The Investigation of the Effective Factors of Economic Evaluation

The investigation of the effective factors of economic evaluation is among critical issues associated with Iran drilling services economy and market. Several factors are of importance to be mentioned. The main factors are as follows:
1-Cost estimate (capital, operation), 2- Income estimate ( work load and rates), 3- Planning horizon, 4- Discount rate (Cost of capital , value for money and minimum absorption rate), 5- Measures of profit , profitability ratio of income to expenses, 6- Project repeatability, 7- Risk and risk management,8- economic and political conditions of project location, 9- The effects of exchange rates, 10- Taxes, 11- Customs rate, 12- Uncertainty in profit -benefit sector, 13- Dumping, 14- The cost of lost opportunity, 15- Methods of financing and investment in projects, 16- The impact of capital sleep.

In the economic evaluation of a project, there are instances of the aforementioned items uncertainty. We will briefly discuss the main factors.

Cost estimate: It is more reliable than the other factors, and its acceptance or refusal depends to the investor.

far as workload is concerned, tender documents are referred to and oil price is the most important factor for rates the unprecedented global fluctuations of which have been unpredictable in the past year. Consequently, a large amount of incomes are not gained, projects progress are halted. Planning horizon: This horizon is usually based on the useful lifetime of an asset unless the mentioned asset is outdated sooner than its useful lifetime.

Discount rate: Discount rate includes cost of capital, value for money and minimum absorption. The last item has a numeric value between the first two digits. This factor is various among different companies and it is a remarkable difference among domestic companies and their international competitors, and it is determining.


Risk and risk management: It includes supply and consumption risk. Supply risk is related to the on time procurement of services, and consumption risk involves the failure possibility in providing on time services; in other words, it is the created potential remaining vacant despite the readiness of supplier.

Exchange rate: Since drilling services market has a combination of various currencies, this rate has a considerable role. Exchange rate, exchange type (exchange or abroad) in the economic evaluation of a project or investment.

Profit and Profitability Considerations: Although these measures provide similar response in a project being absolutely economic, they can respond differently in comparison of projects and determination of the better one. For this reason, it is important for the investigator to know which measure is considered.

Tax, Customs, Guarantees, Other costs: All of them involve uncertainty encompassing two parts: The fee (tax rates, tax type, and social insurance rate) and its application to the contract. It is worthy to consider that due to time value of money, the amounts retained by the client are not equal to payable debts at the end of the project, and contractor has lost considerable amounts.

Other Conditions: Other conditions can have a notable influence on economic evaluation among which we can mention the clarity of tender and its documents, health and honesty in work relationships, unprofessional competitive methods such as dumping or corruption, and special political, economic, social condition of project location. Although none of these conditions has been defined as a variable in economic evaluation, they should be considered by managers and authorities of this industry.


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