Engineering economy lorie m. Cabanayan francisco d. Cuaresma

 

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5 
CHAPTER I. INTRODUCTION TO ENGINEERING ECONOMICS 
 
ENGINEERING ECONOMY/ECONOMICS DEFINED 
 
 As defined by Arreola 
Engineering economy is that branch of economics which involve the application of definite 
laws of economics, theories of investment and business practices to engineering problems involving 
cost. 
It is also defined to be the study of economic theories and their application to engineering 
problems with concept of obtaining the maximum benefit at the least cost as a basis for decision. 
It also involves the study of cost features and other financial data and their application in the 
field of engineering as a basis for decision. 
 As defined by Kasner 
Engineering economics is equated with practicality and economic feasibility. It is also the 
search for the recognition of alternatives which are then compared and evaluated in order to come 
up with the most practical design and creation. 
 
 As defined by Sullivan, et al. 
Engineering economy is the systematic evaluation of the economic merits of proposed 
solutions to engineering problems.
IMPORTANT USES OF ENGINEERING ECONOMY 
 
1.
Seeking new objectives for the application of engineering 
– An important use of engineering 
economy is to seek new objectives for engineering application. Engineers are constantly seeking 
new and wider application of their technical knowledge for the benefit of mankind and in line 
with this, engineering economy provides basic principles and laws. 
2.
Discovery of factors limiting the success of a venture or enterprise 
– upon knowing the 
objectives, next is to determine ways and means to attain such objectives. With Engineering 
Economy the so-called limiting factors which may hinder the success of a project are being 
discovered. 
3.
Comparison of alternatives as a basis for decision 
– The principles of engineering economy 
helps to point out the analysis of choosing the best alternatives on a quantitative basis. 
4.
Analysis of possible investment of capital 
– Engineering economy enables engineers to consider 
all aspects of investment from both the technical and financial viewpoints. It provides several 
patterns of analysis to determine rate of return, annual costs and pay out periods, which all 
serves as bases for decision. 
5.
Determination of bases for decision 
– Engineers‟ main concern is on future actions, that is on 
what to do and not on what has been accomplished. Decisions on future actions are more valid 
and accurate if the principles of engineering economy are correctly applied.