"Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and '...application of economic principles' in the analysis of engineering decisions."
Evaluating the economic feasibility of engineering projects, including cost-benefit analysis, depreciation, and investment analysis.
Time value of money: The concept of how a dollar today is worth more than a dollar in the future because of inflation and the opportunity cost of investing money.
Interest rates: The rate at which money is borrowed or invested and can either be simple or compounded.
Compound interest: Interest earned on both the principal amount and any previous interest earned.
Present value: The current value of a future amount of money, determined by discounting future cash flows to the present.
Future value: The estimated value of an investment, including the principal amount and any interest gained over time.
Cash flow: The movement of money in and out of a business, including income, expenses, and investments.
Net present value (NPV): The difference between the present value of cash inflows and the present value of cash outflows.
Internal rate of return (IRR): The discount rate that makes the net present value of all cash flows from a particular project equal to zero.
Payback period: The amount of time required for a project to recover its initial investment in terms of cash inflows.
Break-even analysis: The point at which the revenue generated by a product or service is equal to the expenses incurred in producing and selling that product or service.
Sensitivity analysis: The examination of how changes in one variable can affect the outcome of a given scenario.
Marginal analysis: The study of how changes in production or output affect the cost of producing an additional unit of a product or service.
Capital budgeting: The process of evaluating the potential profitability of a long-term investment, including the cost of capital and expected returns.
Risk management: The identification and assessment of potential risks associated with a particular project or investment, including financial, operational, and market risks.
Decision analysis: The use of quantitative methods to evaluate different options and choose the best course of action based on expected outcomes.
Cost of capital: The cost of obtaining funds to finance a particular project, including both debt and equity financing.
Depreciation: The process of accounting for the wear and tear of capital assets over time.
Life cycle cost analysis: The evaluation of the total cost of owning and operating a particular asset over its useful life.
Investment appraisal: The process of assessing the potential return on an investment and determining whether it is worth pursuing.
Engineering design economics: The integration of engineering design principles with economic models and analyses to optimize the design of a product or system.
Cost Analysis: This type of Engineering Economics involves identifying and categorizing the costs associated with a project or process. These costs can include direct costs like labor and materials, as well as indirect costs like overhead and depreciation.
Benefit Analysis: Benefit Analysis involves identifying and measuring the benefits associated with a project or process. These benefits can include increased revenue, reduced costs, and increased efficiency.
Break-Even Analysis: Break-Even Analysis involves identifying the point at which the costs of a project or process are equal to the benefits. This point is known as the break-even point and can be used to determine the minimum level of production or sales required to cover costs.
Cash Flow Analysis: Cash Flow Analysis involves analyzing the flow of money in and out of a project or process. This analysis is used to determine the profitability of the project or process over time.
Risk Analysis: Risk Analysis involves identifying and analyzing the risks associated with a project or process. This analysis is used to develop strategies to mitigate or manage those risks.
Decision Analysis: Decision Analysis involves using quantitative and qualitative factors to evaluate alternative courses of action. This analysis is used to inform decision-making and ensure that the best possible course of action is taken.
Time Value of Money Analysis: Time Value of Money Analysis involves analyzing the value of money over time, accounting for factors like inflation and interest rates. This analysis is used to determine the present value of future cash flows and inform investment decisions.
Engineering Ethics: Engineering Ethics involves applying ethical principles to engineering economics issues. This analysis is used to ensure that engineering decisions are made in an ethical and responsible manner.
Engineering Management: Engineering Management involves the application of management principles to engineering projects and processes. This analysis is used to ensure that projects are managed effectively and efficiently.
Operations Research: Operations Research involves the use of mathematical and statistical methods to solve complex engineering problems. This analysis is used to develop models and algorithms that can be used to optimize processes and decision-making.
"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."
"It is pragmatic by nature, integrating economic theory with engineering practice."
"As a discipline though, it is closely related to others such as statistics, mathematics and cost accounting."
"The economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency."
"Considering the time value of money is central to most engineering economic analyses."
"One option that must be considered in each analysis, and is often the choice, is the do nothing alternative."
"There are also non-economic factors to be considered, like color, style, public image, etc.; such factors are termed attributes."
"Costs as well as revenues are considered, for each alternative, for an analysis period that is either a fixed number of years or the estimated life of the project."
"Some other topics that may be addressed in engineering economics are inflation, uncertainty, replacements, depreciation, resource depletion, taxes, tax credits, accounting, cost estimations, or capital financing."
"Since engineering is an important part of the manufacturing sector of the economy, engineering industrial economics is an important part of industrial or business economics."
- The economics of the management, operation, and growth and profitability of engineering firms. - Macro-level engineering economic trends and issues. - Engineering product markets and demand influences. - The development, marketing, and financing of new engineering technologies and products.
"All these topics are primary skills and knowledge areas in the field of cost engineering."
"In some U.S. undergraduate civil engineering curricula, engineering economics is a required course."
"Cash flows are discounted using an interest rate, except in the most basic economic studies."
"The salvage value is often forgotten, but is important, and is either the net cost or revenue for decommissioning the project."
"Benefit-cost ratio."
"Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available."
"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."
"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."