Engineering Economy


This course in an introductory course in the master’s programme in engineering. The
aim of the course is to provide students with basic terminology, methodology and
practical skills in the domain of engineering economy. Eventually, students should be
able complement technological projects with an economic analysis in order to assess
the techno-economic feasibility of these projects.


Theoretical part
PART 0 – Motivation
•  The decision making process
•  The role of engineering economic analysis
PART I – Cost terms and concepts
•  Fixed and variable costs
•  Direct and indirect costs
•  Marginal costs
PART II – Management and cost accounting fundamentals
•  Allocation of indirect costs
•  Cost allocation keys
•  Activity based costing
PART III – Accounting information for decision making
•  Cost–volume–profit relationships
•  Measuring relevant costs and revenues for decision making
•  Pricing, target costing and customer profitability analysis
PART IV – Interest and equivalence
•  Time value of money
•  Simple Interest and Compound Interest
•  Nominal and Effective Interest Rates
•  Equivalence for repeated cash flows
PART V – Investment evaluation methods for a single project
•  Minimum Attractive Rate of Return (MARR)
•  Present Worth, Future Worth, Annual Worth Method
•  The Internal Rate of Return Method
•  Payback Period
PART VI – Multiple projects
•  Study period and useful life
•  Comparison and Selection among Alternatives
•  Comparing mutually exclusive alternatives
•  Replacement Analysis
•  Game theory basics
PART VII – Economic Analysis in the Public sector
•  Perspective and Terminology for Analyzing Public Projects
•  What Interest Rate Should Be Used for Public Projects?
•  The Benefit−Cost Ratio Method
PART VIII – Analysis under uncertainty
•  Breakeven and Sensitivity analysis
•  Economic decision trees
•  Risk versus return
•  Simulation
•  Real options

Practical part
•  Spreadsheet exercises in order to illustrate the main concepts
•  Case analysis for real-life situation, based on relevant articles