The Global Emerging Market in Transition: Articles, Forecasts, and Studies

The Relationship between Increases in Capital Investment and the Reduction in the Duration of the Implementation Phase

THE RELATIONSHIP BETWEEN INCREASES IN CAPITAL INVESTMENT AND THE REDUCTION IN THE DURATION OF THE IMPLEMENTATION PHASE The length of time required to put new technological processes and systems into use can be significantly affected by the application of the latest scientific and technical research. This application will impact both the costs of the new technology and a company’s overall expenditures . For this reason, when calculating the effectiveness and annual economic benefit of the new technology (NT), all aspects of the implementation phase should appear as part of the total costs associated with its development and introduction. However, by its nature, the character of these costs is not one-sided. Expenses for NT development appear as expenses in the area of applied research and engineering , that is, as practical expenses associated with scientific and technological development (STD). Installation costs actualize this STD. Outlays for installation significantly affect the length of time between the development phase of the NT and its productive use. Clearly, there is a direct correlation between the level of installation expenditure and the length of time—an increase in expenditure effects a reduction in the length of the implementation phase. Indeed, the costs of putting NT into operation are significant and often are comparable to the cost of the NT itself. Experience shows that the manpower involved in the technical preparation of new production can amount to up to 30% of the overall manpower necessary for STD. In scientific literature, publications specifically dedicated to questions of determining the economic effectiveness of these processes of implementation are practically nonexistent. Nor in more general In Economic Problems of the Implementation of Scientific and Technical Projects (Moscow: The Institute of the Economy of the USSR Academy of Sciences, Moscow , 1987), pp. 21–25. capital investment and the implementation phase 561 works analyzing the economic effectiveness of NT has this problem been satisfactorily addressed. Defining the economic effectiveness of the installation phase cannot be done outside the framework of the general question of the effectiveness of NT. Therefore, the major criteria in calculating the effectiveness of this initial phase should be the same as that used in calculating the effectiveness of the NT as a whole, that is, increased output and improved quality of the company’s product. At the same time, it is clear that the specific nature of the installation (implementation ) process requires a different approach in determining cost effectiveness at that stage. The element of time should be a determining factor in calculating cost effectiveness. In other words, all expenses the company incurs in technical preparation should be directed toward minimizing the time required for installing, adjusting, and launching the NT and achieving planned capacity. Factors preceding preparations—for example , choosing the object of STD, and the like—should function in the same way. Considering such, in calculating the economic effect of accelerating the preparation and installation phase, the following sequence should be observed. At the first stage, the annual economic effect of creating and implementing the NT is determined: Eann ⳱ 冋(Y2ⳮY1) Y1 ⳯ P1 Ⳮ (C1ⳮC2) 100 ⳯ Y2] ⳮ Ec ⳯ Cdi where: Eann ⳱ the annual economic effect; Y1, Y2 ⳱ the volume of goods sold the year before and the year after NT installation ($1,000); C1, C2 ⳱ costs per $1.00 of goods sold before and after NT implementation; P1 ⳱ profits from goods sold before NT implementation ($1,000) In this case, 冋(Y2ⳮY1) Y1 ⳯ P1 Ⳮ (C1ⳮC2) 100 ⳯ Y2] 562 management systems and scientific technical progress is the annual increase in profits ⳱ AP where Ec ⳱ standard coefficient of economic effectiveness of capital investments (0.12); Cdi ⳱ costs of NT development and implementation ($1,000); Cdi ⳱ Cd Ⳮ Ci, where Cd ⳱ costs of development Ci ⳱ costs of implementation The annual economic effect gives an idea of the extent of NT economic effectiveness, with consideration given to all the costs of NT development and installation. The effectiveness of these costs may be defined according to the formulas: Ee ⳱ AP Cdi ⳱ 冋(Y2ⳮY1) ⳮY1 ⳯ P1 Ⳮ (C1ⳮC2) 100 ⳯ Y2] CcⳭCi Ee⬎En; where: Ee ⳱ estimated coefficient of cost effectiveness. At the same time, cost-recovery time will equal: T ⳱ Cd Ⳮ Ci P , where T ⳱ cost-recovery time in terms of years. If, to reduce the cost-recovery time (T), one minimizes development and implementation costs (Cdi) as much as possible, thereby making Ee larger than Ei, then the time factor would not be accounted for. The completion...