Selecting an appropriate criterion (or criteria) for selecting among competing alternatives is a critical step in engineering decision making.

If a problem involves fixed input among the possible alternatives, then the appropriate general criterion is to maximize output. For example, a company may be considering the purchase of a new office copy machine. If two competing alternatives have the same cost (fixed input), then the appropriate criterion would be to select the copy machine that in some appropriate measure has the higher output. The criterion could be as simple as the copy rate of the machine (pages per minute) or as complex as the copy rate with some measure of special features availability.

If a problem involves fixed output among the possible alternatives, then the appropriate general criterion is to minimize input. For example, a company may be considering the installation of a new elevator. If two competing alternatives have the same output as measured in load capacity, operating speed, and so on, then the appropriate criterion would be to install the elevator with the lower cost (minimum input).

If neither input nor output is fixed among the alternatives being considered, then the appropriate criterion is to maximize (output – input) or, stated more simply, to maximize profit. For example, if one of two competing production machines will be purchased, and if the machines differ in both initial cost and output rate, then the appropriate criterion is to select the machine that will generate the higher profit (benefits derived from machine output – costs).

One method of classifying problems is by degree of complexity. Problems can be classified as simple, intermediate, or complex.

An example simple problem is the decision to select a bus or taxi for travel within a city. An example intermediate problem is deciding which one of several competing automatic packaging machines to purchase for a manufacturing facility. An example complex problem is the selection of a site for a new manufacturing facility.

Intermediate problems and the economic aspects of complex problems are best suited for solution by engineering economic analysis because of the following characteristics:

·         The problem is sufficiently important to justify the commitment of a nontrivial amount of resources.

·         The problem is sufficiently complex that it be well organized for solution.

·         The problem involves significant economic considerations.