- Posted by Okechukwu Anosike on November 10, 2011
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Engineering economics is the application of economic techniques to the evaluation of design and engineering alternatives. This is a new side to engineering in recent years with a role that assess the appropriateness of a given project, estimate its value, and justify it from an engineering standpoint.
An engineering economy study involves technical considerations and it is a comparison between technical alternatives in which the differences between the alternatives are expressed so far as practicable in money terms (Grant and Ireson, 1960).
Every engineering decision must be subjected to the question "Will it pay?"
The late General John J.Carty, Chief Engineer of the New York Telephone Company, had asked three questions for every engineering proposal that came to him for review.
1. Why do this at all?
2. Why do it now?
3. Why do it this way?
The process of engineering economy study will include data gathering and data analysis.
Analysis requires analytical methods and Engineering Economy texts mainly concentrated on analytical techniques. The analytical techniques express the alternatives in comparable measures of money with respect to their cost, revenue or return on capital.
Data gathering will include some current estimates made by engineers by combining the technical information and costs/prices relevant to the materials and processes used to provide goods or services. The data gathering effort cannot be a one time effort and systems are to be put in place to record appropriate data as and when it first appears. For this purpose accounting sections or departments (financial, cost and management accounting) and technical departments have to jointly work out the need for future engineering economy studies and instal appropriate recording systems.
Is There a Need for Engineer to Involve Themselves in Financial Calculations?
While the financial calculations that necessarily follow the engineers designs and technical estimates are in no sense an exclusive engineering function. Such calculations can be done by persons with accounting background and business administrators.
However, these calculations are such a necessary part of the numerous choices between technical alternatives that every engineer has to do as a part of his design function or process that an engineer who is not equipped to make them is a poor choice for the job. A deficiency in this matter is particularly serious in an engineer who has administrative responsibility for technnical matters (Grant and Ireson, 1960).
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Category: General Engineering, Process Engineering
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