Engineering Economy

Essay
Engineering economics is defined as the application of engineering or mathematical analysis and synthesis to making decisions in economics. Engineering economics is a subset of the economy for application to engineering projects. Engineering economics entails the formulation, estimation, and evaluation of the expected economic outcomes of alternatives designed to accomplish a defined purpose. The application of engineering and scientific methods has a direct as well as a vital impact on the quality of living as well as people. The use of mathematical techniques simplifies the economic evaluation of alternatives. These methods in engineering economics enable engineers to make economic decisions towards the evaluation of design and engineering alternatives. The course equips learners with the knowledge and techniques concerned with assessing the worth of commodities and services about their cost. Engineering economics hence assists in examining the relevance of a project, estimating its value as well as justifying it from the engineering perspective. Different professionals apply the knowledge of engineering economics in making their everyday decisions. These professionals who make routine decisions basing on engineering economics include engineers on the job, corporate presidents who operate a business, managers who supervise industrial operations and related activities of others and government officials who work for the public good. A majority of these decisions involve the use of money/funds commonly known as capital or capital funds, which usually get limited in amount. The decision of where and how to invest this limited capital get motivated by a primary purpose of adding value to future, anticipated outcomes of the preferred alternative get realized. In the real-life application, the decisions that engineers make concerning money are both industrially related decisions such as new market opportunities, drilling lease or removing car models and also involve personal decisions such as extended car warranty or house insurance cover. Engineers have a significant responsibility in capital investment decisions based on their ability and experience to design, analyze and synthesize. The elements upon which the different professionals make a decision has based a combination of economic as well as noneconomic elements. Engineers make important investment decisions based on economic analysis and design considerations; therefore, their decisions are a reflection of their most suitable choice of investing money by selecting the suitable alternative. The formulas and techniques learned in engineering economics are also useful in business and government and also for individuals, as long as they involve money matters. The basic characteristics of real options analysis carried out within the engineering economics context include anticipated future options and cash flows, market and risk-free interest rates, estimates of risk and future uncertainty for all the possibilities, cost to obtain the option to delay a decision, and also the economic criterion used to make a decision.

Integrating engineering economics in engineering curriculum allows graduates of engineering programs to understand and work challenges that account for the time value of money in projects, cash flows taking place at different stages with different amounts and equivalence at different interest rates. The elements that assist individuals in making decisions are; cash flows, the measure of economic worth for choosing an alternative, interest rates for the time value of money, and times of occurrence of cash flows. The decisions that are made by people and in which computers, concepts, mathematics, and guidelines help the people in the decision-making process are essential because they affect what will be done. Therefore, the time frame of engineering economy is primarily the future as the numbers utilized in engineering economy are best estimates of what is expected to take place.

Engineering economy understanding will also be employed in selecting the most appropriate alternative in engineering projects. Professionals involved in engineering projects such as the construction of infrastructural and civil engineering projects such as buildings, sewers, bridges, and roads will use economic analyses of the projects so as to select the most suitable alternative. The economic analysis process follows a systematic approach that comprises of various steps namely 1) identification and definition of project alternatives, 2) preparation of cost estimates, 3) project cost estimates on time stream of money and 4) selecting the final project alternatives. The first phase that entails the proper identification, as well as the definition of the project alternatives, ensures that the alternatives are specified to whether they have tangible or intangible consequences that are needed for evaluation while framing project estimate. Preparing the cost estimates, which is the second phase of a project entails assessing the consequences in monetary terms so as to get the overall picture of the financial aspect of the project alternatives. In the third phase, the professionals use engineering economy techniques and methods such as common discounts rate, same time base and the same period of analysis to make a frequent basis and for that convert the cost estimates of benefits and costs of the time stream money to values thus allowing for proper comparison. In the last phase of selecting the final project alternative, a comparison is made based on the monetary units and other considerations. In a real-life application, engineering economy techniques do not allow planners or engineers to get the exact cost estimates of an engineering project; however, getting reasonable and accurate estimates are necessary to support economic scrutiny. The understanding of engineering economics analysis allows engineers to understand the evaluation of cash flow estimates for parameters that include annual costs and revenues, initial cost, nonrecurring costs as well the possible salvage value over an estimated useful life of a product, service or process.

