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IMPLAN Blog

Never Tell Me the Odds

April 11, 2018 by Adam Shoaf

Understanding the importance of Economic Impact Analysis for Project Feasibility

We all know what happens when plans go awry. Money is lost, people lose their jobs, and buildings are abandoned mid-construction. One of the most common examples of poor planning is the Death Star. That’s right, the Death Star. From the famous Star Wars original trilogy, the Death Star conveys the idea of economic poor planning in matters of cost and execution. According to the Washington Post in January 2013, a petition reached the White House to build the Death Star. The White House of course denied the petition as it would be morally irresponsible to build a giant super weapon that could destroy worlds, and that its cost would be astronomically high (about 850 quadrillion dollars—that’s 850 with 15 zeros behind it).

Running off that estimate, you could calculate that in the vast universe of Star Wars, the hypothetical equivalent of such an amount of funding might be attainable (in the universe the main financial currency is known as Galactic Credits), but when you compare that in A New Hope Luke could have bought a new ship for ten thousand credits (which sounds like the equivalent of a used 2012 Honda Accord), the economical exchange rate sounds roughly the same.

Now that we know the cost is still a galactic amount of money (and from the article in the Washington Post, that was only to build the Death Star, not the included amount to maintain it), you have to consider the Death Star’s purpose. The literal function of the Death Star is to blow up worlds, which poses a problem in the future by eliminating future taxpayers to continue the upkeep of such a machine. Therefore, the maintenance of the Death Star is put into jeopardy by eliminating the very citizens whose tax credits are keeping such a machine running.

Finally, the Death Star failed colossally in its design planning. It is astounding that one of the largest super weapons in the galaxy could be taken out by a mere design flaw; a trench that had an open hatch that led right to the central power core. The Rebels are able to make use of this design flaw by firing torpedoes directly into the open hatch, which did not merely disable the Death Star’s functions, but obliterated it completely with all passengers on board.

 

Enter the Feasibility Study

While the Death Star is a hypothetical example from a fictional universe, the effects of poor planning in regards to economic feasibility are all too real. However, there are tools at the public’s disposal to help alleviate many of the head-turning statistics that often get pushed aside. IMPLAN helps with the breakdown of those statistics in real data collected from governmental locales across the United States.

An example of a successful project would be the Sanford Civic Center built in Sanford, Florida. Fishkind and Associates drafted a detailed plan explaining the feasibility of the project, and the necessity of such a building in the surrounding area. Estimated at a building cost of $4.6 million, IMPLAN helped to determine the cost of labor against the average of the area, showing that those in assistance would greatly increase the average wage per those working onsite, in comparison to the average wage of the Seminole County/Sanford City area.

In addition, the feasibility plan states “The average wage of employment associated with the 24 direct and indirect jobs is just over $48,000, comparatively, Sanford per capita income is $20,588.” In addition, the cost of employment helps to determine the feasibility of maintaining the center itself.

While these are merely the construction and maintenance figures of the Civic Center, under good management and conscientious advertising, the new Center proposes to use more of the local resources (like the waterfront property bordering the center) in order to increase demand for use of the space in competition with local conventions. An updated center will also help to attract local businesses that previously had sought out nicer convention centers outside of the Sanford area, thus predicting greater revenue for the center and the community itself.

 

Real-life Disaster

Now, for those who were not convinced that the Death Star’s first failure was a lack of poor planning and irresponsible economic analysis, let’s turn to a real example, one about the closing of a meat plant in Mississippi in 2004. The plant was built with the intent of extending the distribution of beef to the various markets in the area, and providing local, economically depressed cow herders with additional income for the sales of their cattle. The $50 million project, with $35,000,000 of those millions backed by Mississippi state-back loans, and $8 million in additional local government-backed monies, ultimately failed due to financial negligence and scandal.

The plant’s economic impact analysis predicted impressive output for the plant in terms of jobs supported and revenue generated in the local community. What the project lacked, however, was adequate consideration for the FDA-regulated times and distances required for the transportation of processed meats. Unfortunately, the area lacked sufficient transportation infrastructure for transporting meat. A feasibility study would have found that the money lost as a result of meats that perished before making it to market would negatively offset the potential production revenue of the plant.

Ultimately the plant had to close down in 2004 and was mired in legal battles from abuse of funds until 2012. A feasibility study might have also given the government a different sense of direction concerning construction and manufacturing costs alongside existing transportation infrastructure—or lack thereof.

Conversely, a similar idea proposed in Michigan in 2007 was that a meat processing plant be added to the northern border in order to increase revenue. Collecting data from the area, the study surmised that as far as cattle are concerned, a processing plant would be at a loss in revenue due to the lack of cattle in the surrounding area. However, the study did determine that area was rich in population with sheep and goats, which would service Detroit’s rising population of those in Islamic faith, who primarily consume such livestock.

 

Summing It Up

Wanting to start a project is a good thing, whether it be circulating funding to various parts of the local economy, creating jobs, or providing a service or location that will assist the community. But planning is necessary in seeing that vision through, if only to avoid financial catastrophes like the Mississippi meat plant, or the Death Star.

 

Close the funding gap with economic impact analysis and tax incentives.

Topics: Data, Feasibility Study

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