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A Hands On Approach To Teaching Undergraduate Engineering Students The Concept Of Economic Project Risk

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2001 Annual Conference


Albuquerque, New Mexico

Publication Date

June 24, 2001

Start Date

June 24, 2001

End Date

June 27, 2001



Page Count


Page Numbers

6.38.1 - 6.38.16



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Paper Authors

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Ed McCombs

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Camille F. DeYong

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Most engineering economic analysis textbooks explain the concept of economic project risk, including methods for estimating data. However, students often do not develop an appreciation for the difficulties involved in developing estimates. The assignment discussed in this paper uses active learning to develop estimates of maintenance costs for an automobile. Students first develop estimates without any guidance. Data simulating partial historical data for maintenance costs for a rental car fleet is then created for a class exercise. The data follows a beta distribution with known parameters, although the students are unaware of this at the time. Students are provided with a histogram showing ‘their’ data and are asked to estimate the optimistic, pessimistic and most likely values from the graph. The mean and variance for the distribution is calculated using the common estimation equations for the beta distribution. Finally, the mean and variance of the sample data is calculated and compared to the mean and variance obtained through the estimation. This provides a clear example of the pitfalls associated with relying on an interpretation of data, or intuition, rather than using the data itself, since the estimated variance is generally radically different from the analytical variance. This exercise also provides the instructor an opportunity to discuss topics such as sampling, graphing, spreadsheet usage, optimistic/most likely/ pessimistic techniques, statistical analysis and parameter estimation.

McCombs, E., & DeYong, C. F. (2001, June), A Hands On Approach To Teaching Undergraduate Engineering Students The Concept Of Economic Project Risk Paper presented at 2001 Annual Conference, Albuquerque, New Mexico. 10.18260/1-2--9321

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