Complex engineering projects (CEPs) such as electric transmission networks and transportation infrastructure are becoming increasingly important to the public in general and engineers in particular. These projects are large-scale in terms of money and time, and contain significant uncertainties over their life-cycle ranging from output prices to input costs. Due to these uncertainties, there are conditional opportunities (e.g., on prices) to make critical decisions such as construction or decommission. Such decisions constitute strategic flexibilities or "real options" because the decision maker can alter the course of an investment over time when an uncertain aspect of the project such as the price becomes known. The current practice in engineering curricula, however, does not address the declarative and procedural knowledge necessary for critical economic decision making. We propose to (1) develop a module in an introductory course emphasizing the concept of the aforementioned strategic flexibilities and (2) develop an advanced course that is mathematically rigorous, yet with in-depth case studies for the CEPs. The module addresses the valuation of the strategic flexibilities over the life of CEPs to provide managerial insights and economic intuition. The advanced course emphasizes the project experience including data-based parameter estimation and computation for optimal decisions. Both the module and course teaching materials will be complemented by a set of visualization aids for the key concepts and applications.
This project transforms the traditional teaching of engineering economy in the following ways. By using a stochastic optimal control perspective, students will be introduced to the optimal threshold values for taking an action (e.g., the electricity price at which a generator may exit the market) as well as the optimal timing for such actions. These concepts of threshold AND timing will have analytic forms without the pre-imposed granularity found in decision trees. Students will also learn to deal with confounding factors (e.g., Kirchhoff’s law on electric transmission) and how best to synthesize them with the concepts, enhancing their insights and intuition. To our knowledge, there is little systematic and rigorous treatment of such flexibility in current engineering economy courses. Hence, this endeavor is expected to expand the current knowledge on the teaching and learning of the strategic flexibilities in CEPs in such courses.
This project aims to transform engineering economy education via a conceptual module in an introductory course and an experiential advanced course. Given that engineering economy courses are quite ubiquitous in colleges of engineering (taken by multiple engineering majors) across the U.S., if this project is successful, the potential impact of our findings on the teaching approach, teaching materials, and learning outcomes is truly substantial. Our methods of dissemination include journal papers and national conference presentations, and through these methods, we introduce our findings not only to traditional engineering economists, but also to teaching colleagues of project management in various disciplines such as construction engineering. If this project is successful, then ultimately students of engineering economy will become better decision makers in CEPs that are becoming increasingly important in technology-driven societies domestically and globally.
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