Economic impact analysis

Economic impact analysis is a critical activity when new initiatives are proposed in a community or a country. It provides us with an objective way to evaluate the promises that are being made by those proposing the initiative. Usually what is presented is a “best case” scenario, although any business owner knows that we must also analyze the “worst case” scenario in order to determine the likely impact. Because people are often unfamiliar with the dynamics in the service sector, such an analysis can be challenging. Here are seven questions to ask:

  1. What are the downside risks that need to be managed, and can they be managed?
  2. What are the necessary constraints that either already exist (e.g., regulations) or that are needed in order to balance conflicting interests?
  3. What are the benchmarks or industry best practices against which to measure the proposal?
  4. Who are the relevant groups from whom concessions are expected in return for promised benefits?
  5. What are the external factors that will influence the success or failure of the project, and can they be offset or controlled?
  6. What is the time line – is it consistent and realistic?
  7. What is the composition of the numbers cited?
  8. If we examine the proposal from multiple perspectives, do we get the same conclusions?

As an example of how to conduct economic impact analysis, below is an economic impact analysis of a proposal to build a hotel-condos complex (The George Hotel and Residences):

along with an explanatory article explaining how to analyze the economic promises from the developer: