Engineering Economy: Applying Theory to Practice, 2nd Edition
Simonton, James L
Engineering Economy: Applying Theory to Practice, 2nd Edition By Ted G. Eschenbach, Oxford University Press, 2003
The subject of this review is the second edition textbook offered by Dr. Ted G. Eschenbach and Oxford University Press. One of the first challenges faced by an instructor will be presenting economic analysis theories, principles, and practices in such a way to be relevant and meaningful to students. There are only a finite number of basic topics in engineering economics that are appropriate for introductory level course work. Therefore, presentation of these topics could become the main selection criteria between texts. With the numerous engineering economic textbooks published it has become necessary for authors to make an effort to differentiate their product from the competition. Having used other texts I was pleased with the content and delivery method selected by the author. There were specific areas where my personal preferences differed but those were few and not a major stumbling block.
Chapters and topics are organized in a logical, straightforward manner. The author begins each chapter with a stated situation and solution, chapter objectives, and key words and concepts. Chapters 1, 2, and 3 introduce the student to economic concepts such as the time value of money, principles of economic decision-making, structure of problem-solving, and the concept of equivalence. Since engineering economics is a building block-type of course, the initial chapters must provide foundational components that address key issues and principles that will be carried forward throughout the text. I believe the author was successful in this undertaking.
The author devotes a detailed chapter 4 to the use of Microsoft(TM) Excel spreadsheets in economic analysis. The concepts introduced to this point are now incorporated into spreadsheet form. The students are guided through numerous detailed examples designed to demonstrate the practical use of what they have learned to this point. I believe these types of problems bridge the gap between class or course work and the practical application of concepts that the student will be working with upon graduation.
There is a balance to be struck between spreadsheet analysis and the manual solving of problems. The author does demonstrate the need for a basic understanding of economic concepts and principles before the introduction of spreadsheet solving techniques. The early introduction of spreadsheet use is timely and useful in chapters 5, 6, and 7 when present worth, equivalent annual worth, and internal rate of return are covered.
Somewhat breaking with convention, the author covers benefit/cost ratios relatively earlier in the text (chapter 8). This is a positive step for students who are preparing for the FE exam and those who will be working in or with the public sector.
The next three chapters (9-11) address mutually exclusive alternatives, replacement analysis, and constrained project selection. In general, the author presents the material in a straightforward manner that introduces the student to the appropriate concepts related to the chapter topics.
Chapters 12 and 13 cover depreciation and income tax. Both chapters meet the requirements for an introductory course.
The placement of chapter 14, Public sector Engineering Economy, is somewhat puzzling. It would appear that it may have a more appropriate placement as subsequent material for chapter 8. It might have also been appropriate to combine the two shorter chapters of 8 and 14.
Chapter 15, inflation, starts with simplistic examples that the student most likely has already encountered in their personal experiences. From these examples the author builds up to moderately complex situational problems. Inflation is a complex issue and I believe the author addressed it with an introductory text view point. This simplistic introductory approach would not be suitable for more advanced studies.
Chapters 16-19 address estimating cash flows, sensitivity analysis, uncertainty and probability, and multiple objectives. The author expands topics and examples covered in earlier chapters to make them challenging to more advanced students. This is a nice transition between basic concepts and the advanced topics.
Included in the text are two appendices. The first is a brief overview of accounting effects in engineering economics. This section introduces the concepts of principles of balance sheets and interconnectivity of accounting functions with engineering economics. The appendices also contain the end of period compound interest tables.
Each chapter contains a sufficient number of detailed examples. The author presents the examples in a transparent step-by-step manner. When appropriate, each example contains brief commentaries that provide added explanation and increase the opportunity for students to grasp the concept being presented. Examples are structured so most can be solved manually or with the use of a spreadsheet. Examples reflect the types of problems that are commonly experienced by engineers during their first years of employment. This practical approach fosters an understanding of the importance of engineering economics, both professionally and personally. Each chapter also contains an ample amount of problems that have a mix of straightforward simplistic questions to more challenging and complex ones.
The author has supplemented the text with a student’s CD that contains solutions utilizing the spreadsheet format. The author utilized an Excel “comment” function that can be added to individual cells of spreadsheets to guide students through the process. The use of spreadsheets is an important element since the students will most likely use this approach in their professional careers to solve basic economic problems. The CD also contains sample questions that are linked to review topics. In this interactive section, students will be presented with a multiple choice question. Once their selection has been made, the student is informed whether or not their answer is correct. If an incorrect answer is selected the student will have a choice of returning to the question or link to a review topic and then back to the question. If it is answered correctly the student simply moves on to the next question. The only issue with this configuration would be related to the titles of the files. Entry-level undergrads might not always understand the abbreviations used by the author. I would suggest separating these questions by chapter or chapter sections for ease of access. The interactive features included by the author complements the high level of computer literacy the average engineering student possesses.
The instructor support package offered by the author includes a CD with PowerPoint presentations with accompanying Excel spreadsheets, exam file of over 300 problems, end-of-chapter solutions, and other support material including those available on-line from Oxford University Press. The reviewer was not furnished with this support package, so no further comment can be made on its content other than that furnished by the author.
The author and publisher have chosen to offer case studies as a supplementary package. The case study package will include more than fifty cases solved in Excel. It was unclear whether this offering would be included with the initial text or would be acquired in addition to the text. case studies are important to the student by bridging the gap between academic work and practical application. Once again, the case package was not furnished to the reviewer, so no further comment can be included on its content.
In summary, the organization of the text lends itself to be used as an introductory text with the later chapters available for more advanced studies. I believe that Dr. Eschenbach has been successful in bridging the distance between theoretical and practical approaches to engineering economics in such a way that the beginning as well as more advanced student will find value in the content.
James L. Simonton, Ph.D.
Texas Tech University
Copyright Institute of Industrial Engineers 2006
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