RISK AND UNCERTAINTY: Engineers use risk and uncertainty analysis to evaluate the

potential impact of unforeseen events on project economics.

In engineering economics, risk refers to the probability of an adverse event occurring,
while uncertainty refers to the lack of knowledge about future outcomes.

COST ESTIMATION: It involves predicting the costs associated with a project, including
materials, labor, and overhead.
Accurate cost estimation is crucial for budgeting and decision making in engineering
projects.

CASH FLOW ANALYSIS: is a key tool in engineering economics.

It involves tracking and analyzing the inflows and outflows of cash associated with a
project.
By examining the timing and magnitude of cash flows, engineers can assess the financial
viability of a project.

TIME VALUE OF MONEY: The time value of money is a fundamental concept in engineering
economics.
It recognizes that the value of money changes over time due to factors like inflation and
interest rates.
This concept is important because it allows engineers to compare costs and benefits that
occur at different points in time, Engineers use techniques like present worth, future worth, and
annual worth analysis to account for the time value of money in decision-making.

DEPRECIATION: is the reduction in value of an asset over time.

In engineering economics, depreciation is considered when assessing the costs and
benefits of a project.
By accounting for depreciation, engineers can accurately evaluate the economic life of an
asset.

SENSITIVE ANALYSIS: Is a technique used in engineering economics to assess the impact of

changes in variables on project outcomes.
 It involves varying one or more input variables to determine how sensitive the project’s
results are to those changes.
Sensitivity analysis helps engineers identify the most critical factors influencing project
economics.

BENEFIT-COST ANALYSIS: Is a technique used in engineering economics to compare the

benefits and costs of a project.
It involves quantifying and monetizing the benefits and costs to determine if a project is
economically justified.
By conducting a benefit-cost analysis, engineers can assess the financial feasibility of a
project.

ENGINEERING ECONOMICS: is the application of economic principles to engineering

decision-making. It helps engineers make informed decisions by considering the financial
aspects of projects.
It involves analyzing costs, benefits, and risks to determine the most economically viable
solutions.
By understanding engineering economics, engineers can optimize project outcomes.