Past expenditures are irrelevant to current decisions.
Decision-making only happens when there are options. This principle dictates that you must identify and define all feasible alternatives for solving a problem. If you only look at one way to build a bridge, you aren't performing engineering economics; you’re just following a blueprint.
A city needs more water. Alternatives include building a new dam, desalinating seawater, or upgrading existing pipes to stop leaks. 2. Focus on the Differences 7 principles of engineering economics with examples
Only the differences between alternatives affect the decision.
In the economic analysis, the engineer can ignore the cost of the CDL, the diesel fuel type, and the insurance because they are identical. The analysis focuses solely on the versus the fuel savings . By ignoring the commonalities, the analysis becomes sharper and faster. Past expenditures are irrelevant to current decisions
Once alternatives are established, the analyst must compare them. The principle states:
A logistics company is choosing between Truck Model X and Truck Model Y. If you only look at one way to
Future costs or revenues that are identical across all options are irrelevant to the choice. Isolating the differences simplifies the analysis and prevents “analysis paralysis.”
