My first Lecture in Engineering Economy, Al-Yarmouk Private University, 9 October 2016

1. ENGINEERING
ECONOMY
Muhammad Aljalali, Ph.D.
Al-Yarmouk Private University

2. Introduce Myself
 Associate Professor in Al-Yarmouk Private University, faculty
of Civil Engineering, 2016-
 Associate Professor in Damascus University, faculty of Civil
Engineering, 2013-2016
Courses:
 Engineering Economics and Business Management
 Engineering Projects Management
 Legal and Economic Issues for Construction (Post grad.)
 Basics of Scientific Research (post grad.)
 Minister of Communications and Technology, 2014-2016.
 Deputy Minister of Communications and Technology, 2008-
2014.
2
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy

3. Introduce Myself
 Advisor for many Public Authorities.
 Practical Experience:
 Feasibility Studies
 Contract Documents Preparing
 Laws Development
 Training in Engineering Contracts, FIDIC Contracts,
Construction Management, and Economic Analysis of
Engineering Projects.
3
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy

4. Course Textbook
4
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
 Engineering
Economy, Sixteen
Edition 2015.
 William G. Sullivan,
Elin M. Wicks, and C.
Patrick Koelling

5. Course Contents
5
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
 Introduction to Engineering Economy.
 Cost Concepts and Design Economics.
 Cost-Estimation Techniques.
 Time Value of Money.
 Evaluating a Single Project.
 Comparison and Selecting among Alternatives.
 Depreciation and Income Taxes.
 Price Changes and Exchange Rates.
 Replacement Analysis

6. 1
INTRODUCTION TO
ENGINEERING ECONOMY
Muhammad Aljalali, Ph.D.

7. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
7
 The engineers role is making design of things,
 Engineers achievements need price,
 The basic economic question:
Do its benefits exceed its costs

8. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
8
“The profession in which a knowledge of the
mathematical and natural sciences gained by
study, experience, and practice is applied with
judgment to develop ways to utilize,
economically, the materials and forces of nature
for the benefit of mankind.”
Accreditation board of Engineering and Technology
Engineering

9. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
9
Scientific Discoveries ProductsEngineering
Engineering

10. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
10
Economics
 Economics is the study of how men and society end up
choosing, with or without the use of money, to employ
scarce productive recourses that would have alternative
uses, to produce various commodities and distribute them
for consumption, now or in the future, among various
people and groups in society.
 It analyzes the costs and benefits of improving patterns of
resource allocation.
 The economy is the choosing.

11. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
11
Economic Problem
UNSATISFIED
WANTS
WANTS
WHICH CAN
BE SATISFIED
FROM
FREE GOODS SCARCE RESOURCES

12. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
12
Economic Problem

13. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
13
Engineering Economy
 The systematic evaluation of the economic merits of
proposed solutions to engineering problems.
 Solutions to engineering problems must demonstrate
a positive balance of long-term benefits over long-
term costs.
 And ….

14. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
14
Engineering Economy
 Promote the well-being and survival of an
organization,
 Embody creative and innovative technology and ideas,
 Permit identification and scrutiny of their estimated
outcomes, and
 Translate profitability to the “bottom line” though a
valid and acceptable measure of merit.

15. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
15
Engineering Economy
 Dollar and cents side
of decisions,
 Tradeoffs among
different types of costs
and performance,
 The mission of
engineering economy is
to balance these
tradeoffs in the most
economic matters.

16. Introduction
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
16
Engineering Economy Problems
 Choosing the best design,
 Selecting the most suitable equipment,
 Lease or buy decision,
 Equipment replacement life,
 Financing public projects or works.

17. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
17
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.

18. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
18
Carefully define the problem! The choice
(decision) is among alternatives. The alternatives
need to be identified and then defined for
subsequent analysis.
Principle 1 — Develop the Alternatives

19. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
19
Only the differences in expected future outcome
among the alternatives are relevant to their
comparison and should be considered in the
decision.
Principle 2 — Focus on the Differences

20. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
20
The prospective outcomes of the alternatives,
economic and other, should be consistently
developed from a defined viewpoint
(perspective).
Principle 3 — Use a Consistent Viewpoint

21. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
21
Using a common unit of measurement to
enumerate as many of the prospective outcomes
as possible will simplify the analysis of the
alternatives.
Principle 4 — Use a Common Unit of Measure

22. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
22
Selection of a preferred alternative (decision
making) requires the use of a criterion (or several
criteria). The decision process should consider
both the outcomes enumerated in the monetary
unit and those expressed in some other unit of
measurement or made explicit in a descriptive
manner.
Principle 5 — Consider All Relevant Criteria

23. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
23
Risk and uncertainty are inherent in estimating
the future outcomes of the alternatives and
should be recognized in their analysis and
comparison.
Principle 6 — Make Risk and Uncertainty Explicit

24. Principles of Engineering Economy
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
24
Improved decision making results from an
adaptive process; to the extent practicable, the
initial projected outcomes of the selected
alternatives should be subsequently compared
with actual results achieved.
Principle 7 — Revisit Your Decision

25. Engineering Economy and the Design
Process
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
25
 An engineering economy study is accomplished using
a structured procedure and mathematical modeling
techniques.
 The economic results are then used in decision
situation that involves two or more alternatives and
normally includes other engineering knowledge and
input.

26. Engineering Economy and the Design
Process
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
26
Engineering economic analysis procedure
Step
1. Problem recognition, definition, 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 alternatives
7. Performance monitoring and post-
evaluation of results.
Engineering design process
Activity
1. Problem/need definition
2. Problem/need formulation and evaluation.
3. Synthesis of possible solutions (alternatives).
4. Analysis, optimization, and evaluation.
5. Specification of preferred alternative.
6. Communication.

27. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
27
• Internal or external organizational needs
• Operating problem
• Customer expectation
• Systems perspective
Redefining the problem until a consensus is reached may be the
most important part of the problem solving process!
Problem Definition

28. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
28
Problem Definition
Develop of Alternatives
1. Searching for superior alternatives
2. Screening them to select a smaller group of alternatives

29. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
29
Problem Definition
Develop of Alternatives
1. Concentrate on redefining one problem at a time in step 1.
2. Develop many redefinitions for the problem.
3. Avoid making judgments as new problem definitions are created.
4. Attempt to redefine a problem in terms that are dramatically
different from the original step 1 problem definition.
5. Make sure that the true problem is well researched and
understood.
1. Searching for superior alternatives

30. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
30
Problem Definition
Develop of Alternatives
1. Classical brainstorming.
2. Nominal group technique NGT.
2. Developing investment alternatives

31. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
31
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Classical Brainstorming:
Fundamental principles:
 Deferment of judgment,
 Quantity breeds quality.

32. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
32
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Classical Brainstorming:
Successful Rules:
1. Criticism is ruled out.
2. Freewheeling is welcomed.
3. Quantity is wanted.
4. Combination and improvement are sought.

33. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
33
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Classical Brainstorming:
Basic steps:
1. Preparation.
2. Brainstorming.
3. Evaluation.

34. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
34
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Nominal Group Technique (NGT)
The basic format:
1. Individual silent generation of ideas
2. Individual round-robin feedback and recording of ideas
3. Group clarification of each idea
4. Individual voting and ranking to prioritize ideas
5. Discussion of group consensus results

35. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
35
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Nominal Group Technique (NGT)
Successful Rules:
1. Avoid the dominance of one or more
participants.
2. Avoid the suppression of conflicting
ideas.

36. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
36
Problem Definition
Develop of Alternatives 2. Developing investment alternatives
Nominal Group Technique (NGT)
Basic steps:
1. Facilitator role.
2. Silent-generation phase (few minutes).
3. Present one idea for each participant.
4. Record each idea and discuss it.
5. Voting process.

37. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
37
Problem Definition
Develop of Alternatives
Develop Prospective outcomes
 Define benefits and costs of each alternative,
 Consider nonmonetary factors,
 Cash flow.

38. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
38
Problem Definition
Develop of Alternatives
Develop Prospective outcomes
Analysis of Alternatives
According to Decision Criteria

39. Engineering Economic Analysis Steps
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
39
Problem Definition
Develop of Alternatives
Develop Prospective outcomes
Analysis of Alternatives
Preferred Alternative
PerformanceMonitoringand
PostevaluationofResults

40. Homework
Muhammad Aljalali Ph.D.1. Introduction to Engineering Economy
40
Self homework:
 Problems 1-1 to 1-11.