What Is Engineering Economic Analysis? 6 Facts About It

Engineering Economic Analysis (EEA) is a specialized type of economic analysis that focuses on the practical application of mathematical models to solve real-world problems in the design of products, processes, and systems. Read more at the article below. 

What Is Engineering Economic?

The use of economic calculations and principles in engineering projects is known as engineering economics. It is crucial to all engineering professions since even the most technically competent engineering project will fail if it cannot be made commercially viable.

Engineering economic analysis is frequently used to compare the technical and financial viability of several engineering project ideas in order to select the best plan.

What Is Engineering Economic Analysis?

What Is Engineering Economic Analysis?

An engineering economic analysis compares the costs of various choices for an engineering project. These analyses enable businesses to select the solution that maximizes profits before starting the project.

A typical engineering economic analysis examines a project from two fundamental angles: the time needed to finish the project and the physical costs, such as materials and labor.

Time is such an essential component of building and manufacturing that it greatly affects the path a firm will take.

Understanding An Engineering Economic Analysis

An engineering project may typically have a number of options for moving forward, including various building or manufacturing techniques, timetables, and even building locations.

Each of these changes slightly alters the project’s construction cost. While some may appear obvious, like using a part that costs less than half of another, they aren’t usually so simple.

In the aforementioned illustration, the price of a single piece is half that of an alternative piece. When considered separately, this seems like the best option, especially if the components are of equivalent quality. When considering the larger framework of the engineering project, the issue surfaces.

What Is Engineering Economic Analysis?

Say that shipping a single item to a certain collection of nations whose labor costs are notably higher is only so cheap. The business can wind up losing money overall by utilizing the less expensive item.

The Job of an Engineering Economic Analysis

The task of an engineering economic analysis is to sort through all of those variables and assign prices to alternative choices.

The project managers can examine the expenses in all, with all the possibilities listed, by reading the document. This will help a business decide how, when, and where to finish the project.

Details of the physical requirements and time are the two main sections of the majority of engineering economic analysis reports. The project’s physical specifications have an impact on how much the materials, labor, and production will cost.

When considered separately, material and labor costs are frequently relatively simple; it is the manufacturing costs that become more complex.

These expenses include modifying an assembly line to accommodate the new project, purchasing or adapting tools and equipment, and determining energy and waste disposal costs.

What Is Engineering Economic Analysis?

Most engineering economic analysis reports include a section on time as their second major subtopic.

In most professions, time is a complex topic, but when doing protracted engineering projects or batch processing, it becomes even more so.

Small time differences, like one procedure taking a few seconds longer than another, can add up to many more hours of effort over the duration of a project.

This added time results in increased payroll expenses, electricity costs, and possibly completion delays. All of these will need to be compared to the advantages of the procedure.

The Engineering Economic Analysis Studies

Four different types of economic analysis studies are available through the Engineering Economic Analysis (EEA) program. All four are combined into a single, flawlessly integrated product.

Study #1: Private Sector Lifecycle Analysis

  • Compares the lifecycle economics of several design options in great detail. The analysis offers features needed by private companies making investment decisions.
  • In these applications, maximizing profit is the main priority.
  • The internal rate of return (IRR), net present value savings, total present value, and payback duration are used to appraise alternatives.

What Is Engineering Economic Analysis?

Study #2: Public Sector Lifecycle Analysis

  • Compares the lifecycle economics of several design options in great detail. In this instance, the analysis offers the features necessary for governmental or nonprofit entities making economic judgments.
  • Cost effectiveness is the primary issue in these applications.
  • Designs are evaluated based on their savings to investment ratio (SIR), total present value, and payback duration.

Study #3: Simple Payback Analysis

  • In order to calculate the payback period, pairs of design choices are compared for their investment and operation costs.
  • For rapid, straightforward cost evaluations, this analysis is beneficial.

What Is Engineering Economic Analysis?

Study #4: Simple Cash Flow Analysis

  • Eates a cash flow sheet for each potential design.
  • This methodology is helpful for estimating expenditures over a number of years and figuring out the total present value of a design.

Engineering Economic Analysis Features

  • Allows for the entry of numerous loan items, depreciation of assets, annual operating costs, and ongoing running costs for each design option.
  • Calculates cash flow, total present value, net present value savings, internal rate of return, payback, and savings to investment ratio.
  • Customizes the content of reports according on the sort of analysis being done and, consequently, the economic factors being utilized to make decisions.
  • Creates reports with both text and graphics.
  • Reduces user work by, if desired, importing annual energy cost data from HAP building simulations.
  • Exports cash flow data in a text format that spreadsheet applications can import. This makes it easier for consumers to conduct their own data analysis.
  • Full online help system is available, and the user manual includes explanations, lessons, and sample problems.

Conclusion

Engineering economic analysis is an economic process used for the development, design and management of engineering projects. This is a cost analysis. It looks at all aspects of the project in terms of its costs, benefits and any risks it may pose to the project.

FAQ

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 is the application of economic techniques to the evaluation of design and engineering alternatives. The role of engineering economics is to assess the appropriateness of a given project, estimate its value, and justify it from an engineering standpoint.
An engineering economy study involves many elements: problem identification, definition of the objective, cash flow estimation, financial analysis, and decision making. Implementing a structured procedure is the best approach to select the best solution to the problem.
The change in the amount of money over a given time period is called the time value of money; it is the most important concept in engineering economy.
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