Engineering economic analysis is a process that is applied to different engineering projects in order to understand the economic viability of each. The analysis seeks to find solutions to complicated problems and also other technical functions related to it. The basic aim is to consider money and time for such analysis. It is important to see whether the project concerned is economically sound and meets the production criteria stated at the onset.
The analysis brings forth alternatives or back up plans which can be used in case of any failure. This is a great way to ensure that all risks are covered. The cost of every step for the project needs to be considered in order to see whether the production is leaning towards profit or a loss. This type of analysis is mostly seen in manufacturing companies to measure the amount of revenue to be generated against the production cost.
Sample Engineering Economic Analysis
The Massachusetts Trading Company has hired Bills 4 All Co. for the purpose of analyzing production costs and revenues for the below mentioned project.
Project: Manufacturing Fog Lights with the use of Solar Panels.
Summary of Project:
Creating an economically friendly car part which will not only ensure the functions of a normal fog light but will derive its source of power from sun with the help of solar energy panels.
- Working Capital: $233,4455
- Assets: $455,668
- Production Equipment Cost: $2 million
- Bank Loan: $1 million
- Solar Panel Costs (Total): $2.5 million ($200 per pair of fog lights)
Expected time period of production: Up to six months
Cost of production v/s revenue:
- Production cost will rise up to $5 million depending on the time period.
- Due to availability of cheaper fog lights, the production seems unnecessarily expensive with the inclusion of solar panels.