Introduction to Engineering Economics

Types of Business Organizations

*As software engineers we may find ourselves associated and involved with any of the three legal forms of business organization or entity, namely:

1.Proprietorship [ here business is owned by one individual; the

individual is solely responsible for the firms policy, and owns its assets; all liability is borne by this individual; a major disadvantage with this form of organization is that it cannot issue stocks and bonds, making it difficult to make decisions] 2.Partnership[ this is similar to the proprietorship, except that it has more than one owner. The partners are liable for the business debts] 3.Corporation[ This is a legal business entity created legally by a group of individuals and its managers may be separate from the owners. It can issue stocks and bonds to raise capital; it allows a limited liability; it is subject to many governmental regulations and business requirements and is taxed differently than proprietorship and partnershipand this is normally higher.
*Regardless of business form, the type of Organization or business entity, we work in, we are normally faced with numerous problems for which we are expected to make economic decisions. These problems may be simple, intermediate or complex in nature. Engineering economic decisions refer to investment decisions related to engineering projects. Normally, time and uncertainty are key factors of essence that define such project endeavors.

Software Engineers as Engineering Economists

Therefore, as software engineers, in real life scenarios and production environments we would be called upon to participate in making crucial decisions ranging from project development, product designs, applications designs and/or development, to marketing. Thus we will be making crucial engineering economic decisions. The aspect of the economic decision that is of most interest to us from the software engineers point of view is the evaluation of costs and accruable benefits from capital investments in projects within the organization/company that we work foror own. We make decisions on how to apply already very scarce (limited) company resources (money, time, employees, information, company infrastructure etc) to an array of competing projects within the organization. At all times it is paramount to help make sound judgments and decisions that would augur well for the companys strategic plans and vision.

Common Types of Strategic Engineering Economic Decisions; Making Engineering Economic Decisions

Choice of worth-while project endeavor to embark on among competing projects Choice of which projects should be given more priority, visibility and focus What type of design and methodology should be used for the chosen projects among existing design models, options and technologies? What equipment layout or process should be employed? What equipment replacement or process/technology improvement should be in place to maintain comparative advantage? [procurement vs. use of existing ones] What new product or product [service] expansion to embark on? What cost reduction alternatives to use without compromising product quality? What improvements in product/service quality is to be adhered to or is required by external regulators and quality controllerscompliance issues? What sort of financial sources should be employedissuance of stock; going for a loan; executing the project with available liquid cash pool? Should spreading out the project execution over longer periods be better in order to better absorb costs be an option? .versus. immediacy of project outcome. Should outsourcing certain aspects of a project be a viable option?Is the organization in a position to do everything internally? etc

Elements of Rational Decision-Making Process in Engineering Economics:

*When faced with the enumerated engineering decision making issues, in order to make a good decision we need to follow a laid down rational decision-making process:
1.

Recognize and state the Problem or Issue clearly [become aware of the

problem or issue and its immediate impacts and long-term implications.and consciously bring it on to your table ]
2. 3.

Define the goal or Objective[ Identify/describe the steps that has to be done to Assemble Relevant Data/Information [look for existing information about the

solve and remediate the problem] problem compare companies with similar profiles, and derive secondary inferences that may benefit your own situation. Look at your companys financial statements for traces/impacts of problem; conduct surveys/interviews/meetings with management to highlight and bring into limelight and front-burner the existence of problem]
4.

Identify and list out Feasible Alternatives [brainstorm and decide whether the

do nothing stance may actually be a viable alternative; check if patching the problem up for one or two years may be a doable option or route to go; advice long term solution from the strong standpoint of your expertise]

The Basic Essential Elements of the Rational DecisionMaking Process in Engineering Economicscontinued.
5. Use the Relative Subjective judgment spectrum to Stick with the Best Alternative [ *The relative subjective judgment spectrum uses a score card to score the identified alternatives as: Worst/Bad/Fair/Good/Better/Best . Consider the following general criteria while scoring the alternatives: With the alternative create the least disturbance to the environment Will it improve the distribution of wealth among people Will it minimize the expenditure of money (cost) Will it ensure that the benefits to those who gain from the decision are greater than the losses of those who are harmed by the decision Will it help maximize the time to accomplish companys overall strategic goal, mission and objective Will it grow the workforce and minimize unemployment Will it maximize profit for the organization

Elements of the Rational Decision-Making Process in Engineering Economicscontinued.

6. Construct a Model [ Attempt using a mathematical model or expression to quantify and represent some of the unraveled points if possible] 7. Predict each Alternatives Outcomes or Consequences [ look at such things as the customer pool or membership consequences; market share consequences; comparative advantage of your company ..such as direct impacts market prices of your goods or service, and then examine/determine possible ways to resolve such consequences for all alternatives] 8. Choose the Best Alternative 9. Audit the Result[ crosscheck expected real impacts/results with all the projections]