Engineering Economics ECO300, SP-13-Lecture-1

1. Engineering Economics
ECO 300
Lecture-1
Dr. Aqeel Ahmed Bazmi
Assistant Professor

2. Introduction

3. Introduction
Syllabus
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4. Introduction
Recommended Books
 Leland Blank, and Anthony Tarquin, “ Engineering Economy”, 6th Edition,
McGraw Hill, 2005.
 G. J. Thuesen, and W. J. Fabrycky, “Engineering Economy”, 9th Edition,
Prentice Hall of India, 2005.
 Ted G. Eschenbach, “Engineering Economy”, 2nd Edition, Oxford
University. Press, 2003.
 James L. Riggs, David D. Bedworth, and Sabah U. Randhawa,
”Engineering Economics”, 4th Edition, Tata McGraw-Hill, 1996.
 James L. Riggs, and Thomas M. West, “Essentials of Engineering
Economics”, 2nd Edition, McGraw-Hill, 1986
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5. Introduction
ECO 300-Lecture Plan
 Introduction to Engineering Economics
 Week 1-2
 Cost Estimation
 Week 2-5 (Assignment-1)
 Quantification of Profitability
 Week 6-9 (Quiz-1, Assignment-2)
 Process Optimization
 Week 9-13 (Quiz-2, Assignment-3)
 Financial Management
 Week 13-16 (Quiz-3)
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6. Introduction
 What is Economics?
“Economics is the study of how people
and society choose to employ scarce
resources that could have alternative
uses in order to produce various
commodities and to distribute them for
consumption, now or in the future”
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7. Introduction
 What is Engineering Economics?
“The application of economic principles to
engineering problems, for example in comparing
the comparative costs of two alternative capital
projects or in determining the optimum
engineering course from the cost aspect”
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8. Introduction
 WHY DO WE NEED TO KNOW ABOUT THIS?!
 Optimal cost-effectiveness
 Alternative possibilities
 WHAT DO WE NEED TO KNOW?
 Time value of money
 Estimation of cash flows Principles of
Engineering
 Quantitative measurements of profitability
Economics
 Systematic comparison of alternatives
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9. Foundations of Engineering Economics
 Why Engineering Economy is Important?
 Decisions made by engineers, managers, corporation
presidents, and individuals are commonly the result of
choosing one alternative over another.
 Decisions often reflect a person’s educated choice of how to best invest
funds; capital
 Amount of capital is usually restricted (how to invest to add value?)
 Engineers play a major role in capital investment decisions based on their
analysis
 Fundamentally, engineering economy involves formulating,
estimating and evaluating the economic outcomes when
alternatives to accomplish a defined purpose are available.
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10. Foundations of Engineering Economics
 Why Engineering Economy is Important?
 Engineering Economics
“A collection of mathematical
techniques that simplify economic
comparison and assist people in
making decisions”
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11. Foundations of Engineering Economics
 Why Engineering Economy is Important?
 Since decisions affect what will be done, the time
frame of engineering economy is primarily the future
 Numbers used in engineering economy analysis are
best estimates of what is expected to occur
 Estimates often involve three essential elements:
 cash flows
 time of occurrence
 interest rates
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12. Foundations of Engineering Economics
 Why Engineering Economy is Important?
 Sensitivity Analysis
“Stochastic nature of estimates will likely make
the observed value in future differ from the
estimate made now. Sensitivity analysis is
performed during the engineering economic study
to determine how the decision might change
based on varying estimates”
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13. Foundations of Engineering Economics
 Performing an Engineering Economy Study
Cash Flows
The estimated inflows
(revenues) and outflows
(costs) of money
Analysis
Computations considering
the time value of money on
cash flows to obtain a
measure of worth
Time Value of Money
Cash flows occur over a
substantial period of time.
How can we treat the same
amount of money available at
different times?
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14. Foundations of Engineering Economics
 Basic Concepts
To be continue….
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