Introduction to Introduction to Engineering EconomyCE 22 lecture

Marie Claire Pascua

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• “Engineering is the art of doing that well with one dollar which any bungler can do with two.” –Arthur M. Wellington, 1887

• Wellington, a civil engineer, is the pioneer of engineering economy. Area of interest is railroad building.

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Engineers use knowledge to find new ways of doing things economically

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ENGINEERING

safety economy

serviceability

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What is engineering economy?

• Systematic evaluation of the economic merits of proposed solutions to engineering problems

• To be economically acceptable (or affordable), solutions to engineering problems must:to engineering problems must:

• Demonstrate more long-term benefits over long-term costs

• Promote the well-being and survival of an organization

• Embody creative and innovative technology and ideas

• Permit identification and scrutiny of their estimated outcomes

• Transfer profitability to the bottom line through a valid and acceptable measure of merit 7

Asphalt concrete Cement concrete

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What is engineering economy?

• The money side of decisions that engineers make or recommend as they make a firm to be profitable in a highly competitive marketplace

• The decisions contain trade-offs • The decisions contain trade-offs

• Cost

• Performance

• Engineering economy must balance these trade-offs in the most economical manner

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Principles of engineering economy

• The basic foundation for engineering economy

1. Develop the alternatives

2. Focus on the differences2. Focus on the differences

3. Use a consistent viewpoint

4. Use a common unit of measure

5. Consider all relevant criteria

6. Make risk and uncertainty explicit

7. Revisit your decisions11

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 risk and uncertainty explicit

7. Revisit your decisions

After defining the problem, two or more alternatives must be identified and defined

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Creativity and innovation

Doing nothing is also an alternative

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 risk and uncertainty explicit

7. Revisit your decisions

What would happen if all alternatives had the same attributes or characteristics?

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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 risk and uncertainty explicit

7. Revisit your decisions

Use only one viewpoint or perspective in each decision-making process

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process

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 risk and uncertainty explicit

7. Revisit your decisions

Outcomes should be directly comparable

Monetary units can be used

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used

Some outcomes can be translated to monetary units

Others can be explicitly described

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 risk and uncertainty explicit

7. Revisit your decisions

Typical primary criterion is financial interest

Scrap criteria that are

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Scrap criteria that are not relevant to the decision-making process.

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 risk and uncertainty explicit

7. Revisit your decisions

Most outcomes are simply estimated.

Risk and uncertainties are inherent.

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are inherent.

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 risk and uncertainty explicit

7. Revisit your decisions

Decision-making is an adaptive process.

Evaluations should be carried out even after

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carried out even after implementation.

Risk will show itself after implementation.