In this article we will discuss about the meaning and characteristics of engineering economics.
Meaning of Engineering Economics:
Engineering is the profession in which knowledge of the mathematical and natural sciences gained by study experience and practice is applied with judgment to develop ways to utilise economically the material and forces of nature for the benefit of mankind.
Engineering Economics is a subject of vital importance to Engineers. This subject helps one understand the need for the knowledge of Economics for being an effective manager and decision maker.
The Economics theories are used to take decisions related to uncertain and changing business environment. Economics theories deal with the principles of demand, pricing, cost, production, competition, trade cycles, and national income and so on.
As the design and manufacturing process become more complex, the engineer is making decisions that involve money more than ever before. The competent and successful engineer at present must have an improved understanding of the principles of economics. The engineering economics is concerned the systematic evaluation of the benefits and costs of projects involving engineering design and analysis.
Engineering economics quantifies the benefits and costs associating with engineering projects to determine if they save enough money to warrant their capital investments. Engineering economics requires the application of engineering design and analysis principles to provide goods and services that satisfy the consumer at an affordable cost. Engineering economics is also relevant to the design engineer who considers material selection.
Engineers are planners and builders. They are also problem solvers, managers and decision makers. In the beginning of the 20th century, engineers were mainly concerned with the design, construction, operation of machines structures and processes.
They have accorded least attention to the human and physical resources that have provided the final products. Many factors have contributed to an expansion of engineering responsibilities and concerns. Apart from the conventional work, now engineers are expected not only to create novel technological solutions but also to make skilful financial analysis of the effects of implementation.
Engineering economics involves the systematic evaluation of the economic benefits of proposed solutions to engineering problems. The engineering economics involves technical analysing with emphasis on the economic aspects and has the objective of assisting decisions.
Engineering economics is closely aligned with Conventional Micro-Economics. It is devoted to problem solving and decision making at the operational level. Thus “Engineering Economics refers to those aspects of economics and its tools of analysis most relevant to the Engineer’s decision making process”.
The Procedure Used to Assist Decision-Making:
The seven-step procedures used to assist the decision making are:
1. The recognition, definition and evaluation of the problem.
2. Search for potential as well as feasible alternatives.
3. Incorporating the basic cash flow approach.
4. Decision should serve the long term interest of the organisation.
5. Analysing the economic aspects of the engineering problem.
6. The preferred alternative is based on the total effort.
7. Attention to ensure feedback for improvement of operation.
For the clear understanding of the subject matter one must have the knowledge of the special characteristics of Engineering Economics:
1. Engineering Economics is closely aligned with Conventional Micro-Economics.
2. Engineering Economics is devoted to the problem solving and decision making at the operations level.
3. Engineering Economics can lead to sub-optimisation of conditions in which a solution satisfies tactical objectives at the expense of strategic effectiveness.
4. Engineering Economics is useful to identify alternative uses of limited resources and to select the preferred course of action.
5. Engineering Economics is pragmatic in nature. It removes complicated abstract issues of economic theory.
6. Engineering Economics mainly uses the body of economic concepts and principles.
7. Engineering Economics integrates economic theory with engineering practice.