The Personal Website of Mark W. Dawson

The Four E’s
(Energy, Economic, End-To-End, and Environmental)

Introduction

The understanding of The Four E’s, Energy, Economic, End-To-End, and Environmental, is essential to understanding the total costs and impacts of any engineered system developed by humanity. An engineered system, for the purposes of this article, is a human-developed system that is required to produce a product. Without this understanding of The Four E’s, it is impossible to judge the viability and the cost/benefits of an engineered system. Alas, most people, and most politicians, do not understand The Four E’s, and as a result, they make poor decisions on the feasibility, practicability, achievability, workability, practicality, and reasonableness of an engineered system. This article is an examination of The Four E’s that should be considered whenever discussing an engineered system.

Energy, Economic, and End-To-End Factors

Energy

In the Movies Apollo 13, there is a very telling scene in which the ground engineers are discussing the problems of keeping the crew alive and safely returning them to Earth. After a brief give and take between the participants, the power engineer interrupts and says:

“John Aaron, EECOM (Electrical, Environmental and Communications) engineer: Power is everything.

Gene Kranz (Chief Flight Director): What do you mean?

John Aaron: Without it, they don't talk to us, they don't correct their trajectory, they don't turn the heat shield around. We gotta turn everything off, now. They're not gonna make it to re-entry.

Gene Kranz: What do you mean "everything"?

John Aaron: With everything on, the LEM draws 60 amps. At that rate, in 16 hours, the batteries are dead, not 45. And so is the crew. We gotta get them down to twelve amps.”

“John Aaron: We have to turn off the radars, cabin heater, instrument displays, the guidance computer, the whole smash.

Jerry Bostick - FIDO (Flight Dynamics Officer): Whoa! Guidance computer. What... what if they need to do another burn? Gene, they won't even know which way they're pointed.

John Aaron: The more time we talk down here, the more juice they waste up there. I've been looking at the data for the past hour.

Gene Kranz: That's the deal?

John Aaron: That's the deal!

At this point, Gene Kranz orders all the ground engineers to power down all systems except minimal life support. And power (the utilization of energy) is all for all engineered systems.

Primary Energy Sources

Primary energy sources for engineered systems take many forms, including nuclear energy, fossil energy — like oil, coal, and natural gas — and renewable sources like wind, solar, geothermal, and hydropower. These primary sources are converted to electricity, a secondary energy source, which flows through power lines and other transmission infrastructure to your home and business. The primary energy source of the energy of an engineered system must also be subject to The Four E’s in order to understand the Economic and End-To-End impacts of all engineered systems.

Secondary Energy Sources

Secondary energy sources are forms of energy produced from the energy conversion process of primary energy sources. Secondary energy sources are the ones we as humans usually directly use in a more convenient way, e.g., the burning of coal at coal power plants is the primary energy source that delivers us the secondary energy source of electricity to use at work, in our homes, etc. Secondary energy sources are also referred to as energy carriers because they move energy in a usable form from one place to another [secondary energy is essentially a good that has been changed from its original state to another state for ease of consumption.

Economic

One of the most famous sayings is ‘Money makes the world go round’, but it is not money but the Economics and Finances of an engineered system that drives the world. And when you understand where the money comes from and where it goes, you understand the Economics and Finances of an engineered system.

Economics

Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behavior and interactions of economic agents and how economies work. Microeconomics is a field that analyzes what's viewed as basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving, and investment interact, and the factors affecting it: the employment of the resources of labor, capital, and land, currency inflation, economic growth, and public policies that have an impact on these elements.

Finance

Finance, also known as financial economics, is the study and discipline of money, currency, and capital assets. It is related to, but not synonymous with, economics, the study of production, distribution, and consumption of money, assets, goods, and services. Finance activities take place in financial systems at various scopes; thus, the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial activities and entities.

Double Entry Ledger Accounting

Understanding where the money comes from and where it goes is a function of Double Entry Ledger Accounting, which was most of the most significant advancements in Finance. Double Entry Ledger Accounting, also known as double-entry bookkeeping, is a method of bookkeeping that relies on a two-sided accounting entry to maintain financial information. Every entry to an account requires a corresponding and opposite entry to a different account. The double-entry system has two equal and corresponding sides, known as debit and credit. A transaction in double-entry bookkeeping always affects at least two accounts, always includes at least one debit and one credit, and always has total debits and total credits that are equal. The purpose of double-entry bookkeeping is to allow for the understanding of the flow of money in an engineered system. When you have a properly maintained Double Entry Ledger Accounting system, it is possible to do a ‘what If analysis’ of proposed changes to your finances. This will help you to determine the impacts of proposed changes and what is required to make the changes.

