The Hidden Economics of Engineering: A Shift Towards Value-Based Scoping
For decades, engineering decisions have been framed as technical challenges. But beneath the surface, every choice carries an economic weight. Often, this economic reality is obscured, filtered through layers of management and translated into directives like “make it extensible” or “just ship it.” The core question – what is this actually worth to the business? – frequently gets lost in translation.
The Cost of Extensibility: Optionality and Its Price Tag
Engineers, understandably, focus on what they can control: code quality, maintainability, and the ability to adapt to future changes. This leads to a default towards extensibility, a generally good practice. However, it’s not always the right call. Investing in optionality – building in flexibility for potential future features – comes at a cost. Traditionally, that cost isn’t visible to the engineer making the decision.
Value-based scoping changes this. When engineers are compensated for outcomes, not just time spent, the economic implications of their choices develop into immediately apparent. If there’s a reasonable expectation of follow-on function, investing in optionality makes sense. The extra hours spent on a more flexible design can pay off later. Conversely, if the future is uncertain, a focus on clean delivery and moving on to the next project is the more prudent approach.
This isn’t about being right or wrong; it’s about making deliberate choices with a clear understanding of the trade-offs involved. As highlighted by discussions in engineering communities, the key is transparency around the value proposition of different approaches.
From Salary to Outcome: A More Honest Way to Work
Under a traditional salary structure, the consequences of prioritizing extensibility (or not) often reside in someone else’s budget spreadsheet. The cost of over-engineering, or the missed opportunity of a streamlined design, isn’t directly felt by the engineer. Removing the salary abstraction – shifting to a model where compensation is tied to delivered value – brings that cost into sharp focus.
This shift aligns with broader trends in software development, such as the increasing adoption of outcome-driven roadmaps and the emphasis on measuring the business impact of engineering efforts. Engineering economics, a subset of economics focused on engineering decisions, emphasizes the importance of considering the time value of money and risk assessment. [1, 2, 3]
Did you know? Engineering economics isn’t new. It’s been a recognized discipline since the early 20th century, but its practical application within day-to-day engineering work is often limited.
The Future of Engineering: Integrating Economic Thinking
The future of engineering isn’t just about building better technology; it’s about building technology that delivers demonstrable value. This requires a fundamental shift in mindset, integrating economic thinking into the core of the engineering process. This means:
- Quantifying Value: Developing methods to accurately assess the economic impact of different engineering solutions.
- Transparent Costing: Making the costs of optionality and other design choices visible to all stakeholders.
- Outcome-Based Compensation: Aligning incentives to reward engineers for delivering value, not just completing tasks.
The 18th edition of “Engineering Economy” reflects this growing need for engineers to understand the economic principles underpinning their work. [4] This isn’t about turning engineers into economists, but about equipping them with the tools and knowledge to make informed decisions that maximize value.
FAQ
Q: What is value-based scoping?
A: It’s a project scoping approach where decisions are driven by the potential business value of different features and options, rather than solely by technical considerations.
Q: How does the time value of money affect engineering decisions?
A: It means that a benefit received today is worth more than the same benefit received in the future, due to its potential earning capacity. This influences investment decisions and project evaluations. [3]
Q: Is engineering economics only relevant for large projects?
A: No, it’s relevant for any engineering decision that involves allocating resources and making trade-offs. Even compact design choices can have economic consequences.
Pro Tip: Before starting any new feature or project, ask yourself: “What specific business outcome will this deliver, and how will we measure its success?”
Q: What is optionality in engineering?
A: Optionality refers to designing systems with flexibility to accommodate future changes or features. It allows for adaptation but comes at a cost. [2]
Want to learn more about aligning engineering efforts with business value? Share your thoughts in the comments below, and explore our other articles on agile development and product management.
