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ENGINEERING ECONOMICSIntroduction
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In this course
1. Introduction to Engineering economics
2. Supply and Demand Analysis
3. Time Value of Money4. Economic equivalence
5. Economic analysis of alternativesi. Mutually exclusive alternativesii. Evaluating production operations and equipment
6. Replacement analysis
7. Depreciation accounting
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Text books
1.
Engineering economyBy Thuesen and Fabrycky
2. Contemporary engineering economicsBy Chan S Park
3. Engineering EconomicsBy James L Riggs
4. Managerial economicsBy P L Mehta
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As engineers, what is our job?
Engineering :
A profession in which a knowledge ofthe mathematical and natural sciences
is applied with judgment to developways to utilize economically thematerials and forces of naturefor thebenefit of mankind.
-ABET
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What is Economics
Economics is the study of how
people choose to use resources.
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What is engineering economics?
Engineering economics, previously known as
engineering economy, is a subset of economics for
application to engineering projects.
Engineers seek solutions to problems, and the economic
viability of each potential solution is normally considered
along with the technical aspects.
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RESOURCES
LANDAll gifts of nature, such as:water, air, minerals, sunshine,plant and tree growth, as well as
the land itself which is appliedto the production process.
LABOURThe efforts, skills, andknowledge of people which areapplied to the production orservice processes.
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PresentFuturePast
Engineer ing EconomyAccount ing
Evaluat ing past performance Evaluat ing and predict ing future events
Accounting Vs. Engineering Economics.
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Two Defining Factors in EngineeringEconomic Decisions
The factors of time and uncertainty
are the defining aspects of anyengineering economic decisions
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Principles of Engineering Economy
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Engineering Economic AnalysisProcedure
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Five Types of Engineering Economic Decisionsin Manufacturing Sector
Service Improvement
Equipment and Process Selection
Equipment Replacement
New Product and Product Expansion
Cost Reduction/Outsourcing
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Service Improvement How many more jeans would Levi need to sell to justify
the cost of additional robotic tailors?
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Equipment Replacement Problem
Now is the time to replacethe old machine?
If not, when is the righttime to replace?
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New Product and Product Expansion
Shall we build or acquire anew facility to meet theincreased demand?
Is it worth spendingmoney to market a newproduct?
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Example - MACH 3 Project
R&D investment: $750 million
Product promotion throughadvertising: $300 million
Priced to sell at 35% higher than
Sensor Excel (about $1.50 extra pershave).
Question 1: Would consumers pay$1.50 extra for a shave with greater
smoothness and less irritation?
Question 2: What would happen ifthe blade consumption droppedmore than 10% due to the longerblade life of the new razor?
Gillettes MACH3
Project
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Cost Reduction/ Outsourcing
Should a company buyequipment to perform anoperation now donemanually?
Should spend money now
in order to save moremoney later?
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Service sector
Example -Healthcare Delivery
Which plan is moreeconomically viable?
Traditional Plan: Patients
visit each service provider.
New Plan: Each serviceprovider visits patients
: patient
: serv ice provider
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This course covers the fundamentals of engineering economics
and basic accounting. It will help students understand how an
organization can utilize its capital economically when it makes
capital decisions.
The two major learning objectives are:
To understand of the Economics of Engineering, which includesthe Time Value of money.
Secondly students need to know how to use Figures of Merit
(NPV, IRR, BC etc.) in making engineering design and businessdecisions
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