(247b) Incorporating the Concept of Financial Risk Into Instruction in Economic and Profitability Analysis for Chemical Engineering Design

Economic and profitability analysis is a key component of the process and product design instruction in the discipline of chemical engineering. Likewise, risk analysis and management is a crucial activity and responsibility of firms in the chemical process industry. Financial (or economic) risk analysis, which is the quantification and management of uncertainty and variability in cash flows, is a subject not often addressed in the undergraduate chemical engineering curriculum. Yet, because systematic methods from finance exist to quantify economic risk, its inclusion in the curriculum is an effective way to introduce the concept of risk into chemical engineering design. Here we describe the organization and outcomes of a one-credit course in chemical engineering economic analysis that was recently established as a degree requirement for all undergraduates in chemical engineering at the University of Michigan. A key component of the course is instruction in economic risk analysis including discussion of uncertainty in cash flows, the concept of expected net present value, and the use and evaluation of real options in profitability analysis. Each of these ideas is incorporated into the economic and profitability analyses that are a typical part of design in most undergraduate chemical engineering programs.