6
Origins of engineering economy. A civil engineer named Arthur Wellington in the later
part of the 19
th
century made use of engineering economic analysis in building railroads in the U. S.
In 1930, Eugene Grant published his book, Principles of Engineering Economy, which emphasized
on techniques that depended on financial and actuarial mathematics.
What are the principles of engineering economy?
Principle 1. Develop the alternatives. The choice is among alternatives.
Principle 2. Focus on the differences. Only the difference in expected outcomes is considered.
Principle 3. Use a consistent viewpoint. Prospective outcomes of the alternatives, economic, etc.
should be considered.
Principle 4. Use a common unit of measure. Using a common unit of measurement of the possible
outcomes in comparing alternatives.
Principle 5. Consider all relevant criteria. Consider both monetary and
other unit of measure in
measurement of outcomes.
Principle 6. Make uncertainty explicit. Uncertainty is inherent in projecting
future outcomes and
should considered in their analysis and comparison.
Principle 7. Revisit your decisions. Projected results and decisions should be compared with actual
results to improved the decision process.
The Engineering Economic Analysis Procedure
Steps:
1.
Problem recognition, definition, and evaluation.
2.
Development of the feasible alternatives.
3.
Development of the cash flows for each alternative.
4.
Selection of a criterion (or criteria).
5.
Analysis and comparison of the alternative.
6.
Performance monitoring and post evaluation results.
