COMPILED LECTURE NOTE IN ENGINEERING ECONOMY 2

Transcript:COMPILED LECTURE NOTE IN ENGINEERING ECONOMY 2:
COMPILED LECTURE NOTE IN ENGINEERING ECONOMY 2 TABLE OF CONTENTS 3 4 CHAPTER I. INTRODUCTION TO ENGINEERING ECONOMICS ENGINEERING ECONOMY/ECONOMICS DEFINED As defined by Arreola Engineering economy is that branch of economics which involve the application of definite laws of economics, theories of investment and business practices to engineering problems involving cost. It is also defined to be the study of economic theories and their application to engineering problems with concept of obtaining the maximum benefit at the least cost as a basis for decision. It also involves the study of cost features and other financial data and their application in the field of engineering as a basis for decision. As defined by Kasner Engineering economics is equated with practicality and economic feasibility. It is also the search for the recognition of alternatives which are then compared and evaluated in order to come up with the most practical design and creation. As defined by Sullivan, et al. Engineering economy is the systematic evaluation of the economic merits of proposed solutions to engineering problems. IMPORTANT USES OF ENGINEERING ECONOMY Seeking new objectives for the application of engineering – An important use of engineering economy is to seek new objectives for engineering application. Engineers are constantly seeking new and wider application of their technical knowledge for the benefit of mankind and in line with this, engineering economy provides basic principles and laws. Discovery of factors limiting the success of a venture or enterprise – upon knowing the objectives, next is to determine ways and means to attain such objectives. With Engineering Economy the so-called limiting factors which may hinder the success of a project are being discovered. Comparison of alternatives as a basis for decision – The principles of engineering economy helps to point out the analysis of choosing the best alternatives on a quantitative basis. Analysis of possible investment of capital – Engineering economy enables engineers to consider all aspects of investment from both the technical and financial viewpoints. It provides several patterns of analysis to determine rate of return, annual costs and pay out periods, which all serves as bases for decision. Determination of bases for decision – Engineers‟ main concern is on future actions, that is on what to do and not on what has been accomplished. Decisions on future actions are more valid and accurate if the principles of engineering economy are correctly applied. 5 Origins of engineering