The salvage value is often forgotten, but is important, and is either the net cost or revenue for decommissioning the project. Ĭosts 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. There are also non-economic factors to be considered, like color, style, public image, etc. The opportunity cost of making one choice over another must also be considered. One option that must be considered in each analysis, and is often the choice, is the do nothing alternative. Cash flows are discounted using an interest rate, except in the most basic economic studies.įor each problem, there are usually many possible alternatives. 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.Ĭonsidering the time value of money is central to most engineering economic analyses. undergraduate civil engineering curricula, engineering economics is a required course. Įngineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency.įundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics. As a discipline though, it is closely related to others such as statistics, mathematics and cost accounting. But, it is also a simplified application of microeconomic theory in that it assumes elements such as price determination, competition and demand/supply to be fixed inputs from other sources. It is pragmatic by nature, integrating economic theory with engineering practice.
Thus, it focuses on the decision making process, its context and environment.
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. For the application of engineering economics in the practice of civil engineering see Engineering economics (Civil Engineering).Įngineering 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.
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