When we submit engineering proposals, we often have to
overcome a number of physical limitations in order to come up with the “best”
way of solving a problem. But we should
also ask ourselves, “Is this the most economical way of solving the problem?”
We must be able to speak both our “technical language”
and the “language of managers” (paraphrasing slightly from quality guru Joseph
Juran). Managers are concerned with the
bottom line and want to ensure that resources are being used in the best way
possible. As engineers, we too have a
similar responsibility as we protect the welfare of the public.
The field of engineering economics, formerly known as
engineering economy, estimates the costs and potential savings of proposals,
and then determines if the proposals make “money-sense”. Because the value of money today is not the
same as money in the future, we must account for the time value of money, and
calculate the proposal’s “net present value” based on a rate of return desired
by the organization.
Back in those engineering economy days, we often would
have to go to tables of numbers and look up the correct “factors” to use to
calculate present values and future values.
We would have to “interpolate” from the tables if we were to use an
interest rate of 7.5% (because the tables skipped from 7% to 8%). It was difficult to “back into” a rate of
return for a proposal, or to estimate how long it may take to recoup an
investment based on a desired rate of return.
(Dare I mention slide rules?)
When you take this course, you will see that MS Excel has quite a few functions that
will speed through calculations involving present value, future value,
annuities, rates of return, and others.
Woven throughout the course are engineering, business, and personal
illustrations to help you better relate to the time value of money and the rate
Engineering economics is not easy. But after completing this course, you should
be able to see how Excel can make it “easier”.
The FREE Microsoft Excel® spreadsheet that accompanies this course will be available for download after purchase. You will need Excel version 1997 or later to open the file.