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Concept
Engineering economics
Summary
For the application of engineering economics in the practice of civil engineering see Engineering economics (Civil Engineering).
Engineering economics, previously known as engineering economy, is a subset of economics concerned with the use and "...application of economic principles" in the analysis of engineering decisions. As a discipline, it is focused on the branch of economics known as microeconomics in that it studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. Thus, it focuses on the decision making process, its context and environment. It is pragmatic by nature, integrating economic theory with engineering practice. But, it is also a simplified application of microeconomic theory in that it assumes elements such as price determination, competition and demand/supply to be fixed inputs from other sources. As a discipline though, it is closely related to others such as statistics, mathematics and cost accounting. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics.
Engineers seek solutions to problems, and along with the technical aspects, the economic viability of each potential solution is normally considered from a specific viewpoint that reflects its economic utility to a constituency.
Fundamentally, engineering economics involves formulating, estimating, and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available.
In some U.S. undergraduate civil engineering curricula, engineering economics is a required course. It is a topic on the Fundamentals of Engineering examination, and questions might also be asked on the Principles and Practice of Engineering examination; both are part of the Professional Engineering registration process.
Considering the time value of money is central to most engineering economic analyses. Cash flows are discounted using an interest rate, except in the most basic economic studies.
For each problem, there are usually many possible alternatives.
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