1 Building Strong! THE ECONOMIST’S ROLE Ken Claseman Senior Policy Advisor for Economics Office of Water Project Review HQUSACE

2 Building Strong! OBJECTIVES THE STUDENT WILL KNOW: WHAT ECONOMISTS DO WHAT THEY NEED TO PERFORM THEIR FUNCTIONS HOW THEY SHOULD PERFORM THEIR FUNCTIONS

3 Building Strong! WHAT ECONOMISTS DO INFORM DECISIONMAKING COMMUNICATE VALUE PARTICIPATE ON TEAMS REPRESENT THE AGENCY

4 Building Strong! Demand/Supply Willingness-to-Pay Scarcity Opportunity Costs Decisions at the Margin THE ECONOMIST’S WORLD

5 Building Strong! PRINCIPLES & GUIDELINES (1983) Intended to ensure proper and consistent planning by Federal Agencies The Federal Objective is to contribute to National Economic Development consistent with protecting the environment Alternatives are to be systematically formulated Planning Criteria: Efficiency, Effectiveness, Completeness, and Acceptability Plan that maximizes net NED benefits is selected (unless an exception is granted) Discounting is used to make benefits and costs comparable Separable costs will be assigned to their respective purposes

6 Building Strong! ECONOMICS IN THE USACE Determines project justification Helps identify the best Federal Investment Consistent with economic theory Integrated with the planning process Guidance is highly developed –Principles and Guidelines –ER –Economic Guidance Memorandums Administration Policies affect the scope of Economic Analyses and Formulation

7 Building Strong! SPECIFIC ACTIVITIES Inventories using sampling / surveys Identify and Quantify Economic Variables Forecasts Of Future Conditions Economic Analysis of Alternatives –NED Benefits –Develop Economic Costs –Estimate B/C Ratios & Net Benefits –Cost Effectiveness/Incremental Cost Analyses –Trade-off Analysis –RED and OSE Empirical Evidence is Essential

8 Building Strong! SO THE ECONOMIST MUST BE AN... Appraiser Survey Specialist Data Processor Statistician Financial Analyst Communicator

9 Building Strong! BUT CAN ECONOMISTS DO IT ALONE?

10 Building Strong! ECONOMISTS REQUIRE INPUTS AND INTERACTION LAND USE PLANS PROBABILITIES DISCHARGE STAGES TRAFFIC FORECASTS CHANNEL DIMENSIONS COSTS RESTORATION OUTPUT

11 Building Strong! WHERE DO WE GET THE INFO? Other Team Members Other Governmental Agencies MSCs - HQUSACE – IWR Communities of Practice Centers of Expertise Outside Experts Surveys and Databases

12 Building Strong! THE STUDY TEAM –TODAY’S COMPLEXITIES REQUIRE TEAM SOLUTIONS. –ALL OF US ARE SMARTER THAN ANY ONE OF US.

13 Building Strong! HOW SHOULD WE DO IT? Follow the Guidance Time and Budget Constraints Objectivity / Avoiding Bias Documentation

14 Building Strong! 6 STEP PLANNING PROCESS Step 1 - Specify Problems and Opportunities Step 2 - Inventory and Forecast Conditions Step 3 - Formulate Alternative Plans Step 4 - Evaluate Effects of Alternative Plans Step 5 - Compare Alternative Plans Step 6 - Select Recommended Plan

15 Building Strong! STEP 1: CONCEPTS Problems, Opportunities and Constraints –Economists actively participate in defining problems, opportunities and constraints. Goals and Objectives –Economists use goals and objectives for evaluation.

16 Building Strong! STEP 2: INVENTORY AND FORECAST Data collection –Related to problems, opportunities and objectives Define historic and existing conditions Forecast –Existing Condition –Future Without Project Condition –Future With Project Conditions

17 Building Strong! STEP 3: ALTERNATIVE PLANS Management Measures Alternatives Programs Economists must participate in formulation process, understand performance of measures to estimate economic impacts.

18 Building Strong! STEP 4: EVALUATION Quantify and Describe Effects & Impacts –National Economic –Environmental, including ecological and cultural –Regional Economic –Social Four Evaluation Criteria: Efficiency, Effectiveness, Completeness, Acceptability Other Criteria – RED/OSE Future With Project Conditions

19 Building Strong! STEP 5: COMPARISON Compare all viable plans Describe differences –Contributions to objectives –P&G Evaluation Criteria –Other criteria of importance Describe trade-offs –Systematic trade-off analysis might be required.

20 Building Strong! STEP 6: SELECTION No Action NED Plan NER Plan Locally Preferred Plan Combined NED/NER Plan Economists provide primary input for decision making IS IT WORTH IT ?

21 Building Strong! OTHER THINGS ECONOMISTS DO Input to PMPs Financial Analysis Life Cycle Cost Studies Economic Updates Economic Analysis for: – DMMPs – Dam Safety – Military Projects Budgetary Support

22 Building Strong! KEY TAKE AWAYS Economists communicate value. Economists help identify best Federal investment. Empirical evidence is essential. Economists are important members of Project Delivery Teams. Economists play a significant role throughout the planning process. IS IT WORTH IT???