Chapter 1 presents an overview of engineering economy and introduces some important concepts well be using throughout the course.Chapter 1: Introduction to Engineering Economy*

All engineering projects cost money, and therefore all must be justified in economic terms. Its important to understand that economics is concerned with choices that rational people make. Engineering economy is a set of techniques which provide a rational framework to make economic decisions.

Chapter 1: Introduction to Engineering Economy*

In Unit 2, well consider demand curves, which allow us to model the behavior of rational decision-makers. Then well devote several units the time value of money and application so that we can use the concept of equivalent worth to evaluate and compare projects using a consistent framework.Chapter 1: Introduction to Engineering Economy*

During the late 19th and early 20th centuries, engineers came to realize that in order to be successful, they needed to include economic considerations in their projects from the outset.Chapter 1: Introduction to Engineering Economy*

The outside reading assignment provides more detail on the origins of engineering economy.Chapter 1: Introduction to Engineering Economy*

These seven principles will guide most of our work this semester. Well look at each in detail.Chapter 1: Introduction to Engineering Economy*

In an engineering economy study, we are always choosing among alternatives. Frequently, one alternative is to do nothing that is, we must decide whether it is more economical to do nothing (and at least not lose money) or to develop a project. Chapter 1: Introduction to Engineering Economy*

Alternatives can be different types of projects we can choose, or different approaches to solving the same engineering problem.Chapter 1: Introduction to Engineering Economy*

Often, engineering economy studies are used to choose among several approaches to solving the same problem. For example, its often necessary to select a manufacturing technique for a part or product from a set of candidate techniques. Chapter 1: Introduction to Engineering Economy*

If each technique will result in equivalent products which can be sold for the same price, including selling price (the sales income stream) in the study is not necessary.Chapter 1: Introduction to Engineering Economy*

In order to make fair comparison, we must view each alternative from the same viewpoint. The most common example of this requirement is comparison of projects which cover different time periods. We will devote considerable attention to techniques for adjusting cash flows so that they can be compared from the same viewpoint.Chapter 1: Introduction to Engineering Economy*

In Unit 4, we will develop a variety of approaches to evaluate the cash flows associated with projects.When comparing projects, its important to use the same technique to evaluate all projects considered so that the comparisons accurately depict the economic differences among the projects.Chapter 1: Introduction to Engineering Economy*

In this course, we will focus on analysis from a purely economic perspective. If other considerations are important, advanced techniques such as multiobjective optimization will be required.Chapter 1: Introduction to Engineering Economy*

Most of the parameters in an engineering economy study must be estimated. For example, if we are considering purchase of a vehicle, the cash flow must account for operating and maintenance expenses and resale value. Chapter 1: Introduction to Engineering Economy*

We cant know any of these parameters with certainty when were making the purchase decision, although we can usually make estimates with reasonable accuracy. Since these uncertainties are not avoidable, we must understand their impacts.Chapter 1: Introduction to Engineering Economy*

For most of the units in this course, we will assume that we know every parameter of the problem with certainty. This is necessary for you to develop the analytical skills.Chapter 1: Introduction to Engineering Economy*

In Unit 10, we will study methods which allow us to understand the consequences to our decisions of variations in important parameters of the problem. In Unit 11, we will study probabilistic techniques to more rigorously deal with uncertainty.Chapter 1: Introduction to Engineering Economy*

As we just discussed, uncertainty is a fundamental problem in engineering economy. Therefore, as time passes and we gain more knowledge, experience, and numerical data, it is important to periodically revise our estimates to determine whether the present course of action is still the most attractive.Chapter 1: Introduction to Engineering Economy*

These seven steps will allow us to perform analysis consistent with the seven principles we just discussed.As engineers, the first step is frequently done for us. Our employer or customer request that we study a problem and determine the best solution.Chapter 1: Introduction to Engineering Economy*

We develop feasible alternatives as part of the architectural design phase of the engineering lifecycle, and then develop cash flows for each alternative. Remember that in developing the cash flows, we are interested in focusing on differences.

Chapter 1: Introduction to Engineering Economy*

In units 4 and 5 you will learn a variety of criteria to evaluate the cash flows, keeping in mind the need to use a consistent viewpoint and measures.Once the analysis is complete, selecting the preferred alternative is a simple matter of using the criterion from step 4.Chapter 1: Introduction to Engineering Economy*

Finally, performance monitoring and re-evaluation will be done on an ongoing basis throughout the project life.This concludes Unit 1. In Unit 2, we will study cost concepts and design optimization.Chapter 1: Introduction to Engineering Economy*