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Lecture1 Lecture1 Presentation Transcript

  • Engineering Economy NORDIN BIN OMAR. INSPIRING CREATIVE AND INNOVATIVE MINDS
    • Main textbook : Economic Engineering , Sullivan, Wicks and Luxhoj.
    • Attendance : University regulations will be very strongly enforced. Students fail to fulfill requirement will not be allow to sit final examination
    • Homework : Late homework and assignment will not be accepted under any circumstances.
    INSPIRING CREATIVE AND INNOVATIVE MINDS
    • The study of how limited resources is used to satisfy unlimited human wants
    WHAT IS ECONOMICS ? INSPIRING CREATIVE AND INNOVATIVE MINDS
  • WHAT IS ECONOMICS ?
    • The study of how individuals and societies choose to use scarce resources that nature and previous generations have provided.
  • RESOURCES
    • LAND
    • LABOR
    • CAPITAL
  • LAND
    • All gifts of nature, such as: water, air, minerals, sunshine, plant and tree growth, as well as the land itself which is applied to the production process.
  • LABOR
    • The efforts, skills, and knowledge of people which are applied to the production process.
  • CAPITAL
    • Real Capital (Physical Capital )
      • Tools, buildings, machinery -- things which have been produced which are used in further production
    • Financial Capital
      • Assets and money which are used in the production process
    • Human Capital
      • Education and training applied to labor in the production process
  • Origins of Engineering Economy
    • The perspective that ultimate economy is a concern to the engineer and the availability of sound techniques to address this concern differentiate this aspect of modern engineering practice from that of the past.
  • Origins of Engineering Economy
    • Pioneer : Arthur M. Wellington, civil engineer
    • latter part of nineteenth century;
    • addressed role of economic analysis in engineering projects;
    • area of interest: railroad building
    • Followed by other contributions which emphasized techniques depending on financial and actuarial mathematics.
  • 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
    • The final choice (decision) is among alternatives. The alternatives need to be identified and then defined for subsequent analysis.
  • FOCUS ON THE DIFFERENCES
    • 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
    • The prospective outcomes of the alternatives, economic and other, should be consistently developed from a defined viewpoint (perspective).
  • USE A COMMON UNIT OF MEASURE
    • 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
    • Selection of a preferred alternative (decision making) requires the use of a criterion (or several criteria). The decision process should consider the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement or made explicit in a descriptive manner.
  • MAKE UNCERTAINTY EXPLICIT
    • 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
    • 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 PROCEDURE
    • 1. Problem recognition, formulation, and evaluation.
    • 2. Development of the feasible alternatives.
    • 3. Development of the cash flows for each alternative.
    • 4. Selection of a criterion ( or criteria).
    • 5. Analysis and comparison of the alternatives.
    • 6. Selection of the preferred alternative.
    • 7. Performance monitoring and post-evaluation results.
  • ACCOUNTING AND ENGINEERING ECONOMY STUDIES
    • Modern cost accounting may satisfy any or all of the following objectives:
    • 1. To determine the cost of products or services
    • 2. To provide a rational basis for pricing goods or services
    • 3. To provide a means for controlling expenditures
    • 4. To provide information on which operating decisions may be based and the results evaluated
    • THE
    • END