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Engineering Economy

Engineering economics involves applying economic principles to engineering project decisions. It focuses on using economic criteria and analysis to evaluate design alternatives and select the most economically viable option. Some key techniques of engineering economics include assessing initial costs, operating and maintenance costs, potential income, rates of return, and comparing alternatives as a basis for decision making. The field aims to help engineers consider both the technical and financial feasibility of projects.

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441 views

Engineering Economy

Engineering economics involves applying economic principles to engineering project decisions. It focuses on using economic criteria and analysis to evaluate design alternatives and select the most economically viable option. Some key techniques of engineering economics include assessing initial costs, operating and maintenance costs, potential income, rates of return, and comparing alternatives as a basis for decision making. The field aims to help engineers consider both the technical and financial feasibility of projects.

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elijah namomo
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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INTRODUCTION

Engineering economics, previously known as engineering economy, it is a

subset of economics concerned with the use and application of economic principles, in

the analysis of engineering decisions. As a discipline, it is focused on the branch of

economics known as microeconomics in that it studies the behavior of individuals and

firms in making decisions regarding the allocation of limited resources. What is

engineering economy? Engineering Economy is the application of economic factors

and criteria to evaluate alternatives by computing a specific measure of worth of

estimated cash flows over a specific period of time.

It focuses on the decision making process, its context and environment. It is

pragmatic by nature, integrating economic theory with engineering practice. But, it is

also a simplified application of micro-economic theory in that it avoids a number of

micro-economic concepts such as price determination, competition and demand/supply.

Engineers seek solutions to problems, and the economic viability of each

potential solution is normally considered along with the technical aspects. Engineering

economics involves formulating, estimating, and evaluating the economic outcomes

when alternatives to accomplish a defined purpose are available. It is the application of

economic doctrines and designs to engineering projects. It is essential to all fields of


engineering as no matter how technically complete an engineering project is but it will

fail if it is not economically viable. The analysis is regularly applied to various potential

designs for an engineering project in order to select the optimum design, thereby taking

into account the both technical and economic viability.

Arthur M. Wellington, a civil engineer, the pioneer in this field, in the latter part

of the 19th century specifically addressed the role of economic analysis in engineering

projects. His work was followed by Eugene Grant who published the first edition of his

textbook which was the milestone in the development of engineering economy as we

know at present. He placed emphasis on developing an economic point of view in

engineering. In 1942, Woods and De Garmo wrote the first edition of this book later

entitled Engineering Economy. The outlook that ultimate economy is a primary concern

to the engineer and the availability of sound technique to address this concern

differentiates this aspect of modern engineering practices from that of past.


REASONS FOR STUDYING ENGINEERING ECONOMICS

Engineers students should prepare themselves with economic empowerment so

that they could manage their wealth, help them in starting their own business or

during managerial period.

It is because money is one of important factor in completing a project.

Furthermore, fresh graduates also need to manage their wealth well since a lot of

graduates facing problem because lack of information about the loans that they

have made.

Engineering is a service, and you're likely to be employed at some point in your

career by either a commercial body (a company) or public sector body. In either

case, engineering is an inherently economic activity.

It is necessary to balance the unlimited desire versus the resource-constrained

world; to maximize output! worth" given input cost" and to take the necessary for

maximizing efficiency output input or worth cost".


IMPORTANT APPLICATIONS OF ENGINEERING ECONOMY

1.) Seeking of new objectives for the applications of engineering - An important

use of engineering economy is to seek new objectives for engineering application.

Engineers all over the world are constantly seeking new and wider applications of their

technical knowledge for the benefit of mankind.

2.) Discovery of factors limiting the success of a venture or enterprise- Discovery

of Factors knowing an objective, the next step is to determine ways and means to attain

such an objective.

3.) Analysis of possible investment of capital - With the exception of a few cases,

capital is invested to earn profit for the owners of the capital. Engineering Economy

enables engineers to consider all aspects of the investment from both the technical and

financial viewpoints. Engineering Economy furnishes several patterns of analysis to

determine rate of return, annual costs and payout periods, which all serve as bases for

decision.

4.) Comparison of alternatives as a basis for decision - Most anything that has to be

done can be accomplished in many ways with satisfactory end results, but with varying

expenditures. Usually the alternative that will accomplish the objective with the least

expense is the most desirable.


5.) Determination of bases for decision - he work of engineers is fundamentally

concerned with future actions - on what to do, not on what has been accomplished.

Decisions on future actions are more valid and their chances for accuracy are improved

when principles of Engineering Economy are correctly applied.


ENGINEERING ECONOMY TECHNIQUES

The complete analysis of a proposed project involves three basic steps according to

Bullinger, as follows:

1.Economy Analysis- considers all factors affecting the economy of the project which

can be reduced to specific monetary values. Determines the initial cost of the project,

the cost for operation and maintenance, the needed working capital, the probable

income the project will

generate when operational, the rate of return on the investment, and all other cost

factor.

2.Financial Analysis - determines the methods and sources of financing the project,

either through equity capital or borrowed capital, or a combination of both. Tries to

discover the best methods of financing the project to the extent of the amount obtained

in the economy analysis.

3.Intangible Analysis- determines all aspects of the project which cannot be reduced

to monetary values and considers the uncertainty and the risk inherent in the project. Its

scope includes the so-called judgement factor whose analysis depends upon the

judgement of responsible persons involved in the project. other cost factors.


Basic
Economic
Principles

Prepared by: Bernadin C. Sarahan Jr.

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