Engineering Economic Analysis

Course Description

EGN2610 – Engineering Economic Analysis is a 3-credit-hour engineering course that develops the financial and economic analysis methods engineers use to evaluate alternative designs, projects, and investments. The course addresses the time value of money, equivalence calculations, evaluation criteria (present worth, future worth, annual worth, internal rate of return, benefit-cost ratio, payback), comparison of alternatives with varying lives and uncertainty, depreciation and tax considerations, replacement analysis, sensitivity and risk analysis, and the application of economic methods to typical engineering decision contexts.

EGN2610 is essentially equivalent in content to EGN3613 (Engineering Economic Analysis); the difference is primarily in curriculum positioning. EGN2610 is positioned as a sophomore-level (2000-level) course while EGN3613 is positioned as a junior-level (3000-level) course. Florida engineering programs vary in this curriculum positioning. Coursework typically combines lecture and example-based instruction with extensive problem-solving practice and increasingly with computational work in Excel or specialized engineering economics software.

EGN2610 is a Florida common course offered at approximately 3 Florida institutions. EGN3613 (the junior-level designation) is offered at approximately 5 institutions. Some Florida engineering programs require neither, instead using discipline-specific engineering economics coursework or integrating economic analysis content into other courses (capstone design, project management, manufacturing engineering). EGN2610 transfers as the equivalent course at all Florida public postsecondary institutions per SCNS articulation policy.

Learning Outcomes

Required Outcomes

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

• Apply the time value of money concept, including the relationship between present worth, future worth, and annual worth across time periods at given interest rates.
• Apply equivalence calculations using single payment, uniform series, gradient series (arithmetic and geometric), and other cash flow patterns.
• Apply nominal vs. effective interest rates across compounding periods, including continuous compounding.
• Apply present worth analysis to evaluate engineering alternatives at a given minimum acceptable rate of return (MARR).
• Apply annual worth analysis to evaluate engineering alternatives, including alternatives with different service lives.
• Apply future worth analysis for projects with future-oriented evaluation horizons.
• Apply internal rate of return (IRR) analysis, including the calculation of IRR, the comparison to MARR, and the recognition of IRR limitations (multiple roots, mutually exclusive alternative ranking).
• Apply incremental rate of return analysis for ranking mutually exclusive alternatives.
• Apply benefit-cost ratio analysis for the evaluation of public projects.
• Apply payback period analysis at the introductory level, recognizing its uses and limitations.
• Apply depreciation methods, including straight-line, declining balance, MACRS (Modified Accelerated Cost Recovery System), and units-of-production methods.
• Apply after-tax economic analysis at the introductory level, including the integration of depreciation and taxes into project evaluation.
• Apply replacement analysis, including the economic life of an asset, the challenger-defender comparison, and the considerations specific to replacement decisions.
• Apply inflation considerations, including constant-dollar vs. then-dollar analysis and the integration of inflation into economic comparisons.
• Apply sensitivity analysis to economic decisions, including identifying critical variables and managing decision uncertainty.
• Apply break-even analysis to engineering decisions involving fixed and variable costs.
• Apply basic risk analysis, including expected value calculations and decision trees at the introductory level.
• Apply economic methods to typical engineering decision contexts, including design alternatives, capital projects, public works, manufacturing investments, and (increasingly) energy and sustainability projects.
• Use Excel or engineering economics software for cash flow analysis, alternative comparison, and sensitivity analysis.

Optional Outcomes

• Apply life-cycle costing to engineering projects, including the integration of acquisition, operating, and disposal costs.
• Apply decision analysis under uncertainty at intermediate level, including expected utility, decision trees with multiple branches, and value of information.
• Apply multi-attribute decision-making integrating economic and non-economic criteria.
• Engage with contemporary engineering economics topics, including renewable energy economics, infrastructure investment analysis, and emerging technology adoption decisions.
• Apply capital budgeting and project portfolio management at introductory level.

