1-intro to economics (1)

8/11/2019 1-Intro to Economics (1)

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ENGINEERING ECONOMICSIntroduction


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In this course

1. Introduction to Engineering economics

2. Supply and Demand Analysis

3. Time Value of Money4. Economic equivalence

5. Economic analysis of alternativesi. Mutually exclusive alternativesii. Evaluating production operations and equipment

6. Replacement analysis

7. Depreciation accounting


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Text books

1.

Engineering economyBy Thuesen and Fabrycky

2. Contemporary engineering economicsBy Chan S Park

3. Engineering EconomicsBy James L Riggs

4. Managerial economicsBy P L Mehta


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As engineers, what is our job?

Engineering :

A profession in which a knowledge ofthe mathematical and natural sciences

is applied with judgment to developways to utilize economically thematerials and forces of naturefor thebenefit of mankind.

-ABET


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What is Economics

Economics is the study of how

people choose to use resources.


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What is engineering economics?

Engineering economics, previously known as

engineering economy, is a subset of economics for

application to engineering projects.

Engineers seek solutions to problems, and the economic

viability of each potential solution is normally considered

along with the technical aspects.


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RESOURCES

LANDAll gifts of nature, such as:water, air, minerals, sunshine,plant and tree growth, as well as

the land itself which is appliedto the production process.

LABOURThe efforts, skills, andknowledge of people which areapplied to the production orservice processes.


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PresentFuturePast

Engineer ing EconomyAccount ing

Evaluat ing past performance Evaluat ing and predict ing future events

Accounting Vs. Engineering Economics.


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Two Defining Factors in EngineeringEconomic Decisions

The factors of time and uncertainty

are the defining aspects of anyengineering economic decisions


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Principles of Engineering Economy


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Engineering Economic AnalysisProcedure


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Five Types of Engineering Economic Decisionsin Manufacturing Sector

Service Improvement

Equipment and Process Selection

Equipment Replacement

New Product and Product Expansion

Cost Reduction/Outsourcing


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Service Improvement How many more jeans would Levi need to sell to justify

the cost of additional robotic tailors?


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Equipment Replacement Problem

Now is the time to replacethe old machine?

If not, when is the righttime to replace?


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New Product and Product Expansion

Shall we build or acquire anew facility to meet theincreased demand?

Is it worth spendingmoney to market a newproduct?


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Example - MACH 3 Project

R&D investment: $750 million

Product promotion throughadvertising: $300 million

Priced to sell at 35% higher than

Sensor Excel (about $1.50 extra pershave).

Question 1: Would consumers pay$1.50 extra for a shave with greater

smoothness and less irritation?

Question 2: What would happen ifthe blade consumption droppedmore than 10% due to the longerblade life of the new razor?

Gillettes MACH3

Project


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Cost Reduction/ Outsourcing

Should a company buyequipment to perform anoperation now donemanually?

Should spend money now

in order to save moremoney later?


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Service sector

Example -Healthcare Delivery

Which plan is moreeconomically viable?

Traditional Plan: Patients

visit each service provider.

New Plan: Each serviceprovider visits patients

: patient

: serv ice provider


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This course covers the fundamentals of engineering economics

and basic accounting. It will help students understand how an

organization can utilize its capital economically when it makes

capital decisions.

The two major learning objectives are:

To understand of the Economics of Engineering, which includesthe Time Value of money.

Secondly students need to know how to use Figures of Merit

(NPV, IRR, BC etc.) in making engineering design and businessdecisions


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1-intro to economics (1)

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