LECTURE 01 ENGINEERING ECONOMICS ABOUT ENGINEERING ECONOMICS Engineering

LECTURE # 01 ENGINEERING ECONOMICS

ABOUT ENGINEERING ECONOMICS Engineering economics is defined as “A set of principles, concepts, techniques and methods by which alternatives within a project can be compared and evaluated for the best monetary return. ” For an engineering economics design to be successful, it must be technically sound and produce benefits. These benefits must exceed the cost associated with the design in order for the design to enhance the net value. The field of engineering economy is associated with the systematic evaluation of the benefits and cost of project involving engineering design and solutions.

PRINCIPLES OF ENGINEERING ECONOMICS Develop the alternative Focus on the difference Use a constant view point Use a common unit of measure Consider all relevant criteria Make uncertainty explicit Revisit you decision

DEVELOP THE ALTERNATIVE A decision situation involves making a choice among two or more alternatives. The choice is among alternatives. The alternatives need to be identified and then defined for subsequent analysis.

FOCUS ON THE DIFFERENCES If all the perspective outcomes of the feasible alternative were exactly the same, there would be no basis or need for comparison. Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision.

USE A CONSTANT VIEW POINT The prospective outcome of the alternatives, economic or other , should be consistently developed from a defined view point. And then used in description, analysis and comparison of the alternative.

USE A COMMON UNIT OF MEASURE It is desirable to make as many prospective outcomes commensurable (directly comparable). Using a common unit of measurement to enumerate as many of the prospective outcomes as possible will make easier the analysis and comparison of the alternatives.

CONSIDER ALL RELEVANT CRITERIA Selection of a preferred alternative requires the use of a criterion or criteria. The decision process should consider both the outcomes enumerated in the monitory unit and those expressed in some other unit of measurement or made explicit in descriptive manner.

MAKE UNCERTAINTY EXPLICIT The analysis of alternatives involve projecting or estimating the future consequences associated with each of them. Uncertainty is inherent in projecting or estimating the future outcomes of the alternatives and should be recognized in their analysis and comparison.

REVISIT YOUR DECISION Improved decision making results from and adaptive process , to the extant predictable, the initial projected outcomes of selected alternatives should be subsequently compared with actual results achieved