Major Topics

Required Topics

• Foundations of Engineering Economics: The role of economic analysis in engineering decision-making; the difference between accounting and economic analysis; cash flow concepts; the engineer as decision-maker; the integration of technical and economic considerations.
• The Time Value of Money: Why money has time value (interest, opportunity cost, inflation, risk); simple vs. compound interest; the basic equivalence relationship F = P(1+i)ⁿ; the basic discount relationship P = F(1+i)⁻ⁿ.
• Equivalence Calculations: Single payment compound amount and present worth factors; uniform series compound amount, sinking fund, present worth, and capital recovery factors; arithmetic gradient factors; geometric gradient factors; the cash flow diagram as a problem-solving tool; the use of factor tables and Excel functions.
• Nominal and Effective Interest Rates: The distinction between nominal annual rate and effective annual rate; the effective rate per period; continuous compounding; converting between rate quotations.
• Present Worth Analysis: The minimum acceptable rate of return (MARR); accept-reject decisions for individual projects (PW > 0); ranking mutually exclusive alternatives by PW; comparison of alternatives with equal lives and unequal lives (least common multiple, study period, capitalized worth methods).
• Annual Worth Analysis: The advantages of annual worth (clean comparison of unequal-life alternatives); capital recovery cost; the relationship between annual worth and present worth.
• Future Worth Analysis: Future-oriented evaluation; the relationship to PW and AW.
• Rate of Return Analysis: The internal rate of return (IRR); calculating IRR (linear interpolation, Newton-Raphson, Excel's IRR function); the relationship between IRR and MARR; the inability of simple IRR to rank mutually exclusive alternatives correctly; the multiple-root problem.
• Incremental Rate of Return Analysis: The proper IRR-based comparison of mutually exclusive alternatives; the choice of base alternative; comparing differences in cash flows; the relationship to PW analysis.
• Benefit-Cost Ratio Analysis: The structure of the BCR; conventional vs. modified BCR; the proper application to public projects; incremental BCR for mutually exclusive alternatives; limitations and proper use.
• Payback Period Analysis: Simple payback; discounted payback; uses (quick screening, communicating to non-technical audiences); fundamental limitations.
• Depreciation Methods: Straight-line depreciation; declining balance and double declining balance; sum-of-years digits; MACRS — the U.S. tax depreciation system; units-of-production depreciation; the relationship between depreciation and cash flow; book value tracking.
• Income Taxes and Economic Analysis: The integration of taxes into economic analysis; the after-tax cash flow; the after-tax MARR; the role of depreciation as a tax shield; the calculation of after-tax PW or AW.
• Replacement Analysis: The economic life of an asset (the life that minimizes equivalent annual cost); the challenger and the defender; the proper comparison of replacement alternatives; the marginal cost approach; the role of sunk costs.
• Inflation: Constant-dollar vs. then-dollar (current-dollar) analysis; the relationship between real and inflated interest rates; the integration of inflation into PW and IRR calculations.
• Sensitivity Analysis: Identifying critical variables; one-variable sensitivity analysis; spider diagrams; tornado diagrams; the role of sensitivity analysis in decision-making under uncertainty.
• Break-Even Analysis: Fixed and variable costs; the break-even point; applications (production decisions, equipment selection, lease vs. buy).
• Basic Risk Analysis: Expected value of cash flows; decision trees at introductory level; expected PW under uncertainty.
• Engineering Economics Applications: Specific application contexts depending on instructor and program — manufacturing equipment selection, infrastructure projects, energy projects, product design alternatives, manufacturing process selection, public works (transportation, water, environment), facility expansion or relocation, technology adoption decisions.
• Software Tools: Excel functions (PV, FV, NPV, IRR, MIRR, PMT, NPER, RATE) and the construction of cash flow tables and amortization schedules; specialized engineering economics software where used.

Optional Topics

• Life-Cycle Costing: Integration of acquisition, operating, maintenance, and disposal costs; full-cost analysis; cradle-to-grave approaches.
• Decision Analysis Under Uncertainty: Expected utility theory at introductory level; decision trees with multiple uncertainty branches; sensitivity to risk preferences.
• Multi-Attribute Decision-Making: Integration of economic and non-economic criteria (safety, environmental impact, social considerations); weighted scoring; analytic hierarchy process at introductory level.
• Renewable Energy Economics: The economic analysis of solar, wind, and other renewable projects; the levelized cost of energy (LCOE); the role of incentives and policy.
• Infrastructure Investment Analysis: Public-sector economic analysis; the use of social discount rates; the integration of non-monetary benefits.
• Capital Budgeting: Project portfolio management; capital rationing; the engineering manager's role in capital allocation.

