Chapter 1

Chapter 1
Introduction to
Engineering Economy
Engineering Economy, Fifteenth Edition 1-1 Copyright 2012 by Pearson Education, Inc.
Upper Saddle River, New Jersey 07458
By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling
All rights reserved.
1.0 CONTENT
1.1 Introduction
- Definition
- Why it is important to engineer
- Roles of Engineering economy
1.2 The 7 principles of Engineering
Economy
1.3 Engineering Economy and the Design
Process
1.1 Introduction
ENGINEERING?
ECONOMY?
Copyright 2012 by Pearson Education, Inc.

Engineering Economy, Fifteenth Edition
1.1 Introduction
Definition
Engineering Economy involves the systematic
evaluation of the economic merits of
proposed solutions to engineering problems.
Economically Acceptable Solution:
A positive balance of
long term benefits > long term costs

1.1 Introduction
Promote Well Being and

Survival of Organization
The Creative and Innovative

solution to Technology and Idea
engineering
economy Valid and Acceptable
must:
Profitability
Allow the Estimated Outcome to

be Identify and Observe Critically

1.1 Introduction
Why Engineering Economy is Important to

Engineers?
An engineer who is unprepared to excel at

engineering economy is not properly
equipped for his or her job
1.1 Introduction
Engineers?
COST
DESIGN Balance in
CIVIL the most
trade off economically
ENGINEER
BUILD manner
PERFORMANCE
1.1 Introduction

Engineers? (cont.)
Often engineers must select and implement

from multiple alternatives
Understanding and applying time value of
money, economic equivalence, and cost
estimation are vital for engineers
A proper economic analysis for selection
and execution is a fundamental task of
engineering
1.1 Introduction
Engineering economic analysis can play a
role in many types of situations
Choosing the best design for a high-efficiency

gas furnace.
Selecting the most suitable robot for a welding
operation on an automotive assembly line.
Making a recommendation about whether jet
airplanes for an overnight delivery service
should be purchased or leased.
1.1 Introduction
Engineering economic analysis can play a

role in many types of situations (cont.)
Determining the optimal staffing plan for a

computer help desk.
Determining labor resource (local or foreign
workers)
To select the best bidder of Bill of Quantities
To purchase or hire machineries
1.2 The 7 principles of Engineering Economy
Develop the alternatives
Focus on the differences
Use a consistent view point
Use a common unit measure
Consider relevant criteria
Make uncertainty explicit
Revisit your decision

1. Develop the alternatives

Carefully define the problem, then the choice
(decision) is among alternatives. The alternatives
need to be identified and then defined for
subsequent analysis.
2. Focus on the differences
Only the differences in expected future outcomes
among the alternatives are relevant to their
comparison and should be considered in the
decision.

3. Use a consistent viewpoint

The prospective outcomes of the alternatives,
economic and other, should be consistently
developed from a defined viewpoint (perspective)
4. Use a common unit of measure
Using a common unit of measurement to enumerate
as many of the prospective outcomes as possible will
simplify the analysis of the alternatives.

5. Consider all relevant criteria

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.

6. Make uncertainty explicit

risk and uncertainty are inherent in estimating the
future outcomes of the alternatives and should be
recognized in their analysis and comparison.
7. Revisit your decisions
improved decision making results from an adaptive
process; to the extent practicable, the initial
projected outcomes of the selected alternative
should be subsequently compared with actual results
achieved.

1.3 Engineering Economy and the Design Process
1 Problem definition
2 Development of alternatives (P1)
3 Development of prospective outcomes (P2,3,4)
4 Selection of a decision criterion (P5)
5 Analysis and comparison of alternatives (P6)
6 Selection of the preferred alternative

Performance monitoring and post evaluation of
7 results (P7)

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Problem Alternatives Prospective
Definition Development Outcomes
1. Different soil Alternative 1 Safety of the society
formation for Repair and maintenance is at risk
tunneling for the sink holes and
soil depression The project is
2. Current located at different
technology Alternative 2
place
causes sink New design strategy
holes and soil Development of
depressions in Alternative 3 New Boring Machine
the area of New technology and training academy
limestone improvement
formation
Selection of Analysis and Selection of Post
Decision Comparison Alternatives Evaluation
Criterion
Alternative 2
Cost 1. Need time to redesign and
Safety make report for council
Time approval
Training 2. Skill workers needed for
maintenance work
Alternative 3
1. Need time for research and
development
2. Staff have to be train to use
the new technology
Electronic spreadsheets are a powerful

addition to the analysis arsenal
Most engineering economy problems can be

formulated and solved using a spreadsheet.
Large problems can be quickly solved.
Proper formulation allows key parameters to be
changed.
Graphical output is easily generated.

THE END, THANK YOU!


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Copyright 2012 by Pearson Education, Inc.

Copyright 2012 by Pearson Education, Inc.

Promote Well Being and

The Creative and Innovative

Allow the Estimated Outcome to

Copyright 2012 by Pearson Education, Inc.

Why Engineering Economy is Important to

An engineer who is unprepared to excel at

Why Engineering Economy is Important to

Often engineers must select and implement

Choosing the best design for a high-efficiency

Engineering economic analysis can play a

Determining the optimal staffing plan for a

Develop the alternatives

Focus on the differences

Use a consistent view point

Use a common unit measure

Consider relevant criteria

Make uncertainty explicit

Revisit your decision

Copyright 2012 by Pearson Education, Inc.

1. Develop the alternatives

Copyright 2012 by Pearson Education, Inc.

3. Use a consistent viewpoint

Copyright 2012 by Pearson Education, Inc.

5. Consider all relevant criteria

Copyright 2012 by Pearson Education, Inc.

6. Make uncertainty explicit

Copyright 2012 by Pearson Education, Inc.

2 Development of alternatives (P1)

3 Development of prospective outcomes (P2,3,4)

4 Selection of a decision criterion (P5)

5 Analysis and comparison of alternatives (P6)

6 Selection of the preferred alternative

Copyright 2012 by Pearson Education, Inc.

Electronic spreadsheets are a powerful

Most engineering economy problems can be

Copyright 2012 by Pearson Education, Inc.

Copyright 2012 by Pearson Education, Inc.

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