Engineering economics

Engineering economics evaluates the costs, benefits, and alternatives of engineering projects and decisions, often comparing cash flows over time to support choices.

Time value of money: The principle that money available now has different economic value from the same amount available later. Discounting future cash flows makes alternatives with different timing comparable.
Cash flow: The movement of money into and out of a person, organization, or project over time. Engineering evaluations represent expenditures and receipts as dated cash flows.
Cost-benefit analysis: A systematic comparison of a decision's expected costs and benefits, often expressed in monetary terms. It evaluates whether a project’s benefits justify its resource costs.
Financial analysis: The assessment of monetary performance, funding, and risks from the perspective of a firm or investor. Engineering economics can include wider resource costs beyond an individual project's finances.
Present value: The current worth of future cash flows discounted at a specified rate. It expresses future project costs and benefits in comparable present-day terms.
Discount rate: The rate used to convert future cash amounts into present value. Its choice determines how strongly distant costs and benefits affect a comparison.
Capital budgeting: The process of evaluating and selecting long-term investments in assets or projects. Engineering proposals compete for limited funds through investment appraisal.
Economic impact analysis: An estimate of how a project or activity changes economic output, income, or employment in a region. It measures effects on an economy, unlike project appraisal's comparison of costs and benefits.
Net present value: The sum of discounted cash inflows and outflows over an investment's life. It provides a common measure for deciding whether a project adds economic value.
Inflation: A sustained increase in the general price level that reduces money's purchasing power. Consistent treatment of inflation is necessary when forecasting costs across years.

Linked from 1 page

Engineering managementRelated: It helps evaluate alternatives whose costs and benefits unfold across a project life cycle.