Engineering Economics & Management

ASSIGNMENT NO.
TOPICS:
Engineering Economics Principles of Engineering Economics

SUBMITTED BY: ABDUL MANNAN MEMON SUBMITTED TO: FAHAD AHMAD

ROLL NO# D-11-CS-10

Concept of engineering economics:

Engineering and Technology are closely connected with economic science. Science is a field of study where the basic principles of different physical systems are formulated and tested. Engineering is the application of science. It establishes the varied application systems based on different scientific principles. It is clear that price has a major rule in deciding the demand and supply of product. Hence, from the organizations point of view, efficient and effective functioning of the organization would certainly help it to provides goods/services at a lower cost which in turn will enable it to fix a lower price for its goods and services.

Definition:
Engineering is the profession in which a knowledge of the mathematical and natural science gained by study, experience, and practice in applied with judgment to develop ways to utilize economically the material and of nature for the benefit of mankind. Engineering economics deals with the methods that enable one to take economic decisions towards minimizing and/or maximizing benefits to business organizations. Engineers are confronted with two important inter connected environments, the physical and economic.

Physical environment

Economic environment

Engineering proposals Production or construction

Want satisfaction

Their success in altering the physical environment to produce products and services depends upon a knowledge of physical law. However, the worth of these products and services lies in their utility measured in economic terms. There are numerous examples of structures, machines, processes and systems that exhibit excellent physical design but have little economic merit. Want satisfaction in the economic environment and engineering proposal in the physical environment are linked by the production or the construction process. Physical environment engineers have a body of physical laws upon which to base their reasoning. Such laws as Boyles law, Ohms law and Newtons laws of motion were develop primarily by collecting and comparing numerous similar instances and by the use of an inductive process. They are supplemented by many formulas and known facts, all of which enable the engineer to come to conclusions that match the facts of the physical environment within narrow limits. Economic environment much less, particularly of quantitative nature is known about the economic environment. Since economic is involved with the people, it is apparent that economic laws must be based upon their behavior. Economic laws can be no more exact than the description of the behavior of people acting singly name collectively.

Principles of engineering economics:

The development, study and application of any discipline must begin with a basic foundation. The foundation for engineering economics is a set of seven principles or fundamental concept that provide a comprehensive doctrine for developing the methodology

Principles 1: Develop the alternatives:

The choice is among the alternatives. The alternatives are to be identified and then defined for subsequent analysis. A decision situation involves making a choice among two are more alternatives. Developing and defining the alternatives for direct evaluation is important because of the resulting impact on the quality of the decision. Engineers and managers should place a high priority on these responsibilities.

Principles 2: focus on the differences:

Only the difference in expected future outcomes among the alternatives is relevant to their comparison and should be considered when making the decision. If all prospective

outcomes of the feasible alternatives were exactly the same, then there would be no basis or need for comparison.

Principles 3: Use a consistent viewpoint:

The prospective outcome of the alternatives, economics and other, should be consistently developed from a defined viewpoint (perspective). It is a important that the viewpoint for a particular decision be first defined and then used consistently in the description, analysis and comparison of the alternatives.

Principles 4: Use a common unit of measure:

Using a common unit of measurement to enumerate as many of the prospective outcomes as possible will make easier the analysis and comparison of alternatives.

Principles 5: Consider all relevant criteria:

Selection of a preferred alternative (decision-making) requires the use of a criterion (or several criteria). The decision process should consider both the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement made explicit in a descriptive manner.

Principles 6: Make uncertainty explicit:

Uncertainty is inherent in projecting (or estimating) the future outcomes of alternative recognized in their analysis and comparison.

Principles 7: Revisit your decisions:

Improved decision-making result from an adoptive process. To the extent practicable, the initial projected outcomes of the selected alternative should be subsequently compared with the actual results achieved. A engineering economics analysis procedure incorporates the basic method and involves following: 1. Problem recognition, definition and evalution 2. Development of feasible alternatives 3. Development of cash flow for each alternative 4. Selection of criteria 5. Analysis and comparison of the alternatives 6. Selection of the preferred alternatives 7. performance monitoring and post-evaluation results.