We are living in the world of choices where we are not endowed and blessed with inexhaustible and infinite resources. We as an individual, society and manufacturing concern have to employ the scarce and finite resources in the most sagacious manner. We have to make the optimal decisions from the vast array of alternatives. Engineering economy teaches us how to make most of the available scarce resources in the manufacturing. It is nothing but the application of economic principles and project analysis techniques to the field of manufacturing engineering. It guides us which manufacturing project to pursue and which one to relinquish. It enables engineers to solve problems by rational decision making and project analysis tools rather than following traditional approach of personal instincts and assumptions.

How to employ engineering economy in manufacturing? What are the areas where engineering economy can best be applied in manufacturing? What are engineering economy tools and techniques used for evaluation of manufacturing projects?
Engineering economy helps in making cost comparison of two or more alternative capital manufacturing projects. It provides cues for choosing the optimum manufacturing project. Engineering economy plays a crucial role in the following areas of manufacturing.

• Improvement of Service
• Replacement of Equipment
• Selection of manufacturing process and equipment
• Production plant expansion and new product development
• Reduction of manufacturing costs

Thus engineering economy helps organization to buy new manufacturing equipment to perform operations previously done manually. Decision regarding spending money now on acquiring new machinery to increase production and planning to market new product to reap benefits later on, are all evaluated using engineering economy decision making tools. Following are the engineering economy tools used for manufacturing projects’ evaluation and analysis:

a. Time value of money
A dollar received today is worth more a dollar received tomorrow. It applies the concepts of the present value, future value and annuities.

b. Project evaluation and profitability
It applies the principles of:
• Net Present Value (NPV)
• Payback Period
• Discounted Payback Period
• Return on Investment(ROI)
• Internal Rate of Return
• Life Cycle Costing (LCC) of manufacturing machinery or equipment.

c. Cost Analysis
It estimates costs and breaks down cost structure of the manufacturing projects. These costs include:
a. Capital costs
b. Operating costs.
These are some of the key areas in manufacturing where in the engineering economy plays important role. Through analysis and evaluation tools, it enables to select optimum projects in manufacturing. With the passage of time, introduction of new technologies and techniques will further enhance the role of engineering economy in the manufacturing.