2.2 Period of Analysis
As a general rule, the period of analysis should usually extend to the useful life of the proposal, e.g. the asset life of a new computer system.[19] However, for some proposals it is not possible to identify a finite asset life e.g. many health policies. In such cases, the recommended approach is to use an analysis period of 20 years, because impacts beyond 20 years tend to be insignificant after the time value of money (discounting) is taken into account.[20] Shortening the analysis period on the grounds of uncertainty is not appropriate as it typically shifts the uncertainty from the estimates of future costs/benefits to the estimate of residual value of the proposal or asset.
Residual values are also an important component of the total value of a proposal and should be included. The residual or terminal value of a project is its estimated value at the end of the analysis period (an asset’s residual value at the end of its economic life should be zero).
