Back to Table of
ContentsTHE CURRICULAR ROLE OF ENGINEERING ECONOMICS
ABSTRACT
This paper offers a commentary on the importance and future role of engineering economics in the curriculum. Economic factors are central to engineering decision-making in designing or operating a process. Furthermore, many topics of engineering economics display the engineering problem-solving approach at its best, in a manner that is shared by all engineering disciplines. For example, the hierarchy of cost estimation techniques is typical of methods used in other quantitative estimation problems engineering. Engineering economics thus teaches and exemplifies problem-solving skills. A likely change as engineering curricula become more practice-oriented is a move of economic material from the senior level to the first- or second-year level. Students acquire the needed mathematical background for engineering economics sufficiently early, and economic computations are an excellent way to introduce computer tools in a unified manner for all engineering disciplines. The earlier exposure to engineering economics will allow economic studies to be integrated into many intermediate-level courses with engineering design elements. This entails not merely inclusion of cost-estimation but application of engineering economics to study trade-offs in the design and operation of processes and systems. Finally, the boundaries of engineering economics in senior level courses are likely to expand to higher-level business-oriented issues. These may include strategic financial issues in corporate decision making and the study of market forces that define costs and prices.
INTRODUCTION
The coverage of engineering economics is usually confined to the senior-level capstone design course, which may involve a design project complete with economic analysis. The course covers the estimation of capital and operating costs, time value of money, and profitability analysis, so that the economics of various design options can be compared as the project is carried out. More esoteric accounting issues, such as taxes and various types of depreciation, receive only brief coverage and are included in the economic analysis only to a first approximation.
For example, in undergraduate Chemical Engineering curricula, the capstone course involves the design of a chemical plant. The early modules of the course include the estimation of equipment costs (Douglas, 1988, Peters and Timmerhaus, 1991, Woods, 1994), starting with the basic costs of individual processing units, raw materials, and utilities, and then incorporating other costs such as instrumentation, labor, maintenance. Many ancillary costs are lumped into simple factors that multiply the basic equipment costs. With cost-estimation and time-value-of-money techniques, the students can compare the economics of process alternatives in their projects.
In this article, we examine the importance of engineering economics in the curriculum and the ways in which it enhances engineering problem-solving skills. There is no doubt that engineering curricula are in a state of flux (Bakos, 1990; Ernst and Lohmann, 1990; Evans et al., 1990; Gorman et al., 1995; Koen, 1994; McNeill et al., 1990; Peterson, 1990). Design appears to play a prominent role in the restructuring of the curriculum. Given the essential role of economic factors in design, many of the curricular modifications will affect engineering economics. We examine these developments and offer some suggestions on how engineering economics can best be adapted to, and enhanced by, these on-going transformations.
IMPORTANCE OF ENGINEERING ECONOMICS
We begin with a discussion of the current state of engineering economics in the curriculum. Its essential role in design ensures its continued presence. But economics enhances engineering curricula in other ways: It encompasses and exemplifies aspects of engineering problem-solving, and it allows easier presentation of various types of engineering systems based on economic rationale.
Direct Role
One should not overlook social issues and forces affecting engineering (Augustine, 1994) in all its decision making activities. Nevertheless, a constant guiding principle in decision making, is the analysis of costs and economic benefits; these comprise the primary role of engineering economics in all engineering disciplines. In the design of a process, product, or system, the engineer makes a multitude of choices of components, configurations, subsystems, and materials; economic factors are central in all of these decisions (Hazelberg, 1994). Economic considerations likewise guide how an existing process or system should be operated or modified.
Choices are often guided by rules of thumb (Douglas, 1988) which summarize past experience; these rules convert broad economic factors into criteria or relationships involving non-economic variables of the process or product. But the engineer must still contend with frequent exceptions and with choices not covered by such rules. Thus, the quantitative understanding of economic implications in the design and operation of a process or product is indispensable.
Engineering economics is among the course topics most likely to be used directly by students after graduation. It is sufficiently generic to be valuable in a large variety of engineering jobs. It is also quite realistic (at least in some of its topics, such as the time value of money) so that the barriers between the course material and a practical application confronting a new engineer are quite low.
