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Introduction To Engineering Economy

Engineering economy involves systematically evaluating the economic merits of solutions to engineering problems. It aims to balance trade-offs between costs and performance in the most economical manner. The principles of engineering economy establish a foundation for developing methodology and include defining alternatives, focusing on differences, using consistent viewpoints and units of measure, considering all relevant criteria, accounting for risk and uncertainty, and revisiting decisions. Engineering economy uses a structured analysis procedure that aligns with the engineering design process to help select the preferred alternative.

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Reian Cais Sayat
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44 views9 pages

Introduction To Engineering Economy

Engineering economy involves systematically evaluating the economic merits of solutions to engineering problems. It aims to balance trade-offs between costs and performance in the most economical manner. The principles of engineering economy establish a foundation for developing methodology and include defining alternatives, focusing on differences, using consistent viewpoints and units of measure, considering all relevant criteria, accounting for risk and uncertainty, and revisiting decisions. Engineering economy uses a structured analysis procedure that aligns with the engineering design process to help select the preferred alternative.

Uploaded by

Reian Cais Sayat
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to

Engineering Economy

Engr. M.Cabal
Objective: to present the concepts and principles of engineering economy

Engineering is the profession in which a knowledge of the mathematical


and natural sciences gained by study, experience, and practice is applied
with judgment to develop ways to utilize, economically, the materials and
forces of nature for the benefit of mankind. - Accreditation Board of Engineering and Technology,
Criteria for Accrediting Programs in Engineering in the United States

Engineering economy involves the systematic evaluation of the economic


merits of proposed solutions to engineering problems. To be economically
acceptable (i.e., affordable), solutions to engineering problems must
demonstrate a positive balance of long-term benefits over long-term
costs, and they must also
• promote the well-being and survival of an organization,
• embody creative and innovative technology and ideas,
• permit identification and scrutiny of their estimated outcomes, and
• translate profitability to the “bottom line” through a valid and acceptable
measure of merit

Engineering economy is the dollars-and-cents side of the decisions that


engineers make or recommend as they work to position a firm to be
profitable in a highly competitive marketplace. Inherent to these decisions
are trade-offs among different types of costs and the performance
(response time, safety, weight, reliability, etc.) provided by the proposed
design or problem solution. The mission of engineering economy is to
balance these trade-offs in the most economical manner.
The Principles of Engineering Economy

The development, study, and application of any discipline must begin with
a basic foundation. We define the foundation for engineering economy to
be a set of principles that provide a comprehensive doctrine for
developing the methodology. Once a problem or need has been clearly
defined, the foundation of the discipline can be discussed in terms of
seven principles.

1. Develop the Alternatives


Carefully define the problem! Then the choice (decision) is among
alternatives. The alternatives need to be identified and then defined for
subsequent analysis.
2. Focus on the Differences
Only the differences in expected future outcomes among the alternatives
are relevant to their comparison and should be considered in the decision.

3. Use a Consistent Viewpoint


The prospective outcomes of the alternatives, economic and other, should
be consistently developed from a defined viewpoint (perspective).

4. Use a Common Unit of Measure


Using a common unit of measurement to enumerate as many of the
prospective outcomes as possible will simplify the analysis of the
alternatives.
5. Consider All Relevant Criteria
Selection of a preferred alternative (decision making) requires the use of a
criterion (or several criteria). The decision process should consider both
the outcomes enumerated in the monetary unit and those expressed in
some other unit of measurement or made explicit in a descriptive manner.

6. Make Risk and Uncertainty Explicit


Risk and uncertainty are inherent in estimating the future outcomes of the
alternatives and should be recognized in their analysis and comparison.

7. Revisit Your Decisions


Improved decision making results from an adaptive process; to the extent
practicable, the initial projected outcomes of the selected alternative
should be subsequently compared with actual results achieved.
Engineering Economy and the Design Process

An engineering economy study is accomplished using a structured


procedure and mathematical modeling techniques. The economic results
are then used in a decision situation that normally includes other
engineering knowledge and input.

The General Relationship between the Engineering Economic Analysis


Procedure and the Engineering Design Process

Engineering Economic Analysis Procedure


Step
1. Problem recognition, definition, and evaluation.
2. Development of the feasible alternatives.
3. Development of the outcomes and cash flows for each alternative.
4. Selection of a criterion (or criteria).
5. Analysis and comparison of the alternatives.
6. Selection of the preferred alternative.
7. Performance monitoring and post evaluation of results.
Engineering Design Process
Activity
1. Problem/need definition.
2. Problem/need formulation and evaluation.
3. Synthesis of possible solutions (alternatives).
4. Analysis, optimization, and evaluation.
5. Specification of preferred alternative.
6. Communication.

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