Engineering Economics and IT

Engineering economics was perhaps the only industrial engineering courses nearly all engineering students took at my alma mater, the University of Texas at Arlington. Engineering economics, if taken by all students, might help contain the current student loan debt crisis by teaching students the impact of interest on debt and about amortization schedules.

The core lessons of engineering economics apply to the IT world, especially when applied to IT infrastructure. When do you buy something? When do you rent something? When can you sell something?

When do you rent or lease something?
• You rent or lease items needed for a short time, such as web server space or extra printers until new ones arrive.
• You rent when you need something to meet peak demand and thus irregularly, whether it is having a niche technical expert on call and paid per visit or cloud server space available when memory or processing demands peak.
• You lease or essentially rent software licenses, since it will become obsolete in a year or two.
• Renting equipment such as servers, routers, laptop computers and other hardware with a high obsolesce rate can be cost effective compared to buying and then disposing of the item every 24-48 months.
• Service contracts are a form of rental, making periodic payments to an organization to answer the help desk or support your servers. The contracts are negotiable and you can switch vendors if unhappy with the service.

When do you buy something?
• You buy items with a capital cost that is less than the outright purchase price when multiplied over its expected life by the monthly or annual rental cost.
• You buy items that you will likely need forever, such as intellectual property rights to use another organization’s code within your own product.
• Infrastructure such as fiber optic cable and copper cable is typically only available as a purchase. It’s a sunk cost that will likely be used in any operation as long as it is present.

When do you sell an item?
• Selling old hardware that is no longer used lowers its disposal costs. Donating obsolete hardware to charity in return for the tax write off could be fall under this category.
• If you own intellectual property rights to software or business processes developed in house, it may be a marketable commodity.

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