I wrote this article as a guest blogger for the American Institute of Chemical Engineers blog, ChEnected. Check out the original and other useful content on the AIChE website.
What's the Most Important Question
for Your R&D Breakthrough?
No matter how groundbreaking the science, every new idea and invention has to pass an all-important hurdle before it can find true success—and that hurdle is economic viability.
To test whether an idea can make the cut requires running economic analysis, but taking a critical look at your prized new technology can feel like visiting the dentist. You know it’s important, but you probably don’t want to do it if you don’t have to. It takes time. It costs money. You might feel it’s unnecessary. It might even turn up something unpleasant. Often, it may simply seem better to just keep your head down and focus on the R&D. But to do so can risk everything.
Economic viability determines all
While there are environmental and social drivers for technology development, economic viability is an essential criterion for success. For us to pursue the development of a new technology in a commercial setting, it generally must have the potential to generate profit. Even at the earliest stages of development, what justification do we have to move forward if the combined implications of our most educated estimates do not indicate favorable economics?
Unlike dentistry though, economic analysis is more than a hygienically encouraged form of masochism. By linking financial metrics to process and economic parameters in a techno-economic model, we can gain a deeper understanding of the factors affecting the profitability of our projects and establish a basis for informed, quantitative decision-making.
Spot flaws and adjust your path
On one level, a techno-economic model provides a standardized framework for evaluating a technology. We can use techno-economic modeling to estimate current and projected profitability, to establish stage-gates, and to track progress. With this information, we are better prepared to make objective decisions and to change course early to avoid dead ends.
On another level, a techno-economic model provides a tool for understanding the effects of process and economic parameters on profitability. This is done using sensitivity analyses, like tornado diagrams and Monte Carlo analysis. Tornado diagrams help us identify critical parameters, so that we can effectively direct R&D resources toward them. Monte Carlo analysis lets us quantify the extent of uncertainty in our results.
Timing is everything
When is the right time to engage in this sort of economic analysis though? The earlier the better.
As we progress through R&D, it becomes more difficult and expensive to change course. The investment required to develop a techno-economic model varies, but it is generally small compared to the typical associated R&D budget. Regardless of how little information is available, systematic economic analysis lays the foundation for objective unbiased decision-making. It gives us confidence in our decisions, helps us avoid surprises, increases our credibility to investors, and guides us along the most efficient path to commercialization.
Put another way, don’t wait until your teeth are falling out.