Eco300 1


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Engineering Economics ECO300, SP-13-Lecture-1

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Eco300 1

  1. 1. Engineering Economics ECO 300 Lecture-1Dr. Aqeel Ahmed BazmiAssistant Professor
  2. 2. Introduction
  3. 3. IntroductionSyllabus 3
  4. 4. IntroductionRecommended Books Leland Blank, and Anthony Tarquin, “ Engineering Economy”, 6th Edition, McGraw Hill, 2005. G. J. Thuesen, and W. J. Fabrycky, “Engineering Economy”, 9th Edition, Prentice Hall of India, 2005. Ted G. Eschenbach, “Engineering Economy”, 2nd Edition, Oxford University. Press, 2003. James L. Riggs, David D. Bedworth, and Sabah U. Randhawa, ”Engineering Economics”, 4th Edition, Tata McGraw-Hill, 1996. James L. Riggs, and Thomas M. West, “Essentials of Engineering Economics”, 2nd Edition, McGraw-Hill, 1986 4
  5. 5. IntroductionECO 300-Lecture Plan Introduction to Engineering Economics  Week 1-2 Cost Estimation  Week 2-5 (Assignment-1) Quantification of Profitability  Week 6-9 (Quiz-1, Assignment-2) Process Optimization  Week 9-13 (Quiz-2, Assignment-3) Financial Management  Week 13-16 (Quiz-3) 5
  6. 6. Introduction What is Economics? “Economics is the study of how peopleand society choose to employ scarceresources that could have alternativeuses in order to produce variouscommodities and to distribute them forconsumption, now or in the future” 6
  7. 7. Introduction What is Engineering Economics? “The application of economic principles to engineering problems, for example in comparing the comparative costs of two alternative capital projects or in determining the optimum engineering course from the cost aspect” 7
  8. 8. Introduction WHY DO WE NEED TO KNOW ABOUT THIS?! Optimal cost-effectiveness Alternative possibilities WHAT DO WE NEED TO KNOW? Time value of money Estimation of cash flows Principles of Engineering Quantitative measurements of profitability Economics Systematic comparison of alternatives 8
  9. 9. Foundations of Engineering Economics Why Engineering Economy is Important? Decisions made by engineers, managers, corporation presidents, and individuals are commonly the result of choosing one alternative over another.  Decisions often reflect a person’s educated choice of how to best invest funds; capital  Amount of capital is usually restricted (how to invest to add value?)  Engineers play a major role in capital investment decisions based on their analysis Fundamentally, engineering economy involves formulating, estimating and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available. 9
  10. 10. Foundations of Engineering Economics Why Engineering Economy is Important? Engineering Economics “A collection of mathematical techniques that simplify economic comparison and assist people in making decisions” 10
  11. 11. Foundations of Engineering Economics Why Engineering Economy is Important? Since decisions affect what will be done, the time frame of engineering economy is primarily the future Numbers used in engineering economy analysis are best estimates of what is expected to occur Estimates often involve three essential elements:  cash flows  time of occurrence  interest rates 11
  12. 12. Foundations of Engineering Economics Why Engineering Economy is Important? Sensitivity Analysis “Stochastic nature of estimates will likely make the observed value in future differ from the estimate made now. Sensitivity analysis isperformed during the engineering economic study to determine how the decision might change based on varying estimates” 12
  13. 13. Foundations of Engineering Economics Performing an Engineering Economy Study Cash Flows The estimated inflows (revenues) and outflows (costs) of money Analysis Computations considering the time value of money on cash flows to obtain a measure of worth Time Value of Money Cash flows occur over a substantial period of time. How can we treat the same amount of money available at different times? 13
  14. 14. Foundations of Engineering Economics Basic Concepts To be continue…. 14