In the engineering profession, economics plays critical roles in the job. An Engineer in the job must translate their scientific ideas in products and systems that better humankind. It is critical that the scientific ideas make sense economically and it is the engineer’s role to convince others whom they are working together that this is the case. Learners who are pursuing an engineering program must be prepared with economic empowerment so that they could manage their wealth and also assist them in starting new ventures or during the managerial period. In all engineering projects ranging from construction sector to industrial operations, money is a crucial factor in completing the project or in the success of business. The knowledge of engineering economics also assists fresh engineering graduates in managing their wealthy since most encounter financial problems due to lack of information concerning loans that they have made. The study of engineering economy allows them to understand the definitions and application of basic economic terms such as interest rate, discount rate, incremental cost, tangible and intangible benefits, opportunity cost, marginal cost, and also fixed and variable costs. Engineers use the knowledge of engineering economy by applying economic criteria to choose the best among a set of alternate engineering designs or proposals. In this process, the engineers use the procedure for the cost analysis of project alternatives with the aim of finding the most suitable cost or the most economical alternative to the project.

Engineering economics is also useful in engineering projects as it assists to reduce the errors or mistakes or inaccurate assumptions. Today, most of the errors in engineering economic analyses are attributed to some violations of engineering economic principles. Therefore the engineers are encouraged to adhere to the various principles so as to not only avoid errors in engineering solutions or projects but also enhance sustainability in the future. Engineering economy also guides engineers on the most appropriate approach to follow when an error has occurred in an engineering work or project. The engineer shall acknowledge their mistake and strive to make correct it to promote public health, safety and good.

Engineering economy is also vital for different professionals as it assists them to maintain a highly level of professional ethics while undertaking their work or making economic decisions. The professional ethics guidelines cover a broad range of scenarios in which engineers or managers make vital decisions. Morals in engineering economy get defined as the fundamental moral beliefs held by virtually all individuals. Morals in engineering economy get regarded to relate to the underlying tenets that form the character as well as the conduct of a person in judging right and wrong. The different professionals use a code of morals or code of ethics that form the set standards to guide the decision as well as the actions of individuals and organizations. Ethical practices not only assist in making the right decision but also assist in enhancing safety and performance in engineering. Studying engineering economy assists engineers to know what is expected of them as well as ensure that they exhibit the highest standards of honesty and integrity. Engineers provide a wide range of services to different private and public organizations, in which they are required to display honesty, fairness, equity and impartiality and also must be dedicated to protecting public health, safety, and welfare.

The study of engineering economy equips engineering learners with a comprehensive understanding of the various real-life tax aspects. In engineering economy, the viewpoint taken when carrying out an after-tax evaluation is that of the engineering project and how relevant tax rules and allowances influence the economic decision. In many nations, engineering projects and related engineering operations/activities have a broad range of taxes levied upon the investors, organizations, and individuals that include value-added tax, sales tax, import tax, highway tax, income tax, gasoline tax and real estate tax. The study of engineering economy allows engineers to know how to calculate various aspects related to tax that include taxable income and cash flows after tax. It is important for corporate and individuals to adhere to the various tax laws in a country as it not only contributes to revenue of the nation but also prevents them from penalties and consequences. The study also assists engineers in understanding the international law concerning tax and also the variations of tax matters from one country to another.

With the techniques learned in engineering economy, it is easy for engineers to develop a rational and meaningful way of assessing the economic aspects of varying alternatives of accomplishing a given objective. Engineers seek solutions to different societal problems; therefore, the economic viability of each potential alternative or design provided by engineering economy must be considered.