Running Head: IndM 5240

Assignment II
Praneeth Reddy Muppidi
University of Central Missouri
IndM5240 - Engineering Economy

IndM 5240

Part one: Definition and role of Engineering Economy in Decision Making

Engineering Economy:
Engineering economy can be defined as application of economic techniques to the
evaluation of design and engineering alternatives. The use of engineering economy is to know
the appropriateness of the given project, estimate its value and justify it. It is very essential for
the engineers to practice financial project analysis for engineering projects and make decisions.
And also this analysis can be applied to various designs in a project to choose an optimum design
by considering both technical and economic factors into consideration. It also estimates
economic outcomes which can be deterministic or stochastic in nature (Grant & Ireson, 2005).
It also includes the study of accounting practices for manufacturing issues. The unique features
for manufacturing concerns include

Process costing
Batch costing and
Cost allocation

Principles of engineering economy:

Develop the alternative

Focus on the difference
Use a consistent viewpoint
Consider all relevant criteria
Use a common unit of measure
Make uncertainty explicit
Revisit your decisions (Grant & Ireson, 2005).

Role of engineering economy in decision making:

Engineering economy is very essential in decision making because it helps to

Understand the problem

Collect all data and information regarding the project
Define the possible alternatives
Evaluating each and every alternative
Selecting the best alternative and
Implementing it.

Importance of engineering economy:

There are lots of factors that are considered in making decisions. These factors are combinations
of economic and noneconomic ones. Engineers play a major role in investment by making
decisions based on economic analysis and design considerations. Thus, decisions often reflect the
engineers choice of how to best invest funds by choosing the proper alternative out of a set of
alternatives (Blank & Tarquin, 2005).

IndM 5240

References
Grant, E. L & Ireson, W. G. (2005). Principles of Engineering Economy, 5th ed. (New York:
Ronald Press, 1970).
Blank L T.; Tarquin AJ. (2007) Basics of Engineering Economy, New York, McGraw-Hill.