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Econ 1

This document provides an overview of engineering economy and its principles. Engineering economy is defined as the study of the feasibility and evaluation of the cost of possible solutions to engineering problems. It involves developing alternatives, focusing only on their differences, using a consistent viewpoint and common unit of measure, considering all relevant criteria, making uncertainty explicit, and revisiting decisions. An engineering economy study uses a structured procedure and mathematical modeling to evaluate alternatives and their economic results, which are then used alongside other engineering inputs to make decisions between two or more options.

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Trebob Gardaya
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39 views18 pages

Econ 1

This document provides an overview of engineering economy and its principles. Engineering economy is defined as the study of the feasibility and evaluation of the cost of possible solutions to engineering problems. It involves developing alternatives, focusing only on their differences, using a consistent viewpoint and common unit of measure, considering all relevant criteria, making uncertainty explicit, and revisiting decisions. An engineering economy study uses a structured procedure and mathematical modeling to evaluate alternatives and their economic results, which are then used alongside other engineering inputs to make decisions between two or more options.

Uploaded by

Trebob Gardaya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 18

ENGINEERING ECONOMY

Introduction
What is Engineering?

What is Economy?

What is
Engineering Economy?
What is Engineering?

• a profession in which the knowledge gained in physics,


chemistry, life sciences, and mathematics is applied to
make products in large scale that increase the prosperity
of man
• this must be achieved with a judicious choice of
materials, at the lowest cost in a manner that is benign
to the environment, and that keeps all the stakeholders
safe.
What is Economy?
• consists of the sum total of all income from goods
produced and services offered in a state or nation

• it deals with the interactions between people and wealth


What is Engineering Economy?
• study of the feasibility and evaluation of the cost of
possible solutions to engineering problems.

• when benefits outweigh costs, the alternate becomes an


acceptable one.

• the lowest cost among alternates can be selected by


using different methods
Seven Principles of
Engineering
Economy
1. Develop the Alternatives
2. Focus on the Differences
3. Use a Consistent Viewpoint
4. Use a Common Unit of Measure
5. Consider ALL Relevant Criteria
6. Make Uncertainty Explicit
7. Revisit your Decisions
Develop the Alternatives
• Make a List of Alternates: Plan A, Plan B, etc.
• The alternatives need to be identified and then defined
for subsequent analysis.
• The final choice (decision) is among alternatives.
• Brainstorming sessions can be used to develop
alternates.
• The four rules of brainstorming are 1) not to give
negative feedback; 2) encourage poet-like free flow of
ideas; 3) quantity breeds quality; 4) and improvements
and combinations are good.
Develop the Alternatives

• The main steps of brainstorming include: (i) preliminary


session; (ii) brainstorming session; (iii) evaluation of
ideas and development of alternates.
Focus on the Differences
• What Is Different among the Alternates?

• Only the differences in expected future outcomes among


the alternatives are relevant to their comparison and
should be considered in the decision.
Use a Consistent Viewpoint
• Be Clear on What You Want.

• The prospective outcomes of the alternatives, economic


and others, should be consistently developed from a
defined viewpoint (perspective).
Use a Common Unit Of Measure
• Develop Common Performance Measures.

• Using a common unit of measurement to enumerate as


many of the prospective outcomes as possible will make
easier the analysis and comparison of alternatives.
Consider all Relevant Criteria
• Meet ALL Relevant Criteria.

• Selection of a preferred alternative (decision making)


requires the use of a criterion (or several criteria).
Make Uncertainty Explicit
• Weigh the Risk Against the Projected Rewards.

• Uncertainty is inherent in projecting (or estimating) the


future outcomes of the alternatives and should be
recognized in their analysis and comparison.
Revisit your Decisions
• Check the Results of Action Plan and Revise Plan
If/When Necessary.

• 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 involves two or more alternatives
and normally includes other engineering knowledge and
input.
Engineering Economic Analysis &
Procedures
1. Problem Recognition, Definition & Evaluation
2. Define the goal or objectives
3. Define the feasible alternatives
4. Collect all relevant data/information
5. Evaluate each alternative
6. Select the “best” alternative
7. Implement and monitor the decision

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