Investment Criteria Results
Green Energy Engineering, Inc. recently conducted a focus group with 150 Florida professional engineers, who were asked which factors they used in determining their
company’s minimum acceptable rate of return, also known as i* in most text books.
The survey’s purpose was to ascertain the degree of understanding and comfort these
engineers had with the underlying assumptions of economic studies.
Almost an equal number of respondents (24%, 22% and 23%) chose competing investment
opportunities, risk, and time required for payback as the most important criteria
for determining i* respectively. Collectively, the top three vote getters indicate
their companies have limited budgets and every little risk tolerance. Analysis before
and after income tax typically involves a longer planning horizon than the majority
are comfortable with using. Those surveyed had completed a class in Engineering
Economy which was both a review for those familiar with the subject and an introduction
to others, so it is not surprising that 8% had never undertaken an economy study.
This speaks to their courage to learn something new by taking the class and also
admit that haven’t done studies before.
These findings are survey results from test question 31 from the 40 question test
Principles of Engineering Economy taken during the month of February
2009. The question was phrased as follows;
Chapter 13 Problem
Turn to page 325 or go to the GEEintl.com web site and read the six factors considered
in setting i* Circle the ones that either you or your company have used in the past.
(Circle all that you have personally used –this is a survey question for Eric Coffin
to gather “typical” practices).
31.
a. None (I haven’t done economic studies)
b. Competing investment opportunities.
c. Risk
d. Time required for payback
e. Prime Rate
f. Analysis before and after income taxes.
The full results were as follows;
a. None (I haven’t done economic studies) (8%)
b. Competing investment opportunities. (24%)
c. Risk (22%)
d. Time required for payback (23%)
e. Prime Rate (11%)
f. Analysis before and after income taxes (13%)
