Steps in an engineering economy study

Full Answer Section

3. Estimate cash flows:

Cash flow is the lifeblood of any engineering economy study. Analyze all incoming and outgoing expenses associated with each of your proposed solutions. Be sure to factor in initial costs, operational costs, maintenance, and potential salvage value.

4. Select an economic measure of worth:

This step involves choosing a metric to evaluate the financial attractiveness of each option. Common measures include net present value (NPV), internal rate of return (IRR), payback period, and benefit-cost ratio. Each measure has its advantages and disadvantages, so choose the one that best aligns with your objectives.

5. Evaluate each alternative:

Apply your chosen economic measure of worth to each potential solution. Analyze the results carefully, considering not only the financial aspects but also qualitative factors like risk, environmental impact, and social responsibility.

6. Conduct sensitivity analysis:

No project exists in a vacuum. Unforeseen circumstances can change costs, schedules, and outcomes. Use sensitivity analysis to assess how sensitive your recommendations are to potential changes in key variables. This helps mitigate risks and build confidence in your decision.

7. Select the best alternative and refine the plan:

Based on your evaluation and sensitivity analysis, identify the most promising solution. However, remember that engineering is not just about numbers. Consider feedback from stakeholders, refine your chosen option, and develop a detailed implementation plan.

8. Implement the solution and monitor progress:

Putting your plan into action is crucial. Track progress, monitor costs, and compare actual results to your initial estimates. Be prepared to adapt and adjust your plan as needed.

9. Document and communicate results:

Clearly document your decision-making process, rationale, and final outcomes. Share your findings with stakeholders and ensure everyone is on the same page. This transparency fosters trust and facilitates continuous improvement.

Remember: These steps are not always linear and may be revisited throughout the study. The key is to be flexible, adaptable, and always focused on your ultimate goal of solving the problem and achieving your desired outcomes.

By following these steps and applying critical thinking, you can conduct a thorough and reliable engineering economy study, laying the foundation for successful and sustainable projects.

Sample Answer

1. Define the problem and objectives:

This first step sets the stage for the entire study. Clearly define the problem you're trying to solve and the desired outcomes. Ask yourself: "What are we trying to achieve with this project?" Be specific, measurable, and achievable.

2. Collect relevant data and define alternatives:

Gather existing data, conduct research, and identify potential solutions to your problem. Consider different options, from traditional approaches to innovative strategies. The more options you explore, the greater your chance of finding the optimal solution.