--- title: "Define engineering economics and its principles" subject: "Engineering Economics" chapter: 1 key: "semester_6/engineering_economics:define-ee-principles" source: https://www.bctengineer.com/q/semester_6/engineering_economics/define-ee-principles site: BCT Engineering --- # Define engineering economics and its principles Engineering Economics · Chapter 1: Introduction - Asked in: 2076 Shrawan, 4 marks; 2076 Shrawan, 1+3 marks; 2071 Bhadra, 4 marks; 2069 Bhadra, 1+3 marks (asked 3 times) - Video: [02-Principles of Engineering Economics](https://www.youtube.com/watch?v=5AVnvh_Zj6U) — Sharing by SKS - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_6/engineering_economics/define-ee-principles - Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1 ## Question Define engineering economics. Write down the principles of engineering economic analysis. ## Short answer Engineering economics applies economic principles to compare engineering alternatives over time in money terms. Key principles: identify alternatives, focus on differences, use a consistent viewpoint and a common monetary unit, consider all criteria, make uncertainty explicit, revisit decisions, and recognize the time value of money. ## Answer Engineering economics is the application of economic principles and techniques to engineering decisions. It compares the costs and benefits of alternative engineering projects over time, in money terms, so that the most economical alternative can be selected (Sullivan, Wicks & Koelling). #### Principles of engineering economic analysis 1. **Develop the alternatives.** The choice is only among identified alternatives; the best one may be missed if it is never listed. "Do nothing" is also an alternative. 2. **Focus on the differences.** Only the costs and revenues that differ among alternatives matter. Items common to all alternatives can be ignored. 3. **Use a consistent viewpoint.** All alternatives are judged from the same viewpoint (usually that of the owner or firm). 4. **Use a common unit of measure.** Express as many consequences as possible in the same unit, money (rupees), so that they can be compared directly. 5. **Consider all relevant criteria.** Use money for the economic part, but also include non-monetary factors (environmental, safety, social). 6. **Make uncertainty explicit.** Future estimates are never certain; use sensitivity or risk analysis. 7. **Revisit decisions.** Compare actual results with the estimates and learn from them (post-audit). Also, **money has a time value**: Rs 1 today is worth more than Rs 1 later, so cash flows are compared at the same point in time using interest. ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Engineering economics is best defined as: A. Applying economic principles to compare costs and benefits of engineering alternatives over time and pick the most economical one B. Designing structures to minimise material weight C. Preparing the accounting books of an engineering firm D. Forecasting national GDP for engineering industries Answer: A. It compares the money costs and benefits of alternative projects over time so the most economical is selected. (Key point: Definition) 2. Why does the principle 'focus on the differences' let us ignore some items? A. Only future benefits matter, never costs B. Costs and revenues common to all alternatives do not affect which one is better C. Differences are always larger than common items D. Common costs are always zero Answer: B. Items identical in every alternative cancel out in the comparison, so only differing items matter. (Key point: Focus on differences) 3. Which statement about alternatives is correct? A. The first feasible option should be chosen at once B. Only technically new designs count as alternatives C. 'Do nothing' is also an alternative, and the best option may be missed if it is never listed D. 'Do nothing' must never be considered Answer: C. The choice is only among identified alternatives, and doing nothing is one of them. (Key point: Develop alternatives) 4. Why must cash flows be compared at the same point in time? A. Because inflation is always zero B. Because future money is always worth more C. Because taxes are paid at one time D. Rs 1 today is worth more than Rs 1 later because money earns interest Answer: D. Money has a time value, so cash flows at different times are brought to a common time using interest. 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