IMPLAN Pro: The Basics of Analysis-by-Parts

Introduction:

Analysis-by-Parts is a technique by which you can split the "stemming ripple effects" of an Industry Change into its individual impact components - budgetary spending pattern and income. Intermediate Expenditures and compensation spending are the core impact factors of an Industry Change, initiating Indirect Effects and Induced Effects, respectively. Separating them into two Activities gives you as the user more flexibility and customization capabilities in your analysis. 

Detailed Information:

To perform an Analysis-by-Parts, ideally you will want to know Direct Employment, Direct Labor Income, and either the total budgetary (goods and services) value or Direct Output. However, all of these elements can be estimated from the IMPLAN Model as long as you have, at minimum, a budgetary or Output value with which to initiate your Scenario.

Analysis-by-Parts is the process of splitting or parsing an impact analysis issue into more specific parts.

ABP allows you to:

• Specify the amount of commodity inputs
• Specify the proportion of local labor income
• Specify the proportion of local purchases
• Use IMPLAN's special spending patterns

ABP is accomplished using combinations of Activity Types. The total impact is the sum of the impacts of all of the parts.

Part 1 – Direct Effects

• No analysis required
• If not all the Direct factors are known, estimates of these factors can be made from the underlying Study Area Data using the information found:
  • by (if the industry exists in the region) entering the known factor into a Industry Change and letting IMPLAN estimate the other factors. 
• or... 
  • in the Explore> Social Accounts> Balance Sheet (Tab), and select View By: Industry Balance Sheet and the Value Added tab for Employment Compensation and Proprietor Income. If the industry does exist in the region, the Proxy region information must be used. 
  • Employment can be estimated using the Output per Worker ratios that are provided in the Model or by simply creating an Event and entering the known Industry Sales value.
• Record your Direct Effect because you will not be using an Industry Change to model the Indirect and Induced Effects.

Part 2 – Indirect

• Industry Spending Pattern. These can be derived from:
  • Activity Options>Import> Industry Spending Pattern for editing the spending pattern of a current IMPLAN Industry Sector.
  • Activity Options> Import> choose Industry Spending Pattern and your sector to imported an Activity with pre-populated Events for each Intermediate Expenditure purchased by the firm/organization.
  • Your own data which can be entered as a series of Industry Change Events or as an Industry Spending Pattern Activity.

Part 3 – Induced

• Labor Income Change
  • Employment Compensation and Proprietor Income can be entered directly

Usage:

Unless you need to change the underlying Multiplier matrix, Analysis-by-Parts is the suggested technique for modeling an Industry that is a subset of a current IMPLAN Sector or for introducing a new Sector or new Sector definition to the Model.

Since Analysis-by-Parts allows you to make all the modifications that are made in the Customize> Study Area Data screens and does not come with any of the caveats of those screens, we typically recommend this methodology. Unless you want to reduce all the RPC values in the Model and thus change the underlying Multiplier matrix, Analysis-by-Parts an excellent technique. This technique also allows you to avoid editing multiple Sectors when you are splitting out a specific subset of a Sector from the data.

To perform an Analysis-by-Parts, begin by selecting or creating a spending pattern.

• If you are selecting an imported spending pattern, please note the following:
  
  
  • The Industry Spending Pattern will have a  less than 1.0. If you are using an Output value for , you will not want to modify this. The difference between the  and 1.0 is your Value Added portion (Output = Intermediate Expenditures + Value Added).
  • If you are working with a goods and services budgetary value, you will want to normalize the Industry Spending Pattern so that it equals 1.0 (thus all the value of your Activity Level will be spent on Intermediate Expenditures).
    
  • The Industry Spending Patterns import with the Local Purchase Percentage values already shown. These values are derived from the underlying data and represent the value of supply available for local demand. You will only want to change the Local Purchase Percentage values if you know the regional purchase rates of the commodities.
    
  • Industry Spending Patterns are on a commodity basis, so market share will also be taken into account.
• When creating an Industry Spending Pattern Activity, you will need to:       
  
  • Convert your dollar values into coefficients of total spending by dividing the amount spent on each purchase by the Activity Level value.
  • Note that all Industry Spending Pattern Activities are on a commodity basis, which means the Sector codes will vary slightly from the standard Industry codes (e.g. Sector 1 Oilseeds produces Commodity 3001 Oilseeds and Sector 99 Wood, windows and door manufacturing produces Commodity 3099 wood windows doors and millwork.) The primary commodity produced by Industry Sector will have the Industry Sector code + 3000.
    
  • It is often easier to use the Excel based Activity Template to build custom spending patterns outside of IMPLAN and then import them. The Activity Template is located at Documents>MIG>IMPLAN> Templates.
    
  • You will want to ensure that Local Purchase Percentage is set to SAM Model Value.
    • If you are using the Activity Template you will want to set this field to "0" in the spreadsheet and then use the Event Options>Change All> Local Purchase Percentage> Set to SAM Model Value after you have imported the Events into the Model.
      
  • If you have purchases that need to be Margined, you will need to create these splits as part of your spending pattern (please see the related article below in regards to Margining a Spending Pattern).
  • Depending on the value you use as the denominator when creating your coefficients, your spending pattern will sum to 1.0 (if your value is the goods and services value) or less than 1.0. (if you are using Output as the base). You will want to ensure that the same value you used to calculate your coefficients is entered as your .

You will also need to setup a Labor Income Change to capture the effects associated to the Direct labor payments on the economy.

• If you have only a total Labor Income value, you can:
  1. Enter all of the value of Employment Compensation (5001).
     
  2. Or, split the Labor Income value based on regional information found in the Explore> Social Accounts> Balance Sheet (Tab), and select View By: Industry Balance Sheet and the Value Added tab.
     
     
•  We typically recommend running the Labor Income Change in the same Scenario as the Industry Spending Pattern so that the Induced Effects from the Direct and Indirect Labor Income are already summed for you. 
• The value entered into the Labor Income Change Activity will appear in the "Direct Factor Change" field on the left-hand side of the results interface.
  

What to expect in your results

Since Direct results are not analyzed with this methodology, they are also not reported. Final results require adding the Direct Effects into the table and re-summing the totals.

Industry Spending Patterns are by definition the first-round of the Indirect Effects, so the results tables will show Indirect Effects and Induced Effects. The Induced Effects reported in these results will show the value of Induced spending generated by payroll in the Indirectly affected Industries.

The Labor Income Change will show only Induced Effects because these changes are stimulated by the Direct Labor Income spending.

Related Articles:

Analysis By Parts- Case Study

Manually Margining Spending Patterns for Analysis-by-Parts