Engineering Economy

Syed Kashif Saeed, ACMA

Pakistan Institute of Engineering and Applied Sciences

Engineering is the profession in which a knowledge of the mathematical and natural sciences gained by study , experience, and practice is applied with judgment to develop ways to utilize, economically, the materials and forces of nature for the benefit of mankind.
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Engineering is the profession in which a knowledge of the mathematical and natural sciences gained by study , experience, and practice is applied with judgment to develop ways to utilize, economically, the materials and forces of nature for the benefit of mankind.
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[Engineering] is the art of doing that with one dollar which any bungler can do with two.
Arthur Wellington (1887)

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Syed Kashif Saeed, PIEAS

What is Economics?

The study of how limited resources is used to satisfy unlimited human wants.

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Syed Kashif Saeed, PIEAS

What is Economics?
The study of how individuals and societies choose to use scarce resources that nature and previous generations have provided.

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Syed Kashif Saeed, PIEAS

Resources?
Land:
All gifts of nature, such as: water, air, minerals, sunshine, plant and tree growth, as well as the land itself which is applied to the production process.

Labor:

The efforts, skills, and knowledge of

people which are applied to the production process

Capital:

Include Real Capital (Physical Capital ) like tools, buildings, machinery ; Financial Capital like money and Human Capital like Education and training applied to labor in the production process
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Origins of Engineering Economy

The perspective that ultimate economy is a concern to the engineer and the availability of sound techniques to address this concern differentiate this aspect of modern engineering practice from that of the past.

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Syed Kashif Saeed, PIEAS

The purpose of this course is to develop and illustrate the principles and methodology required to answer the basic economic question of any design: Do its benefits exceed its cost?

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Syed Kashif Saeed, PIEAS

Engineering economy
involves the systematic evaluation of the economic merits of proposed solutions to engineering problems.

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Engineering economy
To be economically acceptable (i.e. affordable) solutions to engineering problems must demonstrate a positive balance of long term benefits over long term costs.
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Solutions to engineering problems must

promote the well-being and survival of an organization, embody creative and innovative technology and ideas, permit identification and scrutiny of their estimated outcomes, and translate profitability to the bottom line through a valid and acceptable measure of merit.

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Engineering economic analysis can play a role in many types of situations.

Choosing the best design for a high-efficiency gas furnace. Selecting the most suitable robot for a welding operation on an automotive assembly line. Making a recommendation about whether jet airplanes for an overnight delivery service should be purchased or leased. Determining the optimal staffing plan for a computer help desk.

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There are seven fundamental principles of engineering economy.

Develop the alternatives Focus on the differences Use a consistent viewpoint Use a common unit of measure Consider all relevant criteria Make uncertainty explicit Revisit your decisions

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Engineering economic analysis procedure

Problem definition Development of alternatives Development of prospective outcomes Selection of a decision criterion Analysis and comparison of alternatives. Selection of the preferred alternative. Performance monitoring and post valuation of results.

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Electronic spreadsheets are a powerful addition to the analysis arsenal.

Most engineering economy problems can be formulated and solved using a spreadsheet. Large problems can be quickly solved. Proper formulation allows key parameters to be changed. Graphical output is easily generated.

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Figure P1-15

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