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What Is Engineering Economic Analysis?

Engineering Economic Analysis is a vital tool that blends engineering principles with economic strategy to ensure smart decision-making in project management and system optimization. It assesses the value of potential projects, considering costs, benefits, and risks. By evaluating alternatives, it guides engineers to financially sound solutions. Ready to uncover how this analysis can revolutionize project efficiency and cost-effectiveness?
M. McGee
M. McGee

An engineering economic analysis is a breakdown of the various options for an engineering project based on its overall costs. These reports allow companies to decide which option works best from a profit standpoint before they begin the project. Commonly, an engineering economic analysis looks at a project from two basic directions: the physical costs, such as materials and labor, and the time to complete the project. Since time is such a fundamental aspect in construction and manufacturing, it has a huge impact on the direction in which a company will choose to go.

In most cases, an engineering project will have several different options for going forward, including different building or manufacturing techniques, schedules, and even building locations. Each of these variations makes a slight change in the cost of building the project. While some may seem obvious, such as using a part that costs less than half of another, they aren’t always so straightforward.

Businessman with a briefcase
Businessman with a briefcase

In the example above, a single piece costs half as much as an alternative piece. When looked at by itself, this seems like an obvious choice, especially if the pieces are of comparable quality. The problem arises when looking at the bigger structure of the engineering project. Say that one piece is only so inexpensive if it is shipped within a certain group of countries where labor costs happen to be significantly higher. By using the less expensive piece, the company may end up losing money overall.

The job of an engineering economic analysis is wading through all of those variables and putting price tags on various options. By looking over the document, the people in charge of the project can look at the costs as a whole, with all the options spelled out. This will assist a company in making the decision of how, when, and where to complete the project.

Most engineering economic analysis reports will have two major areas: details of the physical requirements, and time. The physical requirements of the project relate to the cost of the materials, labor, and manufacturing. Material and labor costs are often quite basic when looked at alone; it is the manufacturing costs that become more involved. These costs include refitting an assembly line to account for the new project, buying or adapting tools and equipment, and defining energy and waste disposal costs.

The second major section of most engineering economic analysis reports relate to time. Time is complex subject in most fields, but it is even more so when performing long engineering tasks or batch processing. Small variations in time, like one process taking a few seconds longer than another, can result in many hours of additional work over the course of a project. This extra time results in additional payroll, electricity costs, and potential completion delays. These will all need to be weighed against the benefits of the process.

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