dTo evaluate the thermodynamic performance and cost effectiveness of thermal systems and to estimate the potential for improvements, it is always useful to know (a) the avoidable part of an exergy destruction and (b) the avoidable investment cost associated with a system component. Improvement efforts should then focus only on these avoidable parts. Using a cogeneration system as an example, this paper discusses how to estimate the avoidable and unavoidable exergy destruction and investment costs associated with compressors, turbines, heat exchangers and combustion chambers. This general procedure, although based on many subjective decisions. facilitates and improves applications of exergoeconomics.