We reiterate that, though economics occupies a central role, legal or social issues, such as the chemical industry's efforts towards environmentally responsible manufacturing (Ember, 1995; Kirschner, 1994), are also important elements in engineering activities.
The direct benefits of engineering economics are sufficient to earn it a permanent role in engineering curricula. The rest of this section discusses two indirect beneficial elements of engineering economics; these effects compound its primary benefits and enhance its role in the curriculum.
Economic Analysis as an Explanation Tool
Engineering economic analysis can demystify complex processes and systems. The students are often puzzled about particular arrangements in engineering systems which appear frequently and in a variety of settings. Drawing on examples from the Chemical Engineering domain, what is the rationale for a distillation column or a jacketed chemical reactor? The teacher could give explanations of how these processes work, but full assimilation and understanding of the material requires an answer to another question: Why is the arrangement desirable? In most cases, there are direct economic reasons that lead to the evolution of a unit from simpler (i.e., more obvious), arrangements (Mavrovouniotis, 1995). For example, a distillation column is a less expensive alternative for a sequence of flash drums. The best way to get the point across to the students is to carry out a complete computation of costs.
These systems are like phrases or idioms of the language of design; they are not the basic building blocks, but they are sub-assemblies with appealing properties cost efficiency first and foremost. The systematic economic analysis of standard yet complex system arrangements helps the students understand the rationale of the arrangements; the students are then better prepared to recognize when a process arrangement is useful and what its limitations are.
Problem-Solving Skills Exemplified by Engineering Economics
The second indirect benefit of engineering economics is that it exemplifies and cultivates problem-solving skills. For example, cost estimation can be done at different levels of detail - depending on what approximations one is willing to make and what accuracy is demanded of the result. For chemical process equipment, one may estimate installation costs either very coarsely as a fixed percentage of equipment purchase costs, or in more detail based on the installation procedure and details of the equipment.
Better accuracy requires more detailed, time-consuming analysis, and one should be careful not to expend effort if the final outcome (usually a decision to accept or reject a design alternative) is not sensitive to improved accuracy. Some design alternatives have large cost differences; detailed cost computations for an alternative that will be rejected are unwise. The correlation between effort and accuracy creates the need to apportion one's efforts and focus them in those sensitive areas of the problem where they will impact the solution the most. This applies to most engineering problem-solving but it is most apparent (and hence didactic) in design and in the associated economic evaluation of design alternatives.
Another example is the life-cycle character of profitability measures. In using the present worth method, the capitalized costs method, or the discounted cash flow rate of return (DeGarmo, 1993; Park, 1993), one includes all costs and revenues occurring over the life time of the system. In the case of chemical processes, the economic consequences of the eventual shutdown of a plant are included. Thus, techniques from engineering economics promote the habit of considering a process or product in its life-cycle.
EVOLUTION OF THE ROLE OF ENGINEERING ECONOMICS
Many recent curricular modifications incorporate design earlier in the curriculum, with many new freshman-level design courses (Dym, 1994; Miller and Olds, 1994). Design has also been receiving renewed emphasis as a component of intermediate-level courses; according to McMasters and Ford (1990) design and engineering are fundamentally synonymous, and design should be present throughout the curriculum.
Broad Economic Concepts
Is there a more appropriate role and place for engineering economics in the curriculum? Engineering economics is an integral part of design (Hazelberg, 1994). Design is realistic decision making; without downplaying ethical and social issues that a mature and responsible engineer should also consider, it is clear that economic factors are always important and often central in realistic decision making. Thus, the expanded role of design in introductory and intermediate-level courses creates a need for additional attention to engineering economics in the earlier portions of the curriculum. It can be argued, in fact, that the core of engineering economics should be entirely shifted from the senior level to the freshman and sophomore levels. (This is certainly not going to be the case with design as a whole, since capstone design courses are rightfully receiving renewed, not diminished, emphasis.) What form would a shift take, and what are its benefits?
