Economic Contribution of a Firm

Hi Lora, Typically we only recommend a contribution analysis when you are looking at the entire Sector's production, not a firm within the Sector, so the methodology is designed around this definition of contribution analysis. Unless a firm represents the entire regional production or a significant majority of that production you can typically run the analysis as an impact. This may overestimate some of the feedback linkages to the directly effected industries, so it is not the most conservative approach, but it is not invalid. As an illustration, let's say I have a firm that manufactures rolled steel. But I'm one of a dozen firms in the area that does this. My production could legitimately cause other firms through business to business purchases to purchase rolled steel for their operations from local vendors, because there are other local options to purchase rolled steel beyond my operations. Likewise if rolled steel ended up on a shelf at Home Depot, my workers, or workers in other Industries could go to the retailer and purchase local rolled steel that came from one of the other 11 local producers. In an instance like this, the presence of additional feedback purchases to rolled steel would not present a problem. However, based on your description it sounds like you might be trying to constrain the Model for other reasons, or might be trying to do an analysis where you force industries not to purchase from one another. Perhaps you could tell us a little bit more about what you are trying to accomplish with your study and the Sectors you are looking at using. This might help us to further provide guidance if you'd like additional assistance. Hopefully this helps. --Implan Support Staff

Thank you for your response. The company is a large cap. with significant procurement operations in the U.S. Data provided is jobs and payroll and procurement spending by 3 digit NAICS which provides opportunities to apply the multi-industry contribution approach. Study area is state and national level. At the state-level, the multi-industry contribution impacts (as directed in your multi-industry contribution approach) are higher than the economic impact approach methodology. I can see why we would want to use the economic impact approach for the state-level analysis since we want the procurement activity to recycle within the economy based on the default assumptions in IMPLAN (We don't have a very good idea of the leakages). The model, both state and national, are set to IMPLAN National Trade Flows. I'd like to be a little bit more confident on the best method/approach for a contribution analysis of a firm (about 25 % of industry activity by jobs). I have heard that traditional methods of applying just multipliers specific to the procurement categories are the next best conservative approach. Your thoughts. Lora

Thank you for you response, We are concerned that you are seeing higher impacts for the multi-Industry contribution than for the impact analysis, as this indicates there may be a problem with the application of the methodology. Contribution should always be more conservative than impact analysis. When you ran the contribution did you use the full state/U.S. values instead of just your portion of those values? We apologize to come back with a couple of additional questions, but we aren't sure exactly which direction to go to help you with this and want to make sure we are giving correct advice. Could you better define procurement operations for us? We would think of an organization that does procurement as a service based Industry that helps other businesses to meet their needs. Are you looking at procurement services specifically, or are you also trying to look at the production of items they are procuring? How and to which of these are your jobs and income tied? What factors are you entering into the Model to stimulate the impact? How are you tying 3 digit NAICS to IMPLAN Sectors? A couple of thoughts that may be relevant and useful: When you are looking at Capital Expenditures we typically recommend that you that you use Local Purchase Percentage set to SAM Model Value which is the equivalent of the RPC, but this isn't relevant when running a multi-Industry contribution analysis since RPC's are set to zero. However, you mentioned that you weren't sure about local purchasing. One option that might work if you are trying to constrain the initial sales values on Capital Expenditures (if that is what you are working with) would be to reduce the value of purchase by the LPP before zeroing out the RPC in the multi-Industry methodology. Best regards, IMPLAN Group Staff