Project Appraisal Methodology: A Multidimensional R&D Benefit/Cost Assessment Tool

Abstract

Project Appraisal Methodology (PAM) is a multidimensional, easy to use tool for assessing the relative merits of R&D projects. It requires users to estimate three vectors of economic and scoring values: energy benefits, consumer savings and societal factors. The Division of Fossil Fuel Utilization, Department of Energy implemented PAM in support of their annual R&D planning, programming and budget preparation activities for FY 1981. Illustrative results, sensitivity analyses, and model parametrics are presented. Project rank is shown to be most sensitive to life cycle cost, year of initial commercialization, and planning horizon. Model weights, on the other hand, have little effect. Results also seem to indicate that the common formulation of the resource allocation optimization problem is not appropriate in a highly uncertain environment such as energy forecasting. Finally, several potential improvements to the methodology in the present application are discussed.