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INTRODUCTION TO
ENGINEERING ECONOMY
Chapter # 1
Objectives
Introduction
Engineering
Economics
Resources
Land
Labor
Capital
Engineering Economy
Examples
Eugene Grant
10
12
13
14
probability is high
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16
Step
Activity
1. Problem/need definition
2. Problem/need formulation and
evaluation
5. Specification of preferred
alternative
6. Communication
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Problem Definition
The term problem includes all decision situations for
which an engineering economy analysis is required
Recognition
Formulation
Evaluation
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Development of Alternatives
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External
Environment
Community
Relations
Environmental
Regulations
ORGANIZATION
Internal Environment:
Business Goals
Improvement Objectives
Design Criteria
Capital Constraints
Workforce Capability
Equipment / Plant Capability
Other Related Decisions
Customer
Expectations
Competitions
Technology
FEASIBLE ALTERNATIVES
for Analysis and Comparison
21
Example 1 1
The management team of a small furniture manufacturing
company is under pressure to increase profitability in order to get
a much-needed loan from the bank to purchase a more modern
pattern-cutting machine. One proposed solution is to sell waste
wood chips and shavings to a local charcoal manufacturer
instead of using them to fuel space heaters for the companys
office and factory areas
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Solution
Alternatives
Classical Brainstorming
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Principle 2, 3, 4
Principle 5
Selection
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Substantial effort
Obtain reasonable accurate forecasts of cash flows inflationary (deflationary), exchange rate, movements,
and regulatory
Principle 6 (uncertainty)
Principle 2 (compared based on their difference)
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Follow-up step
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Example 1 2
Solution : Example 1 2
Foundation and structural design will permit addition of two floors to six
presently planned for building. Each floor has 22,000 gross sq ft of space
HVAC system is planned for six floors. Detailed design of system has not
started, but cost of a larger HVAC system would have to be included if
additional floors were added
Additional laboratory space (26%) and personnel space (11%) will require
31,500 gross sq ft
There is a time constraint. Need for new building space is urgent
Additional money for new building, beyond that already allocated is limited
Feasible alternatives
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Engineering Economy
Accounting data