Engineering and Engineering

Economy
 Introduction
• Engineering activities are not an end in themselves. They
are a means for satisfying human wants.

• Engineers have two concerns: 1) Materials and Forces of

Nature, and 2) Needs of People

• Resource constraints is responsible for closely associating

Engineering with Economics.

• Engineering projects need to be not just physically

feasible but economically also.
Engineering Economy 2
 Why Engineering Economy is Important to Engineers
• Engineers design and create which involves economic decisions

• Engineers must be able to incorporate economic analysis into

their creative efforts

• Often engineers must select and implement from multiple

alternatives

• Understanding and applying time value of money, economic

equivalence, and cost estimation are vital for engineers

• A proper economic analysis for selection and execution is a

fundamental task of engineering

Engineering Economy 3
 Engineering and Science
• Engineering is not a science but an application of science. It

is an art of adopting skill and knowledge of science.

• Accreditation Board for Engineering and Technology defines

Engineering as, “Engineering is a profession in which

knowledge of the mathematical and natural sciences are

gained by study, experience, and practice is applied with

judgment to develop ways to utilize economically the

materials and forces of nature for the benefit of mankind”.

Engineering Economy 4
 Contd..
• Role of a scientist is to add to humankind’s accumulated
body of knowledge and discover universal laws of behavior.
• Role of engineer is to apply this to particular situations to
produce products and services.
• Engineering activities rarely are carried out for the
satisfaction that may be derived from them directly.
Instead, their use is confined to satisfying human wants

Engineering Economy 5
 Contd..
• Modern civilization depends to a large degree on
engineering. For e.g. transportation, communication,
national defense and other goods and services used
to facilitate work.
• Science is the foundation upon which engineer builds.

• Engineering activity is responsible for improvement in

general standard of living.

Engineering Economy 6
 Time Value of Money
• Time Value of Money explains the change in the amount of
money over time for funds owed by or owned by a corporation
or individual.

1. Corporate/individual investments are expected to earn a

return

2. Investment involves money

3. Money has a ‘time value’

• The time value of money is the most important concept in
engineering economy

Engineering Economy 7
 Engineering Economy
• Engineering Economy involves

1. Formulating

2. Estimating, and

3. Evaluating expected economic outcomes of alternatives

designed to accomplish a defined purpose

• Easy-to-use math techniques simplify the evaluation.

• Estimates of economic outcomes can be deterministic or

stochastic in nature
Engineering Economy 8
 General Steps for Decision Making Processes
1. Understand the problem – define objectives

2. Collect relevant information

3. Define the set of feasible alternatives
4. Identify the criteria for decision making

5. Evaluate the alternatives and apply sensitivity

analysis
6. Select the “best” alternative
7. Implement the alternative and monitor results
Engineering Economy 9
Steps in an Engineering Economy Study

Engineering Economy 10
Bi-Environmental Nature of Engineering
• Engineers are confronted with two environments:

• 1) Physical Environment.

• 2) Economic Environment.

• The success of engineering is to create products

and services with the knowledge of physical laws.
However, the worth these products and services
lies in their utility measured in economic terms.
Engineering Economy 11
 Contd..
• Physical environment is governed by physical laws which
are more exact and much is known with certainty.

• Economic environment is governed by economic laws

which are influenced by human behavior. These laws are
less exact compared to physical laws.

• Quantification is possible to a large extent in economic

environment due to similar reaction of human beings
over space and across time to similar events.
Engineering Economy 12
 Contd..
• Engineers may have a tendency to disregard
economic environment. But role of an engineer
goes much beyond physical environment to
economic and managerial as well.
• There is also an argument that engineers must
confine to physical factors and economic and
humanistic factors should be handled by others.
Engineering Economy 13
 Contd..
• Engineers can readily extend their inherent ability of
analysis to become proficient in the analysis of the
economic aspects of engineering application.
• Engineers who will be eventually engaged in managerial
activities will find such proficiency is necessary.
• It is the objective of engineering economy to prepare
engineers to cope with bi- environmental nature of
engineering.

