Importance of engineering economics for engineers

A civil engineer designs and builds roads, bridges, dams, buildings and water systems that use large public or private funds over a long life. Engineering economics is important because every such project needs both a technically sound and an economically sound decision.

1. Selection among alternatives. Many designs can meet the same purpose (e.g. concrete vs steel bridge, rigid vs flexible pavement). Engineering economics compares their lifetime costs and benefits using PW, AW, IRR or B/C ratio.
2. Time value of money. Construction cost is paid now while benefits come over 20 to 50 years. Interest-based techniques allow cash flows at different times to be compared fairly.
3. Feasibility of projects. It decides whether a hydropower, irrigation or road project is worth building, with economic indicators such as B/C ratio and IRR needed by lenders and the government.
4. Cost estimation and control. Estimating, budgeting and break-even analysis help a contractor price tenders, control cost and avoid loss.
5. Equipment decisions. Buy or lease, replace or retain, and depreciation of construction equipment need economic analysis.
6. Use of scarce resources. Funds are limited; economic analysis directs them to the projects giving the largest return.
7. Risk and uncertainty. Cost overruns, inflation and delays are handled through sensitivity and risk analysis.
8. Public welfare. Public projects are judged on social benefits against costs, balancing economy, safety and environment.

Hence an engineer without economic skill may produce a technically perfect but wasteful project.