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Introduction to Engineering Economy

Chapter 1 of IE 353 introduces engineering economy, emphasizing its role in evaluating design and engineering alternatives through economic analysis. It outlines the principles of engineering economy, including the development of alternatives and the importance of a consistent viewpoint. The chapter also highlights the use of electronic spreadsheets for solving engineering economy problems efficiently.

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Yousef Riyad
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12 views8 pages

Introduction to Engineering Economy

Chapter 1 of IE 353 introduces engineering economy, emphasizing its role in evaluating design and engineering alternatives through economic analysis. It outlines the principles of engineering economy, including the development of alternatives and the importance of a consistent viewpoint. The chapter also highlights the use of electronic spreadsheets for solving engineering economy problems efficiently.

Uploaded by

Yousef Riyad
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

IE 353

Engineering Economy
Chapter 1: Introduction to Engineering Economy
Learning Objectives
 Understand the role and purpose of
engineering economic analysis

2
Engineering
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 natural
for the benefit of mankind.
(Accreditation Board for Engineering and Technology; ABET)

Economics
The study of how people choose to use resources;
including available time, land, buildings, equipment, and
other tools on hand, and the knowledge of how to
combine them to create useful products and services.
(American Economic Association)
3
Engineering economy…
The application of economic techniques to the
evaluation of design and engineering
alternatives.
– Engineering economy primarily focuses on equipping
engineers with the tools needed to economically
justify technical decisions.
– A systematic tool for comparing alternatives by their
economic merits.
– Focuses on costs, revenues, and benefits that occur at
different times.
– Could apply to Product/Process Design, Purchase of
Capital Equipment, Selection of Projects, Investment,
and many other decision- making processes.
– Answer to: Do benefits exceed costs?
4
A Familiar Scenario
The local car dealer is offering a deal on the
new car. The dealer is offering 0.9% APR
financing for a 60-month loan or $5000 cash
back at a more conventional rate (6% APR).
The new car costs about $70,000. Which is the
better option?

Is going to graduate school a good investment?


Will your additional earnings in later years
balance your expenses and lost income while
being in graduate school?

5
There are seven fundamental principles of
engineering economy.
 Develop the alternatives
 Focus on the differences
 Use a consistent viewpoint (the decision
maker perspective)
 Use a common unit of measure
(monetary measure)
 Consider all relevant criteria (both monetary
and non)
 Make risk and uncertainty explicit
 Revisit your decisions

6
Using electronic spreadsheets in
engineering economic analysis.
• 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.

8
Suggested Questions

3, 4, 10, 11, 12, 14, 16,

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