Total Costs of Ownership (TCO)

Understanding Economics and Finance provides the ability to determine the Total Costs of Ownership, which is a financial estimate intended to help buyers and owners determine the direct and indirect costs of an engineered system. It is a management accounting concept that can be used in full cost accounting or even ecological economics, where it includes social costs. For manufacturing, as TCO is typically compared with doing business overseas, it goes beyond the initial manufacturing cycle time and cost to make parts. TCO includes a variety of costs of doing business items, for example, ship and re-ship, and opportunity costs, while it also considers incentives developed for an alternative approach. Incentives and other variables include tax credits, common language, expedited delivery, and customer-oriented supplier visits.

When you understand the Economics, Finances, and Total Cost of Ownership of an engineered system, you will know the full scope of the money within an engineered system.

End-To-End

Most people do not truly understand the costs of an engineered system, especially the End-To-End Economics and Finance of an engineered system. Many people discuss the labor, materials, and overhead of an engineered system without fully understanding all the items that are incorporated into these items. I, myself, was ignorant of all these items until I became a Proposal Manager for a government contract. As proposal Manager, I had to prepare a basis of estimate for the labor needed to accomplish the effort. I also had to itemize all the material needed to perform the work. These basis of estimate and itemized materials were then turned over to the Costing Department to prepare the Cost of Effort for the proposal. When this Cost Volume was prepared and laid before me, I was amazed at the volume and complexity of this Cost Volume. This is because many government contracts require a detailed accounting of all the costs, especially the labor and overhead costs. These labor and overhead costs were generally known to me, but I was never cognizant of the details of labor and overhead costs, and this was the first time I had encountered the details of labor and overhead costs. These details ran for several dozens of pages and contained line items that I never knew existed. Fortunately, my Finance Officer was able to explain these line items to help me understand them.

This piqued my interest in learning more about overhead costs, not only in my own project's labor and overhead costs but in labor and overhead costs in general. These labor and overhead costs are often referred to as Direct labor cost, Labor burden, and Life Cycle Costs.

Direct Labor Cost

Direct Labor cost is a part of a wage bill or payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service. It is also the cost of the work done by those workers who actually make the product on the production line.

Labor Burden

Labor burden is the actual cost of a company to have an employee, aside from the salary the employee earns. Labor burden costs include benefits that a company must, or chooses to, pay for employees included on their payroll. These costs include but are not limited to payroll taxes, pension costs, health insurance, dental insurance, and any other benefits that a company provides an employee. Company-paid time off, such as paid sick, holiday, or training time, must also be considered as part of the Labor Burden as it is a cost to the company.

Life Cycle Costs

Life Cycle Costs are the total cost of ownership over the life of an asset. The concept is also known as Whole-life cost or lifetime cost and is commonly referred to as "cradle to grave" or "womb to tomb" costs. Costs considered include the financial cost, which is relatively simple to calculate, and also the environmental and social costs, which are more difficult to quantify and assign numerical values. Typical areas of expenditure that are included in calculating the whole-life cost include planning, design, construction and acquisition, operations, maintenance, renewal and rehabilitation, depreciation, and cost of finance and replacement or disposal.

These Direct Labor, Labor Burden, and Life Cycle Costs are integral to the price of a product and explain why products are much more expensive than what they appear to cost. For example, the costs of the materials for a greeting card are only a few cents per card, but the labor and overhead costs of manufacturing a greeting card are expensive. Indeed, the manufacturers of greeting cards often only make a profit of a few cents per card, with the difference between the cost of the materials per card and the profit margin per card being in labor and overhead costs. Until you understand these detailed costs, you cannot fully understand the economics of an engineered system.

Environmental Full-Cost Accounting

Environmental full-cost accounting (EFCA) is a method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social, and economic costs and benefits or advantages – in short, about the "triple bottom line" – for each proposed alternative. It is also known as true-cost accounting (TCA), but as definitions for "true" and "full" are inherently subjective, experts consider both terms problematic.

