Have you heard of engineering economy? It deals with the evaluation of systems, products, and services in relationship to their costs.
Engineers seek solutions to problems, and the economic viability of each potential solution is normally considered along with the technical aspects. You can’t just build a 50 meters bridge worth $1 Trillion US dollars… you are either building a bridge made of Swarovsky or a real corrupt person. Or you can’t simply build a gaming laptop with unlimited battery and built-in Wifi outdoor technology for just $1 US dollar. Engineers must understand the economic viability of their projects.
Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available.
In some U.S. undergraduate civil engineering curricula, engineering economics is a required course. It is a topic on the Fundamentals of Engineering examination, and questions might also be asked on the Principles and Practice of Engineering examination; both are part of the Professional Engineering registration process.
The Basics of Engineering Economy
Engineering is the profession in which a knowledge of the mathematical and natural science gained by study, experience and practice is applied with judgement to develop ways to utilize, economically the materials and forces of nature for the benefit of mankind. In this definition, the economic aspects of engineering are emphasized, as well as the physical aspects. Clearly, it is essential that the economic part of engineering be accomplished well.
In manufacturing, engineering is involved in every detail of a product’s production, from the conceptual design to the shipping. In fact, engineering decisions account for the majority of product costs. Engineers must consider the effective use of capital assets such as building and machinery. One of the engineer’s primary tasks is to plan for the acquisition of equipment (capital expenditure) that will enable the firm to design and produce products economically.
Engineering economy is the discipline concerned with the economic aspect of engineering. It involves the systematic evaluation with the economic merits of proposed solutions to the engineering problems. To be economically acceptable (i.e., affordable), solutions to engineering problem must demonstrate a positive balance of long term benefits over long term cost.
Engineering economics is the application of economic techniques to the evaluation of design and engineering alternatives. The role of engineering economics is to assess the appropriateness of a given project, estimate its value, and justify it from an engineering standpoint.
The General Economic Environment
There are numerous general economic concepts that must be taken into account in engineering studies.
Why Engineering Students Should Learn?
Every engineering curriculum now has this subject that is essentially the merging of engineering and basics of accounting: engineering economy. The term was first used in 1887 by A. M. Wellington in his The Economic Theory of Railway Location. Since then, the body of knowledge has expanded that has served in analyzing the economic consequences of engineering decisions.
The fundamental approach in engineering economy is to find which among the many alternatives is the best choice in their monetary terms, at an engineering standpoint. It is a study to assess the appropriateness of a given project, estimate its value, and justify it from an engineering standpoint.
Engineering economy involves quantitative methods in the evaluation of engineering projects as elements of a simple economic model building. This course is used in economic feasibility studies relating to design and implementation of engineering projects.
The foundations of engineering economy include time value of money, interest rates, equivalence, symbols, rate of return, cash flows, doubling time and spreadsheets. Formulas are widely used in these concepts.