Engineering Economy

Chapter 1: Introduction to Engineering Economy

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

The purpose of this book is to develop and illustrate the principles and methodology required to answer the basic economic question of any design: Do its benefits exceed its costs?

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering economy
involves the systematic evaluation of the economic merits of proposed solutions to engineering problems.
Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Solutions to engineering problems must

promote the well-being and survival of an organization, embody creative and innovative technology and ideas, permit identification and scrutiny of their estimated outcomes, and translate profitability to the bottom line through a valid and acceptable measure of merit.
Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Predicting the Future

Estimating a Required investment Forecasting a product demand Estimating a selling price Estimating a manufacturing cost Estimating a product life
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Role of Engineers in Business

Create & Design Engineering Projects

Analyze Production Methods Engineering Safety Environmental Impacts Market Assessment

Evaluate Expected Profitability Timing of Cash Flows Degree of Financial Risk

Evaluate Impact on Financial Statements Firms Market Value Stock Price

ENGR 3520 McMahon

Two Factors in Engineering Economic Decisions

The factors of time and uncertainty are the defining aspects of any engineering economic decisions

ENGR 3520 McMahon

A Large-Scale Engineering Project

Requires a large sum of investment Takes a long time to see the financial outcomes Difficult to predict the revenue and cost streams

ENGR 3520 McMahon

Service Improvement - Healthcare Delivery

Which plan is more economically viable? Traditional Plan: Patients visit each service provider. New Plan: Each service provider visits patients

: patient : service provider

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Equipment & Process Selection

How do you choose between the Plastic SMC and the Steel sheet stock for an auto body panel? The choice of material will dictate the manufacturing process for an automotive body panel as well as manufacturing costs.

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10

Equipment Replacement Problem

Now is the time to replace the old machine? If not, when is the right time to replace the old equipment?

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11

New Product and Product Expansion

Shall we build or acquire a new facility to meet the increased demand? Is it worth spending money to market a new product?

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12

Cost Reduction
Should a company buy equipment to perform an operation now done manually? Should spend money now in order to save more money later?

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13

There are seven fundamental principles of engineering economy.

Develop the alternatives Focus on the differences Use a consistent viewpoint Use a common unit of measure Consider all relevant criteria Make uncertainty explicit Revisit your decisions
Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering economic analysis procedure

Problem definition Development of alternatives Development of prospective outcomes Selection of a decision criterion Analysis and comparison of alternatives. Selection of the preferred alternative. Performance monitoring and postevaluation of results.
Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.

Engineering Economy, Fifteenth Edition By William G. Sullivan, Elin M. Wicks, and C. Patrick Koelling

Copyright 2012 by Pearson Education, Inc. Upper Saddle River, New Jersey 07458 All rights reserved.