BCT 5053 ENGINEERING

ECONOMICS
Chapter 1: Introduction To
Engineering Economic
Student should be able to:

Introduction
Engineering
to
economy
engineering
concepts
economy

Steps in
Decision
analyzing
making
engineering
process
economy
 WHAT IS ECONOMICS?

“Economics is the study of how people and

society choose to employ scarce resources that
could have alternative uses in order to produce
various commodities and to distribute them for
consumption, now or in the future, ...”
 WHAT IS ECONOMICS?

“ A study of how people use their limited

resources to try to fulfil unlimited wants and
involves alternatives or choices”
 WHAT IS ENGINEERING ECONOMICS?

The application of economic principles to

engineering problems, for example in comparing
the comparative costs of two alternative capital
projects or in determining the optimum
engineering course from the cost aspect.
• Engineering economics is the application of
economic techniques to the evaluation of
design and engineering alternatives.

• The role of engineering economics is to assess

the appropriateness of a given project,
estimate its value, and justify it from an
engineering standpoint.
 Why Engineering Economy is
Important to Engineers?

Engineers must be able

Engineers design and Designing involves to incorporate
create economic decisions economic analysis into
their creative efforts

Understanding and
A proper economic
Often engineers must applying time value of
analysis for selection
select and implement money, economic
and execution is a
from multiple equivalence, and cost
fundamental task of
alternatives estimation are vital for
engineering
engineers
 Decision making process
• Decision are made routinely to choose one
alternative over another by individuals in
everyday life
By engineers on the job

By managers who supervise the activities of

others

By corporate presidents who operate a business

By government officials who work for the public

good
• Most decisions affect what will be done, the
time frame of engineering economy is
primarily the future
• The numbers used in engineering economy
are best estimates of what is expected to
occur
• 4 essential elements Cash Flows
Times of occurrence of Cash
Flows
Interest rates for time value of
money
Measure of economic worth for
selecting an alternative
 General Steps for Decision Making
Processes
1. Understand the problem – define objectives
2. Collect relevant information
3. Define the set of feasible alternatives
4. Identify the criteria for decision making
5. Evaluate the alternatives and apply
sensitivity analysis
6. Select the “best” alternative
7. Implement the alternative and monitor
results
Steps in an Engineering Economy
Study