1. 1

2. Group Members


Sohail Azhar (BSCT01103024)
Imran Irshad (BSCT01103085)

3. TOPIC
Importance Of
Engineering
Economics

4. Questions



What is engineering economics?
Who cares about it?
Why do engineers have to study it?
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5. Engineering Economics



Application of engineering or
mathematical analysis and synthesis
to decision making in economics.
The knowledge and techniques
concerned with evaluating the worth
of commodities and services relative
to their cost.
Analysis of the economics of
engineering alternatives.
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6. Money and Success



This course has to do with money
and success.
Most of us want some measure of
success in life.
For better or for worse, money (and
economics) has a lot to do with
success.
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7. Economics and Engineering

Economics is a big part of an engineer's
job.



The engineer must translate scientific ideas in
products and systems that better mankind.
Ideas need to make sense economically and
the engineer must be able to convince others
that this is so.
That is true of any organization that you
might join upon graduation.
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8. Why Engineers Study
Engineering Economics

Engineers students should prepared
themselves with economic
empowerment so that they could
manage their wealth, help them in
starting their own business or during
managerial period.
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9. Why Engineers Study
Engineering Economics

It is because money is one of important
factor in completing a project.
Furthermore, fresh graduates also need to
manage their wealth well since a lot of
graduates facing problem because lack of
information about the loans that they have
made.
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10. Steps in an Engineering Economy
Study
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11. The Goal



For-profit organizations have for
goal to make money - now and in
the future.
Not-for-profit must remain financially
sound.
Both types must worry about money
or they will probably cease to exist.
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12. Economics and World
Institutions
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13. Economics and World
Institutions




World: International trade, balance of
payments, currency evaluation
Federal, State and Local: Tax spending,
GNP(Gross National Product), distribution
of resources, support of institutions, public
welfare
Organization: Revenues, costs, profit,
return on investment, stock prices
You: Salary, investments, savings,
borrowing
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14. Business Decisions are not
Simple





Product design
Process design (inspection, operations,
raw materials)
Machine selection
Facility design
All decisions are interrelated. You can't
make one without affecting many others.
This is especially true when multiple
products, periods, stages are involved.
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15. The Question is:



How do you operate in this environment?
How does the organization you work for
operate?
Engineering economics is entirely involved
with evaluating the comparison of
alternatives that involve spending money
in hopes of earning more.
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16. Economic Enviorment

Much less of a quantitative nature is
known about economic environments -this is due to economics being involved
with the actions of people, and the
structure of organization.
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17. Economic Environment

Satisfaction of the physical and
economic environments is linked
through production and construction
processes. Engineers need to control
systems to achieve a balance in
attributes in both the physical and
economic environments, and within
the bounds of limited resources.
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19. 19

20. Fundamental Principles of Engineering
Economics




Principle 1: A nearby dollar is
worth more than a distant dollar
Principle 2: All it counts is the
differences among alternatives
Principle 3: Marginal revenue must
exceed marginal cost
Principle 4: Additional risk is not
taken without the expected
additional return
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21. `
Today
6-month later
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22. Principle 2: All it counts is the
differences among alternatives
Option
Monthly
Fuel
Cost
Monthly Cash
Maintena outlay at
nce
signing
Monthly
payment
Salvage
Value at
end of
year 3
Buy
$960
$550
$6,500
$350
$9,000
Lease
$960
$550
$2,400
$550
0
Irrelevant items in decision making
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23. Principle 3: Marginal revenue
must exceed marginal cost
Marginal
cost
Manufacturing cost
Sales revenue
1 unit
1 unit
Marginal
revenue
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24. Principle 4: Additional risk is not
taken without the expected
additional return
Investment Class
Potential
Risk
Expected
Return
Savings account Low/None
(cash)
1.5%
Bond (debt)
Moderate
4.8%
Stock (equity)
High
11.5%
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25. Engineering Economic
Analysis - Seven Steps
1.
2.
3.
4.
5.
6.
7.
Recognize and formulate the problem.
Develop feasible alternatives.
Develop cash flows for each alternative.
Select a criterion (or criteria) for
determining the preferred alternative.
Analyze and compare alternatives.
Select the preferred alternative.
Perform monitoring and post-evaluation.
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