lecture 1 engineering and money

8/11/2019 Lecture 1 Engineering and Money

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Whitewater LimitedConsulting Engineers & Scientists

FINANCIAL ASPECTS OF PROJECT ENGINEERINGAND CONTRACTING

PROJECT APPRAISAL FOR BIOPROCESS

Richard Hill

ENGINEERING AND MONEY


WHAT IS ENGINEERING?

What do Engineers do?



The primary purpose of Engineers is to create wealth.The ability to do so will relate directly to the degree towhich Engineers have the insight to make change andimprovement where it is most needed in our businesses,

as much as the skil l to effect those changes that havethe greatest impact. No amount of technical ability willavail if the subsequent effort is misdirected. No amountof business acumen will suffice if the engineer has notthe necessary knowledge, experience and skill to turnideas into reality.

Kimberley Clarke Training Manual (2000)


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Our Engineers may beregarded in some measureas the makers of moderncivilisation.

Samuel Smiles,Lives of the Engineers (1861)



Ingenuity,

Marc Brunels tunneling shield



innovation, Parsons turbine


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innovation pharmaceutical RO



entrepreneurship Albert Bridge



multidisciplinary teams,


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multidisciplinary teams,



Multidisciplinary teams,



learning from mistakes,

Millennium Bridge


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health and safety,



protecting the environment



financially sound


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financially sound

A white elephant a signof the monarchs favour



Rolls Royce engineering?



An Engineer is a guy who cando for half a dollar what anyfool can do for a dollar. Anon

The triumph of the mechanicover the engineer.

Ettore Bugatti (1882 1947)


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Engineering is about the efficient useof scarce resources labour, power,

materials, time money is thecommon measure


CONTRACTING

A project is something that has notbeen done before.What benefits will accrue?

How will we do it?

How much will it cost?

What is the environmental impact?

What are the risks?

Who will do it?


CONTRACTING

Engineering

design

innovation

Procurementmaterials and services

Construction

planning

skilled workforce

cranes/plant

commissioning


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CONTRACTING

The Irish labourers who built Britain

I stripped to the skin with Darky Finn

Down upon the Isle of Grain,With Horseface Toole I learned the rule:

No money if you stop for rain.For McAlpine's god is a well filled hodWith your shoulders cut to bits and seared

And woe to he who looks for teaWith McAlpines Fusiliers.

Dominic Behan 1962


CONTRACTING

Resource Management

people

materials

time

Risk

financial

environmental

health and safety


A contract is a commercial agreement between

Purchaser Contractor

CONTRACTING


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WHAT IS IT?


WHAT IS IT?

Its the stuff we havent got enough of


WHAT IS IT?

Barter

=


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WHAT IS IT?

Paying withPeacocks

Quinquireme of Nineveh from distant Ophir,

Rowing home to haven in sunny Palestine,With a cargo of ivory,And apes and peacocks,

Sandalwood, cedarwood, and sweet white wine.


HISTORY

Chinese Tael


HISTORY

Archaeologists in York excavatingthe grave of a trader who wasburied about 1000 years ago foundsilver ingots, silver coins, and a

balance.

It illustrates the transition fromusing precious metals by weight tocoinage. The balance served notonly to measure the metal weight,but to check whether the coinshad been clipped.


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HISTORY

Milled edge


HISTORY

Austrian Maria Theresa Dollar used in Abyssiniaafter withdrawal in Austria but there weretransport problems


HISTORY

Paper

Italians set up first banks (banca = benchor counter)

Promissory notes issued by Italian banksin 12thc

Used in crusades 13thc to move moneyquickly

Knights Templars became powerfulbankers


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HISTORY

Cheque


HISTORY

Banknotes were first issuedby Dutch banks 16thc


ALL THAT GLISTERS

1 of 1911 1 of 2011

Gold Cheap alloy

One of these is worth 230 of them


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ALL THAT GLISTERS

By 1971 even a penny (1/240th1) was worth less

than the scrap value of the old copper penny.Todays copper coins are plated steel


ALL THAT GLISTERS

A recent paper claims that for thelast 2,000 years a well-dressedmans outfit has cost more or lessthe equivalent of an ounce ofgold.

Today thats about 1,200.

Inflation makes money cheaper.


ALL THAT GLISTERS

Inflation is good news for borrowers -the real value of their debt goes down

Governments, who are the biggest

borrowers of all, love inflation

Governments aim at the highest rate ofinflation which wont bother voters

It makes money a variable standard formeasurement


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MARS BAR ECONOMICS


MARS BAR ECONOMICS

1 in 1987


MARS BAR ECONOMICS

1 in 2009


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MARS BAR ECONOMICS

In 1975 I bought a house for 80,000, paying 20,000 in cashand the rest by borrowing 60,000 to be repaid after 15

years, at 6% interest - i.e. 3,600 p.a., which would come toa total of 54,000 in 15 years.Inflation between 1975 and 1990 averaged 10%.In 1975 a kWh cost 1.5 p. Assuming it has constant value, in1990 it would cost about 6p. The average cost of a kWhduring those 15 years was 3.75p.80,000 in 1975 was equivalent to 5333 MWh, assume thisis the true value of the house and it will remain constant.In 1990 I sold the house for its true value, which at 6p/kWhbrought me 320,000, so the whole deal works out like this:


MARS BAR ECONOMICS

MWhMONEY GOING OUT

Cash (1975) 20,000 1,333 @ 1.5p/kWhInterest (1975-90) 54,000 1,440 @ 3.75p/kW hRepayment (1990) 60,000 1,000 @ 6.0p/kWhTOTAL COST 134,000 3,773

MONEY COMING IN

Sold (1990) for 320,000 5,333 @ 6.0p/kWh

PROFIT 1560 MWh


CONFIDENCE


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FANNIE AND FREDDIE

Federal National Federal Home LoanMortgage Association Mortgage Corporation

In September 2008 The US Treasury bailed them out with

$200,000,000,000


SUMMARY

Money is an inaccurate and variablemeasure

But its the best we have.

lecture 1 engineering and money

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