COST ESTIMATING.

Engineering economic analysis focuses on the future consequences of current decisions.

Because these consequences are in the future, usually they must be estimated and cannot be known with certainty. Examples of the estimates that may be needed in engineering economic analysis includepurchase costs, annual reven.ue,yearlymaintenance, interest rates for investments, annual labor and insurance costs, equipment salvage values, and tax rates.

Estimating is the foundation of economic analysis. As is the case in any analysis procedure, the outcome is only as good as the quality of the numbers used to reach the decision. For example, a person who wants to estimate her federal income taxes for a given year could do a very detailed analysis, including social security deductions, retirement savings deductions, itemized personal deductions, exemption calculations, and estimates of likely changes to the tax code. However, this very technical and detailed analysis will be grossly inaccurate if poor data are used to predict the next year's income. Thus, to ensurethat an analysis is a reasonable evaluation of future events, it is very important to make careful estimates.



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