Environmental full-cost accounting is the only proper means to determine the total costs/benefits and impacts of an engineered system on society. Environmental full-cost accounting requires not only examining the Energy, Economic, and End-To-End Factors of a single engineered system but also examining the Energy, Economic, and End-To-End Factors of the other engineered systems that are utilized by the single engineered system. An example of this can best be done by examining the Environmental full-cost of an electric car.

Electric Car Example

In purchasing an electric vehicle, most people are concerned about the price and carbon footprint of the vehicle. The calculation of The Four E's of electrical car production is complex, and one of the clearest explanations I have found is in the article “Carbon Footprint of Electric Cars vs Gasoline (The Truth No One Admits)”. This article begins by stating:

“Many people wonder about the carbon footprint of electric cars vs. gasoline, whether or not the ‘green’ claims are all they’re cracked up to be.

The unfortunate truth is that many people assume that electric vehicles either do not have a carbon footprint or that their carbon footprint is so significantly reduced from that of a gasoline vehicle as to be inconsequential.

However, the truth that no one likes to admit is that production, shipment, and charging for a new electric vehicle still produces a large amount of carbon emissions, while a used vehicle is likely the lowest cost emissions option because of the eco-cost of manufacturing.”

The article then goes on to explain all the factors that contribute to the carbon footprint of an electric vehicle:

• Carbon Cost of Manufacturing Electric Vehicles
• Carbon Cost of Shipping Electric Vehicles
• Carbon Cost of Charging Electric Vehicles
• Batteries Have a Huge Footprint: Battery Emissions Break Down
• Carbon Footprint of Gasoline Vehicles
• Why Does Electricity Have a Bigger Carbon Footprint in My State?
• How Much Coal, Natural Gas, or Petroleum Is Used to Generate One Kilowatt of Electricity?
• Who’s Paying for the Electricity for Electric Cars (Hint: The Climate)
• Can Gasoline Vehicles Have a Lower Footprint?
• Working Toward Sustainable Vehicles

This article does a better job of explaining the carbon footprint of an electric vehicle than I could do, and it is well worth the read to understand the issues involved. The article concludes by stating:

“It’s important to acknowledge how far technology for sustainable electric vehicles has come in the last decade, but it’s also worth remembering that this technology has not yet reached its green potential.

In fact, there are many changes that must be made to the manufacturing, shipping, and charging of electric vehicles, and to the supporting electrical infrastructure of the United States before that potential can be met or exceeded.

In most instances, an electric vehicle will produce less carbon emissions over its lifetime than a gas-powered vehicle, but that’s not enough, nor does it make up for the actual harm done to the planet to produce these vehicles.”

A new paper from the economic consulting firm Anderson Economic Group (AEG) does some novel things as it tries to comprehend the full spectrum of costs associated with making the shift away from a gas-powered vehicle to an electric vehicle. The Money website has an article, “The Push for Electric Vehicles Could Affect How Much Your Next Car Costs”, that examines the personal impact of purchasing and operating an electric vehicle.

The other big issue for an electric vehicle is the costs associated with replacing a battery that fails and the disposal costs when the electric vehicle reaches its end of life. It is difficult and often impossible to repair an electric battery if it should fail, and the cost of replacement for an electric vehicle battery is very high, as it can be approximately twenty thousand dollars. There is also the issue of the disposal of an electric vehicle battery, as batteries have toxic minerals and chemicals that can leech into the ground and groundwater, causing environmental problems. The cost of properly disposing of the batteries to prevent this leeching is very high and must be borne by either the owners, scrapyards, or taxpayers.

Conclusions

Since learning about and reading about The Four E’s, I have begun to examine all engineered systems from this perspective. I also understand that without examining The Four E’s, you cannot make good decisions on the viability and the cost/benefits of an engineered system, and you cannot adjudge the impacts of an engineered system upon society. The next time you hear or read a politician’s or social activist’s comments about an engineered system, you need to consider The Four E’s and question their comments based upon The Four E’s before reaching a conclusion. Otherwise, you will reach the wrong conclusion and make a bad decision that will negatively impact society. And that's the deal!