Integrating Economic Analysis into Capstone Design

This paper presents the use of engineering economy methods as a design tool in a senior capstone design course sequence within a general undergraduate engineering curriculum. The senior capstone design course sequence includes two semesters, small project teams (i.e., 3-4 students), and primarily industry sponsored projects. The final reports from the capstone work were used to classify the engineering economy methods used in the design process. This work is significant since student teams are using the industry sponsor’s preferred metrics and performance measures to determine economic success (or failure) of a design, rather than the classical methods provided by classroom instruction in the traditional engineering economics courses which is generally taken before the senior capstone sequence begins. Observations of 48 senior capstone projects from the past four years indicate that initial cost was used by 31.25% (15 of 48) of the projects and was the preferred economic analysis method, followed by annual worth and simple payback period both at 25% usage (12 of 48). Of the 48 senior capstone projects, 41.67% (20 of 48) of the projects used more than one economic analysis method. Introduction Engineering capstone design courses are recognized as “a culminating experience” where students apply “knowledge and abilities to practical engineering problems” 1 that “draws on all previous course work” 2 . The capstone experience permits students to connect theory and practice in the final academic process of developing professional skills of engineering design, professional relationships, and teamwork. Capstone texts each have variations of the design process such as stage-gate, systems engineering, and systems engineering lifecycle; however, no consensus on what specifically constitutes engineering design was found 3 . Research indicates that experienced engineers recognize that the common process being described by these terms is iterative in nature and integral to the design process. These variations all include references to technical and economic feasibility analysis, or trade-off analysis. . As stated by Archibald, Reuber, and Allison 2 : “The importance and relevance of engineering economic analyses is always emphasized when students discuss their projects with practicing engineers. Without this interaction students sometimes consider economics to be irrelevant to design – a subject for business students.” There exists engineering education literature on techniques to solicit, administer, and manage industry sponsored capstone projects 4 , integrating the capstone design courses with various components including project management, manufacturing, lean, and six sigma 5-7 . It has also been shown that graduate engineering students benefit by completing industry sponsored projects 8 . A recent review of the literature on teaching engineering design via capstone courses includes details on course design, industry involvement, and teamwork 9 . As the engineering students’ capstone experience is marketed, vetted 10 , and assessed there seems to have been little work reported concerning the application of economic feasibility analysis as a part of the design process. Lectures, handouts, guidebooks, and textbooks have offerings on P ge 24771.2 developing student abilities regarding project economic analysis, but little on the use of economic analysis in design. A review of research literature provides little pedagogy or methodologies for developing knowledge, skills, and abilities (KSAs) within students that are useful in designing and crafting a quality economic feasibility analysis. Some assessment rubrics were identified, but these seemed to focus more on if an economic analysis was done and not the quality of economic analysis methods applied. Minimal guidance was identified relative to lesson plans for developing economic feasibility analysis as part of design KSAs. This paper, describes some initial efforts toward developing economic analysis KSAs within senior engineering students that have begun from some qualitative research and classroom experiences. Background East Carolina University (ECU) initiated its first ever engineering program in 2004. The program culminates in a two semester capstone design project based learning experience for all engineering students. The process of initiating and nurturing the capstone experience within a new engineering program has offered challenges and opportunities. Paramount among these challenges has been the development of industry relations that support industry sponsored projects and campus based projects particularly for the biomedical engineering program of study and the ECU School of Medicine. The latter is largely directed at supporting basic research. The former relies on industry sponsored projects for most of the capstone design experiences. Sponsor feedback has been overwhelmingly supportive of the capstone sequence. Generally, sponsor satisfaction with the project results has exceeded faculty assessment of students’ design quality. This seems consistent with an industry tendency to focus on project success over learning outcomes 11 . The capstone process has begun focusing on improving design quality in order to meet academic goals. The first step in improving design quality has been to focus on project problem statements. Industry and medical school projects are preferred because of their realism and for their ability to imitate the pressures of realty found in industry 12 . These projects are usually proposed as openended statements which are believed to increase student motivation, and to provide an introduction to the world of engineering 13,14 . ECU seeks sponsored projects as part of a process requesting potential sponsors to provide project background, summary objectives/requirements, design expectations (deliverables) along with some administrative data including point of contact. Projects are vetted for selection 10 . Students are assigned project teams and projects. The first assignment is to begin crafting a problem statement for the project 15 . Lectures are held once per week and the economic feasibility process 16 is discussed for one full class period and referred to frequently throughout the two semester capstone design course sequence. In addition to class discussions, students are required to purchase a capstone handbook which provides details on the course requirements and design formats required for the course. The handbook requires all student design reports to include economic feasibility analysis using simple payback period, net present value (NPV), and internal rate of return (IRR). Payback period is included as most industry sponsors use payback period in decision making processes. Gibson 17 reports that various industries use economic measures including benefit/cost (B/C), return on investment (ROI), IRR, and simple payback period. Faculty conducted assessments have consistently indicated issues in the quality of student developed economic analysis. Part of the quality issues stem from assigned faculty advisors P ge 24771.3 waiving course requirements particularly for projects involving basic research and work standards design projects. Another contributing factor is sponsor requirements that differ from course requirements. In that case students are required to satisfy both. An additional contributing factor is the plausibility of conducting time-value-of-money analysis of one-off equipment (or processes) used to support biomedical research. This latter issue supports cost analysis but not return rates. The assessments have indicated a need for more focus on economic feasibility analysis. In order to understand the application of economic feasibility analysis, a qualitative review of ECU’s previous years’ capstone design final reports was made to determine what engineering economics tools were applied in capstone design. The survey was initially developed to gain insights on how to structure both pedagogical materials and assessment rubrics to improve the capstone experiences for senior design students. Results The final reports from the most recent four years of senior capstone design were analyzed to determine which engineering economic tools were used were applied to the capstone design analyses. These results included 48 projects, with 12 in the pharmaceuticals industry, 10 in the manufacturing industry, five in both the machining industry and health industry, three in both the electric transmission industry and warehousing industry, two in both the aerospace industry and agriculture (food supply) industry, and one project in each of the following industries: bioprocess, construction, foundry, military, outdoors, and trucking/logistics. The results are provided in Table 1 and Table 2, sorted by industry type. These results are summarized in Figure 1 and Figure 2. Note, for simplicity, rate of return methods (IRR, ROR, ROI) were grouped together, and annual worth methods (AW, EUAC, EUAW) were grouped together. Observations The following observations based on the 48 projects are made: • 18.75% (9 projects) of the projects did not include an economic analysis. Occasionally, project teams do not include economic information due to the industry sponsor’s request for privacy; however, in that situation student teams are asked to create a realistic economic analysis for reporting purposes. • 39.58% (19 projects) of the projects included one economic analysis method. • 31.25% (15 projects) of the projects included two economic analysis methods. • 8.33% (4 projects) of the projects included three economic analysis methods. • 2.08% (1 project) of the projects included four economic analysis methods. • The most frequent economic analysis method was initial or first cost; with 31.25% (15 projects) of the projects using this method. • Both the annual worth method and simple payback method were used in 25% (12 projects) of the projects. • The n