Engineering economic analysis provides a structured, logical method for decision-making. Instead of being overwhelmed by a complex problem, you can break it down into manageable components. This rational process can be distilled into five key steps:

1. Recognize the Problem & Define Your Goal: What are you trying to achieve or solve? The first step is always to clearly identify the problem and the objective.
2. Identify All Feasible Alternatives: What are your options? It’s crucial to list every possible course of action, including the often-overlooked “do-nothing” alternative.
3. Gather Relevant Data & Identify the Criterion: What facts matter, and how will you measure “best”? This step involves collecting information and establishing a clear standard—like maximizing profit or minimizing cost—to judge your options.
4. Predict the Outcomes & Choose: Analyze the differences between your options and select the one that best meets your criterion.
5. Audit the Results: After the decision is made, compare the actual outcome to your prediction. This final step is a crucial learning opportunity to improve future analyses.

To properly compare alternatives and predict their outcomes, you first need to grasp the most important concept in all of finance: the time value of money.