Module 1: Introduction to Engineering Economy

economics

study of how individuals and societis choose to use scarce resources that nature and previous generations ahve provided

scarcity: long term limited availability of a resource

shortage: temporary lack or deficit of a resource

scarcity vs shortage

1. land

2. labor

3. capital

economic resources

1. real (physical)

2. financial

3. human

types of capital resources

engineering economics

application of engineering or mathematical analysis and synthesis to decision-making in economics; deals with concepts and techniques of analysis useful in evaluating worht of systems, products, and services in relation to their costs

engineering economy

involves formulating, estimating, evaluating economic outcomes when alternatives to accomplish a defined purpose are available

1. investments

2. manufacturing costs

3. demand

4. selling price

5. product life (profitability of continued production)

considerations in engineering economic decisions

1. objectives

2. available resources

3. time

4. uncertainty

key defining aspects of all engineering economic decisions

1. develop ALTERNATIVES

2. focus on DIFFERENCES

3. use consistent VIEWPOINT

4. use common unit of MEASURE

5. consider all relevant CRITERIA

6. make UNCERTAINTY explicit

7. REVISIT decisions

principles of engineering economy

1. PROBLEM recognition and evaluation

2. development of feasible ALTERNATIVES

3. development of CASH flows for each alternative

4. selection of CRITERIA

5. analysis and COMPARISON of alternatives

6. SELECTION of preferred alternative

7. performance MONITORING and post-evaluation results

7-step engineering economic analysis procedure

accounting: evaluating past performance

engineering economy: evaluating and predicting future events

accounting vs engineering economy