Is It Time For A New Paradigm?

This paper asks the question: should we drastically change the way we teach undergraduate engineering economic? With the widespread availability of spreadsheet software should we rethink the presentation of the material and concentrate on the creation of the cash flow and less on the mechanics of converting the cash flow into a decision variable? The pro’s and con’s of each option are discussed. This paper is intended to provoke a dialog not recommend a course of action. Background Engineering Economics traces its beginnings back to Arthur M. Wellington and his 1887 work, The Economic Theory of Railroad Location. In the intervening 108 years the discipline has grown into a well accepted body of knowledge to which incremental improvements are being constantly added. In 1887, the slide rule was the still the standard computational support tool (as it had been since late in the 17 century. In the intervening years the electronic calculator and the computer have displaced the slide rule (although undergraduate engineering students in the late 1960s were still using the slide rule as the standard computational support tool). In 2005 the student is armed with at least a powerful calculator capable of storing equations and solving a wide variety of involved equations. It is not uncommon for students to quickly program their high-end engineering calculators to provide the table values in lieu of looking up the values and to write simple equations to solve for IRR and other standard application types. Additionally, the student is now (or we argue soon will be universally) equipped with a personal laptop computer with a standard business package to include spreadsheet software (typically Excel® or Quattro-Pro®). Based on the slide rule (and continued when the first calculators appeared – four functions, add, subtract, multiply, divide), the use of tables for the various common functions used in engineering economic calculations (F/P, P/F, P/A, A/P, P/G, A/G) rapidly became the norm. This use of tables allowed the values to be calculated once (and hopefully insured that the correct value was found through a rather tedious and laborious manual calculation until the computer was available). Page 10843.1 “Proceedings of the 2005 American Society for Engineering Education Annual Conference and Exposition Copyright © 2005, American Society for Engineering Education” Thus, over time, a standard method of expressing the theory and applying it was developed. This standard was also applied to the teaching of the topic as engineering economy became a standard course in engineering curriculums as represented by the inclusion of the topic in the Fundamentals of Engineering Examination. A review of the current/recent text books we considered typical of those used in undergraduate (and graduate) engineering economy course show the use of the tables mentioned above as the method used to introduce the student to the topic and as the method used to present the application of the theory to practice for the students. These texts do include the use of spreadsheets as another method for solving problems but typically after presenting the table based method. The text books used in this review were: • Engineering Economic Analysis, Ninth Edition, by Donald G. Nenan, Ted Eschenbach, and Jerome Lavelle, 2004 • Engineering Economy, Sixth Edition, Leland Blank and Anthony Tarquin, 2005 • Contemporary Engineering Economics, Third Edition, Chan S. Park, 2002 • Engineering Economy, Applying Theory to Practice, Second Edition, Ted G. Eschenbach, 2003 • Engineering Economy, Twelfth Edition, William G. Sullivan, Elin M. Wicks, and James T. Luxhoj, 2003 • Capital Investment Analysis For Engineering And Management, Third Edition, John R. Canada, William G. Sullivan, John H. White, and Dennis Kulonda, 2005 There was one exception found to the use of tables Modern Engineering Economy by the late Donovan Young. This text from 1993 uses nomograms in lieu of the tables. The Fundamentals of Engineering (FE) Supplied-Reference Handbook, 6th Edition by the National Council of Examiners for Engineering and Surveying uses the table method also. The table method can be seen to be the dominate method engineering students are taught and by inference are expected to be able to use. Is this a new observation? No. Eschenbach reported the same findings in 2002 at the ASEE Annual Conference and forecasted even more use of spreadsheets and computer-based enhancements in the future (2020). Since then many 11, 12, 13, 14 have reported on increased use and new uses of computer-based enhancements (especially spreadsheets) to engineering economics courses. While each of these enhancements are welcome and move the classroom closer to the practice of engineering economics, they are incremental improvements. Is it time for a disruptive change in the underlying paradigm? To this end we need to ask some basic questions of ourselves? Question 1 What is the goal of the engineering economy course? At the undergraduate level, we would argue that the primary goal is to prepare the student to apply engineering economy effectively in the “field.” To effectively apply engineering economy there is a need to understand the theory and have the ability to apply the theory correctly to solve open-ended problems in which the P ge 10843.2 “Proceedings of the 2005 American Society for Engineering Education Annual Conference and Exposition Copyright © 2005, American Society for Engineering Education” engineer must both select the correct tool (NPW, Replacement Analysis, etc) to analyze the cash flow and find the appropriate numbers to put in the cash flow (as well as define the appropriate horizon). A secondary objective would be to prepare the student for graduate school. At the master’s level for a student in a typical Engineering Management program, the goal may be the same as for an undergraduate course but with more coverage of advanced topics such as capital budgeting. At the master’s level in an Industrial Engineering program, the goal may be more theory driven and concentrated. For simplicity let us concentrate on undergraduate and terminal master’s degrees. The conclusion can then be drawn that the practice of engineering economy is the emphasis of the course. Question 2 How is engineering economy practiced? Let us here limit the discussion to the level equivalent to a plant in a manufacturing environment. The theory presented in the undergraduate engineering economy course is very appropriate to this level based on feedback from students and recent graduates. For the vast majority of the students in terminal master’s degree programs, this theory (especially if it includes capital budgeting and valuation topics) is also very appropriate. Having verified that the theory is appropriate, the question becomes one of is it presented in a way compatible to it use in practice? Based on 20 years of practice, this is problematic. The practice of engineering seems to out pace the teaching in the application side. In the early 1980’s practicitioners were writing programs in Basic on PDP-11s and AIM 65s to find the IRR of projects – not using the trial and error approaches taught. The advent of PCs with spreadsheet software made this even easier. The development of built-in financial functions in the spreadsheet software makes the use of tables in the practice of engineering obsolete. From an after the classroom standpoint, the only time tables are relevant to today’s engineer is during the FE Exam. Since engineering economy is such a small part of this exam and since this exam should also be evolving to meet the practice of engineering, this seems little reason to cling to the use of tables in the classroom. Question 3 Is the use of the table method the best way to teach engineering economy to future practitioners? It is an effective way – who can argue against success. Another argument is “If it ain’t broke don’t fix it” this is only useful as an argument in a limited sense at best and even then when there are competing priorities and limited resources, which hardly applies in this case. Another argument is that the spreadsheets are easy to learn and use so let the student learn their use as an additional skill – this seems to beg the issue of the best method to teach the material. A Discussion The students, in general, see the use of spreadsheets as compatible with their personal goals – develop tools which will help them in their current and future positions. Many good texts are available to the teacher of undergraduate and terminal degree master’s course in engineering economics. Having used several of the texts listed (or earlier editions) in the last ten years, they are excellent. During the last two offering of a graduate engineering management course in “engineering economics”, the course was taught using a text with extensive spreadsheet P ge 10843.3 “Proceedings of the 2005 American Society for Engineering Education Annual Conference and Exposition Copyright © 2005, American Society for Engineering Education” supplements and even end of chapter problems suggested for spreadsheet solutions. Since both courses were taught using distance teaching – in one case two way audio / one way video and in the second case two way video and audio – the decision was made to emphasize the “spreadsheet” approach in the presentation of theory and application. This approach yielded some interesting results: • The spreadsheet approach seems very compatible to the teaching of the subject. • The spreadsheet approach seems very compatible with the students’ learning style. • The vast majority of the students uses spreadsheets on a regular basis – see it as the standard computational support and a common communication tool – and are excited to find more uses for the tool. • The students, in general, see the use of spreadsheets as compatible with their personal goals – develop tools which will help them in their cur