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ENGR 3360U

Unit 1-2

General Introduction to

Engineering Economic Analysis

Dr. J. Michael Bennett, P. Eng., PMP,

UOIT,

Version F

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Unit 1 – General Introduction to Engineering Economic Analysis

Version !r" #"$" %ennett& '"Eng"& '$' ENGR 3360U Eng Eco1-2

()ange Record

Version Initial (reation

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1"2 *)e !ecision $a+ing 'rocess

1" Understand t)e ,rolem – de.ine o/ecties2" (ollect releant in.ormation

3" !e.ine t)e set o. .easile alternaties

" Identi.y t)e criteria .or decision ma+ing

" Ealuate t)e alternaties and a,,ly sensitiityanalysis

6" elect t)e 4est5 alternatie

" Im,lement t)e alternatie and monitor results

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2"1 Understand t)e ,rolem - de.ine o/ecties

'rolems can e sim,le& com,le7 or

intermediate

Are re.erred to as 4o,,ortunities5

%uild a ne8 model

Re,lace an old ,lant

9,en u, in a ne8 territory

$ust re.ine o,,ortunities into metrics

:o/ecties;

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'ro/ect 9/ecties

!eelo, e7,ertise in some area"

%ecome com,etitie

Im,roe ,roductiity

Reduce costs

$odi.y an e7isting .acility

!eelo, a ne8 sales strategy!eelo, a ne8 ,roduct

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$AR* 9/ecties

< ,eci.ic

$ < $easurale

A < Ac)ieale

R < Realistic

* < *ime-=imited

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$inor ()aracteristics o. 9/ecties

*)ey s)ould eeri.iale

aligned

cast in terms o. delieralescom,re)ensile

single-ended

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'riorities o. 9/ecties

?and ran+

$atri7

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Version !r" #"$" %ennett& '"Eng"& '$' ENGR 3360U Eng Eco1-@

coring $odels

(an uild arious o/ecties into a scoring

model

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2"2 (ollect Releant In.ormation

9/ecties are metricied so start t)ere

$oney is a iggy

As is Interest Rates& In.lation Rate& etc

$ay need customer sureys :consider

$icroso.t launc)ing Bindo8s->;

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E7am,leC Gassing u, in 9s)a8a

Need to ealuate all ,rices on a daily asis

,lus 8ee+ly ,lus mont)ly ,lus 4e7ternals5

9serations o. a )re8d Gas-u,,er

$orning %A!

=ater in t)e eening est

out) side normally lo8er t)an nort) end

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2"3 !e.ine t)e et o. easile Alternaties

!o not)ing :al8ays a ,ossiility;

Alternatie A

Alternatie %

DDD

Alternatie n

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9,,ortunity (ost

B)at 8ill it cost you y N9* doingsomet)ing

(an e 1 t)ingC can e 1&000 t)ings

or e7am,le& going to EAFU9I*

9( is .li,,ing urgers at $ic+ey!s


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9( o. going to (lass

ou could e .li,,ing urgers at $ic+y!s

6H>H10 < >0F8+

3 8ee+ < 3H>0 < 1&000

our 9''9R*UNI* (9* I 1&000


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2" Identi.y t)e (riteria .or !ecision $a+ing

B)at is t)e most im,ortant criterion

Normally& money ut can e ot)er t)ings

:,rotection o. t)e enironment& e7clusion o.

a com,etitor into a ne8 mar+et& etc";

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2" Ealuate t)e Alternaties

:a,,ly sensitiity analysis;

ome ,arameters are +ey

Interest rates

In.lation rate(anadian dollar rate

!emand e7,ectation

'rice o. oil

A aries t)ese to see )o8 t)e c)osen

model reacts

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2"6 elect t)e 4%est5 Alternatie

%e sure to state all assum,tions andconstraints

B)en t)e ,ro/ect is done& 8e 8ill do a ,ost-

mortem

Needs t)ese to /usti.y decisions

or e7am,le& *ar ands deelo,mentC

assumed ,rice o. oil critical

i 1 G l d i i i i A l i

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2" Im,lement t)e %est and $onitor

!o it

()ec+ it

!o root cause analysis

U i 1 G l I d i E i i E i A l i

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*ime Value o. $oney

All .irms ma+e use o. inestment o. .unds

Inestments are e7,ected to earn a return

Inestment inoles money

$oney ,ossesses a 4time alue5

*)e 4time alue5 o. money is t)e most

im,ortant conce,t in engineering economy

U i 1 G l I d i E i i E i A l i

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'er.orming An Engineering Economic tudy

Engineering Economic Analysis tudiesC

!e.ine Alternaties !o-not)ing alternatie – maintain t)e status Juo

!e.ine .easile alternaties – t)at can sole t)e ,rolem

!e.ineFestimate t)e current and .uture cas) .lo8s

'er.orm t)e analysis

A,,ly t)e tools and met)ods o. engineering economy election o. t)e est alternatie

Im,lement and monitor

U it 1 G l I t d ti t E i i E i A l i

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1"3 $acro and $icroeconomics

undamental a,,roac) o. Economics

!ra8 a circle

Inside& $icroeconomics descries

Actions o. indiiduals and grou,s in indiidualmar+ets :c)oice under scarcity& im,lications on

,rices and demand;

9utside& $acroeconomics descries'er.ormance o. national economies and t)eir ,olicies :unem,loyment rate& oerall leel o. ,rices& G!'& ,rime rate& ,rice o. oil etc;"


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$icroeconomics

(om,aratie adantage

u,,ly and demand

(om,etition and t)e inisile )and

E..iciency and e7c)ange

'ro.it


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$acroeconomics

Gloal su,,ly and demand

Economic gro8t) and liing standards

'roductiity

Recessions and e7,ansions

Unem,loyment

In.lation$oney& %an+s and (entral %an+ing

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