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Calculating Economic Impact using forward projection of spend

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Kate Zhang

Is it possible to estimate a company’s future economic impact based on an investment made in the current year that is planned over multiple years (e.g., $100M investment in the U.S. over a 3-year period)?

I’d like to determine the projected impact for the investment period (e.g., 2026–2028) using this investment figure, noting that the economic impact for 2024 has already been calculated.

I noted there was an article that was posted on IMPLAN can make forward economic impact projections using investment amounts made in current year https://blog.implan.com/economic-impact-infrastructure-bill

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    Permanently deleted user

    Hello Kate,

     

    It is possible to estimate a company’s future economic impact based on an investment planned to take place over multiple years. What I’m not quite sure about is what you mean when you say “investment made in the current year”. It sounds like this means the company committed to the investment that will occur from 2026-2028 in 2025. Determining the best approach for modeling the investment will be heavily dependent on the data that you have at your disposal. 

     

    Key to modeling future economic activities is selecting the appropriate Data Year and Dollar Year in your Project. The Data Year is the year of the dataset the Project is using to estimate the economic effects of the modeled activity. All the Region details, Multipliers, etc. will be based on the economy as it existed for the Data Year selected. The Data Year chosen in most cases should be the year the event occurred. The latest Data Year in IMPLAN is 2023, so no matter how you are breaking out the $100M, you will be utilizing the 2023 Data Year.

     

    The Group Dollar Year is the year represented by the monetary values in your Event(s) included in the Group. If the $100M you are modeling is in 2025 dollars then the Group Dollar Year should be set to 2025. However, if you have a breakout by year that is adjusted for inflation, then you will need to use multiple Dollar Years, which will require adding multiple Groups to your Project. For example, if you know X amount of dollars will be spent in 2026, which is in 2026 dollars, then you will use the 2026 Dollar Year for the Group that includes that Event.  

     

    You can learn more about the Data Year and Dollar Year in our support site article Accounting for Inflation.

     

    If you would like to provide us with more specific information, we could provide more specific guidance. In general, the best approach would be heavily dependent on the data that you have at your disposal and/or the assumptions you are comfortable making.

     

    Hope this helps!

     

    Best,

    Deminique Heiks

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    Kate Zhang

    Hi Deminique, 

    Thank you for your response. if the $100M is not a spend with supplier but instead an investment (e.g., capital, building renovation, equipment, sites). How should I account for this in the model? I currently run detailed industry spend when I use spend to find output - which model should we run when accounting for investment to find output? Would it also be ran under detailed industry spend pattern?

    Thanks,

    Kate

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    Kate Zhang

    Hi Deminique, 

    As a follow up to my previous question, what details would we need on the investment would we need to run the model in IMPLAN (and which approach would we run it under)? 

    • For example, would we need to break down the investment into categories e.g., property purchase, vs. lease expense vs. employee compensation vs. 3rd party supplier spend?
    • Would we need to understand the purpose of the investment? e.g., building a manufacturing plant vs. talent acquisition vs. donation to universities vs. building an sales office. Would the purpose of the investment matter in the data input/analysis?
    • Does it matter which industry the company making the investment is (E.g., R&D company vs. wholesale/retailer company)?

    Thank you,

    Kate

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    Permanently deleted user

    Hello Kate,

     

    I will respond to your last two posts here.

     

    It sounds like the investments you are referring to are what we call capital expenditures. Industry capital expenditures include new construction and purchases of capital goods by all non-government (private) investors. Capital expenditures are largely made up of equipment, software, and construction. Capital purchases are things that will be used on an ongoing basis and depreciate and degrade over time until it needs to be repaired or replaced (through an expenditure of capital).

     

    Capital Expenditures are not the same as purchases made by an Industry of non-durable goods and services that are used to produce other goods and services rather than for final consumption. Those are Intermediate Inputs. Thus, Capital Expenditures are not included in an Industry’s Spending Pattern, which is why they must be modeled separately. You will need to model the company’s capital expenditures separately from its operations. 

     

    Determining the best approach for analyzing the investments will depend on what you would like to model specifically and what data you have on hand to perform the analysis. If these investments are capital expenditures, you will need to know what the company plans to spend the money on, then you can model those activities. So to answer the first two questions in your last post, yes, you need to know what they plan to spend money on. For example, you mentioned construction. You will need to know what type of structure will be built. For your last question - Does it matter which industry the company making the investment is? - in the case of construction, it doesn’t matter the type of company that paid for the construction. You will be modeling the construction activity. We have a resource to help decide which construction Industry to use, which is called Construction Industry Details and is available in the support site article U.S. 528 Industries, Conversions, & Bridges. 

     

    The following are some others resources that will help you determine the best approach for modeling the investments:

     

    One other note is that land sales are considered asset transfers, where one person receives money while the other receives tangible property. Thus, the land sale itself has no value in IMPLAN. 

     

    Hope this helps!

     

    Deminique Heiks

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