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Engineering Economics &Management

M Tahir Raza

EED22-04-10

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Course Outline

The decision making process.

The relationship between engineering and management.

Non-monetary factors and multiple objectives.

Application of cost concepts.

Accounting. Money-time relationship. Interest formulas. Cash flow.

Comparison of engineering economy study methods.

Comparing alternatives using equivalent-worth, rate ofreturn and capitalized worth methods.

Depreciations,. Methods for dealing with uncertainty.

Replacement versus augmentation.

Termination/Abandonment.

Differences between public and private projects.

The cost-benefit ration method.2

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Importance of Learning this

Material The course is about decision making

in the environment of an organization

(business or government).

The methods have applications topersonal decisions as well.

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Engineering Economics &

ManagementTodays Topics

The Decision Making Process

Relation bet. Engg & Mgt

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Questions What is engineering economics?

Who cares about it?

Why do engineers have to study it?

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Money and Success This course has to do with money

and success.

Most of us want some measure ofsuccess in life.

For better or for worse, money (and

economics) has a lot to do withsuccess.

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Economics and Engineering Economics is a big part of an engineer's

job.

The engineer must translate scientific ideas inproducts and systems that better mankind.

Ideas need to make sense economically andthe 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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The Goal

For-profit: Organizations have goalto make money - now & in the

future.

Not-for-profit: Organizations mustremain financially sound.

Both types must worry about moneyor they will probably cease to exist.

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Economics and World

Institutions

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Economics and World

Institutions World: International trade, balance of

payments, currency evaluation

Federal, State and Local: Tax spending,GNP, distribution of resources, support ofinstitutions, public welfare

Organization: Revenues, costs, profit,

return on investment, stock prices You: Salary, investments, savings,

borrowing

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Business Decisions are not

Simple Product design

Process design (inspection, operations,

raw materials) Machine selection

Facility design

All decisions are interrelated. You can'tmake one without affecting many others.This is especially true when multipleproducts, periods, stages are involved.

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The Question is: How do you operate in this environment?

How does the organization you work for

operate?

Engineering economics is entirely involvedwith evaluating the comparison of

alternatives that involve spending moneyin hopes of earning more.

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Engineering Economic

Analysis - Seven Steps1. Recognize and formulate the problem.

2. Develop feasible alternatives.

3. Develop cash flows for each alternative.

4. Select a criterion (or criteria) fordetermining the preferred alternative.

5. Analyze and compare alternatives.6. Select the preferred alternative.

7. Perform monitoring and post-evaluation.