(Abstracted by Jafar Kabir Ansari, Principal, GEA.
"Engineering economy is the discipline concerned with the economic aspects of engineering, and involves the systematic evaluation of the costs and benefits of proposed technical and business projects and ventures. The principles and methodology of engineering economy are an integral part of the daily management and operation of private sector companies and corporations, regulated public utilities, government units or agencies, and nonprofit organizations. They are utilized to analyze alternative uses of financial resources, particularly in relation to the physical assets and the operation of an organization. Last, but certainly not least, engineering economy will prove to be invaluable to you in assessing the economic merits of alternative uses of your personal funds." (saying by a Professor of University of California, Berkeley).
Short History of Engineering Economy:.
1887 - Arthur M. Wellington, a civil engineer, used the capitalized cost method of analysis to select the preferred lengths of rail lines or curvatures of the lines.
1920s - C. L. Fish and O. B. Goldman looked at investment in engineered structures from the perspective of actuarial mathematics. Fish formulated an investment model related to the bond market. Goldman proposed a compound-interest procedure for determining comparative values.
1930 - Eugene L. Grant published the first Engineering Economic textbook. "Grant can truthfully be called the father of Engineering Economy.".
Some Applications of Engineering Economy.
1. Selecting among alternative preliminary designs or detailed designs, as part of the design process.
2. Estimating and analyzing the economic consequences of alternatives.
3. Selecting among proposed projects within the annual capital budget limits.
4. Analyzing whether the equipment in the service fleet should be replaced, and at what rate.
5. Choosing between asset lease and purchase options to support a new project.
