Engineering economy, the analysis of the economic consequences of engineering decisions, was

originated by A. M. Wellington in his The Economic Theory of Railway Location, published in 1887. For
more information on Wellington, see A. M. Wellington. Engineering economy is now considered a part of
the education of every engineer.

There are many bad ways to make decisions. Because of the uncertainties of the future, even a rational
method of decision-making can sometimes result in bad choices. However, a bad result is almost
guaranteed by a poor decision-making process. A fundamental principle is that choices can be made only
among alternatives, and that only the differences between these alternatives are material. A course of
action cannot usefully be compared only with itself. We hear every day enthusiasts for one course of
action or another recommending their hobby on the basis of its peculiar beauty, with alternatives
deprecated if considered at all. In any engineering decision, all reasonable alternatives should be
discovered and fairly considered.

If the consequences of a course of action can be reduced to monetary terms, it is easy to compare
alternatives on the basis of maximum return. Such considerations expressible in money may be called
reducible. In terms of reducible considerations, the decision criterion is that of greatest return. Of
course, this may not produce the best decision, since not all considerations can be reduced to money.
These non-monetary considerations are called irreducible, and may often be of compelling importance.
For example, a course of action may be illegal though profitable. While recognizing irreducible
considerations, engineering economy usually ignores them in its objective recommendations, which
concern monetary matters only. The expression of truly irreducible considerations in terms of money is
usually inappropriate and misleading. The engineering economic analysis is only one consideration when
making a decision.