Engineering Economic Analysis

A Comprehensive Introduction to Evaluating Engineering Decisions

Systematic techniques for comparing alternatives and making informed choices

Welcome to the Course

This course provides a comprehensive introduction to the principles and techniques of engineering economic analysis. You will learn how to systematically evaluate the monetary consequences of engineering projects and design alternatives that occur over time.

The course emphasizes practical applications and decision-making in both private and public sectors, equipping you with essential tools for your engineering career.

Balance scale representing optimal decision-making in engineering economics - weighing costs, benefits, and trade-offs — Finding the optimal balance in engineering decisions

🔗 Visit the Optimization Course — Learn complementary optimization techniques

What You’ll Learn

Upon successful completion of this course, you will be able to:

Core Competencies

✓ Apply the rational decision-making process to engineering challenges

✓ Distinguish various cost concepts and develop accurate cost estimates

✓ Utilize the time value of money to find equivalence between cash flows occurring at different times

✓ Compare mutually exclusive alternatives using three primary economic analysis methods

✓ Incorporate uncertainty, inflation, and taxes into economic decision models

✓ Understand ethical considerations in engineering economic decisions

Course Textbook

Newnan, D. G., Eschenbach, T. G., Lavelle, J. P., & Lewis, N. A. (2017). Engineering Economic Analysis (13th edition). Oxford University Press.

Course Structure

The course consists of 10 sequential lectures covering fundamental techniques and advanced topics essential for engineering practice:

📚 Part I: Foundations (Lectures 1-4)

Lecture	Topic	Key Concepts
1	Making Economic Decisions	Decision-making process, ethics, economic criteria
2	Estimating Costs & Benefits	Fixed/variable costs, life-cycle costing, cash flow diagrams
3	Interest & Equivalence	Time value of money, compound interest, equivalence
4	Repeated Cash Flows	Uniform series, arithmetic & geometric gradients

📊 Part II: Analysis Methods (Lectures 5-7)

Lecture	Topic	Key Concepts
5	Present Worth Analysis	NPW/NPV criterion, equal/unequal lives, capitalized cost
6	Annual Cash Flow Analysis	EUAC, EUAB, EUAW, loan amortization
7	Rate of Return Analysis	IRR, incremental analysis, graphical comparison

💰 Part III: Advanced Topics (Lectures 8-10)

Lecture	Topic	Key Concepts
8	Depreciation & Income Taxes	MACRS, after-tax cash flows, corporate taxes
9	Uncertainty & Sensitivity	Future worth, benefit-cost ratio, sensitivity analysis
10	Replacement & Public Sector	Challenger vs. defender, public sector B/C ratio

Assessment & Grading

Component	Weight
Homework & Assignments	20%
Quizzes	20%
Midterm Exam	30%
Final Exam	30%
Total	100%

Real-World Applications

Engineering economic analysis is crucial for:

Private Sector

Equipment selection & replacement
Process optimization
Capital investment decisions
Product development evaluation
Capacity planning

Public Sector

Infrastructure projects
Public facility design
Transportation systems
Environmental protection
Cost-benefit analysis

Key Analysis Techniques You’ll Master

📈 Present Worth (PW) Analysis

Convert all future cash flows to a single present value for comparison. This fundamental technique helps you evaluate the current worth of future benefits and costs, making it easier to compare different project alternatives on an equal footing.

💵 Annual Worth (AW) Analysis

Express all costs and benefits as equivalent uniform annual amounts. This method is particularly useful for comparing alternatives with different lifespans or when working with recurring annual budgets and expenses.

📊 Rate of Return (ROR) Analysis

Determine the interest rate that makes alternatives equivalent. Understanding the internal rate of return (IRR) helps you evaluate investment efficiency and compare project profitability against minimum acceptable rates of return.

🎯 Benefit-Cost Ratio (B/C)

Compare present worth of benefits to present worth of costs. This ratio is essential for public sector projects and helps decision-makers quickly assess whether a project generates more value than it consumes.

📉 Sensitivity Analysis

Evaluate how changes in estimates affect decisions. Learn to identify critical variables, assess project risk, and make robust decisions even when facing uncertainty in cost estimates, interest rates, or project lifespans.

Tools & Techniques

Throughout the course, you’ll develop proficiency with:

Cash flow diagrams for visualizing project economics
Compound interest factors for time value calculations
Excel spreadsheets for complex financial analysis
Graphical methods for comparing alternatives
What-if analysis for handling uncertainty

Why This Course Matters

“Engineering is not merely knowing and being knowledgeable, like a walking encyclopedia; engineering is not merely analysis; engineering is not merely the possession of the capacity to get elegant solutions to non-existent engineering problems; engineering is practicing the art of the organized forcing of technological change… Engineers operate at the interface between science and society.”

— Dean Gordon Brown, MIT

Engineering economic analysis provides the systematic framework for making informed decisions that balance:

Technical feasibility
Economic viability
Ethical responsibility
Social impact

Get Started

Navigate through the course materials using the sidebar menu. Each lecture includes:

📖 Comprehensive lecture notes
📊 Detailed Excel examples
📈 Visual infographics and diagrams
🎯 Practice problems and solutions
💡 Real-world case studies

Ready to begin? Start with Lecture 1: Making Economic Decisions