Transcript Place of Engineering Economics in the World

Engineering Economics
8/25/04
Valerie Tardiff and Paul Jensen
Operations Research Models and Methods
Copyright 2004 - All rights reserved
Questions
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What is engineering economics?
Who cares about it?
Why do engineers have to study it?
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Money and Success
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This course has to do with money
and success.
Most of us want some measure of
success in life.
For better or for worse, money (and
economics) has a lot to do with
success.
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Economics and Engineering
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Economics is a big part of an engineer's
job.
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The engineer must translate scientific ideas in
products and systems that better mankind.
Ideas need to make sense economically and
the engineer must be able to convince others
that this is so.
That is true of any organization that you
might join upon graduation.
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The Goal
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For-profit organizations have for
goal to make money - now and in
the future.
Not-for-profit must remain financially
sound.
Both types must worry about money
or they will probably cease to exist.
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Economics and World
Institutions
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Economics and World
Institutions
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World: International trade, balance of
payments, currency evaluation
Federal, State and Local: Tax spending,
GNP, distribution of resources, support of
institutions, public welfare
Organization: Revenues, costs, profit,
return on investment, stock prices
You: Salary, investments, savings,
borrowing
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Business Decisions are not
Simple
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Product design
Process design (inspection, operations,
raw materials)
Machine selection
Facility design
All decisions are interrelated. You can't
make one without affecting many others.
This is especially true when multiple
products, periods, stages are involved.
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The Question is:
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How do you operate in this environment?
How does the organization you work for
operate?
Engineering economics is entirely involved
with evaluating the comparison of
alternatives that involve spending money
in hopes of earning more.
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Engineering Economic
Analysis - Seven Steps
1.
2.
3.
4.
5.
6.
7.
Recognize and formulate the problem.
Develop feasible alternatives.
Develop cash flows for each alternative.
Select a criterion (or criteria) for
determining the preferred alternative.
Analyze and compare alternatives.
Select the preferred alternative.
Perform monitoring and post-evaluation.
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Importance of Learning this
Material
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The course is about decision making
in the environment of an organization
(business or government).
The methods have applications to
personal decisions as well.
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