Introducing Engineering Economy Students To Real Options

Engineering economy has been a core requirement in engineering curriculums for many years. The traditional engineering economy courses only include problems with all deterministic inputs, even though deterministic data seldom occur in business. Also, traditional net present value methods make no allowance for flexibility by management and assume a static environment. The analysis of stochastic engineering economic problems has been ignored and the technological changes over the past 15 years have not been fully utilized in the traditional engineering economy courses. Therefore, students are not proficient to do such analyses when working in the business world. This paper demonstrates the ease that engineering economy problems with stochastic input variables and real options can be simulated with simulation software that is readily available to students on personal computers. The novel application presented in this paper will greatly enhance both Engineering Economy and Simulation courses.