Scribd
Upload
8 views

Lecture 1

Engineering economy is a collection of mathematical techniques that assist in making economic comparisons and decisions in engineering. It aims to balance long-term benefits against costs while promoting organizational well-being and innovation. Key principles include developing alternatives, focusing on differences, and considering risks, with techniques like NPV and IRR used to evaluate options for cost-effective solutions.

Uploaded by

MH Moin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
8 views

Lecture 1

Engineering economy is a collection of mathematical techniques that assist in making economic comparisons and decisions in engineering. It aims to balance long-term benefits against costs while promoting organizational well-being and innovation. Key principles include developing alternatives, focusing on differences, and considering risks, with techniques like NPV and IRR used to evaluate options for cost-effective solutions.

Uploaded by

MH Moin
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 9

Lecture 1

Introduction to Engineering Economy

HUM 2107
Engineering Economy
Zahid Hasan Shuvo
Industrial and Production Engineering
Department of MPE
Definition
 A collection of mathematical technique which simplify economic
comparisons.
 A decision assistance tool by which one method will be chosen will
be most economical one.
 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.
 Involves the systematic evaluation of the economic merits of
proposed solutions to engineering problems.

2
Definition (Cont.)
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.

The mission of engineering economy is to balance these trade-offs in the


most economical manner.
3
Principles of Engineering Economy
 Develop the Alternatives
 Focus on the Differences
 Use a Consistent Viewpoint
 Use a Common Unit of Measure
 Consider All Relevant Criteria
 Make Risk and Uncertainty Explicit
 Revisit Your Decisions

4
Relationship between the Engineering Economic Analysis
Procedure and the Engineering Design Process
Engineering Economic Analysis
Engineering Design Process
Procedure
Problem/need definition, formulation
Problem recognition, definition, and evaluation.
and evaluation.
Synthesis of possible solutions
Development of the feasible alternatives
(alternatives).
Development of the outcomes and cash flows for
each alternate
Analysis, optimization, and
Selection of a criterion (or criteria) evaluation
Analysis and comparison of the alternatives
Selection of the preferred alternative Specification of preferred alternative
Performance monitoring and post evaluation of
Communication
results 5
Engineering Design Process

Figure: Engineering Design Process 6


Engineering Economic Decision
Engineering economic decision refers to the process of making choices among
different engineering alternatives by considering their economic implications.
It involves evaluating various options based on economic criteria to
determine the most cost-effective and financially viable solution for a given
engineering project or problem. Engineering economic decisions are crucial in
areas such as project management, process optimization, equipment selection,
and resource allocation.
To facilitate the decision-making process, various quantitative techniques such
as net present value (NPV), internal rate of return (IRR), benefit-cost ratio
(BCR), sensitivity analysis, and scenario analysis are employed. These
techniques help in comparing alternatives, assessing their economic viability,
and selecting the option that best meets the project's objectives while
optimizing financial resources. Ultimately, engineering economic decisions aim
to maximize benefits and minimize costs to achieve the desired outcomes
efficiently. 7
Engineering Economic Decision (Cont.)
When making engineering economic decisions, engineers and decision-makers
typically consider factors such as:
 Costs: This includes both initial investment costs and ongoing operational
costs associated with the alternatives being evaluated. Engineers need to
compare these costs to find the most economical solution.
 Benefits: Engineering projects often aim to achieve specific objectives, such as
increased efficiency, reduced environmental impact, or enhanced performance.
Decision-makers assess the benefits offered by each alternative to determine
their value and impact on the overall project goals.
 Time: Time-related factors, such as project duration, construction time, and
delivery schedules, are essential considerations. Delays can have financial
implications, and engineering decisions often need to balance time constraints
with economic feasibility.

8
Engineering Economic Decision (Cont.)
 Risks and Uncertainties: Engineers assess the risks associated with
different alternatives, considering factors like market volatility,
technological uncertainties, and regulatory changes. Decision-makers
use risk analysis techniques to account for uncertainties and make
more informed choices.
 Environmental and Social Impact: Modern engineering practices
often require evaluating the environmental and social impact of
projects. Sustainable and socially responsible decisions are becoming
increasingly important in engineering economic analysis.
 Laws and Regulations: Compliance with legal requirements and
regulations is critical. Engineers must consider the costs associated
with meeting these standards when evaluating different options.

You might also like