems Conceptual

Considerations” Business Publications, Dallas, 1990.o Sveiby , Karl Erik . ¨The New Organizational Weath : Managing and mesuaring knowledge-

based assets¨. San Francisco: Berrett-Koehler Publishers. 1997.o Tricoci, Guillermo “ Las TICs y el Conocimiento. Un enfoque económico y de negocios” .

Ediciones Cooperativa . Agost 2008.o Tricoci, Guillermo A “¿La Sociedad del Conocimiento convertirá a la Argentina en un país

rico?” 3º Congress of information Technology . May 2006.o Varian, Hal R. (1993) “ Microeconomía Intermedia “ , Barcelona , Spain, Antoni Bosch Editor .





36

Back up





37

Life cycle

Definición del proyecto

Diseño





38

Life cycle

A product goes through different stages :

❖ Birth.

❖Acceptance and Growth.

❖ Maturity.

❖ Deterioration and Death

Definición del proyecto

Diseño





39

Dolla

rs

Time

Development

Benefits

Operation and maintenance

Costs and Benefits on Life cycle





40

Introduction

• The economic evaluation is a process that is used when there is a need to justify ex - ante that the economic resources that will be applied to the project will be recovered in its useful life.

• Consists in measuring and comparing the costs and benefits of projects in order to determine the relevance of their execution with respect to the objectives set and with respect to other projects. (Fontaine 1993).

• The financial productive process is the source of costs and benefits.

• The costs will be referred to those necessary for the production of goods and service object of the venture, during the entire time horizon of the project.

• The benefits arise from the valuation of the goods and services to be provided, made by the recipients to whom they are addressed.These "potential customers / users" will have a "utility" for which they will be willing to pay a price.





41


➢ The concept of investment, in broad terms implies the placement of an amount of money in order to obtain a larger amount in the future.

➢ The investor has an expectation.

➢ He hopes that after the term of his investment is fulfilled, the amount of money he will reimburse will be greater than what he initially had.

➢ The decision maker makes a change of the initial certainty for a set of expectations of future benefit.

➢ These expectations are related to uncertainty (risk) that he estimates will be more than compensated with the fulfillment of the project.

➢ When we mean that you expect a larger amount, the value of time is taken into account. This implies that $ 100 at time 1 is not equal to $ 100 at time 7. Time

has value and it is expressed at a discount rate.





42


The ex - ante determination of the benefits (income) of an investment

project constitutes the least controllable aspects and in many cases after its clear identification, difficulties may arise for its adequate quantification.

Examples of mission of earth observation:

❖ The benefits of a mission are data for obtaining information that is useful to users.

❖ Improve the accurately the weather forecasts, we can improve the efficiency of the flights of the airplanes.

❖ Help the producers that are weather dependent to make better fertilization or irrigation decisions with the consequent better use of energy,

❖ Help reduce the risk of disease in crops by the most efficient application of remedies.

❖ Anticipate flooding with lower evacuation costs and in the possible morbidity of material and human losses.

❖ Detect failures in fluid transport by ducts .

❖ Detection of potential fire conditions.

❖ Use it for educational purposes

Documents

General considerations on economic evaluation of satellite … 07... · 2020. 2. 10. · Dr. Guillermo Tricoci [email protected] [email protected]. General considerations on