Andrew P. Sage & William B. Rouse 
Economic Systems Analysis and Assessment 
Intensive Systems, Organizations, and Enterprises

An Authoritative Introduction to a Major Subject in Systems
Engineering and Management

This important volume fills the need for a textbook on the
fundamentals of economic systems analysis and assessment,
illustrating their vital role in systems engineering and systems
management. Providing extensive coverage on key topics, it assumes
no prior background in mathematics or economics in order to
comprehend the material.

The book is comprised of five major parts:

* Microeconomics: a concise overview that covers production and
the theory of the firm; theory of the consumer; market equilibria
and market imperfections; and normative or welfare economics,
including imperfect competition effects and consumer and producer
surplus

* Program Management Economics: discusses economic valuation of
programs and projects, including investment rates of return;
cost-benefit and cost-effectiveness analysis; earned value
management; cost structures and estimation of program costs and
schedules; strategic and tactical pricing issues; and capital
investment and options

* Cost Estimation: reviews cost-estimation technologies involving
precedented and unprecedented development, commercial-off-the-shelf
(COTS) software, software reuse, application generators, and
fourth-generation languages

* Strategic Investments in an Uncertain World: addresses
alternative methods for valuation of firms including Stern
Stewart’s EVA, Holt’s CFROI, and various competing
methodologies

* Contemporary Perspectives: covers ongoing extensions to theory
and practice that enable satisfactory treatment of the increasing
returns to scale, network effects, and path-dependent issues
generally associated with contemporary ultra-large-scale
telecommunications and information networks

Also discussed in this comprehensive text are normative or
welfare economics and behavioral economics; COCOMO I and II and
COSYSMO as examples of a cost model; and options-based valuation
models and valuation of information technology intensive
enterprises.

Economic Systems Analysis and Assessment serves as an
ideal textbook for senior undergraduate and first-year graduate
courses in economic systems analysis and assessment, as well as a
valuable reference for engineers and managers involved with
information technology intensive systems, professional economists,
cost analysts, investment evaluators, and systems engineers.

Table of Content

PREFACE.

Chapter 1 Introduction to Economic Systems Analysis and
Assessment: Cost, Value, and Competition in Information and
Knowledge Intensive Systems, Organizations, and
Enterprises.

1.1 Inroduction.

1.2 A Framework for Systems Engineering and Management.

1.3 Theory of the Firm.

1.4 Theory of the Consumer.

1.5 The Interaction of the Theories of the Firms and Consumers:
Microeconomic Models of Economic Activity.

1.6 Welfare or Normative Economics.

1.7 Program and Program Management Economics.

1.8 Contemporary Issues Concerning Information and
Information Technology Economic.

1.9 Economic Pitfalls in the Engineering of Systems.

1.10 Summary.

Chapter 2 Production and the Theory of the Firm.

2.1 Introduction.

2.2 The Production Function.

2.3 Multiproduct Firms and Multiproduct Production
Functions.

2.4 Classical Theory of the Firm.

2.5 Imperfect Competition.

2.6 Summary.

Chapter 3 The Theory of the Consumer.

3.1 Introduction.

3.2 Economic Utility Theory and Its Axioms.

3.3 Property of Utility Functions.

3.4 The Fundamental Problem of the Consumer.

3.5 Sensitivity and Substitution Effects.

3.6 Summary.

Chapter 4 Supply-Demand Equilibria and Microeconomic Systems
Analysis and Assessment Models.

4.1 Introduction.

4.2 Basic Supply-Demand Equilibrium for a Single Good.

4.3 General Supply-Demand Equilibrium Conditions.

4.4 Extensions to General Equilibrium to Include Market
Interdependencies.

4.5 Microeconomics Models.

4.6 Summary.

Chapter 5 Normative or Welfare Economics, Decisions and
Games, and Behavioral Economics.

5.1 Introduction.

5.2 Pareto Optimality Under Perfect Competitive Conditions.

5.3 External Effects and Imperfect Competition-Public Goods.

5.4 External Effects and Imperfect Competition-Nonindependent
Production and Consumption.

5.5 Welfare Maximization and Social Choice.

5.6 Summary.

5.7 Selected Bibliography.

Chapter 6 Cost-Benefit and Cost-Effectiveness Analysis and
Assessments.

6.1 Introduction.

6.2 The Time Value of Money.

6.3 Identification of Costs and Benefits.

6.4 The Identification and Quantification of Effectiveness.

6.5 A Guide to Cost-Benefit Analysis.

Chapter 7 Cost Assessment.

7.1 Model-Based Parameters for Productivity.

7.2 Early Models for Estimation of Costs, Including Effort and
Schedule.

7.3 The Constructive Cost Model.

7.4 Summary.

CHAPTER 8 APPROACHES TO INVESTMENT VALUATION.

8.1. Microeconomics.

8.2. The Investment Problem.

8.3. Investment Valuation.

8.4. Summary.

CHAPTER 9 REAL OPTIONS FOR INVESTMENT
VALUATION.

9.1. Nature of Options.

9.2. Option Pricing Theory.

9.3. Option Calculator.

9.4. Strategic Metrics.

9.5. Investment Decision Making.

9.6. Value-Centered R&D.

9.7. Summary.

CHAPTER 10 CONTEMPORARY PERSPECTIVES.

10.1. Introduction.

10.2. Evolutionary Economics.

10.3. Path Dependence and Network Effects.

10.4. Intellectual Capital.

10.5. Value of Information.

10.6. Investing in Humans.

10.7. Summary.

INDEX.

About the author

Andrew P. Sage, Ph D, is University Professor and First American Bank Professor at George Mason University in Fairfax, Virginia. He is a Fellow of the IEEE, the American Association for the Advancement of Science, and International Council on Systems Engineering (INCOSE). The winner of numerous awards, Dr. Sage is the editor of the Wiley Series in Systems Engineering and Management and the founding editor of the INCOSE journal Systems Engineering. He is a member of the National Academy of Engineering. William B. Rouse, Ph D, is the Executive Director of the Tennenbaum Institute at the Georgia Institute of Technology, and a faculty member in the School of Industrial and Systems Engineering and the College of Computing. A former CEO of two innovative software companies, he has four decades of experience in research, education, engineering, management, and marketing. Dr. Rouse has written hundreds of articles and book chapters and has authored many books. He is a member of the National Academy of Engineering and a fellow of several professional societies.