Certain aspects of engineering economics require only minimal engineering science background. The time-value of money, profitability criteria, generic aspects of cost estimation (such as distinctions between capital and operating costs, or issues related to depreciation and taxes), the effective use of the literature in finding costs, and the use of indices to update costs can all be covered in introductory-level design courses. Economic computations are an excellent way to introduce computer tools (such as spreadsheets and graphics) in a unified manner for all engineering disciplines.
System-Specific Topics
There are, of course, economic topics which require discipline-specific engineering science and design background. For Chemical Engineering, these involve primarily cost estimation for specific types of process equipment. The details of these topics rightfully belong to the corresponding engineering science courses. The reinforcement and application of engineering economics should also take place through examples in these courses.
This is a natural structure for the intermediate courses. In Chemical Engineering, for example, the discussion of heat transfer fundamentals and equipment should be immediately followed by economic aspects: the estimation of equipment costs, the trade-off between capital costs (heat-exchange area) and operating costs (energy). Note that economic factors are not entirely missing in the present form of the courses; but they stop just short of direct monetary analysis. In heat transfer, the computation of heat-exchange surface area is already important; the relationship of this quantity to equipment costs is only a short yet significant step to take. This change can be applied to virtually all intermediate chemical engineering courses. Fluid mechanics can include the cost of piping; process control may cover the cost of instrumentation; reactor design should discuss the cost of reactor equipment.
In all of these cases, we are not advocating merely inclusion of cost-estimation but application of engineering economics to study trade-offs in the design and operation of processes. The student will thus understand why process control systems rely on certain measurements (temperature, flow, pressure) more commonly than others (composition) which are difficult and more expensive; why and when multi-stage compressors are used; or why a distillation column is preferable to a sequence of flash drums.
A preview to the estimation of costs of particular types of equipment may occur before the corresponding engineering science course. It is in the nature of design and engineering, that in discussing each topic (such as a family of unit operations) it is useful to have a coarse understanding of other topics (whose detailed study may occur later in the curriculum). For example, in the study of vapor-liquid equilibrium separations, one cannot completely ignore the issue of heat exchange and its costs. Usually, an "Introduction to Chemical Engineering" course has among its goals the overview of chemical processes, precisely to meet this need. With costs and economics brought into the picture for the intermediate courses, it is useful to make a similar inclusion of economic aspects into "Introduction to Chemical Engineering" an overview of process equipment and the simplified approximate estimation of their costs.
Capstone-Level Business and Industrial Topics
Aided in part by the movement of many economic topics to earlier courses, the senior level courses may expand their own boundaries of engineering economics to include higher-level business-oriented issues. These may include strategic financial issues in corporate decision making and the study of market forces that define costs and prices.
In the chemical industry, for example, the prices of many chemicals derived from petroleum are intricately interconnected; a shortage in one affects the prices of several others. Entire plants may be mothballed or reactivated based on price movements; alternative supply sources and business alliances may be sought. Eventually, these economic forces interact with research and development for alternative production technologies. A knowledgeable engineer should have a qualitative understanding these effects and broad trends within different segments of the industry.
Summary of Future Role of Engineering Economics
Let us summarize the curricular proposal made here. Engineering economics should be introduced at the freshman-level design course. Courses that serve as introductions to specific engineering fields then include an overview of processes, equipment, and simplified cost estimation models. Each specific intermediate-level engineering course includes detailed cost-estimation and economic trade-offs for its technical topic. The capstone design course does not need to explicitly cover economic techniques, but uses them extensively in a major design project; the capstone course expands its coverage to higher-level business-oriented economic issues.
The author believes that this configuration is consistent with the increasing role of design and makes all the courses more cohesive and interesting to the students.
CONCLUDING REMARKS AND SUMMARY
Engineering economics is currently an integral part of senior design courses in most engineering curricula. The main topics normally covered include cost estimation, the time value of money, and profitability measures. This paper examines the importance and future role of engineering economics in the curriculum.
