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A Systems Approach To Engineering “Economics”

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2008 Annual Conference & Exposition


Pittsburgh, Pennsylvania

Publication Date

June 22, 2008

Start Date

June 22, 2008

End Date

June 25, 2008



Conference Session

Systems Engineering Constituents Tech Session

Tagged Division

Systems Engineering Constituent Committee

Page Count


Page Numbers

13.122.1 - 13.122.8

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Paper Authors


Steve Walter Indiana University Purdue University, Fort Wayne (Eng)

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Steve earned his Bachelors of Science degree in Physics at the University of Maryland and his Masters and Doctorate in Physics at the University of Colorado in Boulder. After graduating, he was hired by the NASA Jet Propulsion Laboratory (JPL) where he developed new and innovative microwave, millimeter-wave and submillimeter-wave remote sensing systems. In 2000, he joined Northrop Grumman Electronic Systems where he served in a variety of systems engineering and program management roles. In 2006 he moved to Fort Wayne, Indiana to accept the position as the IPFW Professor of Systems Engineering and Director of the Center of Excellence for Systems Engineering.

He is a member of the International Council on Systems Engineering, Project Management Institute, Institute of Electrical & Electronics Engineers, and the American Association for the Advancement of Science

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NOTE: The first page of text has been automatically extracted and included below in lieu of an abstract

A Systems Approach to Engineering “Economics” Introduction

A new course has been instituted at the graduate level that emphasizes a systems approach to teaching finance, economics, cost accounting and cost management. Topics were selected to increase the relevance of the course, thereby improving the alignment of this “engineering economics” course with industrial needs. The course’s pedagogical approach required eliminating some traditional engineering economic topics to make room for a number of new subject areas. The intent of restructured course was to create a framework that provides engineers with the tools needed to help them engineer for cost.

Industrial Practices

It is important for engineers to have a basic understanding of finance, economics, accounting and cost management because money influences and motivates behavior. In today’s competitive environment both development cost and product cost can be critical in determining the success of a new product. Increasingly, cost drives the choice of development practices, design decisions, technologies and product features.

The success of a new product is determined by its ability to satisfy customer needs in a cost- effective manner. Reducing product cost requires efficient development processes that generate cost-efficient designs. The recognition of industry’s need to streamline their approach to product development has led to the creation of capability maturity models that provide companies with a framework with which to document, benchmark and improve their core development processes. The Carnegie Mellon Software Enterprise Institute concisely articulates the premise behind this trend towards process-based management1: “The quality of a system or product is highly influenced by the quality of the process used to develop and maintain it.” It was also important to review the ways in which engineers incorporate economics, accounting, finance and cost management in their jobs. Topics that needed to be taught as well as topics that should be discarded were identified. For example, most companies have accountants and business people that are responsible for corporate finances. These people handle issues such as taxes, capital financing, pricing and overhead rates. While these topics may be of academic interest, engineers rarely are involved in decisions related to these issues. On the other hand, engineers are routinely required to estimate cost, manage budgets, make design decisions, formulate subcontracting strategies, measure project progress, control cost and manage cash flow. These needs led to the redesign of the engineering “economics” course.

Offering this course at a senior or graduate level allows integration of the accounting, finance and economic topics with the student’s understanding of engineering and product development. Table 1 lists a variety of engineering assignments and some of the key knowledge areas

Walter, S. (2008, June), A Systems Approach To Engineering “Economics” Paper presented at 2008 Annual Conference & Exposition, Pittsburgh, Pennsylvania.

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