Kardan University

Civil Engineering Faculty

Introduction to
Engineering Economy
Prepared by Sebghatullah Karimi
1392

Content of this lecture

1. Introduction to Engineering Economy
2. The principles of Engineering
Economy
3. Engineering Economy and the design
process
4. Using spreadsheets in Engineering
Economy

Introduction to Engineering
Engineer
Means:
Economy

Problem solver,
Find new ways doing things economically,
Engineering is the art of doing that well with
one dollar which any bungler can do with two
(Arthur M. Wellington, 1887).

The challenge:
Every problems has multiple solutions, How to
choose the best one?

As engineers not only model the stress

on a column, they must also model the
economic impact of their
recommendations.

Introduction to Engineering
Economy
What is engineering economy?
Engineering project must be not only physically
realizable but also economically affordable.
Engineering economy involves the systematic
evaluation of the economic merits of proposed
solutions to engineering problems.

Engineering is
more than a
problem solving
activity

The Principles of Engineering

Can
be discussed under seven
Economy
principles:

Develop the alternatives

Identify, Define, Creativity, Innovation

Focus on the differences

Differences in the future outcomes

Use a consistent viewpoint

The prospective outcomes of the alternatives
(stakeholders)

Use a common unit of measure

Monetary ( usually USD) presentation of the

The Principles of Engineering

Consider all relevant criteria
Economy
Decision making based on several criteria
(organisational objectives, e.g. long term
interest)

Make risk and uncertainty

explicit
Identify, define, allocate, and mitigate

Revisit your decisions

The initial projected outcomes of the selected
alternatives should be subsequently compared
with actual results achieved.

Engineering Economy and the

design process
Engineering
economic
Engineering
analysis procedure
Steps:

1. Problem recognition, definition,

and evaluation.
2. Development of the feasible
alternatives.
3. Development of the outcomes
and cash flows for each
alternative.
4. Selection of a criterion
5. Analysis and comparison of the
alternatives.
6. Selection of the preferred
alternatives.
7. Performance monitoring and
post monitoring results.

Design Process
Activity:

1. Problem/need
definition.
2. Problem/need
formulation and
evaluation.
3. Synthesis of
possible solutions.
4. Analysis,
optimisation, and
evaluation.
5. Specification of
preferred
alternatives.
6. Communication.

Engineering Economy and the

design
process
Engineering
economic analysis
procedure
Problem recognition, definition, and
evaluation.
Problem must be well understood and stated in an
explicit form before the project team proceeds with the
rest of the analysis.

Development of the feasible alternatives.

Searching for potential alternatives (creativity and
resourcefulness), screening them to select a smaller
group of feasible alternatives for detailed analysis.

Development of the outcomes and cash

flows for each alternative.
Cash flow approach (revenue and payments),
nonmonetary factors e.g. meeting or exceeding

Engineering Economy and the

design
process
Engineering
economic analysis
procedure
Selection of a criterion.
Long-term interest of the client and the organisation,
environmental concerns, etc.

Analysis and comparison of the

alternatives.
Based on cash flows , exchange rate, inflation,
regulatory, etc.

Selection of the preferred

alternatives.
A result of the total effort of the above mentioned 5
steps. It is the technical-economic modelling.

Using spreadsheets in
Engineering Economy

Spreadsheets are useful tool for

solving engineering economy
problems. Because of the following
reasons:
They consist of structured, repetitive calculations
that can be expressed as formulas that rely on a
few functional relationships.
The parameters of the problems subjected to
change.
The result must be documented.
Graphical output is often required, as well as
control over the format of the graphs.

Conclusion
1. Introduction to Engineering Economy,
engineer means, the job of an engineer.
2. The principles of Engineering Economy
The seven principles of engineering
economy is discussed
3. Engineering Economy and the design
process
Steps should be taken in the decision
making process and the activities should
be done in the design process.
4. Using spreadsheets in Engineering
Economy

Any question