Engineering Economy 15th Edition Chapter 1

Engineering Economy Chapter 1: Introduction to Engineering Economy

EngineeringEconomy , Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright ©2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

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



Engineering economy… involves the systematic evaluation of the economic merits of proposed solutions to engineering problems. EngineeringEconomy , Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling


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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. Copyright ©2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.


Predicting the Future 

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Estimating a Required investment Forecasting a product demand Estimating a selling price Estimating a manufacturing cost Estimating a product life ENGR 3520 McMahon

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Role of Engineers in Business Create & Design • Engineering Projects

Analyze • Production Methods • Engineering Safety • Environmental Impacts • Market Assessment

Evaluate

Evaluate

• Expected Profitability • Timing of Cash Flows • Degree of Financial Risk

• Impact on Financial Statements • Firm’s Market Value • Stock Price

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Two Factors in Engineering Economic Decisions

The factors of time and uncertainty are the defining aspects of any engineering economic decisions

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A Large-Scale Engineering Project 

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Requires a large sum of investment Takes a long time to see the financial outcomes Difficult to predict the revenue and cost streams

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Service Improvement - Healthcare Delivery Which plan is more economically viable? 

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Traditional Plan: Patients visit each service provider. New Plan: Each service provider visits patients

: patient : service provider ENGR 3520 McMahon

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Equipment & Process Selection 

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How do you choose between the Plastic SMC and the Steel sheet stock for an auto body panel? The choice of material will dictate the manufacturing process for an automotive body panel as well as manufacturing costs.

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Equipment Replacement Problem 

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Now is the time to replace the old machine? If not, when is the right time to replace the old equipment?

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New Product and Product Expansion 

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Shall we build or acquire a new facility to meet the increased demand? Is it worth spending money to market a new product?

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Cost Reduction Should a company buy equipment to perform an operation now done manually?

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Should spend money now in order to save more money later?

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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 EngineeringEconomy , Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling


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 postevaluation of results. EngineeringEconomy , Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling


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Engineering Economy 15th Edition Chapter 1

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