Resources & Tools

• Common Texts: Engineering Economic Analysis (Newnan/Eschenbach/Lavelle/Lewis), Engineering Economy (Sullivan/Wicks/Koelling), Contemporary Engineering Economics (Park), Engineering Economy (Blank/Tarquin), Principles of Engineering Economic Analysis (White/Case/Pratt)
• Online Platforms: Connect (McGraw-Hill), Pearson Mastering Engineering, MindTap (Cengage); typically paired with the textbook
• Software Tools: Excel (universally available; PV, FV, NPV, IRR, PMT functions); specialized engineering economics software (some programs use specialized tools); Solver and Goal Seek for sensitivity analysis
• Reference Resources: American Society of Civil Engineers (ASCE) and American Society of Mechanical Engineers (ASME) publications on engineering economics; the EM-Body of Knowledge resources; American Association of Cost Engineers (AACE) International publications

Career Pathways

Engineering economics is foundational to engineering decision-making across all disciplines. EGN2610 specifically supports:

• All Engineering Disciplines — Mechanical, civil, electrical, chemical, industrial, materials, biomedical, aerospace; engineering economics is universal across these fields.
• Engineering Management — A foundation for engineers who advance into management roles; required for many engineering management programs.
• Project Engineering and Project Management — Direct application to project economics, capital project decision-making, and budget management.
• Cost Engineering and Cost Estimation — Specialty roles in construction, manufacturing, and infrastructure (AACE International credentials, ASCE construction management).
• Construction Management — Applied directly in construction cost analysis and contract decision-making.
• Energy Engineering and Sustainability — Particularly relevant to renewable energy economics, energy efficiency projects, and life-cycle assessment work.
• Public Sector Engineering — Florida Department of Transportation, water management districts, public utilities, federal projects (Army Corps of Engineers, NASA).
• Engineering Consulting — Applied directly in consulting work for clients evaluating engineering alternatives.
• Pre-MBA Pathway — Engineering economics is foundational for engineers pursuing MBA degrees and engineering management.

Special Information

EGN2610 vs. EGN3613

Florida engineering programs vary in their engineering economic analysis course coding:

• EGN2610 – Engineering Economic Analysis (this course) — Sophomore-level designation used at approximately 3 institutions.
• EGN3613 – Engineering Economic Analysis — Junior-level designation used at approximately 5 institutions.

Content is essentially equivalent; the difference is primarily in curriculum positioning. Programs that offer engineering economics earlier in the curriculum tend to use EGN2610; those offering it later use EGN3613. Some Florida engineering programs do not require a standalone engineering economics course, instead integrating the content into capstone design, project management, or discipline-specific courses.

General Education and Transfer

EGN2610 is a Florida common course number that transfers as the equivalent course at all Florida public postsecondary institutions per SCNS articulation policy.

FE Exam Preparation

Engineering economics is a content area on the Fundamentals of Engineering (FE) examination, the first credentialing examination for licensed Professional Engineers (PE). EGN2610 directly prepares students for the engineering economics portion of the FE exam.

Course Format

EGN2610 is offered in face-to-face, hybrid, and increasingly online formats. The mathematical and software-based nature of the work translates well to online delivery; many institutions offer fully asynchronous online sections.

Position in the Engineering Curriculum

EGN2610 is typically taken in the second year of engineering study, after foundational mathematics. The early curriculum positioning supports students who can apply economic analysis skills throughout their subsequent engineering coursework, including capstone design projects.

Continuing Education and Professional Application

Engineering economics skills developed in EGN2610 are applied throughout an engineer's career. Engineers continue to develop these skills through professional experience, continuing education, and advanced study (MBA, engineering management, project management certifications such as PMP).