June 22, 2008
June 22, 2008
June 25, 2008
Systems Engineering Constituent Committee
13.122.1 - 13.122.8
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.
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
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