Engineering Economics & Management

M Tahir Raza
EED

22-04-10

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 of return 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.
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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 to personal decisions as well.

Engineering Economics & Management

Todays Topics

The Decision Making Process Relation bet. Engg & Mgt

Questions

What is engineering economics? Who cares about it? Why do engineers have to study it?

Money and Success

This course has to do and success. Most of us want some success in life. For better or for worse, economics) has a lot success.

with money measure of money (and to do with

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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The Goal

For-profit: Organizations have goal to make money - now & in the future. Not-for-profit: Organizations must remain financially sound. Both types must worry about money or they will probably cease to exist.
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Economics and World Institutions

Economics and World Institutions

World: International trade, balance of payments, currency evaluation Federal, State and Local: Tax spending, GNP, 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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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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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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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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