If you are calculating the ROI on a new software suite, you should perform a sensitivity analysis . What happens if the software takes 12 months to implement instead of 6? What if the efficiency gain is 5% instead of 10%? Recognizing these risks prevents over-optimistic decision-making. 7. Revisit Your Decisions
By following these seven principles, the engineer makes a transparent, defensible, and economically sound decision—not just a guess. 7 principles of engineering economics with examples
Presenting a single Net Present Value (NPV) as the final answer without acknowledging the variance. If you are calculating the ROI on a
When comparing two options, ignore the costs or benefits that are identical for both. Focusing only on the outcomes that differ simplifies the analysis and prevents "data noise." Presenting a single Net Present Value (NPV) as
Without the post-audit (Principle 7), you would repeat the same underestimation error forever. This principle turns engineering economics into a learning loop.
If a city engineer is evaluating a new toll road, they must decide if the "viewpoint" is the city’s budget (revenue vs. construction cost) or the public’s benefit (time saved vs. tolls paid). Mixing these mid-analysis leads to skewed results. 4. Use a Common Unit of Measure