Economic factors are central to engineering decision-making in designing or operating a process or in designing a product. One cannot imagine realistic design or problem solving without explicit analysis of the economics of the process or product. Furthermore, many topics of engineering economics display the engineering problem-solving approach at its best, in a manner that is shared by all engineering disciplines. For example, the hierarchy of cost estimation techniques is typical of methods used in other quantitative estimation problems engineering. With a more time-consuming and detailed cost-estimation approach we can usually obtain more accurate estimates. We gain accuracy by refining each cost component into its constituent parts. In the opposite direction, we gain convenience by estimating a cost component as an approximate multiple of another cost component. A second example is the life-cycle aspect of design and evaluation, made apparent in profitability measures such as the present worth and capitalized cost methods. Engineering economics thus teaches and exemplifies engineering problem-solving skills.
Economic decision-making will always be a central component of design, and engineering economics will continue to play an important role throughout future curricular transformations. A likely change as engineering curricula become more design-oriented and practical is a move of economic material from the senior level to the first or second-year level. Students acquire the needed mathematical background for engineering economics early, and economic computations can serve as an introduction to computer tools. The earlier exposure to engineering economics will allow economic studies to be integrated into many intermediate-level courses with engineering design elements. The capstone course can then include broader business issues in its coverage of engineering economics.
REFERENCES
Augustine, N.R. "Preparing for the Socioengineering Age." ASEE Prism, 24-26, (February 1994).
Bakos, J.D. "A Programmed Approach to Developing a Major Design Experience," Engineering Education, 80, 40-42 (1990).
DeGarmo, E.P., Sullivan, W.G., Bontadelli, J.A. Engineering Economy, 9th Edition. Macmillan Publishing Company, New York (1993).
Douglas, J. M. Conceptual Design of Chemical Processes, McGraw-Hill, New York, (1988).
Dym, C.L. "Teaching Design to Freshmen: Style and Content," Journal of Engineering Education, 83, 303-310 (1994).
Ember, L.R. "Responsible Care. Chemical Makers Still Counting on it to Improve Image." Chemical and Engineering News, 73 (22), 10-18, (1995).
Ernst, E.W., and Lohmann, J.R. "Designing Undergraduate Design Curricula," Engineering Education, 80, 543-547 (1990).
Evans, D.L., McNeill, B.W., and Beakley, G.C. "Design in Engineering Education: Past Views of Future Directions," Engineering Education, 80, 517-522 (1990).
Gorman, M.E., Richards, L.G., Scherer, W.T., and Kagiwada, J.K. "Teaching Invention and Design: Multi-Disciplinary Learning Modules," Journal of Engineering Education, 84, 175-185 (1995).
Hazelberg, G. A. "Rethinking the curriculum." ASEE Prism, December 1994, p. 56.
Kirschner, E. "Evaluations to Verify Responsible Care." Chemical and Engineering News, 72 (38), 19, (1994).
Koen, B.V. "Toward a Strategy for Teaching Engineering Design," Journal of Engineering Education, 83, 193-201 (1994).
Mavrovouniotis, M. L. "Explaining Distillation Arrangements through Gradual Evolution of Flowsheets." 1995 Annual Conference Proceedings, American Society for Engineering Education, p. 2188-2192, ASEE, Washington, DC, (1995).
McMasters, J.H., and Ford, S.D. "An Industry View of Enhancing Design Education," Engineering Education, 80, 526-529 (1990).
McNeill, B.W., Evans, D.L., and Bowers, D.H., Bellamy, L., and Beakley, G.C. "Beginning Design Education with Freshmen," Engineering Education, 80, 548-553 (1990).
Miller, R.L., Olds, B.M. "Teaching Design to Freshmen: Style and Content," Journal of Engineering Education, 83, 311-316 (1994).
Park, C.S. Contemporary Engineering Economics. Addison-Wesley Publishing Company, New York, (1993).
Peters, M. S., and Timmerhaus, K. D. Plant Design and Economics f or Chemical Engineers, 4th edition, McGraw-Hill, New York, (1991).
Peterson, C.R. "The Desegregation of Design," Engineering Education, 80, 530-532 (1990).
Woods, D.R. Process Design and Engineering Practice. Prentice-Hall, Englewood Cliffs, 1995.
ACKNOWLEDGMENTS
This work was supported in part by the National Science Foundation, Division of Undergraduate Education (NSF grant number DUE-9652775) and by the Murphy Society of Alumni of Northwestern University. Opinions expressed are those of the author and not necessarily those of the National Science Foundation or Northwestern University.