Engineering Economy in Systems Engineering

In systems engineering, we are often concerned with the efficient utilization of limited resources. The focus on resource efficiency usually involves two main types—technical and economic efficiency. Systems design requires capital investment, and every activity and effort occurring in the design requires resources, such as human labor and materials, and eventually these efforts are associated with cost. One of the most important goals in systems design is to minimize the cost involved and maximize the utility that is generated from the cost investment. This chapter is focused on designing for economic efficiency for systems engineering. Engineering economy is an applied economic science that addresses the economic issues within the engineering field. The basis for the engineering economy is the time value of the money and opportunity cost. This chapter delves into key engineering economy concepts, aiming to equip readers with the knowledge and basic models to apply these concepts to systems engineering decision-making. It covers understanding the time value of money and interest rates, and the calculations for present value, future value, and annual equivalent value to facilitate comparison between different project alternatives. Additionally, it introduces break-even analysis as a tool for decision-making, illustrating how different monetary values influence the analysis, thus guiding systems engineers in making economically efficient decisions alongside technical considerations.