Engineering Economy 14
 Physical and Economic Efficiency
• There is limited resources and as a result it is
necessary to produce greatest output with
limited input.
• Opportunity cost: Cost of foregone alternative.
• Engineering is concerned with physical efficiency:
i.e. output/input.
• Physical efficiency is always less than 100%
Engineering Economy 15
 Contd..
• At second level there is economic efficiency i.e. worth/cost.

• Economic efficiency must be over 100% to consider a

project.

• In final evaluation of ventures, even though engineering

plays a major role, economic efficiency must take
precedence over physical efficiency.

• Economic efficiency concept brings to the fore all

complexities of economic environment.

Engineering Economy 16
 Engineering for Economic Competitiveness
• Producers strive for sustainable competitive advantage in
the market place. (Bajaj Chetak, RX100, Royal Enfield,
Yahoo- Google, Facebook- Orkut)
• Through the life cycle approach to engineering, economic
competitiveness can be enhanced.
• Identification of need, conceptual/preliminary design,
detailed design and development, production/construction,
utilization and finally phase out and disposal.

Engineering Economy 17
 Contd..
• Generally, engineers have focused mainly on the
acquisition phase i.e. up to production/construction.
• However, recent experience shows that product
competitiveness cannot be achieved through efforts
applied largely after product comes in to market
place. For e.g. Tata Nano
• As a result, it is essential that engineers need to be
sensitive in the early stages of life cycle.
Engineering Economy 18
 Ethics – Different Levels
• Universal morals or ethics – Fundamental beliefs:
stealing, lying, harming or murdering another are wrong.

• Personal morals or ethics – Beliefs that an individual has

and maintains over time; how a universal moral is
interpreted and used by each person

• Professional or engineering ethics – Formal standard or

code that guides a person in work activities and decision
making
Engineering Economy 19
 Code of Ethics for Engineers- Engineering Council of India
• Preamble: Engineering is a profession that puts scientific knowledge to

practical use. Professional Engineers and Consulting Engineering

Organisations , in the pursuit of their profession, affect the quality of

life of all people in the society and the quality of all sectors of the

economy. Therefore, ethics are fundamental to the values of the

profession. Accordingly, the services provided by Professional

Engineers and Consulting Engineering Organisations (referred to as

‘Engineers) should adhere to the following code of ethics while dealing

with the public, clients, employers, employees and the associates.

Engineering Economy 20
 Code of Ethics for Engineers
• Article 1. Social Responsibility to Uphold Ethical Values of the Society
• Public Safety: Shall ensure the safety, health and welfare of the public.
• Compliance with Social Order: Abide by the laws of the land, respect the
local customs, uphold the human rights, safeguard public property;
abjure violence and acts of terrorism.
• Impartiality and Fairness: Treat fairly all persons regardless of such
factors as race, caste, religion, state, gender or national origin.
• Environment Protection & Improvement: shall strive to protect and
maintain clean, healthy and safe environments and comply with the
statutory requirements

Engineering Economy 21
 Code of Ethics for Engineers
• Article 2. Responsibility to Maintain High Standards of Professional Quality

• Development of Technical and Managerial Skills: Engineers shall maintain state-of

the-art professional skills, continue professional development and provide opportunity

for the professional development of those working under their command.

• Undertake Assignment where Professionally Competent: Shall perform service only

in the area of their technical competence.

• Performance Responsibility: Engineers shall seek work through fair and proper

methods, and shall take full responsibility for the task undertaken by them.

• Proper Verification of Documents and Production Processes: Shall approve only those

designs, which safely and economically meet the requirement of the client and shall

not approve anything which they consider to be unsound

Engineering Economy 22
 Code of Ethics for Engineers
• Article 3: Obligation to Maintain High Standard of Personal Behaviour in a
Responsible Manner
• Honesty and Integrity in Professional Dealing.
• Compensation for Services Rendered. Engineers shall not engage in unhealthy
competition.
• Professional Relationship with the Employer
• Information Communication with Employers
• Mutual Obligation & Trust
• Self Promotion: Engineers shall build their reputation based on the merits of services.
• Employers’ Business Secrets: Engineers shall not disclose confidential information of
the employer or client.
• Personal Conflict. Engineers shall disclose real or perceived conflicts of interest to
affected parties.
Engineering Economy 23